<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROXY STATEMENT
PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission
only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section.240.14a-11(c) or
Section.240.14a-12
PIONEER NATURAL RESOURCES USA, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which the transaction applies:
Limited partnership interests
(2) Aggregate number of securities to which transaction applies: 100% of the
limited partnership interests
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
The aggregate amount of cash that the registrant is offering to the
holders of the limited partnership interests for 100% of such interests is
$47,500,000.
(4) Proposed maximum aggregate value of transaction: $47,500,000
(5) Total fee paid: $9,500
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
NOTICE OF SPECIAL MEETINGS OF LIMITED PARTNERS
TO BE HELD ON , 1999
To the Limited Partners of 25 Publicly-Held
Parker & Parsley Limited Partnerships:
This is a notice that special meetings of the limited partners of the
following 25 publicly-held limited partnerships will be held on ,
1999, at 2:00 p.m., at the Wyndham Anatole Hotel, Room, 2201 Stemmons
Freeway, Dallas, Texas 75207:
<TABLE>
<S> <C>
Parker & Parsley 82-I, Ltd. Parker & Parsley Producing Properties 87-B,
Ltd.
Parker & Parsley 82-II, Ltd. Parker & Parsley 88-A, L.P.
Parker & Parsley 83-A, Ltd. Parker & Parsley Producing Properties 88-A,
L.P.
Parker & Parsley 83-B, Ltd. Parker & Parsley 88-B, L.P.
Parker & Parsley 84-A, Ltd. Parker & Parsley 89-A, L.P.
Parker & Parsley 85-A, Ltd. Parker & Parsley 90-A, L.P.
Parker & Parsley 85-B, Ltd. Parker & Parsley 90-B Conv., L.P.
Parker & Parsley 86-A, Ltd. Parker & Parsley 90-B, L.P.
Parker & Parsley 86-B, Ltd. Parker & Parsley 90-C Conv., L.P.
Parker & Parsley 86-C, Ltd. Parker & Parsley 90-C, L.P.
Parker & Parsley 87-A, Ltd. Parker & Parsley 91-A, L.P.
Parker & Parsley Producing Parker & Parsley 91-B, L.P.
Properties 87-A, Ltd.
Parker & Parsley 87-B, Ltd.
</TABLE>
Parker & Parsley Petroleum Company and other predecessors of Pioneer
Natural Resources USA, Inc., a Delaware corporation, sponsored the partnerships.
Pioneer USA is a direct 100% owned subsidiary of Pioneer Natural Resources
Company, a Delaware corporation, and is the managing or sole general partner of
the partnerships.
The purpose of these special meetings is for you to consider and vote on
the following matters:
1. A proposal to approve an Agreement and Plan of Merger dated as of
, 1999, among Pioneer, Pioneer USA, and each of the
partnerships. Each partnership that approves this proposal will merge with
and into Pioneer USA, with Pioneer USA surviving the merger. Each
partnership interest of a participating partnership, other than Pioneer
USA's interests, will be converted into the right to receive an amount of
cash. The amount of cash to be paid for all partnership interests of a
participating partnership will be based on the participating partnership's
merger value. The merger value of a participating partnership is equal to
the sum of its reserve value and its net working capital, as reduced by its
pro rata share of the estimated expenses and fees of the mergers of all of
the partnerships, in each case as of September 30, 1999. Each partnership's
pro rata share of the estimated expenses and fees is based on its reserve
value before any reduction for the estimated expenses and fees. WE
CALCULATED THE CASH PAYMENT USING INFORMATION AS OF JUNE 30, 1999 FOR
PURPOSES OF ILLUSTRATION. WE INTEND TO CHANGE EACH REFERENCE TO "JUNE 30,
1999" TO BE "SEPTEMBER 30, 1999" AND TO REVISE JUNE 30, 1999 NUMBERS AS OF
SEPTEMBER 30, 1999 BEFORE MAILING THE DEFINITIVE PROXY STATEMENT TO THE
LIMITED PARTNERS. The cash payment will be allocated among the
<PAGE> 3
partners based on the liquidation provisions of each partnership agreement.
Pioneer USA will not receive any cash payment for its partnership interests
in the participating partnerships. However, as a
<PAGE> 4
result of the mergers, Pioneer USA will acquire 100% of the properties of
the participating partnerships, including properties attributable to its
partnership interests in those partnerships.
2. A proposal to amend the partnership agreement of each partnership
to permit the partnership's merger with Pioneer USA. If the amendment is
not approved, that partnership cannot merge into Pioneer USA even if the
partners of that partnership approve the merger agreement.
3. A proposal to approve the opinion issued to Pioneer USA by
on behalf of the limited partners that neither the grant nor the
exercise of the right to approve the mergers by the limited partners will
result in the loss of any limited partner's limited liability or adversely
affect the tax status of the partnerships and to approve the selection of
as special legal counsel for the limited partners to render such
legal opinion.
4. Other business that properly comes before the special meetings or
any adjournments or postponements of the special meetings. We are not aware
of any other business for the special meetings.
The accompanying proxy statement contains information about the mergers,
including the amount of cash to be paid per $1,000 initial investment in each
partnership, and descriptions of the merger agreement, the merger amendment and
the legal opinion of the special legal counsel for the limited partners. The
proxy statement also contains a copy of the merger agreement, the merger
amendment and the legal opinion.
Pioneer USA's board of directors set the close of business on
, 1999, as the record date to identify the limited partners who
are entitled to notice of, and to vote at, the special meetings or any
adjournments or postponements of the special meetings. During the ten days
before the special meetings, you may examine lists of the limited partners of
your partnership at the offices of Pioneer USA during normal business hours for
any purpose relevant to the special meetings.
ON , 1999, PIONEER USA'S BOARD OF DIRECTORS UNANIMOUSLY
DETERMINED THAT THE MERGERS ARE ADVISABLE, FAIR TO YOU, AND IN YOUR BEST
INTERESTS. THE BOARD RECOMMENDS THAT YOU VOTE FOR THE MERGER AGREEMENT, THE
MERGER AMENDMENT, THE SELECTION OF SPECIAL LEGAL COUNSEL FOR THE LIMITED
PARTNERS AND THAT COUNSEL'S LEGAL OPINION. ALTHOUGH PIONEER USA'S BOARD OF
DIRECTORS HAS ATTEMPTED TO FULFILL ITS FIDUCIARY DUTIES TO YOU, PIONEER USA'S
BOARD OF DIRECTORS HAD CONFLICTING INTERESTS IN EVALUATING THE MERGERS BECAUSE
EACH MEMBER OF ITS BOARD OF DIRECTORS IS ALSO AN OFFICER OF PIONEER. Each
partnership requires the favorable vote of the holders of the majority of its
limited partnership interests to approve the merger agreement, the merger
amendment, the selection of special legal counsel for the limited partners and
that counsel's legal opinion.
IF YOU DO NOT SEND IN YOUR PROXY CARD OR VOTE AT THE SPECIAL MEETINGS, IT
WILL HAVE THE SAME EFFECT AS IF YOU VOTED AGAINST THE MERGERS.
You are requested to sign, vote and date the enclosed proxy card and return
it promptly in the enclosed envelope, even if you expect to be present at the
special meetings. If you give a proxy, you can revoke it at any time before the
special meetings. If you are present at the special meetings, you may withdraw
your proxy and vote in person.
By Order of the Board of Directors,
Mark L. Withrow
Executive Vice President, General
Counsel
and Secretary
, 1999
<PAGE> 5
PRELIMINARY PROXY STATEMENT, SUBJECT TO COMPLETION [LOGO]
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
, 1999
Dear Limited Partners:
We invite you to attend the special meetings of limited partners of the
partnerships described below. The special meetings will be held on ,
1999, at 2:00 p.m., at the Wyndham Anatole Hotel, Room, 2201 Stemmons
Freeway, Dallas, Texas 75207. The purpose of the special meetings is for you to
vote on mergers of the partnerships that, if completed, will result in your
receiving cash for your partnership interests.
Pioneer Natural Resources Company, a Delaware corporation, desires to
acquire 25 publicly-held limited partnerships. We are a direct 100% owned
subsidiary of Pioneer and we are the managing or sole general partner of the
partnerships. Our predecessors, including Parker & Parsley Petroleum Company,
originally sponsored the partnerships. The partnerships are Texas and Delaware
limited partnerships. They were formed from 1982 through 1991 to acquire,
develop and produce oil and gas reserves. If you and the other limited partners
approve the mergers, the partnerships will be merged with and into us and we
will survive the mergers.
We have retained Robert A. Stanger & Co., Inc. to issue a fairness opinion
in connection with the mergers. Robert A. Stanger & Co., Inc.'s opinion is dated
as of , 1999 and, subject to the qualifications stated in such
opinion, states that the merger values to be paid in cash for the limited
partner interests are fair from a financial point of view to the limited
partners of the partnerships. The written opinion of Robert A. Stanger & Co.,
Inc. is contained in the accompanying document. You should read all of it
carefully.
We can complete the mergers only if a majority of the limited partners
approve the merger agreement, the amendment to the partnership agreements to
permit the mergers, the selection of special legal counsel for the limited
partners and that counsel's legal opinion for their partnerships. This document
provides information about the proposed mergers. It also includes a copy of the
merger agreement, the merger amendment and the legal opinion of the special
legal counsel for the limited partners. Please give all of this information your
careful attention.
YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the special
meetings, please take the time to vote by completing and mailing to us the
enclosed proxy card. This will not prevent you from revoking your proxy at any
time prior to the special meetings or from voting your partnership interests in
person if you later choose to attend the special meetings.
We intend to mail checks to the partners of participating partnerships
promptly after completing the mergers. Certificates representing partnership
interests will be automatically cancelled, and you will not have to surrender
your certificates to receive the cash payment.
Sincerely,
Mark L. Withrow
Executive Vice President, General Counsel
and Secretary
YOU SHOULD CAREFULLY CONSIDER THE RISKS RELATING TO THE MERGERS DESCRIBED
IN "RISK FACTORS." THESE INCLUDE:
- THE MERGER VALUES OF THE PARTNERSHIPS DETERMINE THE AMOUNT OF CASH YOU
WILL RECEIVE IN THE MERGERS. PIONEER AND PIONEER USA DETERMINED THE
MERGER VALUES AND WILL NOT ADJUST THEM FOR CHANGES IN PARTNERSHIP VALUES
BEFORE THE MERGERS ARE COMPLETED.
- YOU WERE NOT INDEPENDENTLY REPRESENTED IN ESTABLISHING THE TERMS OF THE
MERGERS.
- OUR BOARD OF DIRECTORS HAD CONFLICTING INTERESTS IN EVALUATING THE
MERGERS BECAUSE EACH MEMBER OF OUR BOARD OF DIRECTORS IS ALSO AN OFFICER
OF PIONEER.
THE TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
THE TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
This proxy statement is dated , 1999. It is first being
mailed to the limited partners on or about , 1999.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY.................................. 1
RISK FACTORS............................. 8
The Merger Values Involve Estimates
that Will Not Be Adjusted............ 8
You Were Not Independently Represented
in Establishing the Terms of the
Mergers.............................. 9
The Interests of Pioneer, Pioneer USA
and Their Directors and Officers May
Differ From Your Interests........... 10
Pioneer USA Has Not Previously Offered
the Partnerships for Sale to
Others............................... 10
Pioneer USA Did Not Solicit Any Third-
Party Offers......................... 10
Third Parties Might Not Make an Offer
for the Partnerships If They Cannot
Become Operator of the Partnerships'
Properties........................... 10
Potential Litigation Challenging the
Mergers May Delay or Block the
Mergers.............................. 10
Repurchase Rights Terminate On
Completion of the Mergers............ 10
SPECIAL FACTORS.......................... 11
Background of the Mergers.............. 11
Reasons for the Mergers................ 14
Recommendation of Pioneer USA.......... 15
Fairness Opinion....................... 16
Alternative Transactions to the
Mergers.............................. 20
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION............ 22
METHOD OF DETERMINING MERGER VALUES AND
AMOUNT OF CASH OFFERED................. 22
Components of Merger Values............ 22
Allocation of Merger Values Among
Partners............................. 24
Other Methods of Determining Merger
Values............................... 24
Information Sources.................... 25
THE MERGERS.............................. 27
General................................ 27
Legal Opinion for Limited Partners..... 27
Distribution of Cash Payments.......... 27
Material U.S. Federal Income Tax
Consequences......................... 28
Accounting Treatment................... 31
No Appraisal or Dissenter Rights....... 31
Future of Nonparticipating
Partnerships......................... 31
Nonmanaging General Partners of Certain
Partnerships......................... 31
Third-Party Offers..................... 32
Merger Amendment....................... 32
Termination of Registration and
Reporting Requirements............... 33
Source of Funds........................ 33
Payment of Expenses and Fees........... 34
THE MERGER AGREEMENT..................... 35
Structure; Effective Time.............. 35
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Effects of the Mergers................. 35
Conduct of Business Prior to the
Mergers.............................. 35
Other Agreements....................... 35
Representations and Warranties of
Pioneer, Pioneer USA and the
Partnerships......................... 36
Conditions to the Mergers.............. 36
Termination of the Mergers and the
Merger Agreement..................... 37
Amendments; Waivers.................... 38
THE SPECIAL MEETINGS..................... 39
Time and Place; Purpose................ 39
Record Date; Voting Rights and
Proxies.............................. 40
Solicitation of Proxies................ 41
Quorum................................. 41
Required Vote; Broker Non-Votes........ 42
Participation by Assignees............. 42
Special Requirements for Certain
Limited Partners..................... 42
Validity of Proxy Cards................ 43
Local Laws............................. 43
INTERESTS OF PIONEER, PIONEER USA AND
THEIR DIRECTORS AND OFFICERS........... 43
Conflicting Duties of Pioneer USA,
Individually and as a General
Partner.............................. 43
Pioneer USA's Employees Provide
Services to the Partnerships......... 43
Financial Interests of Officers and
Directors in Pioneer................. 43
Financial Interests of Officers and
Directors in Partnerships............ 44
Individual Partnership's Perspective
Not Considered in Mergers............ 44
The Partnerships Pay Operator Fees to
Pioneer USA.......................... 44
OWNERSHIP OF PARTNERSHIP INTERESTS....... 44
TRANSACTIONS AMONG THE PARTNERSHIPS,
PIONEER, PIONEER USA AND THEIR
DIRECTORS AND OFFICERS................. 45
MANAGEMENT............................... 46
Pioneer................................ 46
Pioneer USA............................ 48
THE PARTNERSHIPS......................... 50
General................................ 50
The Drilling Partnerships.............. 50
The Income Partnerships................ 51
LEGAL MATTERS............................ 51
INDEPENDENT AUDITORS AND INDEPENDENT
PETROLEUM CONSULTANTS.................. 51
WHERE YOU CAN FIND MORE INFORMATION...... 52
COMMONLY USED OIL AND GAS TERMS.......... 53
</TABLE>
i
<PAGE> 7
LIST OF APPENDICES
<TABLE>
<CAPTION>
APPENDIX
--------
<S> <C> <C>
General Information Relating to the Partnerships........................ A
Table 1 Jurisdiction of Organization, Initial Investment by Limited
Partners and Number of Limited Partners
Table 2 Aggregate Merger Value
Table 3 Merger Value Attributable to Partnership Interests of
Limited Partners
Table 4 Ownership Percentage and Merger Value Attributable to
Nonmanaging General Partners Other Than Pioneer USA
Table 5 Ownership Percentage and Merger Value Attributable to
Pioneer USA Held in Its Capacities as General Partner,
Nonmanaging General Partner and Limited Partner
Table 6 Voting Percentage in Partnerships Beneficially Owned by
Pioneer USA in Its Capacity as a Limited Partner
Table 7 Historical Partnership Distributions
Table 8 Annual Repurchase Prices and Aggregate Annual Repurchase
Payments
Table 9 Participation in Costs and Revenues of the Partnerships
Table 10 Average Oil, Natural Gas Liquids and Gas Sales Prices and
Production Costs
Table 11 Proved Reserves Attributable to Pioneer USA, Other
Nonmanaging General Partners and Limited Partners
Table 12 Oil, Natural Gas Liquids and Gas Production
Table 13 Productive Wells and Developed Acreage
Table 14 Recent Trades of Partnership Interests
Summary Reserve Report of Williamson Petroleum Consultants, Inc. for the B
Partnerships..........................................................
Form of Fairness Opinion of Robert A. Stanger & Co., Inc................ C
The Merger Proposals.................................................... D
Form of Agreement and Plan of Merger.................................... E
</TABLE>
WE HAVE PREPARED A SEPARATE SUPPLEMENT TO THIS DOCUMENT FOR EACH
PARTNERSHIP. EACH SUPPLEMENT INCLUDES:
- A TABLE CONTAINING:
-- THE AGGREGATE INITIAL INVESTMENT BY THE LIMITED PARTNERS;
-- THE AGGREGATE HISTORICAL LIMITED PARTNER DISTRIBUTIONS THROUGH JUNE 30,
1999;
-- THE MERGER VALUE PER $1,000 LIMITED PARTNER INVESTMENT AS OF JUNE 30,
1999;
-- THE MERGER VALUE PER $1,000 LIMITED PARTNER INVESTMENT AS A MULTIPLE OF
DISTRIBUTIONS FOR THE 12 MONTHS ENDED JUNE 30, 1999;
-- THE BOOK VALUE PER $1,000 LIMITED PARTNER INVESTMENT AS OF JUNE 30,
1999 AND AS OF DECEMBER 31, 1998; AND
-- THE ORDINARY TAX LOSS PER $1,000 LIMITED PARTNER INVESTMENT IN YEAR OF
INITIAL INVESTMENT;
- THE PARTNERSHIP'S QUARTERLY REPORT ON FORM 10-Q FOR THE SIX MONTHS ENDED
JUNE 30, 1999;
- THE PARTNERSHIP'S ANNUAL REPORT ON FORM 10-K THE YEAR ENDED DECEMBER 31,
1998; AND
- DISCLOSURES ABOUT THE PARTNERSHIP'S OIL AND GAS PRODUCING ACTIVITIES.
THE SUPPLEMENT CONSTITUTES AN INTEGRAL PART OF THIS DOCUMENT FOR THAT
PARTNERSHIP. PLEASE CAREFULLY READ ALL OF THE SUPPLEMENTS FOR THE PARTNERSHIPS
IN WHICH YOU ARE A LIMITED PARTNER.
ii
<PAGE> 8
SUMMARY
This summary highlights some information from this document and may not
contain all of the information that is important to you. To understand the
mergers and to obtain a more detailed description of the legal terms of the
mergers, you should carefully read this entire document, the related partnership
supplements, and the documents described in "Where You Can Find More
Information" on page 52. For definitions of oil and gas terms used in this
document, see "Commonly Used Oil and Gas Terms" on page .
When we use the terms "Pioneer USA," "we," "us" or "our," we are referring
to Pioneer Natural Resources USA, Inc. including its consolidated subsidiaries
and predecessors, unless the context otherwise requires. When we use the term
"Pioneer," we are referring to Pioneer Natural Resources Company. When we use
the term "merger proposals," we are referring to the proposals to approve the
merger agreement, the merger amendment, the selection of special legal counsel
for the limited partners and the legal opinion of that counsel.
THE MERGERS
Pioneer proposes to acquire the partnerships by merging them into us. We
will be the survivor of each merger. The partnership interests of each
participating partnership, other than our interests, will be converted into the
right to receive cash.
The amount of cash Pioneer will pay for a partnership interest will be
based on the merger value of the partnership and the liquidation provisions of
the partnership agreement. Pioneer and Pioneer USA determined the merger values
primarily based on the present value of estimated future net revenues from the
partnerships' oil and gas reserves at June 30, 1999. In determining the present
value, Pioneer and Pioneer USA used (1) an arithmetic average of the five-year
New York Mercantile Exchange, or NYMEX, futures price as of June 30, 1999 for
oil, which was approximately $18.00 per barrel, or Bbl, of oil, less standard
industry adjustments, (2) the NYMEX price of $2.40 per thousand cubic feet, or
Mcf, of gas, less standard industry adjustments, and (3) a 12.5% discount rate.
In addition, each participating partnership's merger value includes its net
working capital as of June 30, 1999, as reduced by its pro rata share of the
estimated expenses and fees of the mergers of all of the partnerships. The
partnership's pro rata share of the estimated expenses and fees is based on its
reserve value before any reduction for the estimated expenses and fees.
On page 3 of this document is a table that shows important information
about the partnerships, including the amount of cash that will be paid in the
mergers for each $1,000 of initial investment. For purposes of illustration in
this preliminary document, we calculated the merger values using information as
of June 30, 1999. We intend to revise those numbers as of September 30, 1999
before mailing this document to the limited partners.
Pioneer and Pioneer USA agreed to structure the transaction as mergers
instead of as property sales followed by liquidation of the partnerships because
the mergers will:
- require fewer legal documents;
- reduce filing fees and other costs; and
- result in the same amount of cash to the limited partners as would a
property sale and liquidation using the same commodity prices.
Pioneer and Pioneer USA expect to sign the merger agreement as soon as the
September 30, 1999 merger values are determined. However, if the oil and gas
commodity prices used in calculating the merger values for this preliminary
document materially increase or decrease after the date of determination for
this preliminary document and before mailing this document to the limited
partners, Pioneer or Pioneer USA might abandon the proposed mergers before
submitting the merger proposals to the limited partners for approval.
THE COMPANIES
PIONEER NATURAL RESOURCES COMPANY
1400 Williams Square West
5205 North O'Connor Blvd.
Irving, Texas 75039
(972) 444-9001
Pioneer is an independent exploration and production company. Its common
stock is traded
<PAGE> 9
on the New York Stock Exchange and the Toronto Stock Exchange under the symbol
"PXD."
Pioneer files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. Those SEC filings
are available to you in the same manner as the partnerships' information. See
"Where You Can Find More Information" on page 52 of this document.
PIONEER NATURAL RESOURCES USA, INC.
1400 Williams Square West
5205 North O'Connor Blvd.
Irving, Texas 75039
(972) 444-9001
We prepared this document to solicit your proxy. We are a 100% owned
subsidiary of Pioneer. We directly own almost all of Pioneer's United States oil
and gas properties.
THE PARTNERSHIPS
c/o Pioneer Natural Resources USA, Inc.
1400 Williams Square West
5205 North O'Connor Blvd.
Irving, Texas 75039
(972) 444-9001
The names of the partnerships are found in the table on the next page. All
of the partnerships produce and sell oil and gas. The partnerships were
generally formed to provide the general and limited partners cash flow from
operations and, in some cases, tax incentives. See the supplement to this
document for each of your partnerships for specific information about your
partnerships, including the merger value as a multiple of distributions for the
12 months ended June 30, 1999. As a result of the partnerships' oil and gas
operations, the partnerships distribute cash to the limited and general partners
from the partnerships' net cash flows. These distributions are made quarterly,
unless sufficient cash is not available.
The partnerships' properties consist of interests in approximately 1,100
oil and gas wells that are located primarily in the Spraberry field of the
Permian Basin of West Texas. We operate most of the partnerships' wells. At
December 31, 1998, the partnerships' combined total proved reserves were 12.2
million barrels of oil equivalent, or MMBOE, consisting of 9.6 million barrels,
or MMBbls, of oil and natural gas liquids and 15.6 billion cubic feet, or Bcf,
of natural gas. Approximately 94% of the reserves are attributable to the
limited partners' partnership interests, excluding partnership interests owned
directly by us. Approximately 79% of the total proved reserves attributable to
the properties are oil and liquids, and 21% are natural gas, based on six Mcf of
gas being equivalent to one Bbl of oil. See "The Partnerships" on page 50 of
this document for more information about the partnerships.
2
<PAGE> 10
SUMMARY TABLE -- MERGER VALUE AND
AMOUNT OF INITIAL LIMITED PARTNER INVESTMENT REPAID
This table contains the following summary information for each partnership:
- the aggregate merger values assigned to:
-- Pioneer USA's partnership interests, whether general or limited;
-- its nonmanaging general partners' partnership interests, excluding
Pioneer USA;
-- its limited partners, excluding Pioneer USA; and
- for each $1,000 initial limited partner investment in that partnership:
-- the merger value;
-- the total historical cash distributions through June 30, 1999; and
-- the total amount of initial investment by the limited partners that has
been repaid, after giving effect to the mergers, stated in dollars and
as a percentage.
This information is based on assumptions. You should read the following
table together with the detailed information in Table 2 and Table 3 of Appendix
A to this document. To provide an example in this preliminary document, we
prepared the following table of merger values using information as of June 30,
1999. We intend to revise those numbers as of September 30, 1999 prior to
mailing the definitive document to the limited partners.
Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial investment
for ease of use and comparison among partnerships. You should not assume that
the amount shown per $1,000 investment is the same as any value or amount
attributable to a single unit investment.
<TABLE>
<CAPTION>
PER $1,000 INITIAL LIMITED PARTNER INVESTMENT
AGGREGATE MERGER VALUE ------------------------------------------------
----------------------------------- DISTRIBUTIONS AMOUNT OF
OTHER FROM INITIAL INVESTMENT
NONMANAGING INCEPTION REPAID
PIONEER GENERAL LIMITED MERGER THROUGH ------------------
USA PARTNERS PARTNERS VALUE 6/30/99 $ %
-------- ----------- ---------- -------- -------------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Parker & Parsley 82-I,
Ltd........................ $160,707 $ 5,579 $ 370,968 $ 34.99 $ 947.88 $ 982.87 98%
Parker & Parsley 82-II,
Ltd........................ 233,515 7,240 677,990 57.41 1,100.07 1,157.48 116%
Parker & Parsley 83-A,
Ltd........................ 444,921 17,701 1,314,512 69.55 1,264.54 1,334.09 133%
Parker & Parsley 83-B,
Ltd........................ 744,776 29,018 2,170,824 96.42 1,461.35 1,557.77 156%
Parker & Parsley 84-A,
Ltd........................ 637,901 28,200 1,965,607 103.14 1,388.21 1,491.35 149%
Parker & Parsley 85-A,
Ltd........................ 20,949 -- 695,068 73.73 681.05 754.78 75%
Parker & Parsley 85-B,
Ltd........................ 14,351 -- 820,575 103.47 879.49 982.96 98%
Parker & Parsley 86-A,
Ltd........................ 11,133 -- 818,452 81.07 1,282.95 1,364.02 136%
Parker & Parsley 86-B,
Ltd........................ 39,117 -- 2,213,631 129.61 1,476.23 1,605.84 161%
Parker & Parsley 86-C,
Ltd........................ 24,353 -- 1,838,218 95.45 1,405.01 1,500.46 150%
Parker & Parsley 87-A,
Ltd........................ 53,960 -- 3,315,712 115.79 1,232.73 1,348.52 135%
Parker & Parsley Producing
Properties 87-A, Ltd....... 23,968 -- 1,753,345 144.08 892.03 1,036.11 104%
Parker & Parsley 87-B,
Ltd........................ 32,586 -- 2,634,521 131.44 1,158.39 1,289.83 129%
Parker & Parsley Producing
Properties 87-B, Ltd....... 33,115 -- 1,252,499 208.84 961.03 1,169.87 117%
Parker & Parsley 88-A,
L.P........................ 51,739 -- 2,174,467 170.38 997.83 1,168.21 117%
Parker & Parsley Producing
Properties 88-A, L.P....... 32,164 -- 1,873,767 336.28 1,086.22 1,422.50 142%
Parker & Parsley 88-B,
L.P........................ 28,688 -- 1,378,077 155.54 972.69 1,128.23 113%
Parker & Parsley 89-A,
L.P........................ 33,362 -- 1,449,492 176.51 916.62 1,093.13 109%
Parker & Parsley 90-A,
L.P........................ 34,154 -- 1,054,698 158.26 789.75 948.01 95%
Parker & Parsley 90-B Conv.,
L.P........................ 31,749 -- 1,874,279 158.61 604.35 762.96 76%
Parker & Parsley 90-B,
L.P........................ 64,924 -- 5,109,583 158.78 604.43 763.21 76%
Parker & Parsley 90-C Conv.,
L.P........................ 13,545 -- 957,896 127.70 538.46 666.16 67%
Parker & Parsley 90-C,
L.P........................ 18,948 -- 1,533,135 126.92 538.47 665.39 66%
Parker & Parsley 91-A,
L.P........................ 32,032 -- 2,283,469 197.28 673.79 871.07 87%
Parker & Parsley 91-B,
L.P........................ 26,234 -- 2,384,931 212.20 537.98 750.18 75%
</TABLE>
3
<PAGE> 11
BENEFITS TO THE LIMITED PARTNERS
We believe the mergers provide the following benefits to the limited
partners:
Liquidity. The mergers provide liquidity to the limited partners at a price
based on oil and gas reserve values, not on limited market demand for illiquid
partnership interests. All limited partners in participating partnerships will
receive cash payments in exchange for their partnership interests shortly after
completion of the mergers. The cash payments will include both the partnership's
reserve value and its net working capital less the partnership's share of
transaction expenses. None of the partnership interests are traded on a national
stock exchange or in any other significant market. No liquid market exists for
interests in any of the partnerships. See Table 14 of Appendix A for historical
information about recent trades of partnership interests in the partnerships.
Repurchase obligations exist in only a few of the partnerships and are limited
in both amount and price by formula in the partnership agreements. Although some
partnership interests are occasionally sold in private or over-the-counter
transactions, we believe the potential buyers in such transactions are few and
the prices generally reflect a significant discount for illiquidity.
Liquidation Value. The merger values are based on the value of the
underlying properties, which are essentially the same values that could be
achieved by selling the partnerships' property interests and liquidating the
partnerships at this time. In addition, we believe that the lump sum cash
payment to each limited partner in the mergers is higher than what the limited
partners would otherwise receive over the life of the partnership, assuming
constant oil and gas commodity prices and operating costs and giving effect to
the time value of money, for the following reasons:
- The partnership agreements require cash distributions to be reduced by
general and administrative expenses allocable to each partnership. The
merger values reflect liquidation values based on reserve values that
have not been reduced for general and administrative expenses.
- The merger values are based upon current oil and gas prices. It is likely
that oil and gas prices will vary often and possibly widely, as has been
demonstrated historically, from the prices used to prepare these
estimates. In that way, the merger values eliminate the potential loss in
value due to lower oil and gas prices.
Acceleration of Realization of Value. The cash payments to limited partners
of participating partnerships will provide those limited partners with cash
earlier than if the limited partners remain in the partnership and receive the
expected ordinary cash distributions from oil and gas production. Because the
partnerships' properties are mature producing properties, we believe that
production from those properties will continue to decline at the rate predicted
in the partnerships' oil and gas engineering reserve reports. Accordingly, cash
distributions from the partnerships are also expected to decline, subject to
variation for changes in oil and gas prices. We believe the merger value of each
partnership represents an appropriate pricing of estimated future distributions
from the partnership because:
- the merger value of each partnership is based primarily on the
partnership's oil and gas reserves which have been evaluated using (1) an
arithmetic average of the five-year NYMEX futures price as of June 30,
1999 for oil, which was approximately $18.00 per Bbl of oil, less
standard industry adjustments, and (2) the NYMEX price of $2.40 per Mcf
of gas, less standard industry adjustments; and
- the 12.5% discount rate appropriately reflects, among other things, the
potential volatility of future oil and gas commodity prices given
historical trends.
Elimination of Partnership Tax Reports. The mergers will eliminate the
limited partners' Schedule K-1 tax reports in the participating partnerships for
tax years after the mergers occur. This is expected to simplify the limited
partners' individual tax return preparation and reduce preparation costs.
4
<PAGE> 12
RECOMMENDATION TO LIMITED PARTNERS
(SEE PAGE 15)
On , 1999, our board of directors unanimously determined that the
mergers are advisable, fair to you, and in your best interests. Our board
recommends that you vote for the merger proposals. Although our board of
directors has attempted to fulfill its fiduciary duties to you, our board of
directors had conflicting interests in evaluating the mergers because each
member of our board of directors is also an officer of Pioneer.
FAIRNESS
In deciding to approve the mergers on , 1999, our board of
directors decided that the mergers are advisable, fair to you, and in your best
interests based on a variety of factors. These factors include:
- the form and amount of consideration offered to the partners;
- the comparison of the cash payments in the mergers to the diminished
future cash distributions otherwise expected as oil and gas production
continues to decline;
- the elimination after the mergers of limited partners' tax preparation
costs relating to partnership tax information;
- that Pioneer is offering a competitive price because of:
-- the commodity pricing used in determining the merger values;
-- Pioneer USA's position as operator of most of the partnerships' wells;
and
-- Pioneer USA's significant ownership of nearby properties; and
- the fairness opinion from Robert A. Stanger & Co., Inc.
FAIRNESS OPINION OF FINANCIAL ADVISOR
(SEE PAGE 16)
Robert A. Stanger & Co., Inc., has issued a fairness opinion dated
, 1999, expressing its opinion that, subject to the
qualifications expressed in the opinion, the merger values to be paid in cash
for the limited partner interests are fair from a financial point of view to the
limited partners of the partnerships. The full text of the form of written
opinion of Robert A. Stanger & Co., Inc. is attached to this document as
Appendix C. You should read all of it carefully. THE OPINION OF ROBERT A.
STANGER & CO., INC. IS DIRECTED TO OUR BOARD OF DIRECTORS. IT IS NOT A
RECOMMENDATION TO YOU ABOUT HOW YOU SHOULD VOTE ON MATTERS RELATING TO THE
PROPOSED MERGERS.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
(SEE PAGE 28)
You will generally recognize gain or loss equal to the difference between
the cash proceeds you receive in the mergers and your adjusted tax basis in your
partnership interests in the participating partnerships for which the cash
proceeds are paid. Your gain or loss will be capital or ordinary depending on
the nature of the assets held by the participating partnerships in which you
hold interests and the amount of depletion and intangible drilling and
development costs that must be recaptured. You must calculate your ordinary and
capital gain or loss separately for each partnership in which you have
interests.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGERS TO
YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD SEEK TAX ADVICE
FOR A FULL UNDERSTANDING OF THE PARTICULAR TAX CONSEQUENCES OF THE MERGERS TO
YOU.
RECORD DATE; VOTING POWER
You may vote at the special meetings if you owned partnership interests as
of the close of business on , 1999. We call this date the record
date. For each partnership in which you own a partnership interest, you may cast
one vote representing your percentage of partnership interests in that
partnership. The percentage of partnership interests that you own is determined
by comparing the amount of:
- your, or your predecessor's, initial investment, including any additional
assessments, in the partnership; to
- the total investment of all partners, including any additional
assessments, in the partnership.
5
<PAGE> 13
PARTNER VOTE REQUIRED TO APPROVE THE MERGERS
The favorable vote of a majority of the limited partners' partnership
interests in a partnership is required to approve the merger proposals for that
partnership.
We are generally entitled to vote partnership interests we hold as limited
partners at the special meetings. See "The Special Meetings -- Record Date;
Voting Rights and Proxies" on page 40 of this document. We plan to vote all our
partnership interests for the merger proposals. The voting interest that we hold
in each partnership is found in Table 6 of Appendix A.
If limited partners of a partnership approve the merger agreement, but do
not approve the merger amendment, or vice versa, the partnership will not be
able to merge. LIMITED PARTNERS WHO WANT THEIR PARTNERSHIP TO PARTICIPATE IN THE
MERGERS SHOULD VOTE FOR EACH OF THE MERGER PROPOSALS.
CONDITIONS TO THE MERGERS (SEE PAGE 36)
We will complete the mergers only if the conditions of the merger agreement
are satisfied or, if permitted, waived. These conditions include:
- the limited partners' adoption and approval of the merger proposals;
- the absence of any law or court order that prohibits the mergers; and
- the absence of any lawsuit challenging the legality or any aspect of the
mergers.
So long as the law allows us to do so, Pioneer and we may choose to
complete the mergers even though a condition has not been satisfied if the
limited partners have approved the merger proposals. Pioneer and we may complete
the merger of any one or some of the partnerships, even if limited partners in
other partnerships do not approve the mergers.
TERMINATION OF THE MERGERS (SEE PAGE 37)
Pioneer and Pioneer USA may jointly terminate the merger agreement, for any
or all of the partnerships, at any time, even after limited partner approval.
Pioneer USA will not consent to any termination unless it believes such
termination is in the best interests of the partnerships. Either Pioneer or
Pioneer USA may terminate the merger agreement, for any or all of the
partnerships, in certain circumstances, including the following:
- the limited partners of a partnership fail to approve that partnership's
merger; or
- if any of the other parties is in material breach of the merger
agreement.
In addition, Pioneer USA may terminate the merger agreement for any partnership,
if Pioneer USA determines that termination of the merger agreement is required
for its board of directors to comply with its fiduciary duties.
EFFECTS OF MERGERS
ON LIMITED PARTNERS WHO DO NOT VOTE
IN FAVOR OF THE MERGERS
You will be bound by the mergers if the limited partners in your
partnerships vote a majority of their partnership interests in favor of the
mergers, even if you vote against the mergers. If the merger of your partnership
occurs, you will be entitled to receive only an amount of cash based on the
merger value of your partnership interests. You will not have appraisal,
dissenters' or similar rights in connection with the mergers, even if you vote
against the mergers.
FUTURE OF PARTNERSHIPS THAT DO NOT
PARTICIPATE IN THE MERGERS
(SEE PAGE 31)
If your partnership does not participate in the mergers for any reason,
that partnership will remain in existence. Some reasons your partnership might
not participate in the mergers are (1) that the limited partners vote against
the merger, (2) that a condition in the merger agreement is not satisfied, or
(3) that Pioneer or we exercise a termination right with respect to the merger
for that partnership.
At the same time that we mail checks to the partners of participating
partnerships in payment
6
<PAGE> 14
of the merger values, we will mail any cash distributions that were delayed for
administrative purposes prior to the completion of the mergers to the partners
of nonparticipating partnerships.
We have not formulated an alternative business plan for nonparticipating
partnerships. The business objectives of each nonparticipating partnership will
continue as they are. We plan to continue to manage each nonparticipating
partnership and operate it in accordance with the terms of its current
partnership agreement. The partnership will continue to operate as a separate
legal entity with its own assets and liabilities. Distributions from these
partnerships are expected to continue to decline since their production revenues
are expected to continue to decline more quickly than their production costs.
Regardless of whether these nonparticipating partnerships distribute cash,
limited partners must continue to include their share of partnership income and
loss in their individual tax returns.
The board of directors of each of Pioneer and Pioneer USA will decide what,
if any, actions Pioneer or Pioneer USA, respectively, will take regarding these
partnerships. Potential activities might include a tender offer for partnership
interests of limited partners or a proposal to acquire the assets of, or merge
with, one or more of the nonparticipating partnerships. The proposal may be on
terms similar to or different from those of the mergers described in this
document.
EXPENSES AND FEES
The expenses and fees that we will incur in connection with the mergers are
expected to be approximately $4.6 million. Each of the partnerships, including
the 21 non-public limited partnerships and 13 privately-held employee
partnerships described in "Similar Transactions" below, which participates in
the mergers, will pay its pro rata share of the estimated expenses and fees of
the mergers allocated to all of the partnerships. The net working capital
component of each partnership's merger value has been reduced by that
partnership's pro rata share of the estimated expenses and fees. The
partnership's pro rata share is based on its reserve value before any reduction
for the estimated expenses and fees.
SIMILAR TRANSACTIONS (SEE PAGE 45)
At the same time as this transaction, Pioneer is also offering to acquire
21 non-public limited partnerships and 13 privately-held employee partnerships
through mergers of those partnerships into Pioneer USA. The terms of the mergers
and the method of establishing merger values for limited partners in those
partnerships are the same as those for the 25 publicly-held partnerships in this
document.
As of the record date for the special meetings, Scott D. Sheffield,
Chairman of the Board, President and Chief Executive Officer of Pioneer and
President of Pioneer USA, owned, on average, approximately 6% of the outstanding
limited partnership interests in each of 11 of the 13 privately-held employee
partnerships. As of the record date for the special meetings, Mark L. Withrow,
Executive Vice President, General Counsel and Secretary of each of Pioneer and
Pioneer USA, owned, on average, approximately 5% of the outstanding limited
partnership interests in each of two of the 13 privately-held employee
partnerships. Mr. Sheffield and Mr. Withrow have advised us that they plan to
vote their partnership interests for the merger proposals.
THIRD-PARTY OFFERS (SEE PAGE 32)
We will consider any offers from third parties to purchase any partnership,
whether one of the publicly-held partnerships discussed in this document or one
of the non-public or employee partnerships, or the assets of any partnership.
Those who wish to make an offer for any partnership or its assets must
demonstrate to our reasonable satisfaction their financial ability and
willingness to complete such a transaction. Before reviewing non-public
information about a partnership, a third party will need to enter into a
customary confidentiality agreement. We will also disclose the price at which
Pioneer will acquire the non-public and employee partnerships. Offers should be
at prices and on terms that are fair to the partners of the partnership and more
favorable to the limited partners than the prices and terms proposed in the
mergers. Pioneer has the right to try to match or top any such offer.
7
<PAGE> 15
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN DETERMINING
WHETHER TO VOTE TO APPROVE THE MERGER PROPOSALS.
THE MERGER VALUES INVOLVE ESTIMATES THAT WILL NOT BE ADJUSTED
Estimates of Proved Reserves and Future Net Revenues May Change. The
calculations of the partnerships' proved reserves of crude oil, natural gas
liquids and natural gas and future net revenues from those reserves included in
this document are only estimates. The accuracy of any reserve estimate is a
function of:
- the quality of available data;
- engineering and geological interpretation and judgment;
- the assumptions about quantities of recoverable oil, natural gas liquids
and natural gas reserves;
- the assumptions about prices for crude oil, natural gas liquids and
natural gas; and
- the assumptions about costs to extract, transport and process, if
necessary, crude oil, natural gas liquids and natural gas to their point
of sale.
Actual prices, production, operating expenses and quantities of recoverable oil
and natural gas reserves may vary from those assumed in the estimates. The
variances may be significant. Any significant variance from the assumptions used
could result in the actual quantity of the partnerships' reserves and future net
revenues being materially different from the estimates in the partnerships'
reserve reports and in the calculation of the merger values. In addition,
changes in production levels and changes in crude oil, natural gas liquids and
natural gas prices after the date of the estimate may result in substantial
upward or downward revisions.
Assumptions about Reserves, Pricing and Costs Used in the Merger Values May
Be Wrong. Pioneer and Pioneer USA based the reserve value component of the
merger values on the discounted, or present value of, estimated future net
revenues from the partnerships' properties using estimated reserves at June 30,
1999,
- applying (1) an arithmetic average of the five-year NYMEX futures price
as of June 30, 1999 for oil, which was approximately $18.00 per Bbl of
oil, less standard industry adjustments, and (2) the NYMEX price of $2.40
per Mcf of gas, less standard industry adjustments, and
- using a 12.5% discount rate.
Pioneer and Pioneer USA calculated the volumes of the partnership's proved
reserves as of June 30, 1999, based on a future production curve consistent with
the production curve used in the reserve report of Williamson Petroleum
Consultants, Inc. as of December 31, 1998. Actual production may vary from that
assumed production. Actual prices in the future may be materially higher or
lower than those used in the calculation of the merger values, even though
Pioneer and Pioneer USA adjusted the estimated future net revenues for standard
industry price adjustments, including:
- production costs;
- the effects of oil quality;
- British thermal unit, or BTU, content for gas;
- oil and gas gathering and transportation costs; and
- gas processing costs and shrinkage.
8
<PAGE> 16
Therefore, the estimated future net revenues may differ materially from actual
revenues received in the future. In addition, actual future net revenues will be
affected by:
- the timing of production and related expenses;
- changes in consumption; and
- changes in governmental regulations or taxation.
The 12.5% discount rate used in the calculation of the merger values might
not reflect actual interest rates in effect from time to time and risks
associated with the partnerships' properties or the oil and gas industry in
general. The discount rate may disfavor longer-lived properties when compared to
shorter-lived properties, with a resulting effect on the merger values that
disfavors some partnerships as compared to others.
The Merger Values Might Not Reflect the Value of the Partnerships'
Assets. Since the merger value assigned to a partnership is based on assumptions
about reserves, pricing and costs, that merger value could vary materially from
the current market value of, or the price that a third party might offer for,
that partnership's estimated oil and gas reserves and from the value of, or
given to, that partnership's actual future net revenues. The assumptions used to
determine the merger values may ultimately benefit some partners and
partnerships as opposed to others because the merger value of a partnership
might not properly reflect the value of that partnership's assets. In that case,
some partners could receive less than a fair market price for their partnership
interests. For a description of other methods of determining merger values, see
"Method of Determining Merger Values and Amount of Cash Offered -- Other Methods
of Determining Merger Values" on page 24.
The Merger Values Will Not Be Adjusted For Changes Before the Completion of
the Mergers. The merger values determine the amount of cash you will receive in
the mergers. The merger values will be determined when the September 30, 1999
data is available and will not be changed. For example, although oil and gas
prices have fluctuated greatly in the recent past and may continue to do so, the
merger values will not be adjusted as of the closing date of the mergers to
reflect any general changes in oil or gas prices, or any other matter generally
affecting the oil and gas industry, occurring after September 30, 1999 and prior
to the closing date of the mergers.
YOU WERE NOT INDEPENDENTLY REPRESENTED IN ESTABLISHING THE TERMS OF THE MERGERS
Pioneer and Pioneer USA determined the terms of the mergers, including the
method for determining the merger values, and the type and allocation among the
partners of the consideration to be given in exchange for partnership interests.
As noted below, our board of directors had conflicting interests in evaluating
the mergers primarily because each member of that board of directors is also an
officer of Pioneer. We did not seek recommendations about the type of
transaction or the terms or prices from any independent underwriter, financial
advisor or other securities professional prior to accepting the consideration
offered by Pioneer. The only independent representatives in the mergers were
Sayles & Lidji, A Professional Corporation, which represented Pioneer USA's
board of directors, and Robert A. Stanger & Co., Inc., which will render its
fairness opinion to Pioneer USA's board of directors. Moreover, no special
committee or other entity was formed or engaged to negotiate on our behalf or
the partnerships' behalf. No representative group of limited partners and no
outside experts or consultants, such as investment bankers, legal counsel,
accountants or financial experts, were engaged solely to represent the
independent interests of the limited partners in structuring and negotiating the
terms of the mergers. If you had been separately represented, the terms of the
mergers might have been different and possibly more favorable to you. In
addition, if you were separately represented, issues unique to the value of your
partnerships might have received greater attention during the structuring of the
mergers, which might have resulted in an increase in the merger value assigned
to your partnerships and in the amount of cash paid to you in the mergers.
9
<PAGE> 17
THE INTERESTS OF PIONEER, PIONEER USA AND THEIR DIRECTORS AND OFFICERS MAY
DIFFER FROM YOUR INTERESTS
The interests of Pioneer, Pioneer USA, and their officers and directors may
differ from your interests as a result of the relationships among them. For
example, Pioneer USA, as general partner of the partnerships, has a duty to
manage the partnerships in the best interests of the limited partners.
Additionally, Pioneer USA has a duty to operate its business for the benefit of
its sole stockholder, Pioneer. Also, the members of Pioneer USA's board of
directors have duties to both the limited partners of the partnerships and to
Pioneer. All of the members of Pioneer USA's board of directors are officers of
Pioneer and have duties to Pioneer's stockholders. Pioneer USA's board of
directors was aware of these interests and considered them in approving the
merger proposals. See "Interests of Pioneer, Pioneer USA and Their Directors and
Officers" beginning on page 43 of this document.
PIONEER USA HAS NOT PREVIOUSLY OFFERED THE PARTNERSHIPS FOR SALE TO OTHERS
Although the partnerships have sold individual properties from time to time
in the ordinary course of their businesses, we have not previously tried to sell
any of the partnerships, as a whole, to third parties. As a result, we cannot be
sure what the market demand is for the partnerships' properties, as a whole, or
what a third party would offer for any partnership.
PIONEER USA DID NOT SOLICIT ANY THIRD-PARTY OFFERS
We have not solicited offers for the partnerships or their assets, and no
assurance may be given that the terms of the mergers are as favorable as could
be obtained from a sale of any such partnerships or assets to an unrelated
party. We will consider offers to purchase any partnership or its assets from
third parties, but there might not be any third-party offers or, to the extent
an offer is made, we might not consider that offer to be a viable alternative to
the mergers.
THIRD PARTIES MIGHT NOT MAKE AN OFFER FOR THE PARTNERSHIPS IF THEY CANNOT BECOME
OPERATOR OF THE PARTNERSHIPS' PROPERTIES
We operate most of the partnerships' wells on behalf of the partnerships
and others who own interests in those wells, including Pioneer. Although we will
consider other offers for the partnerships or their assets, we are not offering
to sell the rights to operate the partnerships' properties. Consequently,
potential buyers may not be interested in making an offer to acquire any of the
partnerships if they cannot also acquire operating rights to the partnerships'
properties.
POTENTIAL LITIGATION CHALLENGING THE MERGERS MAY DELAY OR BLOCK THE MERGERS
One or more of the partners opposed to the mergers may initiate legal
action to stop the mergers or to seek damages for alleged violations of federal
and state laws. Litigation challenging the mergers may delay or block the
closing of the mergers. In addition, if any lawsuits are filed, Pioneer or
Pioneer USA may decide to terminate the mergers.
REPURCHASE RIGHTS TERMINATE ON COMPLETION OF THE MERGERS
The limited partners of each of the partnerships listed below may require
us to repurchase their partnership interests for cash at the times and under the
conditions described in the partnership agreements:
Parker & Parsley 82-I, Ltd.
Parker & Parsley 82-II, Ltd.
Parker & Parsley 83-A, Ltd.
Parker & Parsley 83-B, Ltd.
Parker & Parsley 84-A, Ltd.
10
<PAGE> 18
If the limited partners of a partnership with repurchase rights vote a majority
of their partnership interests in favor of the mergers, those repurchase rights
will terminate on completion of the mergers.
The repurchase rights may be exercised only once a year and the amount of
partnership interests required to be purchased in any one year is limited. A
repurchase price is calculated by multiplying:
- the present value of the estimated future net revenues, calculated using
a discount rate equal to prime plus 1% as of December 31 of each year,
from a partnership's proved reserves, as determined by independent
petroleum consultants; by
- 66 2/3%.
Generally, the repurchase prices would be less than the merger values
because of the additional discount factor equal to 33 1/3% for the repurchases.
In calculating the 1999 repurchase prices, Pioneer USA decided not to apply that
additional 33 1/3% discount factor because oil and gas prices had increased
significantly since December 31, 1998. The merger values are higher than the
1999 repurchase prices. The difference between the 1999 repurchase prices and
the merger values is attributable primarily to the use of different oil and gas
prices and discount rates. The repurchase prices were calculated using NYMEX oil
and gas prices as of December 31, 1998, which were $12.00 per Bbl of oil and
$2.00 per Mcf of gas, compared to the merger values which were calculated using
(1) an arithmetic average of the five-year NYMEX futures price as of June 30,
1999 for oil, which was approximately $18.00 per Bbl of oil, less standard
industry adjustments, and (2) the NYMEX price of $2.40 per Mcf of gas, less
standard industry adjustments. The higher oil and gas prices used in the merger
values more than offset the use in the calculation of the repurchase prices of a
discount rate equal to prime plus 1%, or 8.75% for the 1999 repurchases, which
was lower than the 12.5% discount rate used in calculating the merger values.
The 1999 repurchase offers were commenced and completed before the date of
this document. For a list of the repurchase prices in 1999 and the prior two
years, see Table 8 of Appendix A.
SPECIAL FACTORS
BACKGROUND OF THE MERGERS
The partnerships were formed from 1982 through 1991 under the sponsorship
of various affiliated companies collectively known as Parker & Parsley. On
February 19, 1991, Parker & Parsley's principal company converted from limited
partnership form to corporate form and acquired most of the assets of five
publicly-held oil and gas limited partnerships. The new corporation was called
Parker & Parsley Petroleum Company, and it owned the general partners of the
partnerships.
In early 1992, Parker & Parsley Petroleum Company decided that it could not
fully realize the benefits of the properties it had acquired while continuing to
devote substantial resources to the sponsorship of and drilling for the
partnerships. It stopped sponsoring public and private oil and gas development
drilling and income partnerships and focused on its corporate development. In
1997, Parker & Parsley Petroleum Company and MESA Inc. combined their businesses
in a merger that created Pioneer Natural Resources Company. That same year,
Pioneer combined many of its U.S. subsidiaries, including the general partners
of the partnerships, into its main subsidiary, Pioneer USA.
From time to time since 1992, Pioneer and its predecessors have had
general, internal discussions about whether to consolidate the partnerships
pursuant to a transaction such as the mergers. On several occasions, Pioneer or
its predecessors engaged outside legal counsel and had discussions with
investment banks about a possible combination of the partnerships. Some of those
discussions were with Robert A. Stanger & Co., Inc. The contemplated structure
of the combination has varied significantly during these internal discussions
and has included issuances of common stock, combinations of common stock and
cash, and cash-only transactions through asset sales, mergers, tender offers,
and combinations of those types of transactions. In general, the contemplated
transactions would have been taxable to the limited partners because of the
difficulties involved in structuring a tax-free transaction for the
partnerships. Until now,
11
<PAGE> 19
every time Pioneer or its predecessors considered such a transaction, it decided
not to propose any transaction to the limited partners. The reasons Pioneer and
its predecessors did not previously propose a transaction to the limited
partners varied. In some early cases, they wanted to collect and fully
distribute proceeds to the limited partners from litigation against an oilfield
services company before trying to value the partnerships. In other cases, they
wanted to avoid periods of volatility in oil and gas prices or in Pioneer's
stock price. On several occasions, Pioneer was involved in other corporate
transactions that could not be completed timely if a transaction with the
partnerships was also pending.
In early 1998, Pioneer was formulating a strategic plan to focus on its 25
core area oil and gas fields and to eliminate ancillary operations. Pioneer
began discussions internally to consider a transaction involving the
partnerships, including the basis for valuing the partnerships and whether the
consideration should be Pioneer common stock, cash, or some combination of both.
During the second quarter of 1998, Pioneer and Pioneer USA began to discuss
the methods for valuing the partnerships. At that time, Pioneer USA engaged
Sayles & Lidji, A Professional Corporation based in Dallas, Texas, as its
independent legal counsel and discussed with them the procedures to be followed
in evaluating various strategic alternatives available to Pioneer USA and
responding to any expressions of interest received by Pioneer USA. Although
Pioneer submitted an offer, the offer was withdrawn and the discussions were
discontinued because of:
- the decline in oil prices, which in turn would result in reducing any
merger value to be paid to the limited partners;
- the decline in Pioneer's stock price; and
- the tight lending environment for many oil and gas companies, including
Pioneer.
As a result, each of Pioneer and Pioneer USA decided to discontinue further
discussions and no transaction was submitted to the limited partners.
As oil and gas prices improved, in June 1999, Pioneer and Pioneer USA again
began discussions internally to consider a transaction involving the
partnerships. At that time, Scott Sheffield, the President and Chief Executive
Officer of Pioneer, contacted members of Pioneer USA's board regarding
consideration of a potential transaction involving the partnerships.
During the second quarter of 1999, Pioneer and Pioneer USA attempted to
formally address the conflicting interests inherent in the relationships among
Pioneer, Pioneer USA, the partnerships and the officers and directors of Pioneer
and Pioneer USA. Pioneer USA caused the members of its board of directors who
were also members of Pioneer's board of directors to resign from Pioneer USA's
board of directors. Because all of the board members of Pioneer USA are also
employees of Pioneer, an inherent conflict exits with respect to their duties to
the limited partners in their capacity as directors of Pioneer USA, on the one
hand, and their duties to Pioneer as employees, on the other hand. This
separation of board processes may lessen, but does not eliminate, the inherent
conflicting interests of the Pioneer USA directors in this transaction. We
believe, however, that this separation enables the directors of Pioneer USA to
more effectively consider and focus on the interests of the partnerships.
Shortly thereafter, Pioneer USA's board again contacted Sayles & Lidji to
advise the board in connection with the procedures to be followed in evaluating
the merger transaction and any others, as well as various strategic alternatives
available to Pioneer USA.
The Pioneer USA board also engaged, on behalf of the partnerships, Robert
A. Stanger & Co., Inc., as its financial advisor to advise the board on the
fairness of the transaction from a financial point of view and to assist in
Pioneer USA's evaluation of the merger transaction and other strategic
alternatives. Robert A. Stanger & Co., Inc. was familiar with the circumstances
from its 1998 engagement. On July 14, 1999, the board met with its counsel and
Robert A. Stanger & Co., Inc. to discuss the proposed merger of the
partnerships. Robert A. Stanger & Co., Inc. presented an overview of the
analysis it planned to perform in evaluating the fairness of the proposed
transaction.
12
<PAGE> 20
Members of the Pioneer USA board met on several occasions during July and
early August to discuss among each other the proposed terms of the merger
transaction and other potential alternative transactions.
On , 1999, Pioneer's board of directors met and voted to
approve the mergers and to proceed with the completion of the mergers, subject
to the September 30, 1999 pricing information and other relevant conditions at
the time.
On August 16, 1999, at a special meeting of the Pioneer USA board, the
board met with representatives of Sayles & Lidji and Robert A. Stanger & Co.,
Inc. to discuss the terms of the proposed mergers.
On August 17, 1999, Pioneer delivered a written proposal covering the
merger transaction to the Pioneer USA board which outlined the terms of the
proposed transaction. At a special meeting that day of the Pioneer USA board,
the board, its counsel and Robert A. Stanger & Co., Inc. met to discuss the
specifics of the merger proposal including oil and gas pricing, the present
value discount rate, the right to allow others to bid on the property, and the
costs of the mergers. Following the board meeting, our directors sought and
obtained changes in the proposed terms which were advantageous to the
partnerships.
On August 23, 1999, at a special meeting of the Pioneer USA board, the
board updated its counsel and Robert A. Stanger & Co., Inc. on the status of its
discussions with Pioneer. Representatives of Robert A. Stanger & Co., Inc.
provided the board with its review of the Pioneer proposal. Based partly on the
analysis performed by Robert A. Stanger & Co., Inc., the board advised Pioneer
that in the opinion of the Pioneer USA board, the discount rate used to
determine the present value of future oil production should be reduced from 15%
to 12.5%, thereby increasing the merger consideration to the limited partners.
In response, Pioneer agreed to reduce the discount rate to 12.5%.
On September 2, 1999, at a special meeting of the board, the board and
representatives of Robert A. Stanger & Co., Inc. and Sayles & Lidji reviewed the
terms of a revised merger proposal submitted by Pioneer. The parties discussed
the terms of the merger, the strategic rationale for and benefits of the merger.
At this meeting, Robert A. Stanger & Co., Inc. reviewed with the board its
financial analysis and its evaluation of the merger consideration and the
feasibility of other strategic alternatives. Robert A. Stanger & Co., Inc. also
orally presented to the board the status of its findings and its preliminary
evaluation of the proposed transaction.
After considering Robert A. Stanger & Co., Inc.'s evaluation of the
proposed merger transaction, the board, together with representatives of Robert
A. Stanger & Co., Inc., engaged in a general discussion of other possible
transactions it had considered over the last six to eight months. This
discussion included anticipated ongoing operations of the limited partnerships
under their current structure and the operation of the limited partnerships
through a master limited partnership structure, as well as through a royalty
trust. The board also discussed selling the oil and gas properties of the
limited partnership at auction and potentially soliciting other buyers or merger
partners. The board also considered the fact that other potential buyers of the
limited partnerships would have an opportunity to make an offer for the limited
partnerships before the board submitted the merger transaction to the limited
partners for their consideration and approval.
At a special meeting held on September 8, 1999, the Pioneer USA board
discussed with Sayles & Lidji and Robert A. Stanger & Co., Inc. the complete
terms of the proposed mergers. After considering other alternatives, including
the advantages and disadvantages of each, the board concluded that none of the
alternatives were more advantageous to the limited partners than the terms of
the proposed mergers. The board then unanimously approved proceeding with the
mergers, subject to determination of September 30, 1999, pricing, its receipt of
Robert A. Stanger & Co., Inc.'s fairness opinion, and the board's determination
that the merger consideration is fair to the limited partners based on all
circumstances as of September 30, 1999, including without limitation, the then
current market conditions and the existence, if any, of any other proposal for
the partnerships on terms more favorable to the limited partners.
13
<PAGE> 21
The foregoing discussion of these special factors considered by the Pioneer
USA board is not exhaustive, but Pioneer USA believes it includes the material
factors considered by its board. The board did not quantify or otherwise attempt
to assign relative weights to the specific factors the board considered in
reaching its determination to recommend the merger. Rather, the board viewed its
position and recommendation as being based on the total information presented to
and considered by the board.
On September 8, 1999, Pioneer and Pioneer USA publicly announced the
proposed mergers. In that announcement, Pioneer USA also announced that it would
consider proposals from other potential buyers of the partnerships.
In a special meeting of the board of Pioneer USA held on ,
1999, Robert A. Stanger & Co., Inc. presented its opinion dated ,
1999, expressing its opinion that the merger proposals are fair from a financial
point of view to the limited partners of the partnerships. The board of Pioneer
USA then unanimously determined that the merger proposals are advisable, fair to
the limited partners and in the limited partners' best interests. Accordingly,
the board recommended that the limited partners vote for the merger proposals.
References to Pioneer USA's board's recommendation of the mergers and its
finding that the merger consideration is fair from a financial point of view are
stated in this preliminary document conditioned on the board making such
determination after considering September 30, 1999, pricing information and
other relevant conditions at the time.
REASONS FOR THE MERGERS
General. For all of the reasons listed below, Pioneer believes that it is
the party in the position to pay the highest price for the limited partnership
interests of the partnerships. Pioneer USA also believes that Pioneer is the
most likely buyer for the partnerships' properties in light of:
- Pioneer USA's operation of most of the properties;
- Pioneer USA's extensive property holdings in the same fields; and
- Pioneer's ability to achieve efficiencies by consolidating operations
with its existing operations in the same areas.
Pioneer's Reasons. Pioneer believes that completion of the mergers is
advantageous to it for the following reasons:
- Consolidate Core Area of Operations. The Spraberry field of the
Permian Basin is one of Pioneer's 25 fields of focus in its strategic plan.
Acquisition of the partnerships' properties would help consolidate
Pioneer's operations in the Spraberry field and achieve operating
efficiencies. Pioneer USA operates most of the partnerships' wells, and
Pioneer has extensive properties around the partnerships' properties,
including interests in most of the partnerships' wells.
- Achieve Operating Efficiencies. Pioneer expects to improve operating
efficiencies with respect to the properties acquired in the mergers because
it will be able to co-mingle production from participating partnerships'
properties with production from other Pioneer properties for storage,
transportation and sale. Production from the partnerships' properties is
currently kept segregated from Pioneer's production until sale.
- Achieve Administrative Efficiencies. Pioneer will eliminate the
costs, including time spent by Pioneer employees, related to preparing and
filing the partnerships' separate tax returns, financial statements, and
reports with the SEC, as well as dealing with the concerns of approximately
25,000 record limited partners. The mergers will result in administrative
efficiencies and cost reductions in the management and operation of the
properties now owned by the partnerships, particularly in the areas of
audit, accounting and tax services, engineering services, bookkeeping, data
processing, record maintenance and mailing information to the partners.
Although Pioneer will lose the benefit of the partnerships' reimbursement
for general and administrative expenses, it will be able to use the
additional time of its personnel to help achieve its corporate strategic
goals.
14
<PAGE> 22
Pioneer USA's Reasons. In considering the mergers, the board of directors
of Pioneer USA also considered the benefits to the limited partners set forth on
page 4 as well as the following factors:
- Maturity of Partnership Properties. Although the partnerships'
properties were long-lived at the formation of the partnerships, Pioneer
and Pioneer USA anticipated that at some point the partnerships would need
to be liquidated. The partnerships' properties have matured, and the
mergers provide (1) liquidity to the limited partners, and (2) a means for
Pioneer, through its subsidiary, Pioneer USA, to liquidate the
partnerships.
- Declining Cash Flows. As the partnerships' properties have matured,
the net cash flows from operations have generally declined. See Table 7 of
Appendix A. The marginal benefit of continuing operations of the
partnerships is offset by the related administrative costs. These
administrative costs consume an increasing amount, and ultimately will
consume the entire amount, of the cash flows as production declines.
- Tax Incentives Have Been Realized. To the extent that the
partnerships were intended to provide tax incentives to the partners, those
incentives have been realized, or the tax purposes for which the
partnerships were originally formed are no longer applicable as a result of
changes in laws.
- Partnership Tax Burdens May Now Exceed Benefits. As net cash flow
available for distribution has declined or, at times, disappeared, some
limited partners may incur greater costs to include their share of the
partnerships' tax information in their returns than they receive in cash
distributions. In any event, all limited partners are expected to benefit
by the elimination of the obligation to include partnership information in
their tax returns for the years after the mergers.
- Partnerships Unable to Access Additional Capital. Pioneer, through
its subsidiary, Pioneer USA, has the ability, financial and otherwise, to
take advantage of corporate opportunities to expand its reserve base
through acquisitions. The partnerships do not have the ability to raise
capital for reserve acquisitions. The partnership agreements of the
partnerships do not authorize the partnerships to raise additional capital,
whether debt or equity. Even if the partnership agreements were amended to
authorize additional capital, Pioneer does not believe that the limited
partners would desire to contribute additional capital or to apply all cash
flow to debt service, while remaining taxable on the related income.
- Fairness of Price. Pioneer USA's board of directors determined,
based in part on the fairness opinion of Robert Stanger & Co., Inc., that
the mergers are advisable, fair to the limited partners and in their best
interests. Pioneer USA's board of directors also considered the following
factors:
-- The form and amount of consideration offered to the partners;
-- The objectives of the mergers, including providing liquidity to the
partners; and
-- Its right to consider third-party offers.
RECOMMENDATION OF PIONEER USA
Pioneer USA's board of directors unanimously determined that the mergers
are advisable, fair to the limited partners of each partnership, and in the
limited partners' best interests. PIONEER USA'S BOARD OF DIRECTORS RECOMMENDS
THAT THE LIMITED PARTNERS VOTE FOR THE MERGER PROPOSALS.
In making this recommendation, Pioneer USA's board of directors considered
a number of factors, including the reasons for the mergers set forth above in
"Special Factors -- Reasons for the Mergers" and the matters, such as its
conflicting interests, described under "Risk Factors" beginning on page 8 of
this document. In view of the numerous factors taken into consideration, Pioneer
USA's board of directors did not consider it practical to, and did not attempt
to, quantify or assign relative weights to the factors considered by it in
reaching its decision. Pioneer USA's board of directors also considered the
likelihood, benefits and costs of other transactions, including third-party
offers. Pioneer USA will consider any offers from third parties to purchase any
partnership or its assets, whether one of the publicly-held partnerships
15
<PAGE> 23
discussed in this document or one of the non-public or employee partnerships.
See "The Mergers -- Third-Party Offers" on page 32 of this document for a
description of the procedures for these offers.
FAIRNESS OPINION
Pioneer USA, on behalf of the partnerships, engaged Robert A. Stanger &
Co., Inc., an independent financial advisory firm to conduct an independent
review and deliver a written opinion of its determination of the fairness, from
a financial point of view to the limited partners of the partnerships, of the
merger values to be paid in cash for limited partner interests in each
partnership in connection with the mergers. The full text of the fairness
opinion, which contains a description of the assumptions, limitations and
qualifications applicable to the review by Stanger is set forth in Appendix C to
this document and should be read in its entirety. The material assumptions and
qualifications to the fairness opinion are summarized below. This summary does
not purport to be a complete description of the various inquiries and analyses
undertaken by Stanger in rendering the fairness opinion. Stanger has advised us
that arriving at a fairness opinion is a complex analytical process not
necessarily susceptible to partial analysis or amenable to summary description.
For a more complete description of the assumptions and qualifications to the
fairness opinion see "Qualifications to Fairness Opinion" and "Assumptions"
below.
Except for certain assumptions which Pioneer USA and the partnerships
advised Stanger would be reasonable and appropriate in their view, Pioneer USA
and the partnerships imposed no conditions or limitations on the scope of the
investigation by Stanger or the methods and procedures to be followed by Stanger
in rendering the fairness opinion. In addition, the partnerships have agreed to
indemnify Stanger against certain liabilities arising out of Stanger's
engagement to prepare and deliver its opinion upon consummation of the mergers,
and such indemnification obligations will become obligations of Pioneer USA.
Experience of Stanger. Since its founding in 1978, Stanger has provided
information, research, investment banking and consulting services to clients
located throughout the United Sates, including major New York Stock Exchange
member firms and insurance companies and over seventy companies engaged in the
management and operation of partnerships. The investment banking activities of
Stanger include financial advisory and fairness opinion services, asset and
securities valuations, industry and company research and analysis, litigation
support and expert witness services, and due diligence investigations in
connection with both publicly registered and privately placed securities
transactions.
Stanger was selected because of its experience in the valuation of
businesses and their securities in connection with mergers, acquisitions,
reorganizations and for estate, tax, corporate and other purposes, including the
valuation of partnerships, partnership securities and the assets typically held
through partnerships including oil and gas assets. Pioneer USA has previously
engaged Stanger to provide financial advisory services in connection with
proposed transactions between the partnerships and Pioneer which were never
consummated.
Qualifications to Fairness Opinion. In the fairness opinion, Stanger
specifically states that Stanger was not requested to, and did not:
- make any recommendations to Pioneer USA, the partnerships or the limited
partners with respect to whether to approve or reject the mergers;
- determine or negotiate the amount or form of the merger values to be paid
for limited partners' interests in the mergers;
- offer the assets of the partnerships for sale to any third party;
- express any opinion as to:
-- the impact of the mergers with respect to Pioneer USA or the limited
partners of any partnerships that do not participate in the mergers;
-- the tax consequences of the mergers for Pioneer USA or the limited
partners of any partnership;
16
<PAGE> 24
-- Pioneer's or Pioneer USA's ability to finance their obligations
pursuant to the merger agreement or the impact of a failure to obtain
financing on the financial performance of Pioneer, Pioneer USA or the
partnerships;
-- Pioneer USA's decision to estimate the reserve value of the oil and gas
reserves of each partnership based upon the continued operation of the
properties by Pioneer USA and the payment of general and administrative
and overhead charges in accordance with existing operating agreements
or the impact, if any, on the estimated values of the partnerships' oil
and gas reserves if Pioneer USA and Pioneer determined to offer or
operate the assets subject to revised operating agreements;
-- whether or not alternative methods of determining the merger values
would have also provided fair results or results substantially similar
to the methodology used;
-- alternatives to the mergers, including the offering of such assets for
sale to third-party buyers;
-- the fairness of the amount or allocation of merger costs; or
-- any other terms of the mergers.
Summary of Material Considered and Investigation Undertaken. Stanger's
analysis of the mergers involved a review of the following information:
- a draft of the merger agreement which Pioneer USA intends to execute in
connection with the mergers;
- financial statements of the partnerships for the years ended December 31,
1997 and 1998 and the six months ended June 30, 1999;
- reserve analysis of each partnership prepared by Pioneer USA and Pioneer
as of , 1999;
- consultant's report for each partnership prepared by as of
, 1999;
- calculations prepared by Pioneer USA and Pioneer of the merger values per
unit of limited partner interest in each partnership; and
- estimates prepared by Pioneer USA and Pioneer of the going-concern value
and liquidation value per unit of limited partner interest in each
partnership.
In the course of its analysis, Stanger conducted interviews of senior
management personnel of Pioneer USA in July and August 1999. During such
interviews, Stanger and the senior management personnel reviewed the status of
the mergers, the reserve pricing and related value estimates, the estimated
timing of the mergers and other matters.
Stanger reviewed estimates of merger values, going-concern value, and
liquidation value prepared by Pioneer USA with respect to each partnership. In
addition, Stanger reviewed secondary market prices, as tracked by Stanger, for
limited partner interests in each partnership along with tender offers received
by limited partners as derived from data provided by Pioneer USA. Stanger's
analysis is summarized below.
Review of Merger Value. Stanger reviewed the calculation of merger values
prepared by Pioneer USA. Stanger observed that such calculation includes the
reserve value, as described below, other current assets as of 1999,
reduced by other current liabilities as of 1999 and allocable merger
costs as determined by Pioneer USA. Stanger reviewed the balance sheet of each
partnership as of 1999 as prepared by Pioneer USA, and reconciled the
current assets and current liabilities on such financial statements to the
balances included on the merger value calculation for each partnership. With
respect to merger costs, Stanger observed that Pioneer USA allocated the
estimated aggregate merger cost of approximately $4.6 million among the
partnerships based upon such partnership's relative reserve value.
17
<PAGE> 25
Stanger reviewed the summary reserve analysis prepared by Pioneer USA and
Pioneer with respect to each partnership and compared such data to the reserve
analysis prepared as of December 31, 1998. Stanger noted that the reserve
analysis was prepared based upon a pricing case consistent with the average
five-year NYMEX future price for oil and the NYMEX price of $2.40 per Mcf of
gas, as adjusted by Pioneer USA to reflect oil quality, BTU content, oil and gas
gathering and transportation costs, and gas processing costs and shrinkage.
Stanger further observed that the reserve analysis utilized a discount rate
of 12.5% and resulted in a per barrel of oil equivalent, or BOE, value of the
reserves for the partnerships ranging from to . Stanger
observed that such values are low by general industry averages. However, Stanger
observed that such properties are generally low-volume long-lived properties,
not operated by the partnerships, and are subject to overhead charges by the
operator, Pioneer USA. In the course of its engagement, Stanger reviewed
selected comparable transactions in the BOE value range described above for
long-lived, generally low-volume properties.
Stanger reviewed the report prepared by Williamson Petroleum Consultants,
Inc. relating to the reserves of the partnerships. Such report indicated that
such analyses were prepared using industry standards and procedures, based upon
the pricing case provided.
Going Concern Value. Stanger reviewed the going concern value calculation
prepared for each partnership by Pioneer USA. Such going concern value was based
upon the estimated net cash flow from sale of the reserves during a 10-year
operating period less partnership level general and administrative expenses
equal to 3% of revenues except for certain partnerships where 2% was utilized
consistent with 1998 and 1999 expense levels. Such cash flows plus the residual
value from the sale of the remaining reserves at the end of the operating period
were discounted to present value at a discount rate of 12.5%. Stanger observed
that the going concern value of each partnership ranged from % to % less
than the merger values.
Liquidation Value. Stanger reviewed the liquidation value calculation
prepared for each partnership by Pioneer USA. Such liquidation value was based
upon sale of the reserves at the reserve value, less additional merger expenses
estimated at 3% of reserve value. Stanger observed that such merger expenses are
intended to reflect Pioneer USA's estimate of the cost associated with brokers
commissions on asset sales and the additional wind-down costs of the
partnership. Stanger observed that the liquidation value for each partnership
ranged from % to % less than the merger values.
Secondary Market Prices. Stanger reviewed the secondary market prices for
units of limited partner interests in the partnerships during the seven months
ended July 31, 1999, collected from data maintained on partnerships by Stanger.
Stanger observed that secondary market transactions were reported for 24 of the
partnerships during such period and the weighted average price of such units
represents an average discount to the merger values for the partnerships of
%. Stanger advised us that its data indicates that participants in the
secondary market reported only one trade of five units on one partnership
(Parker & Parsley 90-B Conv. L.P.) at a price which exceeds the merger values.
The merger value of such partnership is $158.61 and the reported trade of five
units was at $171.00 per $1,000 investment. Stanger advised Pioneer USA that the
secondary market is illiquid and that trading activity is sporadic and
frequently takes place at substantial discounts to the underlying asset value.
Selected Tender Offers. Stanger observed that Pioneer USA reported
unsolicited tender offers for three of the partnerships during the past two
years. Stanger observed that the tender offers and related merger values per
limited partners interest were as follows:
<TABLE>
<CAPTION>
MERGER VALUE TENDER OFFER
(PER $1,000 (PER $1,000
INVESTMENT) INVESTMENT) DISCOUNT TO MERGER VALUE
------------ ------------ ------------------------
<S> <C> <C> <C>
PARKER & PARSLEY
83-B................................... $ 96.42 $50.00 51.86%
87-B................................... 131.44 60.00 45.65
88-A................................... 170.38 80.00 46.95
</TABLE>
18
<PAGE> 26
Stanger observed that the above tender offers represent a discount to the
merger values of 45.65% to 51.86% and average 48.15%. Stanger also observed that
tender offers for limited partnership securities are generally at prices which
represent a substantial discount to the underlying value of the assets held by
such partnerships.
Assumptions. Pioneer USA and Pioneer advised Stanger that the oil and gas
properties owned by the partnerships are subject to operating agreements with
Pioneer USA and that:
- such operating agreements provide for the payment of overhead charges and
that such charges are reasonable compared with amounts charged for
similar services by third-party operators;
- except for cause, such operating agreements do not provide for the
termination of Pioneer USA as operator; and
- such operating agreements do not provide for the revision of the overhead
charges, except as escalated under the terms of such operating
agreements.
Furthermore, Pioneer USA and Pioneer advised Stanger that if each partnership's
reserves were offered for sale to a third party, a condition of such sale would
be that the oil and gas reserves would continue to be subject to the operating
agreements with Pioneer USA which provide for the payment of overhead charges,
and that it would be appropriate to assume, when estimating the value of such
reserves, that such charges would continue.
In addition, Pioneer USA and Pioneer advised Stanger that the reserve value
and working capital balance of each partnership has been properly allocated
between the general partners and the limited partners of each partnership in
accordance with the partnership agreement with respect to a liquidation.
Stanger did not conduct any engineering studies and has relied on estimates
of Pioneer USA and Pioneer with respect to oil and gas reserve volumes, prices,
operating costs, general and administrative expenses and overhead charges with
respect to the reserve value estimates.
Stanger also relied on the assurance of Pioneer USA, Pioneer and the
partnerships that:
- the reserve analysis provided to them was in the judgement of Pioneer USA
and the partnerships reasonably prepared on bases consistent with actual
historical experience and reflect their best currently available
estimates and good faith judgements;
- any estimates of costs to remediate environmental conditions included in
the reserve analysis are based on detailed analyses and reflect the best
currently available estimates and good faith judgements;
- any historical financial data, balance sheet data, merger cost estimates,
merger value analysis, going concern value analyses and liquidation value
analyses are accurate and complete in all material respects;
- all calculations of reserve values, working capital balances, merger
values, going concern values and liquidation values have been made in
accordance with the partnership agreement for each partnership;
- no material changes have occurred in the information reviewed or in the
value of the oil and gas reserves or working capital balances of each
partnership between the date the information was provided to Stanger and
the date of Stanger's opinion; and
- Pioneer USA, Pioneer and the partnerships are not aware of any
information or facts regarding the partnerships, the oil and gas
properties, the reserve analysis or the working capital balances of each
partnership that would cause the information supplied to Stanger to be
incomplete or misleading in any material respect.
19
<PAGE> 27
Stanger's opinion is based upon business, economic, oil and gas market and
other conditions as of the date of its analysis and addresses the merger values
in the context of information available as of the date of Stanger's analysis.
Events occurring after the date of Stanger's analysis could affect the value of
the assets of the partnerships or the assumptions used in the preparation of
Stanger's fairness opinion.
Conclusions. Stanger concluded that, based upon and subject to its
analysis, assumptions, limitations and qualifications cited in its opinion, and
as of the date of the fairness opinion, the merger value to be paid in cash for
the limited partner interests in connection with the mergers is fair from a
financial point of view to the limited partner of each respective partnership.
Compensation and Material Relationships. Stanger has been paid a fee of
$200,000 in connection with the rendering of the fairness opinion. Such fee was
not conditioned on Stanger's findings and is payable whether or not the mergers
are consummated. In addition, Stanger will be reimbursed for all reasonable
out-of-pocket expenses, including legal fees, and will be indemnified against
certain liabilities including certain liabilities under the securities laws.
During the past two years, the partnerships had engaged Stanger to render
financial advisory services in connection with proposed transactions which were
withdrawn and never consummated. In connection with such assignments Stanger was
paid fees aggregating $125,000.
ALTERNATIVE TRANSACTIONS TO THE MERGERS
We considered the following alternative types of transactions before
selecting the merger transaction described in this document. As discussed below,
we believe that the mergers are the best available alternative for the
partnerships to maximize the value of the partnerships' property interests.
Comparison of the Mergers to Continuing Operations. Because the
partnerships' properties are mature, producing properties, we believe that
production from those properties will continue to decline at the rate predicted
in the partnerships' oil and gas engineering reserve reports. Accordingly, cash
distributions from the partnerships will also decline, subject to variation for
changes in oil and gas prices. The marginal benefit of continuing operations of
the partnerships is offset by the general and administrative costs related to
continuing operations. See "Special Factors -- Reasons for the Mergers"
beginning on page 14 of this document.
We also believe there is a substantial advantage in receiving the
liquidating distribution in one lump sum currently. We believe that the reserve
values included in the merger values are higher than the net present value of
estimated future cash distributions to the limited partners from continued
operations because the reserve values have not been reduced for the
reimbursement of Pioneer USA's general and administrative expenses allocable to
each partnership. In addition, the estimates of distributions from continued
operations are based upon current oil and gas prices. It is likely that over a
long period of time, oil and gas prices will vary often and possibly widely, as
has been demonstrated historically, from the prices used to prepare these
estimates. Continued operations over a long period of time subject the limited
partners to the risk of receiving lower levels of cash distributions if oil and
gas prices over this period are lower on average than those used in preparing
the estimates of cash distributions from continued operations. Continued
operations also subject the limited partners' potential distributions to the
risk of price volatility and to possible changes in costs or need for workover
or similar significant remedial work on the partnerships' properties. We also
believe that there is an advantage to the limited partners taking cash which can
be redeployed in other investments, rather than continuing to receive decreasing
levels of cash distributions over a long period of time.
We expect that nonparticipating partnerships will continue operations and
will produce their respective reserves until depletion with steadily decreasing
rates of cash flow and, as a result, decreasing cash distributions.
Comparison of the Mergers to Master Limited Partnership. We considered
accomplishing the consolidation of the partnerships through a master limited
partnership, pursuant to which the partnership interests of the limited partners
would be exchanged for interests in the master limited partnership.
20
<PAGE> 28
However, the partnerships' oil and gas properties are not of sufficient size in
the aggregate to attract new capital through a master limited partnership. In
addition, the partnership interests in a master limited partnership might not be
traded on a national stock exchange or in any other significant market. Some
master limited partnership interests might be sold from time to time in private
or over-the-counter transactions, but the prices would likely reflect a discount
for illiquidity. As a result, a master limited partnership would not provide the
limited partners with immediate and complete liquidity for their investment in
the partnerships. Finally, a master limited partnership would still be burdened
with general and administrative expenses, which would reduce any cash
distributions paid to the partners of the master limited partnerships. The
merger values reflect liquidation values and have not been reduced for any
reimbursement of Pioneer USA's general and administrative expenses allocable to
the partnerships.
Comparison of the Mergers to Royalty Trust. We also considered a royalty
trust, pursuant to which the partnership interests would be exchanged for
beneficial ownership interests in the trust. Like the master limited partnership
alternative discussed above, the partnerships' oil and gas properties are not of
sufficient size in the aggregate to attract new capital through a royalty trust.
In addition, the beneficial ownership interests in a royalty trust might not be
publicly traded in a significant market. As a result, this alternative was not
selected because it would not result in immediate and complete liquidity for the
partners' investments in the partnerships. Finally, a royalty trust would still
be burdened with general and administrative expenses, which would reduce any
cash distributions paid to the beneficiaries of the royalty trust. The merger
values reflect liquidation values and have not been reduced for any
reimbursement of Pioneer USA's general and administrative expenses allocable to
the partnerships.
Comparison of the Mergers to Auction. Offering oil and gas properties for
sale at auction is often an efficient means of selling smaller interests in
properties in which the seller is not the operator of the property. However,
auctions are generally unsuited to the offer and sale of substantial property
interests such as those owned by the partnerships, which exceed the normal size
of properties offered at auction, and might well be beyond the purchasing
capacity of the parties which typically are bidders at auctions. Attempting to
auction such properties would cause such properties to dominate each auction and
would likely lower the price or the number of interested bidders. In order to
avoid this consequence, the partnerships' interests in properties could be
divided into smaller pieces and offered at auction on multiple occasions over
several years. That extended auction might be counterproductive in terms of
prices received, thus minimizing many of the benefits of selling properties at
auction.
Comparison of the Mergers to Negotiated Sale. We also considered whether
the partnerships would benefit from attempting to sell their property interests
in negotiated transactions. Buyers would be purchasing many partnerships'
property interests which they would neither control nor operate. A portion of
the value of the properties in which the partnerships own interests would
continue to be operated by Pioneer USA because Pioneer USA controls other
interests in fields in which the partnerships' properties are located. Because
of Pioneer USA's control of such properties, Pioneer and Pioneer USA believe
Pioneer is the party in the position to pay the highest price for such interests
and the one most likely to do so. In contrast, Pioneer USA's control of such
properties could negatively affect the amount a third party is willing to pay
and the overall interest of third parties in buying such properties.
In addition, sale of the partnerships' properties on a direct basis often
involves substantial periods of time for due diligence, negotiation and
execution of agreements and closings, often with different purchasers for
different properties. Satisfying due diligence requests requires large amounts
of time to create and supervise data rooms or disseminate data to possible
purchasers, plus the time needed to deal directly with multiple prospective
purchasers. Furthermore, some issues, such as environmental and title matters,
may come to light in the late stages of a negotiated sale, which may delay or
preclude the consummation of the sale.
21
<PAGE> 29
The transaction costs for offering properties in a negotiated sale could be
substantial, and often are higher than other means of sale. Those costs include:
- preparing and disseminating information on properties to be offered;
- soliciting attendance by prospective purchasers; and
- screening and qualifying purchasers.
Although we believe the factors described above to be true, we will
consider third party offers to purchase any partnership or its assets. See
"Third-Party Offers" on page 32.
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION
Pioneer and Pioneer USA caution you that this document, any supplement and
other statements Pioneer or Pioneer USA make from time to time contain
statements that may constitute "forward-looking statements." Those statements
include statements regarding Pioneer's and Pioneer USA's intent, belief or
current expectations, as well as the assumptions on which those statements are
based. Forward-looking statements are not guarantees of future performance and
involve risks and uncertainties, and actual results may differ materially from
those contemplated by forward-looking statements. Important factors currently
known to Pioneer and Pioneer USA's management that could cause actual results to
differ materially from those in forward-looking statements include, but are not
limited to, those factors set forth from time to time in reports the
partnerships filed with the Securities and Exchange Commission. Some of these
factors are also described in "Risk Factors" beginning on page 8 of this
document. Except as required by law, Pioneer and Pioneer USA undertake no
obligation to update or revise forward-looking statements to reflect changes in
assumptions, the occurrence of unanticipated events or changes to future
operating results over time. You are cautioned not to place too much reliance on
such statements.
METHOD OF DETERMINING MERGER VALUES
AND AMOUNT OF CASH OFFERED
Pioneer and Pioneer USA agreed to merger values for each of the
partnerships for purposes of the mergers. The method of determining merger
values was not determined by arm's-length negotiations. See "Risk Factors -- You
Were Not Independently Represented in Establishing the Terms of the Mergers" on
page 9 and "Interests of Pioneer, Pioneer USA and Their Directors and Officers"
on page 43.
COMPONENTS OF MERGER VALUES
The merger value assigned to each partnership was calculated as follows:
- Pioneer and Pioneer USA calculated the volumes of the partnership's
proved reserves as of June 30, 1999, based on a future production curve
consistent with the production curve used in the reserve report of
Williamson Petroleum Consultants, Inc. as of December 31, 1998. Pioneer
and Pioneer USA ignored any economic limit, or point at which production
would become unprofitable, otherwise assumed in the 1998 Williamson
reserve report because that reserve report used NYMEX oil and gas prices
as of December 31, 1998, which were $12.00 per Bbl of oil and $2.00 per
Mcf of gas. In contrast, Pioneer and Pioneer USA used (1) an arithmetic
average of the five-year NYMEX futures price as of June 30, 1999, which
was approximately $18.00 per Bbl of oil, less standard industry
adjustments, and (2) the NYMEX price of $2.40 per Mcf of gas, less
standard industry adjustments, to calculate the merger values. Based on
this pricing, production could continue profitably for a longer period of
time than assumed in the 1998 Williamson reserve report.
- Pioneer and Pioneer USA calculated estimated future net revenues from the
estimated reserves at June 30, 1999, using (1) an arithmetic average of
the five-year NYMEX futures price for oil, which was approximately $18.00
per Bbl of oil, less standard industry adjustments, and (2) the
22
<PAGE> 30
NYMEX price of $2.40 per Mcf of gas, less standard industry adjustments.
Pioneer and Pioneer USA adjusted the estimated future net revenues for
standard industry price adjustments, including:
-- production costs;
-- the effects of oil quality;
-- BTU content for gas;
-- oil and gas gathering and transportation costs; and
-- gas processing costs and shrinkage.
Those adjustments reflect assumptions about the costs to extract, transport and
process, if necessary, crude oil, natural gas liquids and natural gas to their
point of sale.
- Pioneer and Pioneer USA calculated the present value of the estimated
future net revenues using a 12.5% discount rate.
- Pioneer and Pioneer USA added the present value of the partnership's
estimated future net revenues as of June 30, 1999 to the partnership's
net working capital as of June 30, 1999, as reduced by its pro rata
share, based on its reserve value, of the estimated expenses and fees of
the mergers of all of the partnerships, including the 21 non-public
limited partnerships and 13 privately-held employee partnerships
described in "Transactions Among The Partnerships, Pioneer, Pioneer USA
and Their Directors and Officers" on page 45 of this document.
Appendix B to this document contains a summary of the 1998 Williamson
reserve report for the partnerships, including assumptions used in the
preparation of that report.
Pioneer and Pioneer USA will update the information presented in this
document from June 30, 1999 to September 30, 1999 before mailing this document
to the limited partners. Robert A. Stanger & Co., Inc. will review the September
30, 1999 data and determine if it can give its fairness opinion based on that
data. Likewise, Pioneer USA's board of directors will make its determination as
to whether the mergers are advisable, fair to the limited partners, and in their
best interests based on the September 30, 1999 data. From the mailing date of
this document to the closing date of the mergers, neither Pioneer nor Pioneer
USA will adjust any of the components of the merger values.
Estimated Reserve Volumes. Pioneer and Pioneer USA believe it is
appropriate to calculate estimated reserve volumes at June 30, 1999. Pioneer and
Pioneer USA estimate that the mergers will be consummated in the latter half of
December 1999, but before a 1999 year-end reserve report can be prepared in
accordance with the guidelines of the SEC. However, because the properties are
long-lived, mature, producing properties, Pioneer and Pioneer USA believe the
production curve used in preparing the reserve values as of June 30, 1999 is
similar, in all material respects, to the production curve in the 1998
Williamson reserve report.
Estimated Future Net Revenues. Pioneer and Pioneer USA agreed to calculate
estimated future net revenues of the estimated reserves at June 30, 1999, using
(1) an arithmetic average of the five-year NYMEX futures price for oil, which
was approximately $18.00 per Bbl of oil, less standard industry adjustments, and
(2) the NYMEX price of $2.40 per Mcf of gas, less standard industry adjustments.
Pioneer and Pioneer USA used production costs consistent with those assumed in
the 1998 Williamson reserve report. Pioneer and Pioneer USA believe it is
appropriate to use production costs similar to those assumed in the 1998
Williamson reserve report because such costs have been fairly stable and
predictable over the last several years.
Present Value of Estimated Future Net Revenues. Pioneer and Pioneer USA
agreed to use a 12.5% discount rate to determine the present value of estimated
future net revenues from each partnership's reserves. Pioneer and Pioneer USA
believe 12.5% is a rate within the range of discount rates commonly used in the
oil and gas industry in property acquisitions of producing properties, although
it is higher than
23
<PAGE> 31
the 10% rate that the SEC requires for comparative purposes in the year-end
reports of publicly traded oil and gas companies.
None of the partnerships has any material long-term gas contracts. Pioneer
and Pioneer USA estimated future operating costs based on costs in effect at
December 31, 1998. In addition, Pioneer and Pioneer USA do not believe that the
present value of any partnership's proved reserves is significantly affected by
curtailments of gas production. The reserve estimates do not reflect the effect
of any "take-or-pay" clauses in gas contracts, which effect we expect to be
insignificant.
Net Working Capital. No cash distributions will be made by the partnerships
to their partners after September 30, 1999 through the closing date or
termination date of the mergers. The cash payments of the merger values to
limited partners of the participating partnerships already reflect those
distributions. However, any cash distributions by a nonparticipating partnership
which would have been paid during that time period in the ordinary course of
that partnership's business will be distributed to its partners at the same time
that checks are mailed to the partners, other than Pioneer USA, of participating
partnerships. The merger values have been reduced by the estimated expenses and
fees of the mergers of the partnerships, including the 21 non-public limited
partnerships and 13 privately-held employee partnerships described in
"Transactions Among The Partnerships, Pioneer, Pioneer USA and Their Directors
and Officers" on page 45 of this document.
Since the merger values include net working capital, the merger values
assigned to the partnerships include the partnerships' assets and liabilities
other than their oil and gas reserves. The partnerships' other assets and
liabilities consist mainly of cash, accounts receivable from the sale of oil and
gas production and accounts payable.
Pioneer USA will assume all of the liabilities, including contingent
liabilities and obligations, of the participating partnerships as of the closing
date of the mergers. As of the date of this document, Pioneer USA is not aware
of any material contingent liabilities to which any partnership is subject.
ALLOCATION OF MERGER VALUES AMONG PARTNERS
In determining the portion of the merger value attributable to each $1,000
of initial limited partner investment in a partnership, Pioneer determined the
amount payable per $1,000 investment as if the assets of the partnership had
been sold on June 30, 1999 for cash equal to the merger value and the proceeds
distributed in accordance with the liquidation provisions of the partnership's
partnership agreement. If Pioneer USA were to receive any cash payment in the
mergers, this methodology would result in Pioneer USA receiving an equal amount
or a lesser amount than it would have received if the aggregate merger value was
allocated among the partners based on the revenue-sharing provisions of the
partnership agreement.
OTHER METHODS OF DETERMINING MERGER VALUES
Pioneer and Pioneer USA believe that the method used to determine the
merger values is a fair and reasonable method of valuing the partnerships'
properties. Pioneer and Pioneer USA considered a number of alternative methods
of determining the merger values before selecting a method. However, this method
might not accurately reflect the value of the partnerships' assets. See "Risk
Factors -- The Merger Values Involve Estimates that Will Not Be Adjusted" on
page 8. The following alternative methods for determining the merger values
should be taken into account in assessing the adequacy of this method:
Book Value of Assets. Pioneer and Pioneer USA did not base the calculation
of merger values on the net book value of the partnerships' assets. The net book
values of the partnerships' assets are based upon the financial statements
reported in accordance with generally accepted accounting principles. The net
book values are not adjusted for estimates in changes in the fair market value
of the assets. For this reason, Pioneer and Pioneer USA believe that the merger
values are more indicative of the fair market value of the assets of the
partnerships than the assets' net book values.
24
<PAGE> 32
Trading Price of Units. None of the partnership interests are traded on a
national stock exchange or in any other significant market. Although some
partnership interests are occasionally sold in private or over-the-counter
transactions, Pioneer and Pioneer USA believe any market for the partnership
interests:
- is highly illiquid;
- reflects an illiquidity discount; and
- as a result, is not reliable as an indicator of value.
As a result, Pioneer and Pioneer USA did not base the calculation of merger
values on recent trading prices of partnership interests in the partnerships.
See Table 14 of Appendix A for historical information about recent trades of
partnership interests in the partnerships.
Repurchase Offers. Pioneer and Pioneer USA did not base the calculation of
merger values on the price of recent repurchase offers in the partnerships. Most
partnerships do not have a repurchase offer obligation, so no repurchase price
information was available for those partnerships. The merger values are higher
than the 1999 repurchase offer prices for the few partnerships that had such
requirements because the repurchase prices were based on NYMEX oil and gas
prices as of December 31, 1998, which were $12.00 per Bbl of oil and $2.00 per
Mcf of gas. In contrast, the merger values are based on (1) an arithmetic
average of the five-year NYMEX futures price for oil, which was approximately
$18.00 per Bbl of oil, less standard industry adjustments, and (2) the NYMEX
price of $2.40 per Mcf of gas, less standard industry adjustments. See "Risk
Factors -- Repurchase Rights Terminate on Completion of the Mergers" on page 10
of this document.
Timing of Pricing. Pioneer and Pioneer USA did not calculate the merger
values using December 31, 1998 oil and gas prices. Oil and gas prices declined
significantly in 1998, which adversely affected the cash distributions that
limited partners had been receiving. However, oil and gas prices have recovered
from NYMEX oil and gas prices of $12.00 per Bbl of oil and $2.00 per Mcf of gas
as of December 31, 1998, to (1) an arithmetic average of the five-year NYMEX
futures price for oil as of June 30, 1999, which was approximately $18.00 per
Bbl of oil, less standard industry adjustments, and (2) the NYMEX price of $2.40
per Mcf of gas, less standard industry adjustments. Pioneer and Pioneer USA used
those recovered oil and gas prices to calculate the merger values. Although
Pioneer and Pioneer USA expect that long-term oil and gas prices will not
increase materially above the prices used in calculating the merger values, no
assurance can be given that prices will not increase significantly in the
future. Significant increases in future prices would increase cash available for
distribution from the partnerships and could, in retrospect, suggest that the
merger values were low by comparison.
INFORMATION SOURCES
Pioneer used the records of Pioneer USA and the partnerships to derive the
information regarding:
- the ownership interests;
- prices being received or contracted for;
- costs;
- production;
- allocation of revenues and costs between classes of partners;
- capital accounts of partners; and
- other factual data used by Pioneer:
-- to prepare its estimates of proved reserves;
-- to compute the merger values; and
-- to determine the allocation among partners of the cash payment to be
received.
25
<PAGE> 33
While Pioneer has implemented procedures designed to verify some of this
information, the nature and volume of data preclude verification of all
information. In addition, information relating to prices, costs and production
history frequently is estimated based on incomplete data and is subject to
varying interpretations. Likewise, the provisions of some of the partnership
agreements are subject to different interpretations. In allocating the merger
value assigned to a partnership among its partners, Pioneer and Pioneer USA
attempted to apply a reasonable interpretation of those provisions.
26
<PAGE> 34
THE MERGERS
GENERAL
Immediately before the effective time of each merger, the partnership
agreement for each participating partnership will be amended by the merger
amendment to permit the merger of the partnership with and into us. At the
effective time of the mergers, the participating partnerships will be merged
with and into us. We will be the surviving entity. In addition, at the effective
time of the mergers, each of your partnership interests in a participating
partnership will be converted into the right to receive cash. The amount of cash
you receive:
- will be based on the merger values assigned to the partnerships; and
- will equal the amount that you would have received on liquidation of the
partnerships if the partnerships' assets had been sold on June 30, 1999
for cash equal to the merger values.
The merger value of a partnership is equal to the partnership's reserve
value and its net working capital, as reduced by its pro rata share of the
estimated expenses and fees of the mergers, in each case as of June 30, 1999.
The reserve value is based on the present value of estimated future cash flows
from the partnership's reserves at June 30, 1999, using (1) an arithmetic
average of the five-year NYMEX futures price for oil, which was approximately
$18.00 per Bbl of oil, less standard industry adjustments, (2) the NYMEX price
of $2.40 per Mcf of gas, less standard industry adjustments, and (3) a 12.5%
discount rate.
Pioneer and Pioneer USA agreed to use September 30, 1999 to determine the
merger values because that will be the most recent quarter-end preceding the
date on which Pioneer USA mails this document to the limited partners. However,
to provide an example in this preliminary document, Pioneer and Pioneer USA
calculated the merger values as of June 30, 1999. Pioneer and Pioneer USA intend
to revise those numbers as of September 30, 1999 prior to mailing this document
to the limited partners.
LEGAL OPINION FOR LIMITED PARTNERS
All of the partnership agreements require that special legal counsel render
an opinion on behalf of the limited partners to Pioneer USA that neither the
grant nor the exercise of the right to approve the mergers by the limited
partners will adversely affect the tax status of the partnerships. In addition,
some of the partnership agreements require an opinion that such an approval will
not result in the loss of any limited partner's limited liability. For some
partnerships, the counsel designated to render the opinion must be counsel other
than counsel to Pioneer USA or the partnerships. In all cases, the designated
counsel and the legal opinion must be approved by the limited partners. Pioneer
USA has retained of Dallas, Texas for the purpose of rendering this
legal opinion on behalf of all of the limited partners to Pioneer USA. The
merger proposals include an approval of that counsel and the form of its
opinion. See "The Special Meetings -- Time and Place; Purpose" on page 39 of
this document. A copy of the opinion is attached as an exhibit to the merger
proposals.
DISTRIBUTION OF CASH PAYMENTS
Upon completion of the mergers, the partners will have no continuing
interest in, or rights as partners of, any participating partnership. The
transfer books of each participating partnership will be closed on the closing
date of the mergers. All partnership interests in the participating partnerships
will cease to be outstanding, will automatically be cancelled and retired, and
will cease to exist. The certificates previously representing partnership
interests in participating partnerships held by record partners will represent
only the right to receive cash.
We intend to mail checks to the partners of record promptly following the
effectiveness of the mergers in payment of the merger values. Partners will not
be required to surrender partnership interest certificates to receive the cash
payment.
27
<PAGE> 35
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
considerations of a conversion of partnership interests into cash pursuant to
the mergers. The federal tax consequences of the mergers will vary for each
limited partner because of the different circumstances of each participating
partnership and the individual federal income tax position of each limited
partner.
The following discussion is based upon current law. Future legislative,
judicial or administrative changes or interpretations could alter or modify the
following statements and conclusions, and any of these changes or
interpretations could be retroactive and could affect the tax consequences to
the limited partners.
The following discussion is not exhaustive of all possible tax
considerations. It does not address any state, local or foreign tax
considerations, nor does it discuss all of the aspects of federal income
taxation that may be relevant to specific partners in light of their particular
circumstances. The discussion below describes general federal income tax
considerations applicable to individuals who are citizens or residents of the
United States, and therefore has limited application to domestic corporations
and persons subject to specialized federal income tax treatment, such as foreign
persons, tax-exempt entities, regulated investment companies and insurance
companies.
YOU ARE ADVISED TO CONSULT YOUR OWN TAX ADVISOR TO DETERMINE ALL OF THE
RELEVANT FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF THE MERGERS TO YOU. THE
FOLLOWING DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING,
AND YOU MUST DEPEND UPON THE ADVICE OF YOUR OWN TAX ADVISOR CONCERNING THE
EFFECTS OF THE MERGERS.
Tax Consequences of a Conversion of Partnership Interests.
- Generally. As more fully described below, if you own partnership
interests in a participating partnership, you will generally recognize an
aggregate amount of net gain or loss equal to the difference between the
amount of cash you receive in the mergers and your adjusted tax basis in
your partnership interests immediately prior to the mergers. That net gain
or loss may be comprised of ordinary income or ordinary loss depending upon
the extent of any recapture of depletion or intangible drilling and
development costs and any appreciation or depreciation in the ordinary
assets of the partnership. The recognition of ordinary income will decrease
the capital gain component or increase the capital loss component of the
net gain or loss otherwise recognizable as a consequence of the mergers.
- Characterization of Mergers. A merger of a participating partnership
into Pioneer USA should be treated for federal income tax purposes as a
sale by such partnership of its assets and a distribution of the proceeds
in liquidation of the limited partnership interests. Under Section 613A of
the Internal Revenue Code, each of the partners must:
- maintain the partner's share of the basis in the partnership's oil
and gas properties at the partner level;
- adjust such basis for depletion deductions; and
- use such basis to calculate gain or loss at the partner level on any
sale by the partnership of its oil and gas properties.
Accordingly, each of the mergers should be generally treated for tax
computation purposes as:
- a taxable sale by you of your interest in a participating
partnership's oil and gas properties for cash and the assumption of
liabilities; and
- a taxable sale of any remaining partnership assets by the
participating partnership followed by a liquidation of the
participating partnership.
28
<PAGE> 36
- Gain or Loss on Sale of Partnership Oil and Gas Properties. Upon the
deemed sale of a partnership's oil and gas properties in the mergers, you
will recognize gain or loss equal to the difference between:
- the portion of the partnership's "amount realized" on the sale of its
oil and gas properties allocated to you; and
- your adjusted tax basis in the partnership oil and gas properties
sold, which must be reduced to reflect depletion claimed during the
current year in respect of production prior to the date of the
merger.
The amount realized will include the cash received and the amount of any
liability assumed by Pioneer USA in connection with the mergers which is
attributable to the partnership's oil and gas properties. If gain is
recognized on such sale, the portion of the gain that is treated as
recapture of intangible drilling and development costs or depletion will be
treated as ordinary income. See "Recapture of Intangible Drilling and
Development Costs" and "Recapture of Depletion" below. The remainder of
such gain generally will constitute "Section 1231 gain." If loss is
recognized on such sale, such loss generally will constitute "Section 1231
loss." See "Section 1231 Gains and Losses" below. You must take into
account your share of the portion of the gain that constitutes recapture
income, if any, as ordinary income and must aggregate your share of the
Section 1231 gains and losses along with the Section 1231 gains and losses
you realize from other sources.
- Other Gain or Loss. You will also recognize your allocable share of
the partnership's gain or loss, if any, on the deemed sale of its assets
other than oil and gas properties. Such gain or loss will be equal to the
difference between the amount realized by the partnership on the sale of
such assets and the partnership's adjusted tax basis in such assets. Such
gain or loss will be capital or ordinary depending on the nature of the
assets sold.
Finally, in the event that the cash you receive in the mergers is more
or less than the adjusted tax basis in your partnership interests, as
adjusted to reflect gains and losses described in the two preceding
paragraphs as well as the effects of the partnership's current year
activities, then upon the deemed liquidation of a partnership, you will
recognize capital gain or loss equal to the difference between such
amounts. See "Tax Consequences of Partnership Operations" below.
You will be provided with information necessary to make the
calculations described above for purposes of filing your own federal income
tax return. In order to simplify your federal income tax reporting, this
information will include a calculation of the amount and character of your
gain on the deemed sale of the partnership's oil and gas properties based
upon our estimates. You should verify the accuracy of these calculations
based upon your own records.
- Section 1231 Gains and Losses. Generally, if the total amount of the
Section 1231 gains exceeds the total amount of Section 1231 losses, all
such gains and losses will be treated as capital gains and losses, and if
the total amount of the Section 1231 losses exceeds the total amount of the
gains, all such gains and losses will be treated as ordinary income and
losses. However, your net Section 1231 gains will be treated as ordinary
income to the extent of your net Section 1231 losses during the immediately
preceding five years, reduced by any amount of net Section 1231 losses that
have been previously "recaptured" by you pursuant to this rule.
- Recapture of Intangible Drilling and Development Costs. Generally,
all or a portion of the amounts previously deducted for intangible drilling
and development costs with respect to a property must be recaptured upon
the disposition of such property by treating the gain, if any, realized on
such disposition as ordinary income to the extent of such amounts. With
respect to a property placed in service prior to 1987, the potential
recapture amount is equal to the excess of the aggregate amounts previously
deducted for intangible drilling and development costs with respect to such
property over the amount by which the deduction for depletion with respect
to such property would have been increased had the intangible drilling and
development costs been capitalized and recovered through
29
<PAGE> 37
depletion rather than deducted in the year incurred. It should be noted
that, if percentage depletion, rather than cost depletion, has been claimed
with respect to such property, the hypothetical capitalization of
intangible drilling and development costs may result in little or no
increase in depletion deductions and, as a consequence, most or all of the
intangible drilling and development costs with respect to such property may
be subject to recapture. With respect to property placed in service during
1987 or thereafter, the full amount of intangible drilling and development
costs previously deducted, unreduced by depletion, is subject to recapture
to the extent of any gain.
- Recapture of Depletion. Upon the disposition of a property that was
placed in service during 1987 or thereafter, all amounts previously
deducted for depletion, whether cost depletion or percentage depletion, to
the extent such amounts reduced the basis in the property, must be
recaptured by treating the gain, if any, recognized on such disposition as
ordinary income to the extent of such amounts. No such recapture rule is
applicable to a property placed in service before 1987.
- Tax Rates. The capital gains rate for individuals and other
non-corporate taxpayers is 20% if the capital asset has been held for more
than one year at the time of consummation of the mergers. Corporate
taxpayers are taxed at a maximum marginal rate of 35% for both capital
gains and ordinary income. The maximum marginal federal income tax rate for
ordinary income of individuals and other non-corporate taxpayers is 39.6%.
Capital losses are deductible only to the extent of capital gains, except
that, subject to the passive activity loss limitation discussed below,
non-corporate taxpayers may deduct up to $3,000 of capital losses in excess
of the amount of their capital gains against ordinary income. Excess
capital losses generally can be carried forward to succeeding years. A
corporation is permitted to carry back excess capital losses to the three
preceding years, provided the carryback does not increase or produce a net
operating loss for any of those years. A corporation's carryforward period
is five years and a non-corporate taxpayer can carry such losses forward
indefinitely.
- Passive Activity Loss Limitation. Under Section 469 of the Internal
Revenue Code, any losses from the participating partnerships that have been
suspended under the passive loss rules will become fully deductible as a
result of the mergers.
FIRPTA Withholding. Gain recognized by a foreign limited partner on the
sale by a partnership of its assets pursuant to the mergers which is effectively
connected with the conduct of a U.S. trade or business will be subject to
federal income tax. Gain realized on the sale of U.S. real property, including a
participating partnership's oil and gas properties, is treated as effectively
connected with the conduct of a U.S. trade or business for this purpose. Under
Internal Revenue Code Section 1446, a partnership in which an interest is held
by a foreign person generally is required to deduct and withhold a tax equal to
the highest marginal federal income tax rate applicable to the partner
multiplied by such partner's allocable share of effectively connected income. In
order to comply with this requirement, each participating partnership will
withhold the prescribed percentage of the effectively connected income allocated
to you unless you properly complete and sign a "FIRPTA Affidavit" certifying
your taxpayer identification number and address, and that you are not a foreign
person. Amounts withheld will be creditable against a limited partner's federal
income tax liability and, if in excess thereof, a refund may be obtained from
the Internal Revenue Service by filing a U.S. income tax return.
Tax Consequences of Partnership Operations. The federal income tax
consequences of the mergers, described above, are in addition to the tax
consequences of your status as a partner in a participating partnership for the
taxable year ending on the closing date of the mergers. You must include your
allocable share of a participating partnership's items of income, gain, loss,
deduction and credit for that taxable year, including your allocable share
through the closing date of the mergers, on your federal income tax return for
that taxable year. That information will be provided to you on a Schedule K-1 as
required by tax laws. The results of partnership operations for such period will
impact your tax basis in a participating partnership, and your computation of
gain or loss resulting from the mergers.
30
<PAGE> 38
ACCOUNTING TREATMENT
The mergers will be accounted for as purchases under generally accepted
accounting principles. Under those rules, Pioneer USA will record the assets and
liabilities of the participating partnerships on its books at their estimated
fair market values.
NO APPRAISAL OR DISSENTER RIGHTS
Under the laws of the State of Delaware and the State of Texas, which are
the states of formation of the partnerships, you are not entitled to appraisal
or dissenter rights with respect to the mergers.
FUTURE OF NONPARTICIPATING PARTNERSHIPS
If the limited partners of a partnership do not approve the merger of that
partnership, it will not participate in the mergers and will remain in
existence. Each nonparticipating partnership will continue to operate as a
separate legal entity with its own assets and liabilities. There will be no
immediate change in its business objectives, and Pioneer USA plans to continue
to manage and operate each nonparticipating partnership in accordance with the
terms of its current partnership agreement. A limited partner in a
nonparticipating partnership will retain the rights, privileges and obligations
that the partner currently has pursuant to the partnership agreement of the
nonparticipating partnership. At the same time that Pioneer USA mails checks to
the partners of participating partnerships in payment of the merger values,
Pioneer USA will mail any cash distributions that were delayed for
administrative purposes prior to the completion of the mergers to the partners
of nonparticipating partnerships.
Pioneer USA's board of directors will determine each nonparticipating
partnership's business plan. In addition, the board of directors of each of
Pioneer and Pioneer USA will decide what, if any, actions they will take with
respect to the nonparticipating partnerships. Potential activities include a
tender offer for partnership interests of limited partners or a proposal to
acquire the assets of, or merge with, one or more of the nonparticipating
partnerships. Such proposals may be on terms similar to or different from those
of the mergers described in this document.
Pioneer USA plans to continue to manage each nonparticipating partnership
until such partnership is dissolved or Pioneer USA is replaced as the general
partner of such partnership. The replacement of Pioneer USA as general partner
would require compliance with the partnership agreement of such nonparticipating
partnership, including the requisite vote of the limited partners thereof. A
nonparticipating partnership may be dissolved in the future in accordance with
its partnership agreement if Pioneer USA or any substituted general partner
withdraws from the nonparticipating partnership, or in some cases, otherwise
elects to dissolve that partnership. Pioneer USA might withdraw from, or
otherwise elect to dissolve, a nonparticipating partnership if Pioneer USA
determines that the nonparticipating partnership's continued operation is
uneconomical or its dissolution and liquidation are in the best interests of the
partners. Upon dissolution, the nonparticipating partnership's assets may be
sold for cash or securities, which may be more or less than the merger value
assigned to that partnership, or distributed in kind to the partners of the
nonparticipating partnership. Any such sale may be to Pioneer or an affiliate of
Pioneer and may involve cash or securities of Pioneer.
NONMANAGING GENERAL PARTNERS OF CERTAIN PARTNERSHIPS
Five of the partnerships described in this document have two general
partners. In those five partnerships, Pioneer USA is the managing general
partner. The second general partner in those partnerships is a parallel
partnership whose limited partners are former affiliates of Pioneer's
predecessors.
31
<PAGE> 39
The names of the five partnerships and the names of the nonmanaging general
partner in each of those partnerships are:
<TABLE>
<CAPTION>
PARTNERSHIP NONMANAGING GENERAL PARTNER
----------- ---------------------------
<S> <C>
Parker & Parsley 82-I, Ltd. Parker & Parsley Employees 82-I, Ltd.
Parker & Parsley 82-II, Ltd. Parker & Parsley Employees 82-II,
Ltd.
Parker & Parsley 83-A, Ltd. Parker & Parsley Employees 83-A, Ltd.
Parker & Parsley 83-B, Ltd. Parker & Parsley Employees 83-B, Ltd.
Parker & Parsley 84-A, Ltd. Parker & Parsley Employees 84-A, Ltd.
</TABLE>
Pioneer USA is the sole general partner of each of the nonmanaging general
partners. In that capacity, Pioneer USA has authority:
- to cause the nonmanaging general partner to perform its obligations
relating to the partnership described above; and
- to exercise on behalf of the nonmanaging general partner all of the
rights and elections granted to the nonmanaging general partner by the
partnership described above.
Pioneer USA, as the general partner of the nonmanaging general partners,
has approved the mergers and the distribution of this document to the limited
partners. Pioneer USA will not receive any cash payment in the mergers for its
partnership interests in the nonmanaging general partners.
THIRD-PARTY OFFERS
Pioneer USA will consider offers from third parties to purchase any
partnership or its assets. Those who wish to make an offer for any partnership
or its assets must demonstrate to Pioneer USA's reasonable satisfaction their
financial ability and willingness to complete such a transaction. Before
reviewing non-public information about a partnership, a third party will need to
enter into a customary confidentiality agreement. Pioneer USA will also disclose
the price at which Pioneer plans to acquire the non-public and employee
partnerships. Offers should be at prices and on terms that are fair to the
partners of the partnership and more favorable to the limited partners than the
prices and terms proposed for the mergers in this document. Pioneer reserves the
right to match or top any such offer. Persons desiring to make an offer for any
partnership should contact Timothy L. Dove or Mark L. Withrow, Board of
Directors, Pioneer Natural Resources USA, Inc., 1400 Williams Square West, 5205
North O'Connor Boulevard, Irving, Texas 75039 by November 1, 1999.
At the same time as this transaction, Pioneer is also offering to acquire
21 non-public limited partnerships and 13 privately-held employee limited
partnerships through mergers of those partnerships into Pioneer USA. See
"Transactions Among The Partnerships, Pioneer, Pioneer USA and Their Directors
and Officers" on page 45 of this document. Pioneer USA will also consider offers
from third parties to purchase any of those partnerships as described in the
preceding paragraph.
MERGER AMENDMENT
In order to complete the mergers, the partnership agreements require an
amendment to add a provision permitting the mergers of the partnerships with and
into Pioneer USA. See the merger proposals, which include the merger amendment,
set forth in Appendix D to this document. At the special meetings, the limited
partners will vote upon the merger amendment, which, if approved, will be
effective immediately prior to the effectiveness of the mergers.
32
<PAGE> 40
TERMINATION OF REGISTRATION AND REPORTING REQUIREMENTS
As a result of the mergers, the partnership interests in the participating
partnerships, as well as the participating partnerships themselves, will cease
to exist. Consequently, Pioneer USA intends to terminate:
- registration of the partnership interests of the participating
partnerships under the Securities Exchange Act of 1934; and
- the participating partnerships' obligations to file reports and other
information under the Securities Exchange Act of 1934.
Pioneer USA plans to cause any nonparticipating partnerships to continue to
file reports and other information under the Securities Exchange Act of 1934.
However, Pioneer USA's board of directors could determine to cause such
partnerships to terminate their reporting obligations as permitted by federal
securities laws.
SOURCE OF FUNDS
Pioneer USA will need approximately $64.8 million in cash to complete the
mergers for all of the partnerships, including the 21 non-public limited
partnerships and the 13 privately-held employee partnerships. Pioneer USA will
borrow that amount from Pioneer as an intercompany loan. Pioneer USA plans to
repay that intercompany loan with cash flows from operations. Immediately after
completion of the mergers, the cash portion of the working capital in each
partnership that Pioneer acquires will be used to repay a portion of the
intercompany loan.
Pioneer, in turn, will obtain such funds from its amended credit facility
agreement with a syndicate of banks, including Bank of America, N.A., formerly
NationsBank of Texas, N.A. As of June 30, 1999, the outstanding balance due
under Pioneer's credit facility was $1.01 billion, excluding outstanding,
undrawn letters of credit of $19 million, and the borrowing capacity available
under Pioneer's credit facility was $178 million. Under the terms of its credit
facility, Pioneer must reduce its outstanding credit facility borrowings to $941
million prior to December 31, 1999. Such borrowings bear interest, at Pioneer's
option, based on:
- the prime rate of Bank of America, N.A., formerly NationsBank of Texas,
N.A., which was 7.75% at June 30, 1999;
- a eurodollar rate, which is substantially equal to the London Interbank
Offered Rate, or LIBOR, adjusted for the reserve requirement as
determined by the Board of Governors of the Federal Reserve System with
respect to transactions in eurocurrency liabilities; or
- a competitive bid rate as quoted by the lending banks electing to
participate pursuant to Pioneer's request.
LIBOR rate borrowings under Pioneer's credit facility have periodic
maturities, at Pioneer's option, of one, two, three, six, nine or 12 months. Bid
rate borrowings have periodic maturities, at Pioneer's option, of not less than
15 days nor more than 360 days. The annual interest rate on LIBOR rate
borrowings varies with the periodic LIBOR rate and with specified interest rate
margins that are based on Pioneer's senior, unsecured long-term debt ratings and
certain leverage ratios. The maximum interest rate margin on LIBOR rate
borrowings is 300 basis points. Pioneer's obligations under its credit facility
are guaranteed by Pioneer USA and certain other United States subsidiaries of
Pioneer, and are secured by a pledge of a portion of the capital stock of
certain non-United States subsidiaries of Pioneer.
The terms of Pioneer's credit facility also contain various restrictive
covenants and compliance requirements, which include:
- limits on the incurrence of additional indebtedness;
- restrictions as to merger, sale or transfer of assets without the banks'
prior consent;
33
<PAGE> 41
- enhancement of the banks' collateral rights under certain circumstances;
and
- the maintenance of certain leverage ratios.
The most restrictive leverage ratio is the maintenance of a ratio of outstanding
Pioneer senior debt to earnings before interest, depletion, amortization, income
taxes, exploration and abandonment and other non-cash expenses not to exceed
5.75 to one through September 30, 1999, 4.25 to one through March 31, 2000, and
3.5 to one after that date.
PAYMENT OF EXPENSES AND FEES
The partnerships, including the 21 non-public limited partnerships and 13
privately-held employee partnerships described in "Transactions Among The
Partnerships, Pioneer, Pioneer USA and Their Directors and Officers" on page 45
of this document, which participate in the mergers, will pay all estimated
expenses and fees of the mergers. The net working capital component of each
partnership's merger value has been reduced by that partnership's pro rata
share, based on its reserve value, of the estimated expenses and fees. If
Pioneer terminates the merger as to any partnership or if any partnership does
not approve its merger, then Pioneer will pay the expenses allocated to that
partnership. Pioneer estimates that the expenses and fees for all of the mergers
will be as follows:
<TABLE>
<S> <C>
Filing fee with SEC......................................... $ 9,500
Legal fees.................................................. 400,000
Accounting fees............................................. 30,000
Financial advisor fees...................................... 200,000
Independent petroleum consultant fees....................... 60,000
Printing and mailing fees................................... 3,770,000
Information agent fees and solicitation and tabulation
expenses.................................................. 130,000
Miscellaneous............................................... 20,000
----------
Total expenses.................................... $4,619,500
==========
</TABLE>
34
<PAGE> 42
THE MERGER AGREEMENT
The following describes the material terms of the merger agreement. Pioneer
and Pioneer USA expect to sign the merger agreement after the September 30, 1999
merger values are determined. The full text of the form of the merger agreement
is attached as Appendix E to this document and is incorporated by reference in
this document. We encourage you to read the entire merger agreement.
STRUCTURE; EFFECTIVE TIME
The merger agreement provides for the mergers of the participating
partnerships with and into Pioneer USA, with Pioneer USA surviving the mergers.
The mergers will become effective at the time of the filing of certificates of
merger for each participating partnership with the Secretary of State of the
State of Delaware and, for each participating partnership formed in Texas, with
the Secretary of State of the State of Texas. The certificates of merger are
expected to be filed as soon as practicable after the last condition precedent
to the mergers set forth in the merger agreement has been satisfied or waived.
We estimate that the closing of the mergers will be in the latter half of
December 1999.
EFFECTS OF THE MERGERS
As a result of the mergers, the partners in the participating partnerships
will have no continuing interest in those partnerships. Following the mergers,
there will be no trading market for the partnership interests in, and no further
distributions paid to the former partners of, the participating partnerships. In
addition, following the consummation of the mergers, the registration of any
partnership interests in participating partnerships under the Securities
Exchange Act of 1934 will be terminated.
CONDUCT OF BUSINESS PRIOR TO THE MERGERS
From the date of the merger agreement until the effective time of the
mergers, Pioneer, Pioneer USA and the partnerships are required:
- to conduct their businesses only in the ordinary course consistent with
past practice; and
- to use their reasonable best efforts:
- to preserve intact their business organizations;
- to keep available the services of their officers, employees and
consultants; and
- to preserve their relationships with customers, suppliers and other
persons with which they have significant business dealings.
Pioneer USA has suspended cash distributions to partners until after the
effective time of the mergers. Partners of nonparticipating partnerships will
receive cash distributions that are delayed for administrative purposes at the
same time Pioneer USA mails checks to the partners of participating partnerships
in payment of merger values.
OTHER AGREEMENTS
Special Meetings; Proxies. Pioneer USA has agreed to cause the special
meetings of the limited partners to be duly called and held as soon as
reasonably practicable for the purpose of voting on the approval and adoption of
the merger proposals. Pioneer USA has also agreed to use its reasonable best
efforts to solicit from the limited partners proxies in favor of the merger
proposals and to take all other action necessary or advisable to secure any vote
or consent of the limited partners required by the partnership agreements or the
merger agreement or by law in connection with the mergers.
Reasonable Commercial Efforts. Each party has agreed to use all reasonable
commercial efforts:
- to obtain in a timely manner all necessary waivers, consents and
approvals and to effect all necessary registrations and filings; and
35
<PAGE> 43
- to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate as promptly as practicable the transactions
contemplated by the merger agreement.
REPRESENTATIONS AND WARRANTIES OF PIONEER, PIONEER USA AND THE PARTNERSHIPS
The merger agreement contains substantially reciprocal representations and
warranties of Pioneer and Pioneer USA, on the one hand, and each of the
partnerships, on the other hand, including the following matters:
- due organization or formation, standing, corporate or partnership power
and qualification;
- absence of any conflict, breach, notice requirement or default under
organizational documents and material agreements as a result of the
contemplated mergers;
- authority to enter into and the validity and enforceability of the merger
agreement;
- absence of any material adverse change since June 30, 1999; and
- accuracy of information.
In addition, the merger agreement contains representations and warranties
by:
- each of the partnerships as to capitalization; and
- Pioneer USA as to its capacity as general partner of each partnership and
as general partner of each nonmanaging general partner.
CONDITIONS TO THE MERGERS
Conditions to the Obligations of Each Party. The obligations of Pioneer,
Pioneer USA and the partnerships to complete the mergers are dependent on the
satisfaction of the following conditions:
- the merger agreement shall have been approved by the requisite vote of
the limited partners entitled to vote at the special meetings;
- Pioneer USA shall have received the fairness opinion from Robert A.
Stanger & Co., Inc. that, as of the date of that opinion, the amount of
cash to be received by the limited partners of each partnership in the
mergers is fair from a financial point of view to those partners;
- Pioneer USA shall have received the opinion of counsel to the limited
partners that neither the grant nor the exercise of the right to approve
the mergers by the limited partners will result in the loss of any
limited partner's limited liability or adversely affect the tax status of
the partnerships;
- the absence of any statute, regulation, judgment, injunction, order or
decree that would prohibit the consummation of the mergers;
- the absence of any pending suit, action or proceeding challenging the
legality or any aspect of the mergers or the transactions related to the
mergers;
- all material filings and registrations with, and notifications to, third
parties shall have been made and all material approvals and consents of
third parties shall have been received; and
- the absence of any opinion of counsel that the exercise by the limited
partners of the right to approve the mergers is not permitted by state
law.
Conditions to the Obligations of Pioneer and Pioneer USA. The obligations
of Pioneer and Pioneer USA to complete the mergers are further subject to the
satisfaction of the following conditions:
- each of the partnerships having performed in all material respects its
agreements contained in the merger agreement; and
36
<PAGE> 44
- the representations and warranties of each of the partnerships being true
and correct in all material respects at the closing date of the mergers
as if made at that time unless they relate to another specified time.
Conditions to the Obligations of the Partnerships. The obligations of the
partnerships to complete the mergers are further subject to the satisfaction of
the following conditions:
- each of Pioneer and Pioneer USA having performed in all material respects
its agreements contained in the merger agreement; and
- the representations and warranties of each of Pioneer and Pioneer USA
being true and correct in all material respects at the closing date of
the mergers as if made at that time unless they relate to another
specified time.
TERMINATION OF THE MERGERS AND THE MERGER AGREEMENT
The merger agreement may be terminated and the mergers abandoned, in whole
or in part, for any or all of the partnerships, at any time prior to the
effective time, whether before or after approval by the limited partners:
- by the mutual written consent of the parties;
- by any party, if:
-- any applicable law, rule or regulation makes consummation of the
mergers illegal or otherwise prohibited or any final and non-appealable
judgment, injunction, order or decree enjoining any party from
consummating the mergers is entered;
-- the requisite limited partner approval for a partnership is not
obtained by a vote at the special meetings or at any adjournment or
postponement thereof; or
-- any suit, action or proceeding is filed against Pioneer, Pioneer USA or
any officer, director or affiliate of Pioneer or Pioneer USA
challenging the legality or any aspect of the mergers or the
transactions related thereto;
- by Pioneer, if Pioneer USA or any partnership is in material breach of
the merger agreement;
- by Pioneer USA or any partnership with respect to that partnership's
merger, if Pioneer is in material breach of the merger agreement;
- by Pioneer USA, if Pioneer USA determines that termination of the merger
agreement is required for its board to comply with its fiduciary duties;
or
- by Pioneer, if there shall have occurred any event, circumstance,
condition, development or occurrence causing, resulting in or having, or
reasonably expected to cause, result in or have, a material adverse
effect (1) on any partnership's business, operations, properties, taken
as a whole, condition, financial or otherwise, results of operations,
assets, taken as a whole, liabilities or cash flows, or (2) on market
prices for oil and gas prevailing generally in the oil and gas industry
since the date of determination of the oil and gas commodity prices used
in the determination of the merger values.
If the merger agreement is validly terminated or the mergers are abandoned,
no party shall have any liabilities or obligations to the other parties except:
- if Pioneer terminates the merger agreement or abandons the mergers,
Pioneer will pay all estimated expenses and fees of the mergers of all of
the partnerships incurred before the termination of the merger agreement
or abandonment of the mergers; and
- a party will be liable if that party is in breach of the merger
agreement.
37
<PAGE> 45
AMENDMENTS; WAIVERS
Any provision of the merger agreement may be amended prior to the effective
time if the amendment is in writing and signed by Pioneer and Pioneer USA;
provided, that after the approval of the merger proposals by the limited
partners, no amendment shall, without the further approval of the limited
partners:
- change the type or amount of, or the method of determining, the
consideration to be received in exchange for any partnership interests in
the partnerships; or
- materially and adversely affect the rights of the limited partners of the
partnership, other than a termination of the merger agreement or
abandonment of the mergers.
Prior to the effective time, the parties may:
- extend the time for the performance of any of the obligations of the
parties;
- waive any inaccuracies in the representations and warranties in the
merger agreement or in a document delivered pursuant to the merger
agreement; and
- waive compliance with any agreement or condition in the merger agreement.
Any such extension or waiver will be valid only if it is in writing and signed
by the party against whom the extension or waiver is to be effective.
38
<PAGE> 46
THE SPECIAL MEETINGS
TIME AND PLACE; PURPOSE
The special meetings of the limited partners of the partnerships will be
held on , 1999, at 2:00 p.m., at the Wyndham Anatole Hotel,
Room, 2201 Stemmons Freeway, Dallas, Texas 75207. The purpose of the special
meetings, and any adjournment or postponement of the special meetings, is for
the limited partners of each partnership to consider and vote on the following
matters:
- A proposal to approve an Agreement and Plan of Merger dated as of
, 1999, among Pioneer, Pioneer USA and each of the
partnerships. Each partnership that approves this proposal will merge
with and into Pioneer USA, with Pioneer USA surviving the merger. Each
partnership interest of a participating partnership, other than Pioneer
USA's interests, will be converted into the right to receive an amount of
cash. The amount of cash to be paid for all partnership interests of a
participating partnership will be based on the participating
partnership's merger value. The merger value of a participating
partnership is equal to its reserve value and its net working capital, as
reduced by its pro rata share of the estimated expenses and fees of the
mergers of all of the partnerships, in each case as of September 30,
1999. We calculated the cash payment using information as of June 30,
1999 for purposes of illustration. We intend to change each reference to
"June 30, 1999" to be "September 30, 1999" and to revise June 30, 1999
numbers as of September 30, 1999 before mailing the definitive proxy
statement to the limited partners. The cash payment will be allocated
among the partners based on the liquidation provisions of each
partnership agreement. Pioneer USA will not receive any cash payment for
its partnership interests in the participating partnerships. However, as
a result of the mergers, Pioneer USA will acquire 100% of the properties
of the participating partnerships, including properties attributable to
its partnership interests in those partnerships.
- A proposal to amend the partnership agreement of each partnership to
permit the partnership's merger with Pioneer USA. If the amendment is not
approved, that partnership cannot merge into Pioneer USA even if the
partners of that partnership approve the merger agreement.
- A proposal to approve the opinion issued to Pioneer USA by on
behalf of the limited partners that neither the grant nor the exercise of
the right to approve the mergers by the limited partners will result in
the loss of any limited partner's limited liability or adversely affect
the tax status of the partnerships and to approve the selection of
as special legal counsel for the limited partners to render
such legal opinion.
- Other business that properly comes before the special meetings or any
adjournments or postponements of the special meetings. Pioneer USA is not
aware of any other business for the special meetings.
The Delaware Revised Uniform Limited Partnership Act and the Texas Revised
Limited Partnership Act require limited partner approval and adoption of the
merger agreement and the merger amendment. Generally, the partnership agreements
of the partnerships require that special legal counsel for the limited partners
render its legal opinion related to the limited partners' approval of the
mergers. See "The Mergers -- Legal Opinion for Limited Partners" on page 27 of
this document.
PIONEER USA'S BOARD OF DIRECTORS UNANIMOUSLY DETERMINED THAT THE MERGERS
ARE ADVISABLE, FAIR TO THE LIMITED PARTNERS OF EACH PARTNERSHIP, AND IN THE
LIMITED PARTNERS' BEST INTERESTS. THE BOARD RECOMMENDS THAT THE LIMITED PARTNERS
VOTE FOR THE MERGER PROPOSALS. ALTHOUGH PIONEER USA'S BOARD OF DIRECTORS HAS
ATTEMPTED TO FULFILL ITS FIDUCIARY DUTIES TO THE LIMITED PARTNERS, PIONEER USA'S
BOARD OF DIRECTORS HAD CONFLICTING INTERESTS IN EVALUATING THE MERGERS BECAUSE
EACH MEMBER OF ITS BOARD OF DIRECTORS IS ALSO AN OFFICER OF PIONEER.
One or more representatives of Ernst & Young LLP are expected to be present
at the special meetings to answer appropriate questions of limited partners and
to make a statement if so desired.
39
<PAGE> 47
RECORD DATE; VOTING RIGHTS AND PROXIES
Only limited partners of record at the close of business on ,
1999 are entitled to notice of and to vote at the special meetings of the
partnerships in which they own partnership interests, or any adjournments or
postponements of such special meetings. Pioneer USA and its affiliates are
entitled to vote partnership interests they hold as limited partners in all of
the partnerships except:
Parker & Parsley 85-A, Ltd.
Parker & Parsley 85-B, Ltd.
Parker & Parsley 91-A, L.P.
Parker & Parsley 91-B, L.P.
Limited partners of record are entitled to vote at their partnership's
special meeting based on their percentage of partnership interests in that
partnership. Each limited partner will receive a proxy card for each partnership
in which that limited partner holds partnership interests. The proxy card will
indicate the amount of the cash payment offered with respect to such partnership
interests in each partnership. The amount of the cash payment offered as shown
on the proxy card will not be adjusted. The percentage of partnership interests
that a limited partner holds in a partnership is determined by comparing the
amount of the limited partner's initial investment, including any additional
assessments, in the partnership to the total investment of all partners,
including any additional assessments, in the partnership. The aggregate initial
investment, including any additional assessments, in each of the partnerships by
the limited partners is set forth in Table 1 of Appendix A.
A limited partner of record may grant a proxy to vote for or against, or
may abstain from voting on, the merger proposals applicable to each of the
partnerships in which he holds partnership interests. To be effective for
purposes of granting a proxy to vote on the merger proposals applicable to each
partnership, a proxy card must be properly completed, executed and delivered to
Pioneer USA before the special meetings. All partnership interests represented
by properly executed proxies will, unless these proxies have been previously
revoked, be voted in accordance with the instructions indicated in these
proxies. If no instructions are indicated, the partnership interests will be
voted for approval and adoption of the merger proposals. A properly executed
proxy card marked abstain is counted as present for purposes of determining the
presence or absence of a quorum at the special meetings, but will not be voted.
Accordingly, abstentions will have the same effect as a vote against the merger
proposals.
Unrevoked proxies granted in the proxy cards will be voted at the special
meetings or at any adjournment or postponement thereof, if received by Pioneer
USA before the special meetings. Proxies granted in the proxy cards will remain
valid until the completion of the special meetings. The partnership agreements
require that a meeting be held within 60 days of the date of mailing of the
notice of meeting. The partnership agreements do not specifically address, and
Pioneer USA has not sought any opinions of counsel as to, whether proxies may be
voted at a meeting originally scheduled to be held within 60 days of the sending
of the notice and adjourned or postponed to a date more than 60 days after the
date of notice. Pioneer USA will not accept a vote of the limited partners in
such circumstances unless it receives an opinion of counsel that such a vote
would be valid.
Votes cast by proxy or in person at the special meetings will be tabulated
by the inspector of election appointed for the meetings.
Pioneer USA does not know of any matters other than the approval of the
merger proposals that are to come before the special meetings. If any other
matter or matters are properly presented for action at the special meetings, the
persons named in the enclosed form of proxy and acting under the proxy will have
the discretion to vote on those matters in accordance with their best judgment.
40
<PAGE> 48
You may revoke a proxy you have given at any time before that proxy is
voted at the special meetings by:
- giving written notice of revocation to Pioneer USA;
- signing and returning a later dated proxy; or
- voting in person at the special meetings.
Your notice of revocation will not be effective until Pioneer USA receives it at
or before the special meetings. Your presence at the special meetings will not
automatically revoke your proxy in a proxy card. Revocation during the special
meetings will not affect votes previously taken.
You may deliver your written notice of revocation in person or by mail,
telegraph, telex, or facsimile. Any written notice of revocation must specify
your name and limited partner number as shown on your proxy card and the name of
the partnership to which your revocation relates.
SOLICITATION OF PROXIES
We are soliciting your proxy pursuant to this document. The net working
capital component of the merger value of each partnership, including the 21
non-public limited partnerships and 13 privately-held employee partnerships
described in "Transactions Among The Partnerships, Pioneer, Pioneer USA and
Their Directors and Officers" on page 45 of this document, has been reduced by
the partnership's pro rata share, based on its reserve value, of all estimated
expenses and fees for the mergers of all of the partnerships, including the
expenses and fees described below.
Pioneer USA has retained to assist in the solicitation of proxies
from the limited partners of the partnerships. The total fees and expenses of
are estimated to aggregate $ . In addition to solicitation by
use of the mail, proxies may be solicited by , by other outside
contractors and by directors, officers and employees of Pioneer USA and Pioneer
in person or by telephone, telegram or other means of communication. The total
fees and expenses of any outside contractors which may be retained to solicit
proxies are estimated to aggregate $ . The directors, officers and
employees will not be additionally compensated, but may be reimbursed for
out-of-pocket expenses incurred in connection with the solicitation.
Arrangements may also be made with other brokerage firms, banks,
custodians, nominees and fiduciaries for the forwarding of proxy solicitation
materials to owners of limited partnership interests held of record by those
persons. The partnerships, including the 21 non-public limited partnerships and
13 privately-held employee partnerships described in "Transactions Among The
Partnerships, Pioneer, Pioneer USA and Their Directors and Officers" on page 45
of this document, will pay their pro rata share, based on their reserve values,
of those persons' reasonable expenses incurred in forwarding those materials.
Pioneer USA has also retained to act as information agent to
perform consulting, administration and clerical work with respect to the
mergers. Pioneer USA has agreed to indemnify against certain
liabilities, including liabilities under the federal securities laws.
will also be responsible for receipt and tabulation of the proxy cards. The fees
and expenses of for its services as information agent and tabulator
are included in the aggregate amount set forth above.
We intend to mail checks to the partners of record promptly after
completing the mergers. Certificates representing partnership interests will be
automatically cancelled, and you will not have to surrender your certificates to
receive the cash payment.
QUORUM
The presence in person or by properly executed proxy of a majority of
limited partnership interests entitled to vote in each partnership is necessary
to constitute a quorum at that partnership's special meeting.
41
<PAGE> 49
If a quorum is not present at any special meeting, the limited partners
entitled to vote who are present or represented by proxy at that special meeting
may adjourn or postpone that special meeting without notice until a quorum is
present. If a quorum is present at the adjourned or postponed meeting, any
business may be transacted that may have been transacted at the special meeting
had a quorum originally been present. If the adjournment or postponement is for
more than 30 days or if after the adjournment or postponement a new record date
is fixed for the adjourned or postponed meeting, a notice of the adjourned or
postponed meeting shall be given to each limited partner of record entitled to
vote at the adjourned or postponed meeting. The persons named as proxies intend
to vote in favor of any motion to adjourn or postpone the special meetings if,
prior to the special meetings, they have not received sufficient proxies to
approve the mergers described in this document. This process will be repeated at
any adjourned or postponed meeting until sufficient proxies to vote in favor of
the mergers have been received or it appears that sufficient proxies will not be
received.
REQUIRED VOTE; BROKER NON-VOTES
Approval of the merger proposals requires the affirmative vote of the
limited partners holding a majority of limited partnership interests in that
partnership. Pioneer USA and its affiliates are entitled to vote their
partnership interests on the merger proposals for all of the partnerships except
as set forth above under "The Special Meetings -- Record Date; Voting Rights and
Proxies" on page 40.
Brokers, if any, who hold partnership interests in street name for
customers have the authority to vote on certain "routine" proposals when they
have not received instructions from beneficial owners. However, these brokers
are precluded from exercising their voting discretion with respect to the
approval and adoption of non-routine matters such as the merger proposals and,
thus, absent specific instructions from the beneficial owner of the partnership
interests, brokers are not empowered to vote the partnership interests with
respect to the merger proposals. These "broker non-votes" will have the effect
of a vote against the merger proposals.
PARTICIPATION BY ASSIGNEES
Pioneer USA has the discretionary authority granted to it under the
partnership agreements to withhold its consent to the substitution of any
assignees as partners. To facilitate the notification given to limited partners
about the mergers, Pioneer USA intends to exercise that authority and withhold
its consent to the substitution of any assignees as partners from September 8,
1999 until the closing date of the mergers, but in no event later than January
31, 2000.
SPECIAL REQUIREMENTS FOR CERTAIN LIMITED PARTNERS
Pioneer USA may require that any proxy card executed by an entity, such as
a trust, corporation, or partnership, be accompanied by evidence or an opinion
of counsel that such entity:
- has met all requirements of its governing instruments; and
- is authorized to execute and deliver the proxy card under the laws of the
jurisdiction under which the entity was organized.
Pioneer USA will require the named trustee and the beneficial owner of
trusts, including individual retirement accounts, to execute the proxy card. In
some cases, Pioneer USA may provide a limited partner with an envelope,
pre-addressed to his individual retirement account trustee, so that the limited
partner may forward his executed proxy card to the trustee for the trustee's
signature and subsequent delivery to Pioneer USA. Delivery of a proxy card to
the trustee, with or without the use of a pre-addressed envelope, and delivery
of a proxy card from the trustee to Pioneer USA are at the risk of the limited
partner.
42
<PAGE> 50
VALIDITY OF PROXY CARDS
A proxy card will not be valid unless it has been properly completed and
executed and timely delivered to Pioneer USA's information agent with all other
required documents. Pioneer USA will determine all questions as to the validity,
form, eligibility, time of receipt and acceptance of a proxy card and its
determination will be final and binding. Pioneer USA's interpretation of the
terms and conditions of the mergers, including the instructions for the proxy
card, will also be final and binding.
A proxy card will not be valid until any irregularities have been cured or
waived. If Pioneer USA does not waive the irregularities, it will return the
defective proxy card to the limited partner as soon as practicable. Pioneer USA
is under no duty to give notification of defects in a proxy card and will incur
no liability if it fails to give such notification.
Delivery of a proxy card is at the risk of the limited partner. A proxy
card will be effective for purposes of voting only when it is actually received
by Pioneer USA's information agent. To ensure receipt of the proxy card and all
other required documents, we suggest that limited partners use overnight courier
delivery or certified or registered mail, return receipt requested.
LOCAL LAWS
Proxy solicitations will not be made to, nor will proxy cards be accepted
from, limited partners in any jurisdiction in which the solicitations would not
be in compliance with federal and state securities or other laws.
INTERESTS OF PIONEER, PIONEER USA
AND THEIR DIRECTORS AND OFFICERS
A number of conflicts of interest are inherent in the relationships among
the partnerships, Pioneer USA, Pioneer and their respective directors and
officers.
CONFLICTING DUTIES OF PIONEER USA, INDIVIDUALLY AND AS GENERAL PARTNER
Pioneer USA, as general partner of the partnerships, has a duty to manage
the partnerships in the best interests of the limited partners. Pioneer USA also
has a duty to operate its business for the benefit of its sole stockholder,
Pioneer. Consequently, Pioneer USA's duties to the limited partners may conflict
with its duties to Pioneer.
The members of the board of directors of Pioneer USA have a duty to cause
Pioneer USA to manage the partnerships in the best interests of the limited
partners. All members of the board of directors of Pioneer USA are officers of
Pioneer and Pioneer USA. Thus, the members of the board of directors of Pioneer
USA have duties to operate Pioneer USA's business for the benefit of its sole
stockholder, Pioneer, and, as officers of Pioneer, to operate Pioneer's business
in its best interests. Consequently, the duties of the members of the board of
directors of Pioneer USA to the limited partners may conflict with the duties of
those members to Pioneer, Pioneer USA and their stockholders.
PIONEER USA'S EMPLOYEES PROVIDE SERVICES TO THE PARTNERSHIPS
The partnerships currently have no employees. Each partnership relies on
Pioneer USA's personnel. Pioneer USA provides all management functions on behalf
of the partnerships. Therefore, each partnership currently competes with Pioneer
USA for the time and resources of Pioneer USA's employees.
FINANCIAL INTERESTS OF OFFICERS AND DIRECTORS IN PIONEER
The officers and directors of Pioneer USA and Pioneer have equity interests
in Pioneer through stock ownership, stock options and other stock-based
compensation, but do not have financial or equity interests in the partnerships.
The boards of directors of Pioneer and Pioneer USA believe that any economic
benefit
43
<PAGE> 51
their directors may obtain from the mergers will be modest and will not result
in a material economic benefit to their directors individually.
FINANCIAL INTERESTS OF OFFICERS AND DIRECTORS IN PARTNERSHIPS
The officers and directors of Pioneer USA and Pioneer have no financial or
equity interests in the partnerships described in this document. See "Ownership
of Partnership Interests" on page 44.
Scott D. Sheffield, Chairman of the Board, President and Chief Executive
Officer of Pioneer and President of Pioneer USA, and Mark L. Withrow, Executive
Vice President, General Counsel and Secretary of each of Pioneer and Pioneer
USA, own partnership interests in some of the 13 privately-held employee
partnerships that Pioneer is offering to acquire at the same time it acquires
the partnerships described in this document.
INDIVIDUAL PARTNERSHIP'S PERSPECTIVE NOT CONSIDERED IN MERGERS
Pioneer USA serves as the managing or sole general partner for all of the
partnerships and did not view the mergers solely from the perspective of a
single partnership. Each partnership is governed by its own partnership
agreement, the terms of which may or may not be similar to the terms of the
partnership agreements of the other partnerships. Consequently, in determining
the terms and conditions of the mergers, Pioneer USA may have advocated
positions which would be in the best interest of one of the partnerships at the
expense of another. If each of the partnerships had separate general partners,
these general partners would have had totally independent perspectives, not
affected by a consideration of the interests of any of the other partnerships,
which may have led them to advocate positions during the structuring of the
mergers different than those taken by Pioneer USA.
THE PARTNERSHIPS PAY OPERATOR FEES TO PIONEER USA
Pioneer USA operates most of the partnerships' wells. Each partnership has
entered into one or more standard industry operating agreements with Pioneer
USA. Those operating agreements establish the base fee paid by the partnership
to Pioneer USA for its lease operating services. That base fee increases
annually based on a rate established by the Counsel of Petroleum Accountants
Society, or COPAS, for the oil and gas industry.
OWNERSHIP OF PARTNERSHIP INTERESTS
Pioneer does not directly own any partnership interests in the
partnerships. Pioneer beneficially owns all of Pioneer USA's partnership
interests in the partnerships. Table 6 of Appendix A to this document contains
the voting percentage as of August 1, 1999, of the outstanding partnership
interests for each partnership that are beneficially owned by Pioneer USA as a
limited partner. As of August 1, 1999, no person or entity known by Pioneer USA
beneficially owns more than 5% of the outstanding partnership interests in any
partnership, except in Parker & Parsley 82-I, Ltd. There, Pioneer USA
repurchased partnership interests equal to $1,188,500, representing a 10.07%
beneficial ownership of the partnership interests in that partnership. Pioneer
USA has sole investment and voting power with respect to partnership interests
it beneficially owns.
Except as set forth above, none of Pioneer, Pioneer USA, or, to the
knowledge of Pioneer USA, any of their directors or executive officers, or any
associate or subsidiary of Pioneer, Pioneer USA or any such director or officer:
- beneficially owns any partnership interests of the partnerships; or
- has effected any transactions in any partnership interests of the
partnerships during the past 60 days.
44
<PAGE> 52
As of the record date for the special meetings, Scott D. Sheffield,
Chairman of the Board, President and Chief Executive Officer of Pioneer and
President of Pioneer USA, owned, on average, approximately 6% of the outstanding
limited partnership interests in each of 11 of the 13 privately-held employee
partnerships that are being acquired by Pioneer at the same time as the
partnerships described in this document. As of the record date for the special
meetings, Mark L. Withrow, Executive Vice President, General Counsel and
Secretary of each of Pioneer and Pioneer USA, owned, on average, approximately
5% of the outstanding limited partnership interests in each of two of those 13
privately-held employee partnerships.
TRANSACTIONS AMONG THE PARTNERSHIPS, PIONEER, PIONEER USA
AND THEIR DIRECTORS AND OFFICERS
Except as described in this document, there have not been any contacts,
transactions or negotiations between Pioneer, Pioneer USA, any of their
respective subsidiaries, or, to the knowledge of Pioneer and Pioneer USA, any
director or executive officer of Pioneer or Pioneer USA, on the one hand, and
the partnerships or any of their general partners, including Pioneer USA,
directors, officers or affiliates, on the other hand, that are required to be
disclosed pursuant to the rules and regulations of the SEC. Except as described
in this document, none of Pioneer, Pioneer USA, or, to the knowledge of Pioneer
and Pioneer USA, any director or executive officer of Pioneer or Pioneer USA,
has any contract, arrangement, understanding or relationship with any person
with respect to any securities of the partnerships.
At the same time as this transaction, Pioneer is also offering to acquire
21 non-public limited partnerships and 13 privately-held employee limited
partnerships through mergers of those partnerships into Pioneer USA. Those
additional limited partnerships are drilling partnerships like the drilling
partnerships described in this document, but the additional limited partnerships
do not have reporting obligations under the Securities Exchange Act of 1934. The
limited partners of the 13 employee limited partnerships are current and former
affiliates of Pioneer and its predecessors. Pioneer USA is the managing or sole
general partner of those additional limited partnerships. The terms of the
mergers, including the method of establishing the merger values and cash payment
amounts for the limited partners in those partnerships, are the same as are set
forth for the reporting partnerships in this document.
If you approve the mergers, there are various ways that Pioneer USA may use
the properties. Pioneer USA may continue to operate the properties, it may sell
the properties to third parties, including a royalty trust, or it may spin-off
the properties to its stockholders. Although Pioneer USA plans to operate the
properties in the immediate future following completion of the mergers, it has
not decided how to use the properties in the long-term.
45
<PAGE> 53
MANAGEMENT
PIONEER
The following information sets forth the age, business experience during
the past five years, positions and offices with Pioneer, and periods of service
of each director and executive officer of Pioneer.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Scott D. Sheffield........................ 47 Chairman of the Board of Directors, President and
Chief Executive Officer
Timothy L. Dove........................... 42 Executive Vice President -- Business Development
Dennis E. Fagerstone...................... 50 Executive Vice President
M. Garrett Smith.......................... 38 Executive Vice President and Chief Financial
Officer
Mark L. Withrow........................... 52 Executive Vice President, General Counsel and
Secretary
James R. Baroffio......................... 67 Director
R. Hartwell Gardner....................... 65 Director
James L. Houghton......................... 68 Director
Jerry P. Jones............................ 68 Director
Richard E. Rainwater...................... 55 Director
Charles E. Ramsey, Jr. ................... 63 Director
Robert L. Stillwell....................... 62 Director
</TABLE>
Scott D. Sheffield. Mr. Sheffield, a graduate of the University of Texas
with a Bachelor of Science degree in Petroleum Engineering, has been the
Chairman of the Board of Directors of Pioneer since August 1999 and the
President and Chief Executive Officer of Pioneer since August 1997. He was the
President and a director of Parker & Parsley Petroleum Company since May 1990
and was the Chairman of the Board and Chief Executive Officer of Parker &
Parsley Petroleum Company since October 1990. Mr. Sheffield was the sole
director of Parker & Parsley Petroleum Company from May 1990 until October 1990.
Mr. Sheffield joined Parker & Parsley Development Company, or PPDC, a
predecessor of Parker & Parsley Petroleum Company, as a petroleum engineer in
1979. Mr. Sheffield served as Vice President -- Engineering of PPDC from
September 1981 until April 1985, when he was elected President and a director.
In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief
Executive Officer of PPDC. Before joining PPDC's predecessor, Mr. Sheffield was
employed as a production and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove, a graduate of Massachusetts Institute of
Technology with a Bachelor of Science degree in Mechanical Engineering and the
University of Chicago with an M.B.A., became Executive Vice
President -- Business Development of Pioneer in August 1997. Mr. Dove joined
Parker & Parsley Petroleum Company in May 1994 as Vice
President -- International and was promoted to Senior Vice President -- Business
Development in October 1996, in which position he served until August 1997.
Before joining Parker & Parsley Petroleum Company, Mr. Dove was employed with
Diamond Shamrock Corp., and its successor, Maxus Energy Corp., in various
capacities in international exploration and production, marketing, refining, and
planning and development.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer in August 1997. Mr. Fagerstone served as Executive Vice President and
Chief Operating Officer of MESA Inc. from March 1997 until August 1997. Mr.
Fagerstone served as Senior Vice President and Chief Operating Officer of MESA
Inc. from October 1996 to February 1997, and served as Vice
President -- Exploration and Production of MESA Inc. from May 1991 to October
1996. Mr. Fagerstone served as Vice President -- Operations of MESA Inc. from
June 1988 until 1991.
M. Garrett Smith. Mr. Smith, a graduate of the University of Texas with a
Bachelor of Science degree in Electrical Engineering and Southern Methodist
University with a M.B.A., became Executive Vice President and Chief Financial
Officer of Pioneer in December 1997. Prior to that, he was Senior Vice
46
<PAGE> 54
President -- Finance of Pioneer since August 1997. Mr. Smith served as Vice
President -- Corporate Acquisitions of MESA Inc. from January 1997 until August
1997. From October 1996 to December 1996, Mr. Smith served as Vice
President -- Finance of MESA Inc. and from 1994 to 1996, he served as Director
of Financial Planning of MESA Inc. Mr. Smith was employed by BTC Partners, Inc.,
a former financial advisor to MESA Inc., from 1989 to 1994.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a Bachelor of Science degree in Accounting and Texas Tech University with a
J.D. degree, has been the Executive Vice President, General Counsel and
Secretary of Pioneer since August 1997. He served as Vice President -- General
Counsel of Parker & Parsley Petroleum Company from February 1991 until January
1995, and served as Senior Vice President and General Counsel of Parker &
Parsley Petroleum Company from January 1995 until August 1997. He was Parker &
Parsley Petroleum Company's Secretary from August 1992 until August 1997. Mr.
Withrow joined PPDC in January 1991. Before joining PPDC, Mr. Withrow was the
managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald,
Midland, Texas.
James R. Baroffio. Dr. Baroffio received a B.A. in Geology at the College
of Wooster, Ohio, an M.S. in Geology at Ohio State University, and a Ph.D. in
Geology at the University of Illinois. Before becoming a director of Pioneer in
December 1997, Dr. Baroffio enjoyed a long career with Standard Oil Company of
California, the predecessor of Chevron Corporation, eventually retiring as
President of Chevron Canada Resources in 1994. Dr. Baroffio was President-elect
of the Colorado Petroleum Association, a member of the Board of Directors of the
Rocky Mountain Oil & Gas Association, and Chairman of the U.S. National
Committee of the World Petroleum Congress. His community leadership positions
included membership on the Board of Directors of Glenbow Museum and the Nature
Conservancy of Canada, as well as serving as President of the Alberta Nature
Conservancy.
R. Hartwell Gardner. Mr. Gardner, a graduate of Colgate University with a
Bachelor of Arts degree in Economics and Harvard University with an M.B.A.,
became a director of Pioneer in August 1997. He served as a director of Parker &
Parsley Petroleum Company from November 1995 until August 1997. Until October
1995, Mr. Gardner was the Treasurer of Mobil Oil Corporation and Mobil
Corporation from 1974 and 1976, respectively. Mr. Gardner is a member of the
Financial Executives Institute of which he served as Chairman in 1986/1987 and
is a Director of Oil Investment Corporation Ltd. and Oil Casualty Investment
Corporation Ltd., Pembroke, Bermuda.
James L. Houghton. Mr. Houghton is a certified public accountant and a
graduate of Kansas University with a Bachelor of Science degree in Accounting,
as well as a Bachelor of Laws degree. Mr. Houghton has served as a director of
Pioneer since August 1997, and as a director of Parker & Parsley Petroleum
Company from October 1991 until August 1997. Until October 1, 1991, Mr. Houghton
was the lead oil and gas tax specialist for the accounting firm of Ernst & Young
LLP, was a member of Ernst & Young's National Energy Group, and had served as
its Southwest Regional Director of Tax. Mr. Houghton is a member of the American
Institute of Certified Public Accountants, a member of the Oklahoma Society of
Certified Public Accountants and a former Chairman of its Federal and Oklahoma
Taxation Committee and past President of the Oklahoma Institute of Taxation. He
has also served as a Director for the Independent Petroleum Association of
America and as a member of its Tax Committee.
Jerry P. Jones. Mr. Jones earned a Bachelor of Science degree from West
Texas State College in 1953 and a Bachelor of Law degree from the University of
Texas School of Law in 1959. Mr. Jones has served as a director of Pioneer since
August 1997, and as a director of Parker & Parsley Petroleum Company from May
1991 until August 1997. Mr. Jones has been an attorney with the law firm of
Thompson & Knight, P.C., Dallas, Texas, since September 1959 and was a
shareholder in that firm until January 1998, when he retired and became of
counsel to the firm. Mr. Jones specialized in civil litigation, especially in
the area of energy disputes.
Richard R. Rainwater. Mr. Rainwater, a graduate of the University of Texas
with a B.A. and the Stanford University Graduate School of Business with an
M.B.A., became a director of Pioneer in August 1997. He served as a director of
MESA Inc. from July 1996 until August 1997. Since 1986, Mr. Rainwater has been
an independent investor and the sole shareholder and Chairman of Rainwater,
47
<PAGE> 55
Inc. Mr. Rainwater founded Crescent Real Estate Equities, Inc. in 1994, and
since that time has served as its Chairman of the Board. He was the co-founder
of Mid Ocean Limited in 1991, the founder of Columbia Hospital Corporation,
predecessor to Columbia/HCA Healthcare Corporation, in 1987, and the founder of
ENSCO International, Inc. in 1986. From 1970 until 1986, Mr. Rainwater served as
the Chief Investment Advisor to the Bass Family of Texas.
Charles E. Ramsey, Jr. Mr. Ramsey is a graduate of the Colorado School of
Mines with a Petroleum Engineering degree and a graduate of the Smaller Company
Management program at the Harvard Graduate School of Business Administration.
Mr. Ramsey has served as a director of Pioneer since August 1997. Mr. Ramsey
served as a director of Parker & Parsley Petroleum Company from October 1991
until August 1997. Since October 1991, he has operated an independent management
and financial consulting firm. From June 1958 until June 1986, Mr. Ramsey held
various engineering and management positions in the oil and gas industry and,
for six years before October 1991, was a Senior Vice President in the Corporate
Finance Department of Dean Witter Reynolds Inc. in Dallas, Texas. His industry
experience includes 12 years of senior management experience in the positions of
President, Chief Executive Officer and Executive Officer and Executive Vice
President of May Petroleum Inc. Mr. Ramsey is also a former director of MBank
Dallas, the Dallas Petroleum Club and Lear Petroleum Corporation.
Robert L. Stillwell. Mr. Stillwell, a graduate of the University of Texas
with a B.B.A. and the University of Texas School of Law with a J.D., has served
as a director of Pioneer since August 1997. He served as a director of MESA Inc.
from January 1992 until August 1997, as a member of the Advisory Committee of
Mesa, L.P., a predecessor of MESA Inc., from December 1985 until December 1991,
and as a director of MESA Inc. in its original corporate form from 1968 until
January 1987. Mr. Stillwell has been a partner in the law firm of Baker & Botts,
L.L.P., for more than five years.
PIONEER USA
The following information sets forth the age, business experience during
the past five years, positions and offices with Pioneer USA, and periods of
service of each director and executive officer of Pioneer USA.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Scott D. Sheffield........................ 47 President
Timothy L. Dove........................... 42 Director and Executive Vice President-- Business
Development
Dennis E. Fagerstone...................... 50 Director and Executive Vice President
M. Garrett Smith.......................... 38 Director, Chief Financial Officer and Executive
Vice President
Mark L. Withrow........................... 52 Director, Executive Vice President, General Counsel
and Secretary
</TABLE>
Scott D. Sheffield has been the President of Pioneer USA since August 1997
and served as the Chairman of the Board of Directors of Pioneer USA from August
1997 until June 1999. He served as a Director of Pioneer USA's predecessor,
Parker & Parsley Petroleum USA, Inc., from January 1991 until August 1997. He
was an Executive Vice President of Parker & Parsley Petroleum USA, Inc. from
December 1995 until August 1997. He was the President of Parker & Parsley
Petroleum USA, Inc. from December 1993 until December 1995. Mr. Sheffield was
President and Chief Executive Officer of Parker & Parsley Petroleum USA, Inc.
from January 1991 until December 1993. Mr. Sheffield's other business experience
and biographical information are set forth above under "Management -- Pioneer."
Timothy L. Dove. Mr. Dove has been a Director of Pioneer USA since August
1997 and the Executive Vice President -- Business Development of Pioneer USA
since August 1997. He served as a Director of Parker & Parsley Petroleum USA,
Inc. from June 1997 until August 1997. He was a Senior Vice President of Parker
& Parsley Petroleum USA, Inc. from October 1996 until August 1997. He was a Vice
President of Parker & Parsley Petroleum USA, Inc. from December 1995 until
October 1996.
48
<PAGE> 56
Mr. Dove's other business experience and biographical information are set forth
above under "Management -- Pioneer."
Dennis E. Fagerstone. Mr. Fagerstone has been a Director of Pioneer USA
since August 1997 and an Executive Vice President of Pioneer USA since August
1997. Mr. Fagerstone's other business experience and biographical information
are set forth above under "Management -- Pioneer."
M. Garrett Smith. Mr. Smith has been a Director of Pioneer USA since August
1997 and the Chief Financial Officer and an Executive Vice President of Pioneer
USA since August 1997. Mr. Smith's other business experience and biographical
information are set forth above under "Management -- Pioneer."
Mark L. Withrow. Mr. Withrow has been a Director of Pioneer USA since
August 1997. He became an Executive Vice President, the General Counsel and the
Secretary of Pioneer USA in August 1997. He served as a Director of Parker &
Parsley Petroleum USA, Inc. from January 1996 until August 1997. He was a Senior
Vice President and the Secretary of Parker & Parsley Petroleum USA, Inc. from
January 1995 until August 1997. He was a Vice President and the Secretary of
Parker & Parsley Petroleum USA, Inc. from December 1993 until January 1995. He
was a Vice President of Parker & Parsley Petroleum USA, Inc. from January 1991
until December 1993. Mr. Withrow's other business experience and biographical
information are set forth above under "Management -- Pioneer."
49
<PAGE> 57
THE PARTNERSHIPS
GENERAL
Pioneer USA's predecessor, Parker & Parsley Petroleum Company or its
affiliates, sponsored the partnerships. As a result of the merger of Parker &
Parsley and MESA Inc. to form Pioneer on August 7, 1997, Pioneer USA became the
managing or sole general partner of the partnerships.
Appendix A to this document sets forth information about each partnership,
including proved reserves, oil and gas production, average sales prices and
production costs, productive wells and developed acreage, and historical cash
distributions. In addition, the supplemental information for each partnership
constitutes an integral part of this document. You should read Appendix A and
the supplemental information carefully in their entirety.
THE DRILLING PARTNERSHIPS
The drilling partnerships consist of the following 22 publicly-held limited
partnerships that were formed from 1982 through 1991:
<TABLE>
<CAPTION>
NAME STATE OF FORMATION
- ---- ------------------
<S> <C>
Parker & Parsley 82-I, Ltd. Texas
Parker & Parsley 82-II, Ltd. Texas
Parker & Parsley 83-A, Ltd. Texas
Parker & Parsley 83-B, Ltd. Texas
Parker & Parsley 84-A, Ltd. Texas
Parker & Parsley 85-A, Ltd. Texas
Parker & Parsley 85-B, Ltd. Texas
Parker & Parsley 86-A, Ltd. Texas
Parker & Parsley 86-B, Ltd. Texas
Parker & Parsley 86-C, Ltd. Texas
Parker & Parsley 87-A, Ltd. Texas
Parker & Parsley 87-B, Ltd. Texas
Parker & Parsley 88-A, L.P. Delaware
Parker & Parsley 88-B LP Delaware
Parker & Parsley 89-A, L.P. Delaware
Parker & Parsley 90-A, L.P. Delaware
Parker & Parsley 90-B Conv., L.P. Delaware
Parker & Parsley 90-B, L.P. Delaware
Parker & Parsley 90-C, Conv., L.P. Delaware
Parker & Parsley 90-C, L.P. Delaware
Parker & Parsley 91-A, L.P. Delaware
Parker & Parsley 91-B, L.P. Delaware
</TABLE>
The drilling partnerships were formed to establish long-lived oil and gas
reserves primarily by drilling low risk development wells in the Spraberry field
of the Permian Basin of West Texas. The oil and gas properties of the drilling
partnerships consist primarily of leasehold interests in producing properties
located in Texas. The partners of a drilling partnership received a tax benefit
from drilling activities in the partnership's first year. Subsequently, the
drilling partnerships have regularly distributed their net cash flow. As of the
date of this document, all of the drilling partnerships have expended all of
their initial capital contributions.
For a discussion of certain transactions between the drilling partnerships
and Pioneer USA, see the notes to the financial statements of each drilling
partnership included in the supplemental information.
50
<PAGE> 58
THE INCOME PARTNERSHIPS
The income partnerships consist of the following three publicly-held
limited partnerships that were formed in 1987 and 1988:
<TABLE>
<CAPTION>
NAME STATE OF FORMATION
- ---- ------------------
<S> <C>
Parker & Parsley Producing Properties 87-A, Ltd. Texas
Parker & Parsley Producing Properties 87-B, Ltd. Texas
Parker & Parsley Producing Properties 88-A, L.P. Delaware
</TABLE>
The primary objective of the income partnerships was to acquire long-lived,
producing oil and gas properties in the Permian Basin of West Texas. The income
partnerships had a secondary objective of enhancing acquired oil and gas
reserves and production through initial development drilling and exploitation
activities. Subsequently, the income partnerships have regularly distributed
their net cash flow. As of the date of this document, all of the income
partnerships have expended all of their initial capital contributions.
For a discussion of certain transactions between the income partnerships
and Pioneer USA, see the notes to the financial statements of each income
partnership included in the supplemental information.
LEGAL MATTERS
The limited partners' special legal counsel, , Dallas,
Texas, will deliver the legal opinion referred to in "The Mergers -- Legal
Opinion for Limited Partners" on page 27 of this document. That special counsel
may rely as to matters of law of jurisdictions other than the United States and
the State of Texas on the opinion of counsel in such other jurisdictions.
INDEPENDENT AUDITORS AND INDEPENDENT PETROLEUM CONSULTANTS
Ernst & Young LLP, independent certified public accountants, have audited
the partnerships' financial statements for the year ended December 31, 1998
included in the supplements to this document. A representative of Ernst & Young
LLP will be at the special meetings to answer appropriate questions from limited
partners and will have an opportunity to make a statement if so desired.
KPMG LLP, independent certified public accountants, have audited the
partnerships' financial statements for the years ended December 31, 1997 and
1996 included in the supplements to this document. Pioneer has agreed to
indemnify KPMG LLP against certain liabilities to which KPMG LLP may become
subject because KPMG LLP's reports on the partnerships' financial statements are
included in the supplements to this document.
At a meeting held on December 5, 1997, Pioneer USA's board of directors
approved the engagement of Ernst & Young LLP as the partnerships' independent
auditors for 1998 to replace KPMG LLP, who were dismissed as auditors of the
partnerships after completing the audits of the partnerships for 1997. The audit
committee of Pioneer USA's board of directors approved the change in auditors on
December 5, 1997.
The reports of KPMG LLP on the partnerships' financial statements for 1997
and 1996 did not contain an adverse opinion or a disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope, or accounting
principles.
In connection with the audits of the partnerships' financial statements for
1997 and 1996, there were no disagreements with KPMG LLP on any matters of
accounting principles or practices, financial statement disclosure, or auditing
scope and procedures which, if not resolved to the satisfaction of KPMG LLP,
would have caused KPMG LLP to make reference to the matter in their report.
51
<PAGE> 59
The summary reserve report for the partnerships set forth as Appendix B to
this document was prepared by Williamson Petroleum Consultants, Inc., an
independent petroleum consultant. The proved reserves and estimated future net
revenues attributable to the partnership interests in the partnerships has been
included in this document in reliance on that firm's authority as experts on the
matters contained in that reserve report.
WHERE YOU CAN FIND MORE INFORMATION
Each of the partnerships is subject to the informational and reporting
requirements of the Securities Exchange Act of 1934. Each of the partnerships
files annual, quarterly and special reports and other information with the SEC.
Those SEC filings are available to the public over the Internet at the SEC's web
site at http://www.sec.gov. You may also read and copy any document the
partnerships file with the SEC at its public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms.
Included in your partnership's information supplement are the following
documents:
1. the partnership's Quarterly Report on Form 10-Q for the six months
ended June 30, 1999; and
2. the partnership's Annual Report on Form 10-K for the year ended
December 31, 1998.
The information supplement constitutes an integral part of this document
for each partnership. Please carefully read all of the supplements for the
partnerships in which you are a limited partner.
You should rely only on the information provided in this document or any
supplement. We have not authorized anyone else to provide you with different
information. We are only offering to purchase partnership interests in states
where the offer is permitted. You should not assume that the information in this
document or any supplement is accurate as of any date other than the date on the
front of those documents.
52
<PAGE> 60
COMMONLY USED OIL AND GAS TERMS
The definitions set forth below shall apply to the indicated terms as used
in this document. All volumes of natural gas referred to herein are stated at
the legal pressure base of the state or area where the reserves exist and at 60
degrees Fahrenheit and in most instances are rounded to the nearest major
multiple.
"Bbl" means a standard barrel of 42 U.S. gallons and represents the basic
unit for measuring the production of crude oil, natural gas liquids and
condensate.
"Bcf" means one billion cubic feet under prescribed conditions of pressure
and temperature and represents the basic unit for measuring the production of
natural gas.
"BOE" means a barrel-of-oil-equivalent and is a customary convention used
in the United States to express oil and gas volumes on a comparable basis. It is
determined on the basis of the estimated relative energy content of natural gas
to oil, being approximately six Mcf of natural gas per Bbl of oil.
"Mbbl" means one thousand Bbls.
"MBOE" means one thousand BOEs.
"Mcf" means one thousand cubic feet under prescribed conditions of pressure
and temperature and represents the basic unit for measuring the production of
natural gas.
"MMBbl" means one million Bbls.
"MMcf" means one million cubic feet under prescribed conditions of pressure
and temperature and represents the basic unit for measuring the production of
natural gas.
"NGLs" means natural gas liquids.
"proved reserves" means those estimated quantities of crude oil and natural
gas that geological and engineering data demonstrate with reasonable certainty
to be recoverable in future years from known oil and gas reservoirs under
existing economic and operating conditions. Proved reserves are limited to those
quantities of oil and gas that can be expected to be recoverable commercially at
current prices and costs, under existing regulatory practices and with existing
conventional equipment and operating methods.
53
<PAGE> 61
APPENDIX A
GENERAL INFORMATION RELATING TO THE PARTNERSHIPS
<TABLE>
<S> <C>
Table 1 Jurisdiction of Organization, Initial Investment by Limited
Partners and Number of Limited Partners
Table 2 Aggregate Merger Value
Table 3 Merger Value Attributable to Partnership Interests of
Limited Partners
Table 4 Ownership Percentage and Merger Value Attributable to
Nonmanaging General Partners Other Than Pioneer USA
Table 5 Ownership Percentage and Merger Value Attributable to
Pioneer USA Held in Its Capacities as General Partner,
Nonmanaging General Partner and Limited Partner
Table 6 Voting Percentage in Partnerships Beneficially Owned by
Pioneer USA in Its Capacity as a Limited Partner
Table 7 Historical Partnership Distributions
Table 8 Annual Repurchase Prices and Aggregate Annual Repurchase
Payments
Table 9 Participation in Costs and Revenues of the Partnerships
Table 10 Average Oil, Natural Gas Liquids and Gas Sales Prices and
Production Costs
Table 11 Proved Reserves Attributable to Pioneer USA, Other
Nonmanaging General Partners and Limited Partners
Table 12 Oil, Natural Gas Liquids and Gas Production
Table 13 Productive Wells and Developed Acreage
Table 14 Recent Trades of Partnership Interests
</TABLE>
A-1
<PAGE> 62
TABLE 1
JURISDICTION OF ORGANIZATION, INITIAL INVESTMENT BY LIMITED PARTNERS AND
NUMBER OF LIMITED PARTNERS
AS OF AUGUST 1, 1999
<TABLE>
<CAPTION>
INITIAL
INVESTMENT
JURISDICTION BY LIMITED NUMBER OF
OF PARTNERS LIMITED
ORGANIZATION (IN THOUSANDS) PARTNERS
------------ -------------- ---------
<S> <C> <C> <C>
Parker & Parsley 82-I, Ltd............................... Texas $11,805(a) 619
Parker & Parsley 82-II, Ltd.............................. Texas 12,252 787
Parker & Parsley 83-A, Ltd............................... Texas 19,505 1,315
Parker & Parsley 83-B, Ltd............................... Texas 23,370 1,438
Parker & Parsley 84-A, Ltd............................... Texas 19,435 1,299
Parker & Parsley 85-A, Ltd............................... Texas 9,613 835
Parker & Parsley 85-B, Ltd............................... Texas 7,988 731
Parker & Parsley 86-A, Ltd............................... Texas 10,131 977
Parker & Parsley 86-B, Ltd............................... Texas 17,208 1,441
Parker & Parsley 86-C, Ltd............................... Texas 19,317 1,387
Parker & Parsley 87-A, Ltd............................... Texas 28,811 2,179
Parker & Parsley Producing Properties 87-A, Ltd.......... Texas 12,213 1,126
Parker & Parsley 87-B, Ltd............................... Texas 20,089 1,520
Parker & Parsley Producing Properties 87-B, Ltd.......... Texas 6,096 563
Parker & Parsley 88-A, L.P............................... Delaware 12,935 993
Parker & Parsley Producing Properties 88-A, L.P.......... Delaware 5,611 523
Parker & Parsley 88-B, L.P............................... Delaware 8,954 698
Parker & Parsley 89-A, L.P............................... Delaware 8,317 615
Parker & Parsley 90-A, L.P............................... Delaware 6,811 531
Parker & Parsley 90-B Conv., L.P......................... Delaware 11,897 673
Parker & Parsley 90-B, L.P............................... Delaware 32,264 2,258
Parker & Parsley 90-C Conv., L.P......................... Delaware 7,531 515
Parker & Parsley 90-C, L.P............................... Delaware 12,107 903
Parker & Parsley 91-A, L.P............................... Delaware 11,620 727
Parker & Parsley 91-B, L.P............................... Delaware 11,249 682
------
Total.......................................... 25,335
======
</TABLE>
- ---------------
(a) Includes approximately $2,022,500 of assessment capital.
A-2
<PAGE> 63
TABLE 2
AGGREGATE MERGER VALUE
AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
OTHER
NONMANAGING
GENERAL LIMITED
PIONEER USA(a) PARTNERS(b) PARTNERS(c) TOTAL
-------------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Parker & Parsley 82-I, Ltd.................... $160,707 $ 5,579 $ 370,968 $ 537,254
Parker & Parsley 82-II, Ltd................... 233,515 7,240 677,990 918,745
Parker & Parsley 83-A, Ltd.................... 444,921 17,701 1,314,512 1,777,134
Parker & Parsley 83-B, Ltd.................... 744,776 29,018 2,170,824 2,944,618
Parker & Parsley 84-A, Ltd.................... 637,901 28,200 1,965,607 2,631,708
Parker & Parsley 85-A, Ltd.................... 20,949 0 695,068 716,017
Parker & Parsley 85-B, Ltd.................... 14,351 0 820,575 834,926
Parker & Parsley 86-A, Ltd.................... 11,133 0 818,452 829,585
Parker & Parsley 86-B, Ltd.................... 39,117 0 2,213,631 2,252,748
Parker & Parsley 86-C, Ltd.................... 24,353 0 1,838,218 1,862,571
Parker & Parsley 87-A, Ltd.................... 53,960 0 3,315,712 3,369,672
Parker & Parsley Producing Properties 87-A,
Ltd......................................... 23,968 0 1,753,345 1,777,313
Parker & Parsley 87-B, Ltd.................... 32,586 0 2,634,521 2,667,107
Parker & Parsley Producing Properties 87-B,
Ltd......................................... 33,115 0 1,252,499 1,285,614
Parker & Parsley 88-A, L.P.................... 51,739 0 2,174,467 2,226,206
Parker & Parsley Producing Properties 88-A,
L.P......................................... 32,164 0 1,873,767 1,905,931
Parker & Parsley 88-B, L.P.................... 28,688 0 1,378,077 1,406,765
Parker & Parsley 89-A, L.P.................... 33,362 0 1,449,492 1,482,854
Parker & Parsley 90-A, L.P.................... 34,154 0 1,054,698 1,088,852
Parker & Parsley 90-B Conv., L.P.............. 31,749 0 1,874,279 1,906,028
Parker & Parsley 90-B, L.P.................... 64,924 0 5,109,583 5,174,507
Parker & Parsley 90-C Conv., L.P.............. 13,545 0 957,896 971,441
Parker & Parsley 90-C, L.P.................... 18,948 0 1,533,135 1,552,083
Parker & Parsley 91-A, L.P.................... 32,032 0 2,283,469 2,315,501
Parker & Parsley 91-B, L.P.................... 26,234 0 2,384,931 2,411,165
</TABLE>
- ---------------
(a) Represents Pioneer USA's partnership interests in the partnerships as: (1)
the sole or managing general partner of the partnerships; (2) a limited
partner of the partnerships; and (3) the sole general partner of the
nonmanaging general partners. Pioneer USA will not receive any cash payment
for its partnership interests in the participating partnerships. However,
as a result of the mergers, Pioneer USA will acquire 100% of the properties
of the participating partnerships including properties attributable to its
partnership interests in those partnerships.
(b) Represents four unaffiliated individuals' partnership interests as limited
partners of the nonmanaging general partners.
(c) Represents the partnership interests of unaffiliated limited partners of
the partnerships. Excludes Pioneer USA's partnership interests as a limited
partner of the partnerships.
A-3
<PAGE> 64
TABLE 3
MERGER VALUE ATTRIBUTABLE TO PARTNERSHIP INTERESTS
OF LIMITED PARTNERS
PER $1,000 INVESTMENT
AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
LIMITED PARTNERS
PER $1,000 INVESTMENT
-----------------------------------------------------
RESERVE WORKING CAPITAL ESTIMATED MERGER
VALUE VALUE EXPENSES & FEES VALUE
------- --------------- --------------- -------
<S> <C> <C> <C> <C>
Parker & Parsley 82-I, Ltd.................. $ 31.29 $ 6.04 $ (2.34) $ 34.99
Parker & Parsley 82-II, Ltd................. 53.08 8.31 (3.98) 57.41
Parker & Parsley 83-A, Ltd.................. 64.39 9.99 (4.83) 69.55
Parker & Parsley 83-B, Ltd.................. 88.73 14.34 (6.65) 96.42
Parker & Parsley 84-A, Ltd.................. 97.53 12.92 (7.31) 103.14
Parker & Parsley 85-A, Ltd.................. 67.59 11.21 (5.07) 73.73
Parker & Parsley 85-B, Ltd.................. 100.16 10.82 (7.51) 103.47
Parker & Parsley 86-A, Ltd.................. 74.11 12.51 (5.55) 81.07
Parker & Parsley 86-B, Ltd.................. 122.39 16.39 (9.17) 129.61
Parker & Parsley 86-C, Ltd.................. 89.93 12.26 (6.74) 95.45
Parker & Parsley 87-A, Ltd.................. 107.31 16.52 (8.04) 115.79
Parker & Parsley Producing Properties 87-A,
Ltd....................................... 128.29 25.40 (9.61) 144.08
Parker & Parsley 87-B, Ltd.................. 122.26 18.34 (9.16) 131.44
Parker & Parsley Producing Properties 87-B,
Ltd....................................... 201.81 22.15 (15.12) 208.84
Parker & Parsley 88-A, L.P.................. 161.84 20.67 (12.13) 170.38
Parker & Parsley Producing Properties 88-A,
L.P....................................... 299.91 58.85 (22.48) 336.28
Parker & Parsley 88-B, L.P.................. 142.76 23.48 (10.70) 155.54
Parker & Parsley 89-A, L.P.................. 164.80 24.06 (12.35) 176.51
Parker & Parsley 90-A, L.P.................. 146.20 23.02 (10.96) 158.26
Parker & Parsley 90-B Conv., L.P............ 154.61 15.59 (11.59) 158.61
Parker & Parsley 90-B, L.P.................. 154.63 15.74 (11.59) 158.78
Parker & Parsley 90-C Conv., L.P............ 121.40 15.40 (9.10) 127.70
Parker & Parsley 90-C, L.P.................. 121.33 14.68 (9.09) 126.92
Parker & Parsley 91-A, L.P.................. 186.06 25.16 (13.94) 197.28
Parker & Parsley 91-B, L.P.................. 201.06 26.21 (15.07) 212.20
</TABLE>
A-4
<PAGE> 65
TABLE 4
OWNERSHIP PERCENTAGE AND MERGER VALUE ATTRIBUTABLE TO
NONMANAGING GENERAL PARTNERS OTHER THAN PIONEER USA
AS OF AUGUST 1, 1999
<TABLE>
<CAPTION>
OTHER NONMANAGING GENERAL OTHER NONMANAGING
PARTNERS(a) GENERAL PARTNERS' MERGER
-------------------------------- VALUE AS A PERCENTAGE OF
OWNERSHIP AGGREGATE MERGER AGGREGATE MERGER VALUE
PERCENTAGE(b) VALUE(c) FOR THE PARTNERSHIP(d)
------------- ---------------- ------------------------
<S> <C> <C> <C>
Parker & Parsley 82-I, Ltd.................. 1.13% $ 5,579 1.04%
Parker & Parsley 82-II, Ltd................. 0.84% 7,240 0.79%
Parker & Parsley 83-A, Ltd.................. 1.05% 17,701 1.00%
Parker & Parsley 83-B, Ltd.................. 1.05% 29,018 0.99%
Parker & Parsley 84-A, Ltd.................. 1.13% 28,200 1.07%
</TABLE>
- ---------------
(a) Represents four unaffiliated individuals' partnership interests as limited
partners of the nonmanaging general partners. Excludes Pioneer USA's
partnership interests as general partner of the nonmanaging general
partners.
(b) Percentage owned is based upon ownership within the partnership as set
forth in the revenue sharing provisions of the partnership agreement for
that partnership.
(c) See "Method of Determining Merger Values and Amount of Cash Offered."
(d) Represents the dollar amount in the other nonmanaging general partners'
aggregate merger value column divided by the aggregate merger value for the
partnership as set forth in Table 2.
A-5
<PAGE> 66
TABLE 5
OWNERSHIP PERCENTAGE AND MERGER VALUE
ATTRIBUTABLE TO PIONEER USA HELD IN ITS CAPACITIES AS
GENERAL PARTNER, NONMANAGING GENERAL PARTNER AND LIMITED PARTNER
AS OF AUGUST 1, 1999
<TABLE>
<CAPTION>
PIONEER USA'S
PIONEER USA(a) MERGER VALUE AS A
--------------------------------- PERCENTAGE OF
OWNERSHIP AGGREGATE MERGER AGGREGATE MERGER VALUE
PERCENTAGE(b) VALUE(c) FOR THE PARTNERSHIP(d)
-------------- ---------------- ----------------------
<S> <C> <C> <C>
Parker & Parsley 82-I, Ltd. .................. 31.51% 160,707 29.91%
Parker & Parsley 82-II, Ltd. ................. 26.86% 233,515 25.42%
Parker & Parsley 83-A, Ltd. .................. 26.28% 444,921 25.04%
Parker & Parsley 83-B, Ltd. .................. 26.70% 744,776 25.29%
Parker & Parsley 84-A, Ltd. .................. 25.34% 637,901 24.24%
Parker & Parsley 85-A, Ltd. .................. 2.93% 20,949 2.93%
Parker & Parsley 85-B, Ltd. .................. 1.72% 14,351 1.72%
Parker & Parsley 86-A, Ltd. .................. 1.34% 11,133 1.34%
Parker & Parsley 86-B, Ltd. .................. 1.74% 39,117 1.74%
Parker & Parsley 86-C, Ltd. .................. 1.31% 24,353 1.31%
Parker & Parsley 87-A, Ltd. .................. 1.60% 53,960 1.60%
Parker & Parsley Producing Properties 87-A,
Ltd. ....................................... 1.35% 23,968 1.35%
Parker & Parsley 87-B, Ltd. .................. 1.22% 32,586 1.22%
Parker & Parsley Producing Properties 87-B,
Ltd. ....................................... 2.59% 33,115 2.58%
Parker & Parsley 88-A, L.P. .................. 2.32% 51,739 2.32%
Parker & Parsley Producing Properties 88-A,
L.P. ....................................... 1.69% 32,164 1.69%
Parker & Parsley 88-B, L.P. .................. 2.04% 28,688 2.04%
Parker & Parsley 89-A, L.P. .................. 2.25% 33,362 2.25%
Parker & Parsley 90-A, L.P. .................. 3.14% 34,154 3.14%
Parker & Parsley 90-B Conv., L.P. ............ 1.67% 31,749 1.67%
Parker & Parsley 90-B, L.P. .................. 1.25% 64,924 1.25%
Parker & Parsley 90-C Conv., L.P. ............ 1.39% 13,545 1.39%
Parker & Parsley 90-C, L.P. .................. 1.22% 18,948 1.22%
Parker & Parsley 91-A, L.P. .................. 1.38% 32,032 1.38%
Parker & Parsley 91-B, L.P. .................. 1.09% 26,234 1.09%
</TABLE>
- ---------------
(a) Represents Pioneer USA's partnership interests in the partnerships as: (1)
the sole or managing general partner of the partnerships; (2) a limited
partner of the partnerships; and (3) the sole general partner of the
nonmanaging general partners. Pioneer USA will not receive any cash payment
for its partnership interests in the participating partnerships. However,
as a result of the mergers, Pioneer USA will acquire 100% of the properties
of the participating partnerships including properties attributable to its
partnership interests in those partnerships.
(b) Percentage owned is based upon ownership within the partnership as set
forth in the revenue sharing provisions of the partnership agreement for
that partnership.
(c) See "Method of Determining Merger Values and Amount of Cash Offered."
(d) Represents the dollar amount in Pioneer USA's aggregate merger value column
divided by the aggregate merger value for the partnership as set forth in
Table 2.
A-6
<PAGE> 67
TABLE 6
VOTING PERCENTAGE IN PARTNERSHIPS BENEFICIALLY OWNED BY PIONEER USA
IN ITS CAPACITY AS A LIMITED PARTNER
AS OF AUGUST 1, 1999
<TABLE>
<CAPTION>
PIONEER USA(a)
--------------
VOTING
PERCENTAGE(b)
--------------
<S> <C>
Parker & Parsley 82-I, Ltd.................................. 10.17%
Parker & Parsley 82-II, Ltd................................. 3.61%
Parker & Parsley 83-A, Ltd.................................. 3.11%
Parker & Parsley 83-B, Ltd.................................. 3.67%
Parker & Parsley 84-A, Ltd.................................. 1.95%
Parker & Parsley 85-A, Ltd.(c).............................. 0.00%
Parker & Parsley 85-B, Ltd.(c).............................. 0.00%
Parker & Parsley 86-A, Ltd.................................. 0.35%
Parker & Parsley 86-B, Ltd.................................. 0.74%
Parker & Parsley 86-C, Ltd.................................. 0.31%
Parker & Parsley 87-A, Ltd.................................. 0.61%
Parker & Parsley Producing Properties 87-A, Ltd............. 0.35%
Parker & Parsley 87-B, Ltd.................................. 0.22%
Parker & Parsley Producing Properties 87-B, Ltd............. 1.61%
Parker & Parsley 88-A, L.P.................................. 1.34%
Parker & Parsley Producing Properties 88-A, L.P............. 0.70%
Parker & Parsley 88-B, L.P.................................. 1.05%
Parker & Parsley 89-A, L.P.................................. 1.26%
Parker & Parsley 90-A, L.P.................................. 2.16%
Parker & Parsley 90-B Conv., L.P............................ 0.67%
Parker & Parsley 90-B, L.P.................................. 0.26%
Parker & Parsley 90-C Conv., L.P............................ 0.40%
Parker & Parsley 90-C, L.P.................................. 0.22%
Parker & Parsley 91-A, L.P.(c).............................. 0.00%
Parker & Parsley 91-B, L.P.(c).............................. 0.00%
</TABLE>
- ---------------
(a) Represents Pioneer USA's partnership interests in the partnerships as a
limited partner of the partnerships. Pioneer USA will not receive any cash
payment for its partnership interests in the participating partnerships.
However, as a result of the mergers, Pioneer USA will acquire 100% of the
properties of the participating partnerships including properties
attributable to its partnership interests in those partnerships.
(b) Represents percentage of limited partners' vote that Pioneer USA is
entitled to vote. The voting percentage is calculated by multiplying (1)
Pioneer USA's ownership percentage of partnership interests held as a
limited partner, by (2) the percentage of partnership interests held by all
limited partners in the partnership. For example, if the limited partners
of a partnership represent 99% of the partnership and Pioneer USA owns 5%
of the partnership interests as a limited partner in that partnership,
Pioneer USA's voting percentage is 4.95%.
(c) Pioneer USA is not entitled to vote partnership interests it holds as
limited partner in this partnership.
A-7
<PAGE> 68
TABLE 7
HISTORICAL PARTNERSHIP DISTRIBUTIONS
FROM INCEPTION THROUGH JUNE 30, 1999
<TABLE>
<CAPTION>
QUARTERLY DISTRIBUTIONS
TO LIMITED PARTNERS
PER $1,000 INVESTMENT(A)
----------------------------------------------------------------
INCEPTION QUARTER QUARTER QUARTER QUARTER QUARTER
TO ENDED ENDED ENDED ENDED ENDED
12/31/96 3/31/97 6/30/97 9/30/97 12/31/97 3/31/98
--------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Parker & Parsley 82-I, Ltd...... $ 919.02 $ 6.86 $ 4.82 $ 4.02 $ 3.90 $ 4.07
Parker & Parsley 82-II, Ltd..... 1,054.40 8.00 5.80 4.50 3.20 4.70
Parker & Parsley 83-A, Ltd...... 1,219.31 8.20 6.00 5.00 5.30 5.38
Parker & Parsley 83-B, Ltd...... 1,414.61 10.37 9.00 6.92 6.20 5.60
Parker & Parsley 84-A, Ltd...... 1,339.50 10.20 8.00 7.52 6.60 5.86
Parker & Parsley 85-A, Ltd...... 643.86 8.70 6.20 4.76 5.60 5.29
Parker & Parsley 85-B, Ltd...... 825.31 11.50 8.10 7.60 6.52 9.80
Parker & Parsley 86-A, Ltd...... 1,243.06 11.68 6.42 4.84 4.51 5.78
Parker & Parsley 86-B, Ltd...... 1,404.21 16.82 11.50 9.79 8.66 8.44
Parker & Parsley 86-C, Ltd...... 1,348.77 13.02 9.77 7.03 8.02 8.08
Parker & Parsley 87-A, Ltd...... 1,166.65 15.55 10.17 8.79 8.01 8.86
Parker & Parsley Producing
Properties 87-A, Ltd.......... 822.73 19.50 11.80 8.31 8.68 8.05
Parker & Parsley 87-B, Ltd...... 1,097.20 11.61 8.79 8.30 7.12 7.80
Parker & Parsley Producing
Properties 87-B, Ltd.......... 844.83 25.00 20.50 16.18 16.72 15.51
Parker & Parsley 88-A, L.P...... 913.02 14.69 13.92 10.50 11.58 12.25
Parker & Parsley Producing
Properties 88-A, L.P.......... 924.68 29.50 31.00 20.50 20.03 17.98
Parker & Parsley 88-B, L.P...... 891.68 16.71 13.82 10.56 9.58 7.77
Parker & Parsley 89-A, L.P...... 820.02 19.80 13.40 14.00 15.39 13.94
Parker & Parsley 90-A, L.P...... 703.38 20.41 12.40 9.18 11.07 12.93
Parker & Parsley 90-B Conv.,
L.P........................... 524.41 19.32 14.45 9.38 9.23 9.93
Parker & Parsley 90-B, L.P...... 524.49 19.32 14.45 9.38 9.23 9.93
Parker & Parsley 90-C Conv.,
L.P........................... 472.68 15.85 12.04 10.27 9.37 7.68
Parker & Parsley 90-C, L.P...... 472.69 15.85 12.04 10.27 9.37 7.68
Parker & Parsley 91-A, L.P...... 551.59 23.55 20.62 15.58 15.36 14.69
Parker & Parsley 91-B, L.P...... 414.89 25.80 19.58 16.00 13.94 14.94
<CAPTION>
QUARTERLY DISTRIBUTIONS
TO LIMITED PARTNERS
PER $1,000 INVESTMENT(A)
----------------------------------------------------------------
QUARTER QUARTER QUARTER QUARTER QUARTER INCEPTION
ENDED ENDED ENDED ENDED ENDED TO
6/30/98 9/30/98 12/31/98 3/31/99 6/30/99 6/30/99
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Parker & Parsley 82-I, Ltd...... $ 1.40 $ 0.97 $1.67 $0.62 $0.53 $ 947.88
Parker & Parsley 82-II, Ltd..... 1.90 15.24 1.50 0.83 0.00 1,100.07
Parker & Parsley 83-A, Ltd...... 1.10 13.00 1.25 0.00 0.00 1,264.54
Parker & Parsley 83-B, Ltd...... 1.50 2.05 2.35 0.96 1.79 1,461.35
Parker & Parsley 84-A, Ltd...... 2.74 2.19 2.02 0.80 2.78 1,388.21
Parker & Parsley 85-A, Ltd...... 2.21 0.95 1.16 0.83 1.49 681.05
Parker & Parsley 85-B, Ltd...... 5.11 1.59 0.79 0.00 3.17 879.49
Parker & Parsley 86-A, Ltd...... 1.14 1.02 1.48 0.79 2.23 1,282.95
Parker & Parsley 86-B, Ltd...... 3.82 3.28 3.17 1.53 5.01 1,476.23
Parker & Parsley 86-C, Ltd...... 3.46 2.10 1.56 0.82 2.38 1,405.01
Parker & Parsley 87-A, Ltd...... 4.18 3.00 3.49 1.83 2.20 1,232.73
Parker & Parsley Producing
Properties 87-A, Ltd.......... 2.35 4.94 3.29 1.49 0.89 892.03
Parker & Parsley 87-B, Ltd...... 4.64 4.56 4.23 1.85 2.29 1,158.39
Parker & Parsley Producing
Properties 87-B, Ltd.......... 9.00 4.01 4.29 3.97 1.02 961.03
Parker & Parsley 88-A, L.P...... 6.14 4.79 4.72 3.16 3.06 997.83
Parker & Parsley Producing
Properties 88-A, L.P.......... 15.46 9.09 7.45 6.51 4.02 1,086.22
Parker & Parsley 88-B, L.P...... 6.31 5.76 4.18 3.44 2.88 972.69
Parker & Parsley 89-A, L.P...... 6.62 4.44 3.58 2.66 2.77 916.62
Parker & Parsley 90-A, L.P...... 6.05 5.14 4.33 3.18 1.68 789.75
Parker & Parsley 90-B Conv.,
L.P........................... 4.75 4.31 4.67 2.10 1.80 604.35
Parker & Parsley 90-B, L.P...... 4.75 4.31 4.67 2.10 1.80 604.43
Parker & Parsley 90-C Conv.,
L.P........................... 3.59 2.40 3.63 0.95 0.00 538.46
Parker & Parsley 90-C, L.P...... 3.59 2.40 3.63 0.95 0.00 538.47
Parker & Parsley 91-A, L.P...... 10.82 6.14 5.12 3.99 6.33 673.79
Parker & Parsley 91-B, L.P...... 9.84 6.86 5.13 3.95 7.05 537.98
</TABLE>
- ---------------
(a) Past cash distributions to limited partners are not necessarily indicative
of future cash distributions, and limited partners should not assume that
any nonparticipating partnerships will continue to make cash distributions
at levels similar to those shown. See "The Mergers -- Distribution of Cash
Payments."
A-8
<PAGE> 69
TABLE 8
ANNUAL REPURCHASE PRICES AND AGGREGATE ANNUAL REPURCHASE PAYMENTS
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ----------------------- -----------------------
REPURCHASE AGGREGATE REPURCHASE AGGREGATE REPURCHASE AGGREGATE
PRICE ANNUAL PRICE ANNUAL PRICE ANNUAL
PER $1,000 REPURCHASE PER $1,000 REPURCHASE PER $1,000 REPURCHASE
INVESTMENT PAYMENTS INVESTMENT PAYMENTS INVESTMENT PAYMENTS
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Parker & Parsley 82-I,
Ltd....................... $ 7.52 $ 94 $ 56.12 $ 1,403 $106.62 $ 9,862
Parker & Parsley 82-II,
Ltd....................... 26.17 131 78.17 1,173 136.36 5,727
Parker & Parsley 83-A,
Ltd....................... 27.05 541 90.09 2,703 210.59 13,057
Parker & Parsley 83-B,
Ltd....................... 43.46 0 114.88 9,707 237.60 24,948
Parker & Parsley 84-A,
Ltd....................... 45.72 1,143 114.02 1,140 221.66 16,403
Parker & Parsley 90-A,
L.P....................... (a) (a) (a) (a) 340.73 0
Parker & Parsley 90-B,
L.P....................... (a) (a) (a) (a) 341.42 0
Parker & Parsley 90-C,
L.P....................... (a) (a) (a) (a) 341.13 0
Parker & Parsley 91-A,
L.P....................... (b) (b) 238.87 1,194 389.39 0
Parker & Parsley 91-B,
L.P....................... (b) (b) 208.39 0 446.45 0
------ ------- -------
$1,909 $17,320 $69,997
====== ======= =======
</TABLE>
- ---------------
(a) Repurchase rights expired in 1997.
(b) Repurchase rights expired in 1998.
A-9
<PAGE> 70
TABLE 9
PARTICIPATION IN COSTS AND REVENUES
OF THE PARTNERSHIPS
<TABLE>
<CAPTION>
CAPITAL COSTS REVENUES AND EXPENSES
-------------------------------------- --------------------------------------
NONMANAGING NONMANAGING
GENERAL GENERAL LIMITED GENERAL GENERAL LIMITED
PARTNER(a) PARTNERS(a) PARTNERS(a) PARTNER(a) PARTNERS(a) PARTNERS(a)
---------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Parker & Parsley 82-I, Ltd............ 8% 2% 90% 20% 5% 75%
Parker & Parsley 82-II, Ltd........... 8% 2% 90% 20% 5% 75%
Parker & Parsley 83-A, Ltd.(b)........ 8% 2% 90% 20% 5% 75%
Parker & Parsley 83-B, Ltd.(b)........ 8% 2% 90% 20% 5% 75%
Parker & Parsley 84-A, Ltd.(b)........ 8% 2% 90% 20% 5% 75%
Parker & Parsley 85-A, Ltd............ 1% -- 99% 1% -- 99%
Parker & Parsley 85-B, Ltd............ 1% -- 99% 1% -- 99%
Parker & Parsley 86-A, Ltd............ 1% -- 99% 1% -- 99%
Parker & Parsley 86-B, Ltd............ 1% -- 99% 1% -- 99%
Parker & Parsley 86-C, Ltd............ 1% -- 99% 1% -- 99%
Parker & Parsley 87-A, Ltd............ 1% -- 99% 1% -- 99%
Parker & Parsley Producing Properties
87-A, Ltd........................... 1% -- 99% 1% -- 99%
Parker & Parsley 87-B, Ltd............ 1% -- 99% 1% -- 99%
Parker & Parsley Producing Properties
87-B, Ltd........................... 1% -- 99% 1% -- 99%
Parker & Parsley 88-A, L.P............ 1% -- 99% 1% -- 99%
Parker & Parsley Producing Properties
88-A, L.P........................... 1% -- 99% 1% -- 99%
Parker & Parsley 88-B, L.P............ 1% -- 99% 1% -- 99%
Parker & Parsley 89-A, L.P............ 1% -- 99% 1% -- 99%
Parker & Parsley 90-A, L.P............ 1% -- 99% 1% -- 99%
Parker & Parsley 90-B Conv., L.P...... 1% -- 99% 1% -- 99%
Parker & Parsley 90-B, L.P............ 1% -- 99% 1% -- 99%
Parker & Parsley 90-C Conv., L.P...... 1% -- 99% 1% -- 99%
Parker & Parsley 90-C, L.P............ 1% -- 99% 1% -- 99%
Parker & Parsley 91-A, L.P............ 1% -- 99% 1% -- 99%
Parker & Parsley 91-B, L.P............ 1% -- 99% 1% -- 99%
</TABLE>
- ---------------
(a) These percentages represent the sharing ownerships as set forth in the
prospectus for each partnership. Includes Pioneer USA's partnership
interests in the partnerships as: (1) the sole or managing general partner
of the partnerships; (2) a limited partner of the partnerships; and (3) the
sole general partner of the nonmanaging general partners. Pioneer USA will
not receive any cash payment for its partnership interests in the
participating partnerships.
(b) Incremental direct costs 100% to limited partners.
A-10
<PAGE> 71
TABLE 10
AVERAGE OIL, NATURAL GAS LIQUIDS AND GAS SALES PRICES AND PRODUCTION COSTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
AVERAGE SALES PRICE
--------------------------------------------------------------------
OIL (PER BBL) NGL (PER BBL)
--------------------------------- --------------------------------
FOR THE SIX FOR THE YEAR FOR THE SIX FOR THE YEAR
MONTHS ENDED MONTHS ENDED
ENDED JUNE 30, DECEMBER 31, ENDED JUNE 30, DECEMBER 31,
--------------- --------------- --------------- --------------
1999 1998 1998 1997 1999 1998 1998 1997
------ ------ ------ ------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Parker & Parsley 82-I, Ltd........ $12.91 $14.20 $13.32 $19.68 $6.99 $8.43 $7.20 $12.34
Parker & Parsley 82-II, Ltd....... 13.16 13.87 13.14 19.51 7.36 7.79 6.93 11.02
Parker & Parsley 83-A, Ltd........ 12.91 14.31 13.34 19.45 7.21 7.13 6.49 10.56
Parker & Parsley 83-B, Ltd........ 13.33 14.25 13.30 19.53 7.94 7.46 6.79 10.74
Parker & Parsley 84-A, Ltd........ 13.44 14.22 13.30 19.31 7.07 6.55 6.08 9.23
Parker & Parsley 85-A, Ltd........ 13.15 14.17 13.27 19.48 7.34 7.30 6.51 11.01
Parker & Parsley 85-B, Ltd........ 13.86 14.20 13.30 19.56 7.09 7.57 6.95 11.13
Parker & Parsley 86-A, Ltd........ 13.30 14.26 13.32 19.46 7.35 7.06 6.53 10.23
Parker & Parsley 86-B, Ltd........ 13.27 14.01 13.08 19.38 6.87 7.68 6.80 10.88
Parker & Parsley 86-C, Ltd........ 13.24 14.17 13.26 19.43 6.93 7.05 6.46 10.22
Parker & Parsley 87-A, Ltd........ 13.20 14.18 13.22 19.41 7.26 7.33 6.76 10.75
Parker & Parsley Producing
Properties 87-A, Ltd............ 13.18 14.01 13.04 19.10 5.61 6.00 5.46 8.66
Parker & Parsley 87-B, Ltd........ 13.01 14.09 13.17 19.32 7.29 7.46 6.82 10.48
Parker & Parsley Producing
Properties 87-B, Ltd............ 13.27 13.98 13.05 19.12 7.72 6.83 6.58 10.65
Parker & Parsley 88-A, L.P........ 13.00 14.65 13.59 19.36 6.86 7.39 6.57 10.51
Parker & Parsley Producing
Properties 88-A, L.P............ 12.93 14.08 13.14 19.28 6.84 6.70 6.31 10.05
Parker & Parsley 88-B, L.P........ 13.15 14.32 13.24 19.33 7.55 7.77 6.91 10.81
Parker & Parsley 89-A, L.P........ 13.23 14.26 13.23 19.48 6.75 7.96 6.95 11.08
Parker & Parsley 90-A, L.P........ 13.27 14.16 13.20 19.41 7.10 7.92 7.02 11.16
Parker & Parsley 90-B Conv.,
L.P............................. 13.22 13.99 13.12 19.45 6.81 7.27 6.60 10.38
Parker & Parsley 90-B, L.P........ 13.22 13.98 13.12 19.45 6.81 7.27 6.60 10.38
Parker & Parsley 90-C Conv.,
L.P............................. 13.12 14.14 13.24 19.48 6.63 7.51 6.80 10.58
Parker & Parsley 90-C, L.P........ 13.12 14.13 13.24 19.48 6.63 7.51 6.80 10.58
Parker & Parsley 91-A, L.P........ 13.55 13.90 13.15 19.55 6.98 7.20 6.44 10.04
Parker & Parsley 91-B, L.P........ 13.79 14.26 13.33 19.77 7.60 7.32 6.79 10.54
<CAPTION>
AVERAGE PRODUCTION
AVERAGE SALES PRICE COSTS (LIFTING)
------------------------------- ------------------------------
GAS (PER MCF) COST PER EQUIVALENT BBL (a)
------------------------------- ------------------------------
FOR THE SIX FOR THE YEAR FOR THE SIX FOR THE YEAR
MONTHS ENDED MONTHS ENDED
ENDED JUNE 30, DECEMBER 31, ENDED JUNE 30, DECEMBER 31,
--------------- ------------- -------------- -------------
1999 1998 1998 1997 1999 1998 1998 1997
------ ------ ----- ----- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Parker & Parsley 82-I, Ltd........ $1.66 $1.74 $1.82 $2.46 $8.83 $10.47 $9.88 $9.78
Parker & Parsley 82-II, Ltd....... 1.56 1.68 1.64 2.41 8.34 7.57 7.88 9.35
Parker & Parsley 83-A, Ltd........ 1.52 1.62 1.60 2.32 8.78 9.00 8.76 10.21
Parker & Parsley 83-B, Ltd........ 1.45 1.58 1.54 2.39 7.18 9.12 8.27 8.93
Parker & Parsley 84-A, Ltd........ 1.32 1.33 1.33 2.02 7.05 8.05 7.66 8.21
Parker & Parsley 85-A, Ltd........ 1.52 1.62 1.56 2.37 6.84 8.67 8.70 9.40
Parker & Parsley 85-B, Ltd........ 1.49 1.62 1.58 2.39 7.74 7.72 8.48 7.87
Parker & Parsley 86-A, Ltd........ 1.40 1.48 1.46 2.18 7.09 11.26 9.36 10.86
Parker & Parsley 86-B, Ltd........ 1.50 1.62 1.58 2.39 7.70 7.93 7.64 7.77
Parker & Parsley 86-C, Ltd........ 1.40 1.52 1.49 2.27 8.05 7.83 7.67 8.35
Parker & Parsley 87-A, Ltd........ 1.46 1.57 1.54 2.41 7.08 8.60 7.78 7.64
Parker & Parsley Producing
Properties 87-A, Ltd............ 1.13 1.25 1.23 1.90 8.45 9.81 9.26 11.90
Parker & Parsley 87-B, Ltd........ 1.42 1.51 1.49 2.31 6.96 7.10 6.65 7.54
Parker & Parsley Producing
Properties 87-B, Ltd............ 1.39 1.46 1.46 2.56 7.81 8.43 7.84 8.08
Parker & Parsley 88-A, L.P........ 1.47 1.59 1.56 2.28 6.09 7.30 7.06 7.26
Parker & Parsley Producing
Properties 88-A, L.P............ 1.29 1.45 1.41 2.33 6.44 5.90 5.87 7.66
Parker & Parsley 88-B, L.P........ 1.49 1.59 1.56 2.27 6.75 7.94 7.51 8.50
Parker & Parsley 89-A, L.P........ 1.53 1.74 1.74 2.22 7.57 6.75 6.92 7.88
Parker & Parsley 90-A, L.P........ 1.54 1.67 1.64 2.38 7.24 7.23 6.93 8.00
Parker & Parsley 90-B Conv.,
L.P............................. 1.41 1.51 1.50 2.24 7.21 7.75 7.31 8.11
Parker & Parsley 90-B, L.P........ 1.41 1.51 1.50 2.24 7.21 7.75 7.31 8.11
Parker & Parsley 90-C Conv.,
L.P............................. 1.48 1.56 1.55 2.38 8.63 9.02 8.22 8.75
Parker & Parsley 90-C, L.P........ 1.48 1.56 1.55 2.38 8.64 9.02 8.22 8.75
Parker & Parsley 91-A, L.P........ 1.47 1.63 1.56 2.25 6.15 5.96 6.04 6.83
Parker & Parsley 91-B, L.P........ 1.38 1.51 1.47 2.39 5.83 6.05 5.96 7.27
</TABLE>
- ---------------
(a) Gas production is converted to oil equivalents at the rate of six mcf per
barrel, representing the relative energy content of natural gas and oil.
A-11
<PAGE> 72
TABLE 11
PROVED RESERVES ATTRIBUTABLE TO PIONEER USA,
OTHER NONMANAGING GENERAL PARTNERS AND LIMITED PARTNERS
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
TOTAL PROVED RESERVES
---------------------------------------------------------------------------------------------------
OTHER NONMANAGING
PIONEER USA (a) GENERAL PARTNERS (b) LIMITED PARTNERS (c) TOTAL (d)
---------------------- ---------------------- ----------------------- -----------------------
OIL & OIL & OIL & OIL &
NGL (BBLS) GAS (MCF) NGL (BBLS) GAS (MCF) NGL (BBLS) GAS (MCF) NGL (BBLS) GAS (MCF)
---------- --------- ---------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Parker & Parsley 82-I,
Ltd....................... 20,970 30,236 182 263 43,672 62,968 64,824 93,467
Parker & Parsley 82-II,
Ltd....................... 50,882 84,130 390 646 133,790 221,212 185,062 305,988
Parker & Parsley 83-A,
Ltd....................... 90,980 150,508 882 1,459 244,211 403,998 336,073 555,965
Parker & Parsley 83-B,
Ltd....................... 171,294 304,066 1,636 2,904 450,233 799,215 623,163 1,106,185
Parker & Parsley 84-A,
Ltd....................... 147,587 278,700 1,585 2,994 414,538 782,805 563,710 1,064,499
Parker & Parsley 85-A,
Ltd....................... 3,980 7,179 -- -- 132,040 238,182 136,020 245,361
Parker & Parsley 85-B,
Ltd....................... 2,897 5,345 -- -- 165,634 305,645 168,531 310,990
Parker & Parsley 86-A,
Ltd....................... 2,156 3,635 -- -- 158,463 267,227 160,619 270,862
Parker & Parsley 86-B,
Ltd....................... 8,127 11,871 -- -- 459,926 671,784 468,053 683,655
Parker & Parsley 86-C,
Ltd....................... 4,876 9,719 -- -- 368,059 733,572 372,935 743,291
Parker & Parsley 87-A,
Ltd....................... 10,601 18,792 -- -- 651,405 1,154,734 662,006 1,173,526
Parker & Parsley Producing
Properties 87-A, Ltd...... 4,755 7,480 -- -- 347,826 547,153 352,581 554,633
Parker & Parsley 87-B,
Ltd....................... 6,771 10,996 -- -- 547,437 889,011 554,208 900,007
Parker & Parsley Producing
Properties 87-B, Ltd...... 7,341 13,323 -- -- 275,914 500,752 283,255 514,075
Parker & Parsley 88-A,
L.P....................... 10,962 19,783 -- -- 460,713 831,455 471,675 851,238
Parker & Parsley Producing
Properties 88-A, L.P...... 7,153 12,478 -- -- 416,576 726,686 423,729 739,164
Parker & Parsley 88-B,
L.P....................... 5,505 7,677 -- -- 264,435 368,793 269,940 376,470
Parker & Parsley 89-A,
L.P....................... 6,165 13,057 -- -- 267,858 567,281 274,023 580,338
Parker & Parsley 90-A,
L.P....................... 7,019 12,366 -- -- 216,742 381,866 223,761 394,232
Parker & Parsley 90-B Conv.,
L.P....................... 6,828 10,001 -- -- 403,103 590,414 409,931 600,415
Parker & Parsley 90-B,
L.P....................... 13,950 20,433 -- -- 1,097,904 1,608,072 1,111,854 1,628,505
Parker & Parsley 90-C Conv.,
L.P....................... 2,612 3,138 -- -- 184,678 221,897 187,290 225,035
Parker & Parsley 90-C,
L.P....................... 3,674 4,414 -- -- 297,246 357,152 300,920 361,566
Parker & Parsley 91-A,
L.P....................... 6,995 10,049 -- -- 498,615 716,334 505,610 726,383
Parker & Parsley 91-B,
L.P....................... 5,581 6,608 -- -- 507,398 600,699 512,979 607,307
------- --------- ----- --------- --------- ---------- --------- ----------
Total (d)........... 609,661 1,055,984 4,675 8,266 9,008,416 14,548,907 9,622,752 15,613,157
======= ========= ===== ========= ========= ========== ========= ==========
</TABLE>
- ---------------
(a) Represents Pioneer USA's partnership interests in the partnerships as: (1)
the sole or managing general partner of the partnerships; (2) a limited
partner of the partnerships; and (3) the sole general partner of the
nonmanaging general partners. Pioneer USA will not receive any cash payment
for its partnership interests in the participating partnerships. However,
as a result of the mergers, Pioneer USA will acquire 100% of the properties
of the participating partnerships including properties attributable to its
partnership interests in those partnerships.
(b) Represents four unaffiliated individuals' partnership interests as limited
partners of the nonmanaging general partners. Excludes Pioneer USA's
partnership interests as general partner of the nonmanaging general
partners.
(c) Represents the partnership interests of unaffiliated limited partners of
the partnerships. Excludes Pioneer USA's partnership interests as a limited
partner of the partnerships.
(d) Corresponds to amounts in the reserve report prepared by Williamson
Petroleum Consultants, Inc. as of December 31, 1998.
A-12
<PAGE> 73
TABLE 12
OIL, NATURAL GAS LIQUIDS AND GAS PRODUCTION(a)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
OIL AND NGL (BBLS) GAS (MCF)
------------------------------------------- ---------------------
FOR THE SIX MONTHS FOR THE YEAR ENDED FOR THE SIX MONTHS
ENDED JUNE 30, DECEMBER 31, ENDED JUNE 30,
------------------- --------------------- ---------------------
1999 1998 1998 1997 1999 1998
-------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Parker & Parsley 82-I, Ltd. ............ 12,889 12,741 25,898 23,644 24,947 23,991
Parker & Parsley 82-II, Ltd. ........... 13,094 14,757 27,854 25,018 20,236 22,148
Parker & Parsley 83-A, Ltd. ............ 33,388 34,273 67,612 59,554 52,185 48,253
Parker & Parsley 83-B, Ltd. ............ 44,885 46,072 93,695 79,735 79,292 71,913
Parker & Parsley 84-A, Ltd. ............ 43,450 43,971 88,702 72,806 80,888 67,759
Parker & Parsley 85-A, Ltd. ............ 15,104 13,416 27,808 22,871 26,371 20,967
Parker & Parsley 85-B, Ltd. ............ 10,325 12,676 24,803 21,993 16,651 21,106
Parker & Parsley 86-A, Ltd. ............ 17,457 15,289 31,472 25,717 33,171 23,870
Parker & Parsley 86-B, Ltd. ............ 31,134 34,692 70,399 57,410 42,002 49,055
Parker & Parsley 86-C, Ltd. ............ 33,431 37,981 74,674 61,043 56,238 65,777
Parker & Parsley 87-A, Ltd. ............ 49,279 54,280 107,375 90,576 90,088 90,366
Parker & Parsley Producing Properties
87-A, Ltd. ........................... 27,928 31,859 64,367 59,718 25,190 29,158
Parker & Parsley 87-B, Ltd. ............ 34,931 35,922 73,036 59,291 51,130 51,388
Parker & Parsley Producing Properties
87-B, Ltd. ........................... 17,948 20,793 40,796 35,312 24,988 23,042
Parker & Parsley 88-A, L.P. ............ 29,252 29,693 57,635 48,269 45,216 46,285
Parker & Parsley Producing Properties
88-A, L.P. ........................... 15,213 17,817 34,491 31,920 22,550 25,765
Parker & Parsley 88-B, L.P. ............ 20,317 21,813 43,365 35,648 27,934 26,363
Parker & Parsley 89-A, L.P. ............ 20,251 20,853 41,931 36,061 26,888 35,642
Parker & Parsley 90-A, L.P. ............ 14,779 16,519 32,915 26,735 21,392 24,197
Parker & Parsley 90-B Conv., L.P. ...... 26,777 29,263 58,543 49,199 36,322 36,722
Parker & Parsley 90-B, L.P. ............ 72,613 79,388 158,775 133,407 98,512 99,596
Parker & Parsley 90-C Conv., L.P. ...... 15,634 16,311 33,187 29,478 13,600 14,569
Parker & Parsley 90-C, L.P. ............ 25,133 26,228 53,358 47,389 21,869 23,433
Parker & Parsley 91-A, L.P. ............ 31,609 36,023 70,623 60,858 49,899 56,185
Parker & Parsley 91-B, L.P. ............ 31,853 33,469 66,527 57,021 35,912 34,026
------- ------- --------- --------- --------- ---------
Total........................... 688,674 736,099 1,469,841 1,250,673 1,023,471 1,031,576
======= ======= ========= ========= ========= =========
<CAPTION>
GAS (MCF) TOTAL (BOE)
--------------------- -------------------------------------------
FOR THE YEAR ENDED FOR THE SIX MONTHS FOR THE YEAR ENDED
DECEMBER 31, ENDED JUNE 30, DECEMBER 31,
--------------------- ------------------- ---------------------
1998 1997 1999 1998 1998 1997
--------- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Parker & Parsley 82-I, Ltd. ............ 48,971 66,728 17,047 16,740 34,060 34,765
Parker & Parsley 82-II, Ltd. ........... 41,862 57,516 16,467 18,448 34,831 34,604
Parker & Parsley 83-A, Ltd. ............ 95,156 141,525 42,086 42,315 83,471 83,142
Parker & Parsley 83-B, Ltd. ............ 147,495 201,100 58,100 58,058 118,278 113,252
Parker & Parsley 84-A, Ltd. ............ 145,870 199,235 56,931 55,264 113,014 106,012
Parker & Parsley 85-A, Ltd. ............ 43,021 57,213 19,499 16,911 34,978 32,407
Parker & Parsley 85-B, Ltd. ............ 41,501 60,076 13,100 16,194 31,720 32,006
Parker & Parsley 86-A, Ltd. ............ 49,805 68,518 22,986 19,267 39,773 37,137
Parker & Parsley 86-B, Ltd. ............ 97,715 141,058 38,134 42,868 86,685 80,920
Parker & Parsley 86-C, Ltd. ............ 129,149 184,965 42,804 48,944 96,199 91,871
Parker & Parsley 87-A, Ltd. ............ 179,494 257,587 64,294 69,341 137,291 133,507
Parker & Parsley Producing Properties
87-A, Ltd. ........................... 56,240 88,478 32,126 36,719 73,740 74,464
Parker & Parsley 87-B, Ltd. ............ 104,072 154,120 43,453 44,487 90,381 84,978
Parker & Parsley Producing Properties
87-B, Ltd. ........................... 50,220 90,629 22,113 24,633 49,166 50,417
Parker & Parsley 88-A, L.P. ............ 86,501 134,311 36,788 37,407 72,052 70,654
Parker & Parsley Producing Properties
88-A, L.P. ........................... 51,099 80,212 18,971 22,111 43,008 45,289
Parker & Parsley 88-B, L.P. ............ 52,254 70,802 24,973 26,207 52,074 47,448
Parker & Parsley 89-A, L.P. ............ 62,751 92,294 24,732 26,793 52,390 51,443
Parker & Parsley 90-A, L.P. ............ 47,086 68,973 18,344 20,552 40,763 38,231
Parker & Parsley 90-B Conv., L.P. ...... 73,460 100,068 32,831 35,383 70,786 65,877
Parker & Parsley 90-B, L.P. ............ 199,215 271,374 89,032 95,987 191,978 178,636
Parker & Parsley 90-C Conv., L.P. ...... 30,348 50,304 17,901 18,739 38,245 37,862
Parker & Parsley 90-C, L.P. ............ 48,787 80,867 28,778 30,134 61,489 60,867
Parker & Parsley 91-A, L.P. ............ 108,617 135,829 39,926 45,387 88,726 83,496
Parker & Parsley 91-B, L.P. ............ 68,244 90,255 37,838 39,140 77,901 72,064
--------- --------- ------- ------- --------- ---------
Total........................... 2,058,933 2,944,037 859,254 908,029 1,812,999 1,741,349
========= ========= ======= ======= ========= =========
</TABLE>
- ---------------
(a) Prior to October 1997, the partnerships accounted for processed natural gas
production as wellhead production on a wet gas basis. In October 1997, the
partnerships began accounting for processed natural gas production as two
components: natural gas liquids and dry residue gas. Consequently, separate
product volumes for NGLs and gas will not be comparable for 1998 and 1997.
A-13
<PAGE> 74
TABLE 13
PRODUCTIVE WELLS AND DEVELOPED ACREAGE
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRODUCTIVE OIL AND
GAS WELLS DEVELOPED ACRES
------------------- -------------------
GROSS (A) NET (B) GROSS (A) NET (B)
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Parker & Parsley 82-I, Ltd.............................. 17 16.19 1,702 1,557
Parker & Parsley 82-II, Ltd............................. 16 15.38 1,882 1,489
Parker & Parsley 83-A, Ltd.............................. 42 36.59 5,154 3,602
Parker & Parsley 83-B, Ltd.............................. 42 41.26 5,227 4,190
Parker & Parsley 84-A, Ltd.............................. 38 37.55 4,929 4,019
Parker & Parsley 85-A, Ltd.............................. 21 17.05 2,083 1,315
Parker & Parsley 85-B, Ltd.............................. 17 13.05 2,536 1,215
Parker & Parsley 86-A, Ltd.............................. 26 21.86 1,689 1,108
Parker & Parsley 86-B, Ltd.............................. 44 36.52 2,709 1,694
Parker & Parsley 86-C, Ltd.............................. 53 44.36 4,432 2,786
Parker & Parsley 87-A, Ltd.............................. 78 55.01 6,498 4,926
Parker & Parsley Producing Properties 87-A, Ltd......... 90 43.55 10,576 3,615
Parker & Parsley 87-B, Ltd.............................. 49 33.94 4,465 3,251
Parker & Parsley Producing Properties 87-B, Ltd......... 33 1.55 4,302 1,609
Parker & Parsley 88-A, L.P.............................. 39 25.98 3,286 1,628
Parker & Parsley Producing Properties 88-A, L.P......... 23 .34 1,689 1,193
Parker & Parsley 88-B, L.P.............................. 42 19.26 2,766 412
Parker & Parsley 89-A, L.P.............................. 32 17.45 2,811 1,645
Parker & Parsley 90-A, L.P.............................. 25 13.17 2,045 1,141
Parker & Parsley 90-B Conv., L.P........................ 103 23.18 9,729 2,086
Parker & Parsley 90-B, L.P.............................. 103 62.92 9,729 5,658
Parker & Parsley 90-C Conv., L.P........................ 42 13.68 1,021 316
Parker & Parsley 90-C, L.P.............................. 42 21.99 1,021 509
Parker & Parsley 91-A, L.P.............................. 47 24.71 4,389 1,891
Parker & Parsley 91-B, L.P.............................. 29 21.97 1,922 1,301
----- ------ ------ ------
Total......................................... 1,093 658.51 98,592 54,156
===== ====== ====== ======
</TABLE>
- ---------------
(a) A "gross well" or "gross acre" is a well or an acre in which a working
interest is owned. The number of gross wells or acres represents the sum of
the wells or acres in which a working interest is owned.
(b) A "net well" or "net acre" is deemed to exist when the sum of the
fractional working interests in gross wells or acres equals one. The number
of net wells or acres is the sum of the fractional working interests in
gross wells or acres.
A-14
<PAGE> 75
TABLE 14
RECENT TRADES OF PARTNERSHIP INTERESTS(a)
PER $1,000 INVESTMENT
FOR THE SIX MONTHS ENDED JUNE 30, 1999
AND THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
PER $1,000 INVESTMENT
-----------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1999 FOR THE YEAR ENDED DECEMBER 31, 1998
---------------------------------------- ----------------------------------------
SALES PRICE SALES PRICE
------------------- NUMBER NUMBER ------------------- NUMBER NUMBER
HIGH LOW OF SALES SOLD HIGH LOW OF SALES SOLD
-------- -------- -------- ------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Parker & Parsley 82-I, Ltd......... $ 4.17 $ 4.17 1 12 $ 60.00 $ 45.00 3 42
Parker & Parsley 82-II, Ltd........ -- -- -- -- 140.00 135.00 2 10
Parker & Parsley 83-A, Ltd......... 54.00 38.00 2 56 97.00 16.00 9 125
Parker & Parsley 83-B, Ltd......... -- -- -- -- 120.00 80.00 6 75
Parker & Parsley 84-A, Ltd......... 72.00 52.78 2 34 175.00 85.00 5 75
Parker & Parsley 85-A, Ltd......... 61.00 10.00 4 30 100.00 55.00 4 35
Parker & Parsley 85-B, Ltd......... 75.00 75.00 2 30 123.00 70.00 3 25
Parker & Parsley 86-A, Ltd......... 55.00 10.00 2 40 82.50 47.00 3 10
Parker & Parsley 86-B, Ltd......... 111.00 82.00 6 43 200.00 105.00 13 89
Parker & Parsley 86-C, Ltd......... 80.00 45.00 4 22 135.00 102.00 4 170
Parker & Parsley 87-A, Ltd......... 112.00 81.00 4 70 151.00 77.00 19 1,025
Parker & Parsley Producing
Properties 87-A, Ltd............. 175.00 120.50 3 74 216.00 112.00 5 46
Parker & Parsley 87-B, Ltd......... 101.67 10.00 8 140 162.00 80.00 10 153
Parker & Parsley Producing
Properties 87-B, Ltd............. 170.00 170.00 1 10 280.00 280.00 1 4
Parker & Parsley 88-A, L.P......... 105.11 57.00 2 15 202.30 115.00 8 123
Parker & Parsley Producing
Properties 88-A, L.P............. -- -- -- -- 370.00 240.00 5 88
Parker & Parsley 88-B, L.P......... 111.00 101.71 3 40 150.10 92.70 4 72
Parker & Parsley 89-A, L.P......... 138.00 123.00 3 40 210.00 160.00 5 65
Parker & Parsley 90-A, L.P......... 92.00 84.33 2 25 161.00 127.00 3 65
Parker & Parsley 90-B, Conv.
L.P.............................. -- -- -- -- -- -- -- --
Parker & Parsley 90-B, L.P......... 175.00 124.00 8 75 255.00 162.00 9 135
Parker & Parsley 90-C Conv.,
L.P.............................. -- -- -- -- -- -- -- --
Parker & Parsley 90-C, L.P......... 136.33 86.00 5 70 230.00 132.00 7 100
Parker & Parsley 91-A, L.P......... -- -- -- -- 249.75 116.43 9 59
Parker & Parsley 91-B, L.P......... 135.00 135.00 1 10 262.50 245.00 4 260
<CAPTION>
PER $1,000 INVESTMENT
-------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------
SALES PRICE
----------------- NUMBER NUMBER
HIGH LOW OF SALES SOLD
------- ------- -------- ------
<S> <C> <C> <C> <C>
Parker & Parsley 82-I, Ltd......... $ -- $ -- -- --
Parker & Parsley 82-II, Ltd........ 171.00 135.00 3 20
Parker & Parsley 83-A, Ltd......... 172.00 80.00 3 40
Parker & Parsley 83-B, Ltd......... 175.00 119.45 2 30
Parker & Parsley 84-A, Ltd......... 222.00 120.00 4 40
Parker & Parsley 85-A, Ltd......... 192.00 147.00 2 85
Parker & Parsley 85-B, Ltd......... 167.00 120.00 3 30
Parker & Parsley 86-A, Ltd......... 171.00 141.00 2 10
Parker & Parsley 86-B, Ltd......... 298.00 175.00 7 100
Parker & Parsley 86-C, Ltd......... 207.00 102.80 8 99
Parker & Parsley 87-A, Ltd......... 205.00 110.00 14 241
Parker & Parsley Producing
Properties 87-A, Ltd............. 368.00 219.90 9 168
Parker & Parsley 87-B, Ltd......... 202.00 151.00 7 278
Parker & Parsley Producing
Properties 87-B, Ltd............. 344.00 340.00 3 9
Parker & Parsley 88-A, L.P......... 213.00 168.00 6 55
Parker & Parsley Producing
Properties 88-A, L.P............. 380.00 350.00 3 12
Parker & Parsley 88-B, L.P......... 261.00 174.00 4 35
Parker & Parsley 89-A, L.P......... 295.00 203.68 3 75
Parker & Parsley 90-A, L.P......... 242.00 165.00 2 15
Parker & Parsley 90-B, Conv.
L.P.............................. -- -- -- --
Parker & Parsley 90-B, L.P......... 290.00 173.00 12 162
Parker & Parsley 90-C Conv.,
L.P.............................. -- -- -- --
Parker & Parsley 90-C, L.P......... 226.00 225.75 2 46
Parker & Parsley 91-A, L.P......... 306.00 288.27 2 50
Parker & Parsley 91-B, L.P......... 380.00 265.00 3 75
</TABLE>
- ---------------
(a) This table contains historical information about recent trades of
partnership interests on a per $1,000 investment as determined from "The
Partnership Spectrum." The price information represents the prices reported
to have been paid to the sellers net of commissions paid by buyers. This
information should not be relied upon as any indication of the price at
which the partnership interests may trade. There may have been other
secondary sale transactions in the partnership interests, although no
information regarding any such transactions is available to Pioneer USA.
Because the information regarding sale transactions in the partnership
interests in this table is provided without verification by Pioneer USA and
because the information provided does not reflect sufficient activity to
cause the prices shown to be representative of the market values of the
partnership interests, the information should not be relied upon as
indicative of the ability of limited partners to sell their partnership
interests in secondary sale transactions or as to the prices at which the
partnership interests may be sold.
A-15
<PAGE> 76
APPENDIX B
SUMMARY RESERVE REPORT OF WILLIAMSON PETROLEUM CONSULTANTS, INC.
FOR THE PARTNERSHIPS
September 3, 1999
Pioneer Natural Resources USA, Inc.
5205 North O'Connor Boulevard, Suite 1400
Irving, Texas 75039
Attention Board of Directors
Gentlemen:
Subject: Letter Report Including 25 Reports Prepared
by Williamson Petroleum Consultants, Inc.
for Pioneer Natural Resources USA, Inc.
to the Interests of Limited Partners
or the Converted Limited Partners
in Various Parker & Parsley Partnerships
Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 1998
for Disclosure to the
Securities and Exchange Commission
Williamson Project 9.8740
In accordance with your request, Williamson Petroleum Consultants, Inc.
(Williamson) has prepared this summary letter for inclusion in the proxy
statement to be distributed to the limited partners of the referenced
partnerships by Pioneer Natural Resources USA, Inc. (Pioneer USA). This letter
includes 25 Williamson reports prepared for Pioneer USA to the interests of the
limited partners or the converted limited partners in various Parker & Parsley
partnerships managed by Pioneer USA effective December 31, 1998 for disclosure
to the Securities and Exchange Commission (SEC). A listing of the 25 Williamson
reports is included as Exhibit I.
I. ESTIMATED RESERVES AND ESTIMATED FUTURE NET REVENUES
The total Williamson estimated net proved reserves that are attributable to the
evaluated interests of the 25 partnership reports are shown in Exhibit II and
were based on economic parameters and operating condition considered applicable
as of December 31, 1998 and may be used in disclosure to the SEC.
The present values of the estimated future net revenues from proved reserves
were calculated using a discount rate of 10.00 percent per annum and were
computed in accordance with the financial reporting requirements of the SEC and
are presented in Exhibit II.
At the request of Pioneer USA, Williamson used the Landmark graphics and
reserves and economics evaluation software, Aries, to prepare this summary
report. In evaluations of these properties prior to December 31, 1991,
Williamson utilized its proprietary software programs. No comparative tests have
been performed to determine the difference in evaluation results of either
reserves or revenue quantities that may occur solely as a result of the
differences in the programs nor has Williamson performed tests to determine the
accuracy of Aries. However, in accordance with the request made by Pioneer USA
and the general acceptance of Aries by the oil and gas industry, Williamson has
used Aries to prepare this report.
B-1
<PAGE> 77
Pioneer Natural Resources USA, Inc.
Board of Directors
September 3, 1999
Page 2
II. DEFINITIONS OF SEC RESERVES(1)
The estimated reserves presented in this summary letter are net proved reserves,
including proved developed producing, proved developed nonproducing, and proved
undeveloped reserves, and were computed in accordance with the financial
reporting requirements of the SEC. In preparing these evaluations, no attempt
has been made to quantify the element of uncertainty associated with any
category. Reserves were assigned to each category as warranted. The definitions
of oil and gas reserves pursuant to the requirements of the Securities Exchange
Act are:
Proved Reserves(2)
Proved reserves are the estimated quantities of crude oil, natural gas, and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under the economic criteria employed and existing operating conditions, i.e.,
prices and costs as of the date the estimate is made. Prices and costs include
consideration of changes provided only by contractual arrangements but not on
escalations based upon an estimate of future conditions.
A. Reservoirs are considered proved if economic producibility is supported by
either actual production or conclusive formation test. The area of a
reservoir considered proved includes:
1. that portion delineated by drilling and defined by gas-oil and/or
oil-water contacts, if any; and
2. the immediately adjoining portions not yet drilled, but which can be
reasonably judged as economically productive on the basis of available
geological and engineering data. In the absence of information on fluid
contacts, the lowest known structural occurrence of hydrocarbons
controls the lower proved limit of the reservoir.
B. Reserves which can be produced economically through application of improved
recovery techniques (such as fluid injection) are included in the "proved'
classification when successful testing by a pilot project, or the operation
of an installed program in the reservoir, provides support for the
engineering analysis on which the project or program was based.
C. Estimates of proved reserves do not include the following:
1. oil that may become available from known reservoirs but is classified
separately as "indicated additional reserves";
2. crude oil, natural gas, and natural gas liquids, the recovery of which
is subject to reasonable doubt because of uncertainty as to geology,
reservoir characteristics, or economic factors;
3. crude oil, natural gas, and natural gas liquids, that may occur in
undrilled prospects; and
4. crude oil, natural gas, and natural gas liquids, that may be recovered
from oil shales, coal(3), gilsonite, and other such sources.
- ---------------
(1 )For evaluations prepared for disclosure to the Securities and Exchange
Commission, see SEC Accounting Rules. Commerce Clearing House, Inc. October
1981, Paragraph 290, Regulation 210.4-10, p. 329.
(2) Any variations to these definitions will be clearly stated in the report.
(3) According to Staff Accounting Bulletin 85, excluding certain coalbed methane
gas.
B-2
<PAGE> 78
Pioneer Natural Resources USA, Inc.
Board of Directors
September 3, 1999
Page 3
Proved Developed Reserves(4)
Proved developed reserves are reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods. Additional
oil and gas expected to be obtained through the application of fluid injection
or other improved recovery techniques for supplementing the natural forces and
mechanisms of primary recovery should be included as "proved developed reserves"
only after testing by a pilot project or after the operation of an installed
program has confirmed through production response that increased recovery will
be achieved.
Proved Undeveloped Reserves
Proved undeveloped reserves are reserves that are expected to be recovered from
new wells on undrilled acreage, or from existing wells where a relatively major
expenditure is required for recompletion. Reserves on undrilled acreage shall be
limited to those drilling units offsetting productive units that are reasonably
certain of production when drilled. Proved reserves for other undrilled units
can be claimed only where it can be demonstrated with certainty that there is
continuity of production from the existing productive formation. Under no
circumstances should estimates for proved undeveloped reserves be attributable
to any acreage for which an application of fluid injection or other improved
recovery technique is contemplated, unless such techniques have been proved
effective by actual tests in the area and in the same reservoir.
III. DISCUSSION OF SEC RESERVES
The properties evaluated in this report are located in the state of Texas with
the majority of the value in the Spraberry (Trend Area) field.
The individual projections of lease reserves and economics prepared to produce
this summary report include data that describe the production forecasts and
associated evaluation parameters such as interests, taxes, product prices,
operating costs, investments, salvage values, abandonment costs, and net profit
interests.
Net income to the evaluated interests is the future net revenue after
consideration of royalty revenue payable to others, taxes, operating expenses,
investments, salvage values, abandonment costs, and net profit interests, as
applicable. The future net revenue is before federal income tax and excludes
consideration of any encumbrances against the properties if such exist.
The future net revenue values presented in this report were based on projections
of oil and gas production. It was assumed there would be no significant delay
between the date of oil and gas production and the receipt of the associated
revenue for this production. No opinion is expressed by Williamson in this
report as to a fair market value of the evaluated properties.
Unless specifically identified and documented by Pioneer USA as having
curtailment problems, gas production trends have been assumed to be a function
of well productivity and not of market conditions. The effect of "take or pay"
clauses in gas contracts was not considered.
- ---------------
(4) Williamson Petroleum Consultants, Inc. separates proved developed reserves
into proved developed producing and proved developed nonproducing reserves.
This is to identify proved developed producing reserves as those to be
recovered from actively producing wells; proved developed nonproducing
reserves as those to be recovered from wells or intervals within wells,
which are completed but shut in waiting on equipment or pipeline
connections, or wells where a relatively minor expenditure is required for
recompletion to another zone.
B-3
<PAGE> 79
Pioneer Natural Resources USA, Inc.
Board of Directors
September 3, 1999
Page 4
Oil and natural gas liquids (NGL) reserves are expressed in thousands of United
States (U.S.) barrels (MBBL) of 42 U.S. gallons. Gas volumes are expressed in
millions of cubic feet (MMCF) at 60 degrees Fahrenheit and at the legal pressure
base that prevails in Texas.
This report includes only those costs and revenues which are considered by
Pioneer USA to be directly attributable to individual leases and areas. There
could exist other revenues, overhead costs, or other costs associated with
Pioneer USA or the Limited Partners/Converted Limited Partners which are not
included in this report. Such additional costs and revenues are outside the
scope of this report. This report is not a financial statement for Pioneer USA
or the Limited Partners/Converted Limited Partners and should not be used as the
sole basis for any transaction concerning Pioneer USA, the Limited
Partners/Converted Limited Partners, or the evaluated properties.
The reserves projections in this report are based on the use of the available
data and accepted industry engineering methods. Future changes in any
operational or economic parameters or production characteristics of the
evaluated properties could increase or decrease their reserves. Unforeseen
changes in market demand or allowables set by various regulatory agencies could
also cause actual production rates to vary from those projected. Williamson
reserves the right to alter any of the reserves projections and the associated
economics included in this evaluation in any future evaluations based on
additional data that may be acquired.
All data utilized in the preparation of this report with respect to interests,
reversionary status, oil and gas prices, gas categories, gas contract terms,
operating expenses, investments, salvage values, abandonment costs, net profit
interests, well information, and current operating conditions, as applicable,
were provided by Pioneer USA. Production data provided by Pioneer USA were
utilized. All data have been reviewed for reasonableness and, unless obvious
errors were detected, have been accepted as correct. It should be emphasized
that revisions to the projections of reserves and economics included in this
report may be required if the provided data are revised for any reason. No
inspection of the properties was made as this was not considered within the
scope of this evaluation. No investigation was made of any environmental
liabilities that might apply to the evaluated properties, and no costs are
included for any possible related expenses.
Since sufficient production history and other data were available, the estimates
of reserves contained in this report were determined by extrapolation of
historical production trends and in accordance with the Definitions of SEC
Reserves included in this summary letter report.
Prices for oil sold as of December 31, 1998 were provided by Pioneer USA to be
used at the effective date. These prices include adjustments for API gravity,
transportation, and any bonus paid. These adjustments were made by Pioneer USA.
After the effective date, prices were held constant for the life of the
properties. No attempt has been made to account for oil price fluctuations which
have occurred in the market subsequent to the effective date of this report.
Prices for gas sold as of December 31, 1998 were provided by Pioneer USA to be
used at the effective date. These prices include adjustments for British thermal
unit content, shrinkage due to NGL removal, transportation and handling charges,
and any other known differences between sales and produced volumes. These
adjustments were made by Pioneer USA. After the effective date, prices were held
constant for the life of the properties unless Pioneer USA indicated that
changes were provided for by contract. All gas prices were applied to projected
wellhead volumes.
Prices for NGL sold as of December 31, 1998 were provided by Pioneer USA to be
used at the effective date. NGL reserves were projected as a separate stream
using a constant ratio (barrels of NGL/thousand cubic feet of gas) based on
historical yields. After the effective date, prices were held constant for the
life
B-4
<PAGE> 80
Pioneer Natural Resources USA, Inc.
Board of Directors
September 3, 1999
Page 5
of the properties. No attempt has been made to account for price fluctuations
which have occurred in the market subsequent to the effective date of this
report.
It should be emphasized that with the current economic uncertainties,
fluctuation in market conditions could significantly change the economics of the
properties included in this report.
Operating expenses were provided by Pioneer USA and represented, when possible,
the latest available 12-month average of all recurring expenses which are
billable to the working interest owners. These expenses included, but were not
limited to, all direct operating expenses, field overhead costs, and any ad
valorem taxes not deducted separately. Expenses for workovers, well
stimulations, and other maintenance were not included in the operating expenses
unless such work was expected on a recurring basis. Judgments for the exclusion
of the nonrecurring expenses were made by Pioneer USA. Any internal indirect
overhead costs (general and administrative) which are billable to the working
interest owners were included, while those not billable were not included.
Operating costs were held constant for the life of the properties.
State production and county ad valorem taxes have been deducted at the published
rates as provided by Pioneer USA. A 7.5 percent severance tax exemption was
applied until September 2001 for qualifying wells.
Based on information supplied by Pioneer USA, neither capital costs nor salvage
values were included in the projections of reserves and economics in this
report.
IV. CONSENT AND DECLARATION OF INDEPENDENT STATUS
We understand that our estimates are to be included in a Schedule 13e-3 under
the Securities Exchange Act of 1934 to be filed by you with the SEC and in the
proxy statement included as an exhibit to such Schedule 13e-3. We understand
further that the estimates may be used by you to establish merger values for the
Partnerships. With this understanding in mind, we have consistently applied the
generally accepted petroleum engineering and evaluation principles in estimating
the proved oil and gas reserves and in computing the future net revenues derived
from such reserves for each property attributable to the interests held by the
Partnerships.
Williamson is an independent consulting firm and does not own any interests in
the oil and gas properties covered by this report. No employee, officer, or
director of Williamson is an employee, officer, or director of Pioneer USA or
any of the subject partnerships. Neither the employment of nor the compensation
received by Williamson is contingent upon the values assigned to the properties
covered by this report.
Yours very truly,
WILLIAMSON PETROLEUM CONSULTANTS, INC.
JDS/chk
Enclosures
B-5
<PAGE> 81
EXHIBIT I
LETTER REPORT INCLUDING 25 REPORTS PREPARED
BY WILLIAMSON PETROLEUM CONSULTANTS, INC.
FOR PIONEER NATURAL RESOURCES USA, INC.
TO THE INTERESTS OF LIMITED PARTNERS
OR THE CONVERTED LIMITED PARTNERS
IN VARIOUS PARKER & PARSLEY PARTNERSHIPS
MANAGED BY PIONEER NATURAL RESOURCES USA, INC.
EFFECTIVE DECEMBER 31, 1998
FOR DISCLOSURE TO THE
SECURITIES AND EXCHANGE COMMISSION
WILLIAMSON PROJECT 9.8740
LIST OF WILLIAMSON PETROLEUM CONSULTANTS, INC. REPORTS
EFFECTIVE DECEMBER 31, 1998
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 82-I, Ltd. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 1998 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 8.8643"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 82-II, Ltd. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 1998 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 8.8643"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 83-A, Ltd. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 1998 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 8.8643"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 83-B, Ltd. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 1998 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 8.8643"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 84-A, Ltd. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 1998 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 8.8643"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 85-A, Ltd. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 1998 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 8.8643"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 85-B, Ltd. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 1998 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 8.8643"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 86-A, Ltd. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 1998 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 8.8643"
B-6
<PAGE> 82
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 86-B, Ltd. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 1998 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 8.8643"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 86-C, Ltd. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 1998 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 8.8643"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 87-A, Ltd. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 1998 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 8.8643"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 87-B, Ltd. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 1998 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 8.8643"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley Producing Properties 87-A, Ltd. Managed by Pioneer Natural
Resources USA, Inc. Effective December 31, 1998 for Disclosure to the Securities
and Exchange Commission Summary Report Utilizing Aries Software Williamson
Project 8.8643"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley Producing Properties 87-B, Ltd. Managed by Pioneer Natural
Resources USA, Inc. Effective December 31, 1998 for Disclosure to the Securities
and Exchange Commission Summary Report Utilizing Aries Software Williamson
Project 8.8643"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 88-A, L.P. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 1998 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 8.8643"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 88-B, L.P. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 1998 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 8.8643"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley Producing Properties 88-A, L.P. Managed by Pioneer Natural
Resources USA, Inc. Effective December 31, 1998 for Disclosure to the Securities
and Exchange Commission Summary Report Utilizing Aries Software Williamson
Project 8.8643"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 89-A, L.P. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 1998 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 8.8643"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 90-A, L.P. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 1998 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 8.8643"
"Evaluation of Oil and Gas Reserves to the Interests of the Converted Limited
Partners in Parker & Parsley 90-B Converted, L.P. Managed by Pioneer Natural
Resources USA, Inc. Effective December 31,
B-7
<PAGE> 83
1998 for Disclosure to the Securities and Exchange Commission Summary Report
Utilizing Aries Software Williamson Project 8.8643"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 90-B, L.P. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 1998 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 8.8643"
"Evaluation of Oil and Gas Reserves to the Interests of the Converted Limited
Partners in Parker & Parsley 90-C Converted, L.P. Managed by Pioneer Natural
Resources USA, Inc. Effective December 31, 1998 for Disclosure to the Securities
and Exchange Commission Summary Report Utilizing Aries Software Williamson
Project 8.8643"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 90-C, L.P. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 1998 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 8.8643"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 91-A, L.P. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 1998 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 8.8643"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 91-B, L.P. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 1998 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 8.8643"
B-8
<PAGE> 84
EXHIBIT II
LETTER REPORT INCLUDING 25 REPORTS PREPARED
BY WILLIAMSON PETROLEUM CONSULTANTS, INC.
FOR PIONEER NATURAL RESOURCES USA, INC.
TO THE INTERESTS OF LIMITED PARTNERS
OR THE CONVERTED LIMITED PARTNERS
IN VARIOUS PARKER & PARSLEY PARTNERSHIPS
MANAGED BY PIONEER NATURAL RESOURCES USA, INC.
EFFECTIVE DECEMBER 31, 1998
FOR DISCLOSURE TO THE
SECURITIES AND EXCHANGE COMMISSION
WILLIAMSON PROJECT 9.8740
NET RESERVES AND FUTURE NET REVENUE FROM
REPORTS PREPARED BY WILLIAMSON PETROLEUM CONSULTANTS, INC.
EFFECTIVE DECEMBER 31, 1998
<TABLE>
<CAPTION>
TOTAL PROVED DEVELOPED PRODUCING
------------------------------------------------------------------
NET RESERVES TO FUTURE NET REVENUE, M$
THE EVALUATED INTERESTS ----------------------------
----------------------------------- DISCOUNTED
OIL/ PER
CONDENSATE LIQUID GAS ANNUM AT
PIONEER FUNDS (MBBL) (MBBL) (MMCF) UNDISCOUNTED 10.00 PERCENT
- ------------------------------------- ---------- --------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Parker & Parsley 82-I, Ltd........... 29.632 18.985 70.101 57.927 49.231
Parker & Parsley 82-II, Ltd.......... 85.450 53.347 229.486 420.160 249.356
Parker & Parsley 83-A, Ltd........... 153.890 98.165 416.976 539.514 383.830
Parker & Parsley 83-B, Ltd........... 279.467 187.895 829.654 1,235.281 827.240
Parker & Parsley 84-A, Ltd........... 238.605 184.163 798.380 1,198.081 749.109
Parker & Parsley 85-A, Ltd........... 79.492 55.166 242.910 329.014 227.255
Parker & Parsley 85-B, Ltd........... 96.024 70.820 307.877 347.783 253.195
Parker & Parsley 86-A, Ltd........... 99.508 59.510 268.157 326.945 238.373
Parker & Parsley 86-B, Ltd........... 294.542 168.826 676.814 1,194.333 810.802
Parker & Parsley 86-C, Ltd........... 197.311 171.892 735.862 762.965 548.472
Parker & Parsley 87-A, Ltd........... 385.925 269.463 1,161.783 1,555.527 1,104.338
Parker & Parsley 87-B, Ltd........... 346.117 202.550 891.008 1,414.932 970.121
Parker & Parsley Producing Properties
87-A, Ltd.......................... 215.420 133.637 549.083 952.233 632.118
Parker & Parsley Producing Properties
87-B, Ltd.......................... 166.388 114.047 508.948 885.094 553.584
Parker & Parsley 88-A, L.P........... 268.159 198.798 842.728 1,431.335 886.681
Parker & Parsley 88-B, L.P........... 183.254 83.979 372.704 661.586 453.182
Parker & Parsley Producing Properties
88-A, L.P.......................... 254.061 165.439 731.772 1,508.503 906.186
Parker & Parsley 89-A, L.P........... 164.838 106.454 574.534 904.472 607.367
Parker & Parsley 90-A, L.P........... 131.527 89.991 390.290 527.962 374.194
Parker & Parsley 90-B Conv., L.P..... 269.992 135.828 594.416 1,098.837 727.865
Parker & Parsley 90-B, L.P........... 732.334 368.395 1,612.230 2,980.361 1,974.162
Parker & Parsley 90-C Conv., L.P..... 134.421 50.998 222.782 412.728 297.694
Parker & Parsley 90-C, L.P........... 215.978 81.928 357.951 663.135 478.313
Parker & Parsley 91-A, L.P........... 344.180 156.373 719.115 1,390.988 939.132
Parker & Parsley 91-B, L.P........... 372.096 135.752 601.234 1,469.109 965.152
--------- --------- ---------- ---------- ----------
Total All Partnerships....... 5,738.611 3,362.401 14,706.795 24,268.805 16,206.952
</TABLE>
B-9
<PAGE> 85
APPENDIX C
FORM OF FAIRNESS OPINION OF ROBERT A. STANGER & CO., INC.
[LETTERHEAD OF ROBERT A. STANGER & CO., INC.]
PRELIMINARY DRAFT
(subject to change)
, 1999
Pioneer Natural Resources USA, Inc.
1400 Williams Square West
5205 North O'Connor Boulevard
Irving, Texas 75039
Attention: Board of Directors
Gentlemen:
Pioneer Natural Resources USA, Inc. ("Pioneer USA"), the sole or managing
general partner of the partnerships identified in Exhibit I attached hereto
("the Partnerships"), has advised us that the Partnerships are contemplating a
transaction (the "Transaction") pursuant to an agreement (the "Merger
Agreement") in which the Partnerships will merge with and into Pioneer USA and
the interests of the limited partners (the "Limited Partners") in each
Partnership will be converted into the right to receive cash equal to the
estimated value of such Partnership's oil and gas reserves (the "Reserve Value")
and net working capital (the "Working Capital Balance") as of , 1999
(collectively, the Reserve Value and the Working Capital Balance are referred to
herein as the "Merger Value"). We have been advised that the Merger Value will
be determined and paid to holders of limited partnership interests (the "Limited
Partner Interests") of each Partnership in accordance with the provisions of the
Partnership agreement of each Partnership relating to a liquidation of the
Partnership.
We have been further advised that the Reserve Value has been established by
Pioneer USA and its parent company, Pioneer Natural Resources Company
("Pioneer"), based upon the present value of estimated future net revenues
(after certain expenses and charges) from each Partnership's proved oil and gas
reserves as of , 1999 utilizing prices of $ per barrel of oil
and $ per thousand cubic feet of gas, and a discount rate of %, (the
"Reserve Analysis"). We have been further advised that , an
independent petroleum engineering firm, has reviewed the Reserve Analysis of
each Partnership and has issued a report thereon confirming the determination of
the Reserve Value (the "Consultant's Report").
We have been advised that the Limited Partners in each Partnership will
have the opportunity to approve or reject the participation by their Partnership
in the Transaction pursuant to a proxy statement and a Limited Partners' meeting
which will be prepared and held, respectively, in connection with the
Transaction, and further that Limited Partners in each Partnership will receive
only cash in exchange for Limited Partner Interests.
You have requested that Robert A. Stanger & Co., Inc. ("Stanger") provide
an opinion as to the fairness, from a financial point of view, of the Merger
Value to be paid in cash for Limited Partner Interests in each Partnership in
connection with the Transaction.
Stanger, founded in 1978, has provided research, investment banking and
consulting services to clients located throughout the United States, including
major New York Stock Exchange member firms and insurance companies and over
seventy companies engaged in the management and operations of partnerships. The
investment banking activities of Stanger include financial advisory services,
asset and securities valuations, industry and company research and analysis,
litigation support and expert witness services, and due diligence investigations
in connection with both publicly registered and privately placed securities
transactions.
C-1
<PAGE> 86
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of securities in connection with mergers, acquisitions, and
reorganizations and for estate, tax, corporate and other purposes. In
particular, Stanger's valuation practice principally involves partnerships,
partnership securities and assets typically owned through partnerships
including, but not limited to, oil and gas reserves, real estate, mortgages
secured by real estate, cable television systems, and equipment leasing assets.
In arriving at the opinion set forth below, we have:
- Reviewed a draft of the Merger Agreement which Pioneer USA has indicated
to be in substantially the form which will be executed in connection with
the Transaction.
- Reviewed the financial statements of the Partnerships for the years ended
December 31, 1997 and 1998 and the six months ended June 30, 1999;
- Reviewed the Reserve Analysis of each Partnership prepared by Pioneer USA
and Pioneer as of , 1999;
- Reviewed the Consultant's Report for each Partnership prepared by
Williamson Petroleum Consultants, Inc. as of , 1999;
- Reviewed the calculations prepared by Pioneer USA and Pioneer of the
Merger Value per unit of Limited Partner Interest in each Partnership;
- Reviewed estimates prepared by Pioneer USA and Pioneer of the
going-concern value and liquidation value per unit of Limited Partner
Interest in each Partnership;
- Interviewed key management personnel of Pioneer USA regarding the oil and
gas reserves, the financial condition of each Partnership and the terms
of the Transaction; and
- Conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
In rendering this opinion, we have relied, without independent
verification, on the accuracy and completeness in all material respects of all
financial and other information that was furnished or otherwise communicated to
us by Pioneer USA, Pioneer and the Partnerships. We have been advised by Pioneer
USA and Pioneer that the oil and gas properties owned by the Partnerships are
subject to operating agreements (the "Operating Agreements") with Pioneer USA
and that: (i) such Operating Agreements provide for the payment of overhead
charges and that such charges are reasonable compared with amounts charged for
similar services by third-party operators; (ii) except for cause, such Operating
Agreements do not provide for the termination of Pioneer USA as operator; and
(iii) such Operating Agreements do not provide for the revision of the overhead
charges, except as escalated under the terms of such Operating Agreements.
Furthermore, we have been advised by Pioneer USA and Pioneer that if each
Partnership's reserves were offered for sale to a third party, a condition of
such sale would be that the oil and gas reserves would continue to be subject to
the Operating Agreements with Pioneer USA which provide for the payment of
overhead charges, and that it would be appropriate to assume, when estimating
the value of such reserves, that such expenses and charges would continue. We
have also been advised that the Reserve Value and Working Capital Balance of
each Partnership has been properly allocated between Pioneer USA and Limited
Partners of each Partnership in accordance with the Partnership Agreement with
respect to a liquidation of such Partnership.
We have not performed an independent appraisal of the oil and gas reserves
or other assets and liabilities of the Partnerships. We have not conducted any
engineering studies and have relied on estimates of Pioneer USA and Pioneer with
respect to oil and gas reserve volumes, prices, operating costs, general and
administrative expenses and overhead charges.
We have relied on the assurance of Pioneer USA, Pioneer and the
Partnerships that: (i) the Reserve Analysis provided to us was in the judgment
of Pioneer USA and the Partnerships reasonably prepared on bases consistent with
actual historical experience and reflect their best currently available
estimates and
C-2
<PAGE> 87
good faith judgments; (ii) any estimates of costs to remediate environmental
conditions included in the Reserve Analysis are based on detailed analyses and
reflect the best currently available estimates and good faith judgments; (iii)
any historical financial data, balance sheet data, transaction cost estimates,
Merger Value analyses, going-concern value analyses and liquidation value
analyses are accurate and complete in all material respects; (iv) all
calculations of Reserve Values, Working Capital Balances, Merger Values,
going-concern values and liquidation values have been made in accordance with
the Partnership Agreement for each Partnership; (v) no material changes have
occurred in the information reviewed or in the value of the oil and gas reserves
or Working Capital Balances of each Partnership between the date the information
was provided to us and the date of this letter; and (vi) Pioneer USA, Pioneer
and the Partnerships are not aware of any information or facts regarding the
Partnerships, the oil and gas properties, the Reserve Analysis or the Working
Capital Balances of each Partnership that would cause the information supplied
to us to be incomplete or misleading in any material respect.
We have not been requested to, and therefore did not: (i) make any
recommendation to Pioneer USA, the Partnerships or the Limited Partners with
respect to whether to approve or reject the Transaction; (ii) determine or
negotiate the amount or form of the Merger Value to be paid for Limited Partner
Interests in the Transaction; (iii) offer the assets of the Partnerships for
sale to any third party; (iv) express any opinion as to: (a) the impact of the
Transaction with respect to Pioneer USA or the Limited Partners of any
Partnerships that do not participate in the Transaction; (b) the tax
consequences of the Transaction for Pioneer USA or the Limited Partners of any
Partnership; (c) Pioneer's or Pioneer USA's ability to finance their obligations
pursuant to the Merger Agreement or the impact of a failure to obtain financing
on the financial performance of Pioneer, Pioneer USA or the Partnerships; (d)
Pioneer USA's decision to estimate the Reserve Value of the oil and gas reserves
of each Partnership based upon the continued operation of the properties by
Pioneer USA and the payment of overhead charges in accordance with existing
Operating Agreements or the impact, if any, on the estimated values of the
Partnerships' oil and gas reserves if Pioneer USA and Pioneer determined to
offer or operate the assets subject to revised Operating Agreements; (e) whether
or not alternative methods of determining the Merger Value would have also
provided fair results or results substantially similar to the methodology used;
(f) alternatives to the Transaction, including the offering of such assets for
sale to third-party buyers; or (g) the fairness of the amount or allocation of
transaction costs; or (h) any other terms of the Transaction.
This letter does not purport to be a complete description of the analyses
performed or the matters considered in rendering this opinion. The analyses and
the summary set forth herein must be considered as a whole, and selecting
portions of such summary or analyses without considering all factors and
analyses would create an incomplete view of the process underlying this opinion.
In rendering this opinion, judgment was applied to a variety of complex analyses
and assumptions. The assumptions made and the judgments applied in rendering the
opinion are not readily susceptible to partial analysis or summary description.
The fact that any specific analysis is referred to herein is not meant to
indicate that such analysis was given greater weight than any other analyses.
Our opinion is based on business, economic, oil and gas market, and other
conditions as of the date of our analysis and addresses the Merger Value in the
context of information available as of the date of our analysis. Events
occurring after that date could affect the value of the assets of the
Partnerships or the assumptions used in preparing this opinion.
C-3
<PAGE> 88
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter and subject to the assumptions, limitations and
qualifications contained herein, the Merger Value to be paid in cash for the
Limited Partner Interests in connection with the Transaction is fair from a
financial point of view to the Limited Partners of each respective Partnership.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
, 1999
C-4
<PAGE> 89
EXHIBIT 1
PARTNERSHIPS
Parker & Parsley 82-I, Ltd.
Parker & Parsley 82-II, Ltd.
Parker & Parsley 83-A, Ltd.
Parker & Parsley 83-B, Ltd.
Parker & Parsley 84-A, Ltd.
Parker & Parsley 85-A, Ltd.
Parker & Parsley 85-B, Ltd.
Parker & Parsley 86-A, Ltd.
Parker & Parsley 86-B, Ltd.
Parker & Parsley 86-C, Ltd.
Parker & Parsley 87-A, Ltd.
Parker & Parsley Producing Properties 87-A, Ltd.
Parker & Parsley 87-B, Ltd.
Parker & Parsley Producing Properties 87-B, Ltd.
Parker & Parsley 88-A, L.P.
Parker & Parsley Producing Properties 88-A, L.P.
Parker & Parsley 88-B, L.P.
Parker & Parsley 89-A, L.P.
Parker & Parsley 90-A, L.P.
Parker & Parsley 90-B Conv., L.P.
Parker & Parsley 90-B, L.P.
Parker & Parsley 90-C Conv., L.P.
Parker & Parsley 90-C, L.P.
Parker & Parsley 91-A, L.P.
Parker & Parsley 91-B, L.P.
C-5
<PAGE> 90
APPENDIX D
THE MERGER PROPOSALS
The merger proposals for all of the partnerships, except as otherwise
indicated, are set forth below. For each partnership, the merger proposals
include the approval of:
- the merger agreement for that partnership, pursuant to which:
-- the partnership will be merged with and into Pioneer USA, on the terms
and subject to the conditions set forth in the merger agreement as
described in the proxy statement; and
-- each partner, whether limited or general, but other than Pioneer USA,
will receive cash in an amount based on the merger value of that
partnership in exchange for that partner's partnership interests;
- the merger amendment for that partnership authorizing:
-- the merger of the partnership with and into Pioneer USA, with Pioneer
USA being the surviving entity; and
-- the elimination of any restrictions on the mergers otherwise contained
in the partnership's partnership agreement; and
- the opinion of special legal counsel for the limited partners and the
selection of that counsel.
For each partnership, approval of the merger proposals requires the
affirmative vote of limited partners who own or have the power to vote a
majority of the partnership interests in that partnership. The effect of an
abstention or a failure to vote is the same as a vote against the merger
proposals. See "The Special Meetings -- Record Date; Voting Rights and Proxies."
Subject to the terms and conditions of the mergers as described in the proxy
statement under "The Merger Agreement," if the merger proposals are approved by
a partnership, that participating partnership will merge with and into Pioneer
USA, with Pioneer USA being the surviving entity. From and after the closing of
the mergers, the partnership interests of the partners in a participating
partnership will represent the right to receive an amount in cash as described
in the proxy statement.
Generally, the partnership agreements require that, prior to the exercise
of certain rights by the limited partners, special legal counsel for the limited
partners, acceptable to the partnership, deliver a legal opinion, acceptable to
the partnership, that neither the grant nor the exercise of the right to approve
the mergers by the limited partners will result in the loss of any limited
partner's limited liability or adversely affect the tax status of the
partnerships. of Dallas, Texas has delivered that opinion, subject to
the approval of the limited partners of that opinion and the selection of
special legal counsel for the limited partners. See "The Mergers -- Legal
Opinion for Limited Partners."
APPROVAL OF MERGERS (FOR EACH PARTNERSHIP FORMED IN TEXAS):
RESOLVED: That, subject to receipt of a favorable opinion of special legal
counsel for the limited partners as described in the proxy statement,
the partnership be merged with and into Pioneer USA, with Pioneer USA
being the surviving entity, and that an amount in cash be paid to each
partner, other than Pioneer USA, in accordance with the terms set
forth in the merger agreement included as Appendix E to the proxy
statement and subject to the conditions set forth therein.
RESOLVED: That, subject to receipt of a favorable opinion of special legal
counsel for the limited partners as described in the proxy statement,
the following new article shall be added to the partnership agreement
of the partnership:
D-1
<PAGE> 91
ARTICLE
Notwithstanding any provisions of this Agreement to the contrary, it is
hereby agreed as follows:
1. Definitions. For the purposes of this Article, "Proxy Statement" means
the proxy statement dated , 1999 of Pioneer Natural
Resources USA, Inc., a Delaware corporation ("Pioneer USA"), in the form filed
with the Securities and Exchange Commission pursuant to Rule 14A under the
Securities Exchange Act of 1934.
2. Elimination of Restrictions to Transaction. Notwithstanding anything in
this Agreement to the contrary, upon the consent of limited partners holding a
majority of the outstanding partnership interests in the partnership, which
consent may or may not be the same consent to the adoption of an amendment to
this Agreement, no provision of this Agreement shall prohibit, limit or prevent:
(a) the merger or consolidation of the partnership, including the
mergers described in the Proxy Statement, with any other domestic limited
partnership or other entity, as those terms are defined in the Texas
Revised Limited Partnership Act, and
(b) the consummation of the mergers described in the Proxy Statement.
In addition, no consent of the partnership, Pioneer USA or any partner or
other procedure, including the delivery of opinions of counsel, shall be
required in order to enable the partnership, Pioneer USA or any partner to
effect the mergers.
3. Mergers. For purposes of this Agreement, each merger described in the
Proxy Statement shall be treated as if the partnership has:
(a) disposed of all of its assets and liabilities to Pioneer USA in
exchange for an amount in cash representing the merger value of the
partnership, and
(b) liquidated in the manner provided in the liquidation provisions of
this Agreement.
Accordingly, upon the partnership's deemed liquidation resulting from the
mergers, Pioneer USA will pay an amount of cash to the partners, other than
itself, in accordance with the liquidation provisions of this Agreement. For
purposes of Texas law, the merger shall be a merger subject to the provisions of
Section 2.11 of the Texas Revised Limited Partnership Act.
4. Authority of Pioneer USA as General Partner. By obtaining the approval
of the limited partners described in Section 2 of this Article, the partnership
hereby extends the power of attorney granted to Pioneer USA pursuant to this
Agreement to permit Pioneer USA to execute the merger agreement described in the
Proxy Statement and the merger amendment contemplated by this Article on behalf
of the limited partners. Pioneer USA shall be authorized, at such time in its
full discretion as it deems appropriate, to execute, acknowledge, verify,
deliver, file and record, for and in the name and on behalf of the partnership,
Pioneer USA and the limited partners, any and all documents, agreements,
certificates and instruments, and shall do and perform any and all acts required
by applicable law or which Pioneer USA deems necessary or advisable in order to
give effect to this Article and the transactions contemplated herein, including,
but not limited to, the mergers.
5. This Article Controlling. The provisions of this Article shall control
over all other provisions of this Agreement.
Except as herein expressly amended, all other terms and provisions of this
Agreement shall remain in full force and effect.
APPROVAL OF MERGERS (FOR EACH PARTNERSHIP FORMED IN DELAWARE):
RESOLVED: That, subject to receipt of a favorable opinion of special legal
counsel for the limited partners as described in the proxy statement,
the partnership be merged with and into Pioneer USA, with Pioneer USA
being the surviving entity, and that an amount in cash be
D-2
<PAGE> 92
paid to each partner, other than Pioneer USA, in accordance with the
terms set forth in the merger agreement included as Appendix E to the
proxy statement and subject to the conditions set forth therein.
RESOLVED: That, subject to receipt of a favorable opinion of special legal
counsel for the limited partners as described in the proxy statement,
the following new article shall be added to the partnership agreement
of the partnership:
ARTICLE
Notwithstanding any provisions of this Agreement to the contrary, it is
hereby agreed as follows:
1. Definitions. For the purposes of this Article, "Proxy Statement" means
the proxy statement dated , 1999 of Pioneer Natural Resources USA,
Inc., a Delaware corporation ("Pioneer USA"), in the form filed with the
Securities and Exchange Commission pursuant to Rule 14A under the Securities
Exchange Act of 1934.
2. Elimination of Restrictions to Transaction. Notwithstanding anything in
this Agreement to the contrary, upon the consent of limited partners holding a
majority of the outstanding partnership interests in the partnership, which
consent may or may not be the same consent to the adoption of an amendment to
this Agreement, no provision of this Agreement shall prohibit, limit or prevent:
(a) the merger or consolidation of the partnership, including the
mergers described in the Proxy Statement, with any other domestic limited
partnership or other business entity, as those terms are defined in the
Delaware Revised Uniform Limited Partnership Act, and
(b) the consummation of the mergers described in the Proxy Statement.
In addition, no consent of the partnership, Pioneer USA or any partner or other
procedure, including the delivery of opinions of counsel, shall be required in
order to enable the partnership, Pioneer USA or any partner to effect the
mergers.
3. Mergers. For purposes of this Agreement, each merger described in the
Proxy Statement shall be treated as if the partnership has:
(a) disposed of all of its assets and liabilities to Pioneer USA in
exchange for an amount in cash representing the merger value of the
partnership, and
(b) liquidated in the manner provided in the liquidation provisions of
this Agreement.
Accordingly, upon the partnership's deemed liquidation resulting from the
mergers, Pioneer USA will pay an amount of cash to the partners, other than
itself, in accordance with the liquidation provisions of this Agreement. For
purposes of Delaware law, the merger shall be a merger subject to the provisions
of Section 17-211 of the Delaware Revised Uniform Limited Partnership Act.
4. Authority of Pioneer USA as General Partner. By obtaining the approval
of the limited partners described in Section 2 of this Article, the partnership
hereby extends the power of attorney granted to Pioneer USA pursuant to this
Agreement to permit Pioneer USA to execute the merger agreement described in the
Proxy Statement and the merger amendment contemplated by this Article on behalf
of the limited partners. Pioneer USA shall be authorized, at such time in its
full discretion as it deems appropriate, to execute, acknowledge, verify,
deliver, file and record, for and in the name and on behalf of the partnership,
Pioneer USA and the limited partners, any and all documents, agreements,
certificates and instruments, and shall do and perform any and all acts required
by applicable law or which Pioneer USA deems necessary or advisable in order to
give effect to this Article and the transactions contemplated herein, including,
but not limited to, the mergers.
5. This Article Controlling. The provisions of this Article shall control
over all other provisions of this Agreement.
D-3
<PAGE> 93
Except as herein expressly amended, all other terms and provisions of this
Agreement shall remain in full force and effect.
APPROVAL OF COUNSEL TO LIMITED PARTNERS (FOR EACH PARTNERSHIP):
RESOLVED: That the selection of of Dallas, Texas as special legal
counsel for the limited partners of the partnership for the purpose of
rendering the legal opinion described in the proxy statement under
"The Mergers -- Legal Opinion for Limited Partners" be and hereby is
approved by Pioneer USA, on behalf of the partnership, and the limited
partners of such partnership.
RESOLVED: That the legal opinion delivered pursuant to the partnership agreement
of the partnership as described in the proxy statement under "The
Mergers -- Legal Opinion for Limited Partners," in form and substance
as set forth in Exhibit A to these merger proposals, be and hereby is
approved as in form and substance satisfactory to the limited partners
of such partnership in their reasonable judgment.
D-4
<PAGE> 94
EXHIBIT A
TO APPENDIX D
OPINION OF
[OPINION SHOULD BE SUBSTANTIALLY TO THE FOLLOWING EFFECT]
Pioneer Natural Resources USA, Inc.,
As Sole or Managing General Partner of
25 Publicly-Held Limited Partnerships
Named in the Proxy Statement dated , 1999
1400 Williams Square West
5205 North O'Connor Blvd.
Irving, Texas 75039
We are of the opinion that neither the grant nor the exercise of the right
to amend each of the partnership agreements allowing each partnership to merge
with and into Pioneer Natural Resources USA, Inc. will result in the loss of
limited liability of any limited partner or result in any of the partnerships
being treated as an association taxable as a corporation for federal income tax
purposes.
D-5
<PAGE> 95
APPENDIX E
FORM OF
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated , 1999, to be
effective as of the Closing Date (as defined below) (the "MERGER AGREEMENT"), is
entered into by and among Pioneer Natural Resources Company, a Delaware
corporation ("PIONEER"), Pioneer Natural Resources USA, Inc., a Delaware
corporation and wholly-owned subsidiary of Pioneer ("PIONEER USA"), and each of
the limited partnerships referred to below (the "PARTNERSHIPS").
RECITALS:
A. Pioneer USA is the sole or managing general partner of each of the
following Partnerships:
<TABLE>
<CAPTION>
NAME STATE OF FORMATION
- ---- ------------------
<S> <C>
Parker & Parsley 82-I, Ltd. Texas
Parker & Parsley 82-II, Ltd. Texas
Parker & Parsley 83-A, Ltd. Texas
Parker & Parsley 83-B, Ltd. Texas
Parker & Parsley 84-A, Ltd. Texas
Parker & Parsley 85-A, Ltd. Texas
Parker & Parsley 85-B, Ltd. Texas
Parker & Parsley 86-A, Ltd. Texas
Parker & Parsley 86-B, Ltd. Texas
Parker & Parsley 86-C, Ltd. Texas
Parker & Parsley 87-A, Ltd. Texas
Parker & Parsley Producing Properties 87-A, Ltd. Texas
Parker & Parsley 87-B, Ltd. Texas
Parker & Parsley Producing Properties 87-B, Ltd. Texas
Parker & Parsley 88-A, L.P. Delaware
Parker & Parsley Producing Properties 88-A, L.P. Delaware
Parker & Parsley 88-B LP Delaware
Parker & Parsley 89-A, L.P. Delaware
Parker & Parsley 90-A, L.P. Delaware
Parker & Parsley 90-B Conv., L.P. Delaware
Parker & Parsley 90-B, L.P. Delaware
Parker & Parsley 90-C, Conv., L.P. Delaware
Parker & Parsley 90-C, L.P. Delaware
Parker & Parsley 91-A, L.P. Delaware
Parker & Parsley 91-B, L.P. Delaware
</TABLE>
B. Each of Parker & Parsley Employees 82-I, Ltd., a Texas limited
partnership, Parker & Parsley Employees 82-II, Ltd., a Texas limited
partnership, Parker & Parsley Employees 83-A, Ltd., a Texas limited partnership,
Parker & Parsley Employees 83-B, Ltd., a Texas limited partnership, and Parker &
Parsley Employees 84-A, Ltd., a Texas limited partnership (individually, the
"NONMANAGING GENERAL PARTNER" and collectively, the "NONMANAGING GENERAL
PARTNERS"), is the nonmanaging general partner of Parker & Parsley 82-I, Ltd., a
Texas limited partnership, Parker & Parsley 82-II, Ltd., a Texas limited
partnership, Parker & Parsley 83-A, Ltd., a Texas limited partnership, Parker &
Parsley 83-B, Ltd., a Texas limited partnership, and Parker & Parsley 84-A,
Ltd., a Texas limited partnership, respectively.
C. Pioneer USA is the sole general partner of each of the Nonmanaging
General Partners and in such capacity has authority (a) to cause the Nonmanaging
General Partner to perform its obligations under the partnership agreement of
the respective Partnership; and (b) to exercise on behalf of the
E-1
<PAGE> 96
Nonmanaging General Partner all of the rights and elections granted to such
Nonmanaging General Partner by the respective Partnership.
D. The board of directors of each of Pioneer and Pioneer USA has determined
that it is in the best interests of Pioneer and Pioneer USA (in its individual
capacity, as general partner of the Partnerships and as general partner of the
Nonmanaging General Partners) to merge each of the Partnerships with and into
Pioneer USA and such boards of directors have approved the mergers, upon the
terms and subject to the conditions contained herein.
E. Pioneer USA intends to solicit the vote of the limited partners of each
Partnership holding at least a majority of the outstanding partnership interests
of such Partnership to approve the merger for such Partnership. Subject to
certain limitations, upon consummation of the mergers, the partners, other than
Pioneer USA, will have the right to an amount in cash subject to the terms and
conditions described herein.
F. Concurrently with the mergers described in this Merger Agreement,
Pioneer is also offering to acquire 21 non-public limited partnerships and 13
privately-held employee partnerships through mergers of those partnerships into
Pioneer USA. The terms of the mergers and the method of establishing merger
values for limited partners in those partnerships are substantially the same as
those for the Partnerships.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein, the parties hereto agree as follows:
ARTICLE 1
THE MERGERS
1.1 Mergers. At the Effective Time (as defined in Section 1.4), each
Partnership shall be merged with and into Pioneer USA, the separate existence of
such Partnership shall cease, and Pioneer USA, as the surviving corporation,
shall continue to exist by virtue of and shall be governed by the laws of the
State of Delaware.
1.2 Merger Values.
(a) At the Effective Time, by virtue of the mergers and without any action
on the part of Pioneer USA or the other partners, each partnership interest
outstanding immediately prior thereto shall be converted, except as otherwise
set forth in this Section, into the right to receive an amount in cash allocated
to the respective Partnership in accordance with the merger value assigned
thereto pursuant to the procedures set forth in the Proxy Statement (as defined
in Section 4.3) and the procedures set forth in such Partnership's partnership
agreement for allocating liquidation distributions. The merger value assigned to
each Partnership and the amount of cash offered with respect to each $1,000
investment by the limited partners in such Partnership pursuant to the mergers
are set forth on Exhibit A hereto opposite the name of such Partnership. The
merger values will not be adjusted as of the Closing Date.
(b) All partnership interests, when converted into the right to receive
cash, shall no longer be outstanding and shall automatically be cancelled and
retired and shall cease to exist, and each holder of a certificate representing
any such partnership interests shall cease to have any rights with respect
thereto, except the right to receive the amount of cash to be delivered in
consideration therefor.
(c) The partnership interests, whether general or limited, in the
participating partnerships held directly or indirectly by Pioneer USA shall be
cancelled without any consideration being received therefor; provided, however,
that as a result of the mergers, Pioneer USA will acquire 100% of the properties
of the participating partnerships, including properties attributable to its
partnership interests in those partnerships.
1.3 Closing. The closing of the mergers (the "CLOSING") shall take place
at the offices of Vinson & Elkins L.L.P., 2001 Ross Avenue, Dallas, Texas 75201,
as soon as practicable after the fulfillment of the conditions referred to in
Article 4, or at such other time and place as the parties shall agree (the date
of such Closing being the "CLOSING DATE").
E-2
<PAGE> 97
1.4 Effective Time of Mergers. Upon satisfaction of the conditions set
forth in Article 4 hereof and as soon as practicable after the Closing, this
Merger Agreement, or a certificate of merger setting forth the information
required by, and otherwise in compliance with, Section 263 of the General
Corporation Law of the State of Delaware (the "DGCL") and, if applicable,
Section 17-211 of the Revised Uniform Limited Partnership Act of the State of
Delaware (the "DRULPA") with respect to the mergers, shall be delivered for
filing with the Secretary of State of the State of Delaware. At such time, a
certificate of merger with respect to the mergers setting forth the information
required by, and otherwise in compliance with, Section 2.11 the Revised Limited
Partnership Act of the State of Texas (the "TRLPA") shall be delivered for
filing with the Secretary of State of the State of Texas. The mergers shall
become effective upon the later of (a) the day and at the time the Secretary of
State of the State of Delaware files this Merger Agreement or certificate of
merger in compliance with Section 263 of the DGCL and, if applicable, Section
17-211 of the DRULPA, and (b) the day and at the time the Secretary of State of
the State of Texas files such certificate of merger in compliance with Section
2.11 of the TRLPA (the time of such effectiveness is herein called the
"EFFECTIVE TIME").
1.5 Effects of Mergers. At the Effective Time, Pioneer USA, without
further action, as provided by the laws of the State of Delaware and the State
of Texas, shall succeed to and possess all the rights, privileges, powers, and
franchises, of a public as well as of a private nature, of the Partnerships; and
all property, real, personal and mixed, and all debts due on whatsoever account,
including subscriptions to shares, and all other choses in action, and all and
every other interest, of or belonging to or due to the Partnerships shall be
deemed to be vested in Pioneer USA without further act or deed; and the title to
any real estate, or any interest therein, vested in Pioneer USA or the
Partnerships shall not revert or be in any way impaired by reason of the
mergers. Such transfer to and vesting in Pioneer USA shall be deemed to occur by
operation of law, and no consent or approval of any other person shall be
required in connection with any such transfer or vesting unless such consent or
approval is specifically required in the event of merger or consolidation by law
or express provision in any contract, agreement, decree, order, or other
instrument to which Pioneer USA or the Partnerships is a party or by which
either of them is bound. At and after the Effective Time, Pioneer USA shall be
responsible and liable for all debts, liabilities, and duties of the
Partnerships, including franchise taxes, if any, which may be enforced against
Pioneer USA to the same extent as if said debts, liabilities, and duties had
been incurred or contracted by it. Neither the rights of creditors nor any liens
upon the property of the Partnerships or Pioneer USA shall be impaired by the
mergers.
1.6 Certificate of Incorporation and Bylaws. The certificate of
incorporation of Pioneer USA, attached hereto as Exhibit B, before the mergers
shall be and remain the certificate of incorporation of Pioneer USA after the
Effective Time, until the same shall thereafter be altered, amended, or repealed
in accordance with law and Pioneer USA's certificate of incorporation. The
bylaws of Pioneer USA as in effect at the Effective Time shall be and remain the
bylaws of Pioneer USA, as the surviving corporation, until the same shall
thereafter be altered, amended, or repealed in accordance with law, Pioneer
USA's certificate of incorporation, or such bylaws.
1.7 Pioneer USA Common Stock. At the Effective Time, each outstanding
share of common stock of Pioneer USA shall remain outstanding and shall continue
to represent one share of common stock of Pioneer USA.
1.8 Officers and Directors. At the Effective Time, each of the persons who
was serving as an officer of Pioneer USA immediately prior to the Effective Time
shall continue to be an officer of Pioneer USA and shall continue to serve in
such capacity at the pleasure of the board of directors of Pioneer USA or, if
earlier, until their respective death or resignation. At the Effective Time,
each of the persons who was serving as a director of Pioneer USA immediately
prior to the Effective Time shall continue to be a director of Pioneer USA, and
each shall serve in such capacity until the next annual meeting of stockholders
of Pioneer USA and until his or her successor is elected and qualified or, if
earlier, until his death, resignation, or removal from office.
1.9 Exchange of Partnership Interests for Cash. (a) Pioneer USA shall mail
checks to the partners of record, other than Pioneer USA, promptly following the
Closing Date in payment of the merger
E-3
<PAGE> 98
consideration. Limited partners and Nonmanaging General Partners of
participating partnerships will not be required to surrender partnership
interest certificates to receive the cash payment.
(b) After the Closing Date, there shall not be any further registration of
transfers on the transfer books of the Partnerships of the partnership interests
that were issued and outstanding immediately before the Closing Date and were
converted into the right to receive cash. If, after the Closing Date,
certificates representing partnership interests of participating partnerships
are presented, they shall be exchanged for cash, all as provided in this
Article.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of Partnerships. Each of the
Partnerships hereby represents and warrants to Pioneer and Pioneer USA as
follows:
(a) Formation; Qualification. Such Partnership is a limited partnership
duly formed under the DRULPA or TRLPA, as applicable, and is validly existing
and in good standing under the laws of the State of Delaware or the State of
Texas, as applicable. Such Partnership has all requisite partnership power and
authority to own, operate or lease its properties and to carry on its business
as now being conducted. Such Partnership is duly qualified to do business as a
foreign limited partnership and is in good standing in each jurisdiction where
the character of its properties owned, operated or leased, or the nature of its
activities, makes such qualifications necessary.
(b) Capitalization. The aggregate initial investments by limited partners
of such Partnership as of August 1, 1999 are set forth in Table 1 of Appendix A
to the Proxy Statement. All of the outstanding partnership interests of such
Partnership are duly authorized, validly issued, free of preemptive rights and,
subject to the qualifications set forth in the Proxy Statement, nonassessable.
Except as described in the Proxy Statement, there are no outstanding
subscriptions, options or other arrangements or commitments obligating such
Partnership to issue any additional partnership interests.
(c) No Conflicts. Assuming this Merger Agreement is approved by the
requisite vote of the limited partners (with respect to Parker & Parsley 85-A,
Ltd., Parker & Parsley 85-B, Ltd., Parker & Parsley 91-A, L.P. and Parker &
Parsley 91-B, L.P. (the "SPECIAL VOTE PARTNERSHIPS"), excluding Pioneer USA and
its affiliates), consummation of the transactions contemplated hereby and
compliance with the terms and provisions of this Merger Agreement will not
conflict with, result in a breach of, require notice under or constitute a
default under any material judgment, order, injunction, decree or ruling of any
court or governmental authority or under any material agreement, indenture or
instrument to which such Partnership is a party.
(d) Authority, Authorization and Enforceability. Such Partnership has all
requisite power and authority to enter into and perform the provisions of this
Merger Agreement. The execution and delivery of this Merger Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary partnership action on the part of such Partnership other than
the approval of the limited partners (with respect to the Special Vote
Partnerships, excluding Pioneer USA and its affiliates). Subject to such
approval, this Merger Agreement has been duly executed and delivered by such
Partnership and constitutes a valid and binding obligation of such Partnership
enforceable in accordance with its terms.
(e) SEC Reports; Financial Statements.
(i) Each Partnership's (A) Annual Report on Form 10-K for the fiscal
year ended December 31, 1998, (B) Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999 and for the quarter ended June 30, 1999, and
(C) all other reports or registration statements filed with the Securities
and Exchange Commission (the "SEC") since December 31, 1998 (collectively,
the "PARTNERSHIP'S SEC REPORTS") (1) were prepared in accordance with the
applicable requirements of the Securities Act of 1933 (the "SECURITIES
ACT") and the Securities Exchange Act of 1934 (the
E-4
<PAGE> 99
"EXCHANGE ACT"), and (2) as of their respective dates, did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading.
(ii) Each of the financial statements of such Partnership for the
fiscal year ended December 31, 1998 and for the quarters ended March 31,
1999 and June 30, 1999 contained in such Partnership's SEC Reports has been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods involved (except as
may be indicated in the notes thereto) and each fairly presents the
financial position of such Partnership as of the respective dates thereof
and the results of operations and cash flows of such Partnership for the
periods indicated, except that the unaudited interim financial statements
are subject to normal and recurring year-end adjustments that are not
expected to be material in amount.
(f) No Material Adverse Change. Since June 30, 1999, such Partnership has
conducted its operations in the ordinary and usual course of business and has
paid all of its obligations as they have become due; and the business of such
Partnership has not undergone any material adverse change since such date.
(g) Accuracy of Information. None of the information supplied or to be
supplied by such Partnership for inclusion in the Proxy Statement, as amended or
supplemented, will, at the time of the mailing of the Proxy Statement, the time
of the special meetings of the limited partners of the Partnerships (the
"SPECIAL MEETINGS") or the Closing Date, be false or misleading with respect to
any material fact, contain any untrue statement of material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
2.2 Representations and Warranties of Pioneer and Pioneer USA. Pioneer and
Pioneer USA hereby represent and warrant to the Partnerships as follows:
(a) Organization; Qualification. Each of Pioneer and Pioneer USA is a
corporation duly formed under the DGCL and is validly existing and in good
standing under the laws of the State of Delaware. Each of Pioneer and Pioneer
USA has all requisite corporate power and authority to own, operate or lease its
properties and to carry on its business as now being conducted. Each of Pioneer
and Pioneer USA is duly qualified to do business as a foreign corporation and is
in good standing in each jurisdiction where the character of its properties
owned, operated or leased, or the nature of its activities, makes such
qualifications necessary.
(b) No Conflicts. Consummation of the transactions contemplated hereby and
compliance with the terms and provisions of this Merger Agreement will not
conflict with, result in a breach of, require notice under or constitute a
default under any material judgment, order, injunction, decree or ruling of any
court or governmental authority or under any material agreement, indenture or
instrument to which Pioneer or Pioneer USA is a party.
(c) Authority, Authorization and Enforceability. Each of Pioneer and
Pioneer USA has all requisite corporate power and authority to execute and
deliver this Merger Agreement and to perform the provisions of this Merger
Agreement. The execution and delivery of this Merger Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of each of Pioneer and Pioneer
USA. This Merger Agreement has been duly executed and delivered by each of
Pioneer and Pioneer USA and constitutes a valid and binding obligation of each
of Pioneer and Pioneer USA enforceable in accordance with its terms.
(d) No Material Adverse Change. Since June 30, 1999, each of Pioneer and
Pioneer USA has conducted its operations in the ordinary and usual course of
business and has paid all of its obligations as they have become due; and the
business of each of Pioneer and Pioneer USA has not undergone any material
adverse change since such date.
E-5
<PAGE> 100
(e) Accuracy of Information. None of the information supplied or to be
supplied by each of Pioneer and Pioneer USA for inclusion in the Proxy
Statement, as amended or supplemented, will, at the time of the mailing of the
Proxy Statement, the time of the Special Meetings or the Closing Date, be false
or misleading with respect to any material fact, contain any untrue statement of
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(f) Capacity as General Partner. Pioneer USA is the sole or managing
general partner of each of the Partnerships and is the sole general partner of
any Nonmanaging General Partner thereof.
ARTICLE 3
CONDITIONS PRECEDENT TO MERGERS
3.1 Conditions to Each Party's Obligations to Effect the Mergers. The
respective obligations of each party to effect the mergers shall be subject to
the fulfillment (or waiver in whole or in part by the intended beneficiary
thereof in its sole discretion) at or prior to the Closing Date of the following
conditions:
(a) This Merger Agreement, an amendment to the partnership agreements to
permit the mergers (the "MERGER AMENDMENT"), the selection of special legal
counsel for the limited partners and that counsel's legal opinion referred to in
Section 3.1(c) shall have been approved by the limited partners (with respect to
the Special Vote Partnerships, excluding Pioneer USA and its affiliates) holding
at least a majority of the outstanding limited partnership interests voting in
person or by proxy at the Special Meetings at which a quorum is present, with
respect to each merger.
(b) Pioneer USA shall have received from Robert A. Stanger & Co., Inc. a
written opinion for inclusion in the Proxy Statement satisfactory in form and
substance to Pioneer USA and substantially to the effect that, as of the date of
that opinion, the amount of cash to be received by the limited partners of each
partnership in the mergers is fair from a financial point of view to those
partners. Such opinion shall not have been withdrawn prior to the Closing Date,
unless a replacement opinion or opinions of an investment banking firm or firms
satisfactory to Pioneer USA to a similar effect has been received by Pioneer USA
and has not been withdrawn.
(c) The receipt, on or prior to the Closing Date, by Pioneer USA of the
opinion of special legal counsel for the limited partners pursuant to the
partnership agreements of the Partnerships.
(d) No provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the mergers and
the transactions related thereto.
(e) No suit, action or proceeding shall have been filed or otherwise be
pending against Pioneer, Pioneer USA or any officer, director or affiliate of
Pioneer or Pioneer USA challenging the legality or any aspect of the mergers or
the transactions related thereto.
(f) The parties to the mergers having made all filings and registrations
with, and notifications to, all third parties, including, without limitation,
lenders and all appropriate regulatory authorities, required for consummation of
the transactions contemplated by this Merger Agreement (other than the filing
and recordation of appropriate merger documents required by the DGCL, DRULPA or
TRLPA, as applicable), and all approvals and authorizations and consents of all
third parties, including, without limitation, lenders and all regulatory
authorities, required for consummation of the transactions contemplated by this
Merger Agreement shall have been received and shall be in full force and effect,
except for such filings, registrations, notifications, approvals, authorizations
and consents, the failure of which to make or obtain would not have a material
adverse effect on the business or financial condition of Pioneer, Pioneer USA or
the Partnerships.
(g) The absence of any opinion of counsel that the exercise by the limited
partners of the right to approve the mergers is not permitted under applicable
state law.
E-6
<PAGE> 101
3.2 Conditions to Obligations of Pioneer and Pioneer USA to Effect the
Mergers. The obligations of Pioneer and Pioneer USA to effect the mergers shall
be subject to the fulfillment (or waiver in whole or in part by the intended
beneficiary thereof in its sole discretion), at or prior to the Closing Date, of
the following additional conditions:
(a) Each of the Partnerships shall have performed in all material respects
its agreements contained in this Merger Agreement required to be performed at or
prior to the Closing Date.
(b) The representations and warranties of each of the Partnerships
contained in this Merger Agreement shall be true and correct in all material
respects at and as of the Closing Date as if made at and as of such time unless
they relate to another specified time.
3.3 Conditions to Obligations of the Partnerships to Effect the
Mergers. The obligations of each of the Partnerships to effect its respective
merger shall be subject to the fulfillment (or waiver in whole or in part by the
intended beneficiary thereof in its sole discretion) at or prior to the Closing
Date of the following additional conditions:
(a) Each of Pioneer and Pioneer USA shall have performed in all material
respects its agreements contained in this Merger Agreement required to be
performed at or prior to the Closing Date.
(b) The representations and warranties of each of Pioneer and Pioneer USA
contained in this Merger Agreement shall be true and correct in all material
respects at and as of the Closing Date as if made at and as of such time unless
they relate to another specific time.
ARTICLE 4
ADDITIONAL AGREEMENTS
4.1 Conduct of Business Pending the Mergers. Each of Pioneer, Pioneer USA
and the Partnerships covenants and agrees that, between the date of this Merger
Agreement and the Closing Date, unless the other parties shall otherwise agree
in writing or as otherwise contemplated in this Merger Agreement, they shall
conduct their respective businesses only in the ordinary course of business and
in a manner consistent with past practice, and they shall not take any action
except for actions consistent with such practice. Each of Pioneer, Pioneer USA
and the Partnerships shall use their respective reasonable best efforts to
preserve intact the business organization of Pioneer, Pioneer USA and the
Partnerships, to keep available the services of the present officers, employees
and consultants of Pioneer, Pioneer USA and the Partnerships, and to preserve
their relationships with customers, suppliers and other persons with which they
have significant business dealings.
4.2 Special Meetings; Proxies. As soon as reasonably practicable after the
execution of this Merger Agreement, Pioneer USA will take all action necessary
to duly call, give notice of, convene and hold the Special Meetings to consider
and vote upon approval of this Merger Agreement, the Merger Amendment, the
selection of special legal counsel for the limited partners, that counsel's
legal opinion referred to in Section 3.1(c) and the transactions contemplated
hereby and thereby. Pioneer USA will use its reasonable best efforts to solicit
from the limited partners proxies in favor of this Merger Agreement, the Merger
Amendment, the selection of special legal counsel for the limited partners, that
counsel's legal opinion referred to in Section 3.1(c) and the transactions
contemplated hereby and thereby, and to take all other action necessary or
advisable to secure any vote or consent of the limited partners required by the
partnership agreements of the Partnerships or this Merger Agreement or
applicable law to effect the mergers.
4.3 Proxy Statement. Pioneer USA has filed with the SEC under the Exchange
Act a preliminary proxy statement for the Special Meetings (the definitive form
of such proxy statement is referred to as the "Proxy Statement"). Pioneer and
Pioneer USA shall use all reasonable commercial efforts to have the Proxy
Statement cleared with the SEC as promptly as practicable. Pioneer and Pioneer
USA shall cause the Proxy Statement to be mailed to the limited partners as soon
as practicable in accordance with applicable federal and state law.
E-7
<PAGE> 102
4.4 Additional Agreements. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all reasonable commercial
efforts to obtain in a timely manner all necessary waivers, consents and
approvals and to effect all necessary registrations and filings, and to use all
reasonable commercial efforts to take, or cause to be taken, all other actions
and to do, or cause to be done, all other things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective as
promptly as practicable the transactions contemplated by this Merger Agreement.
ARTICLE 5
TERMINATION
5.1 Termination. This Merger Agreement may be terminated and the mergers
contemplated hereby may be abandoned, in whole or in part, with respect to any
or all of the partnerships, at any time prior to the Effective Time, whether
before or after approval of the mergers by the limited partners (with respect to
the Special Vote Partnerships, excluding Pioneer USA and its affiliates):
(a) By mutual written consent of the parties;
(b) By any party, if:
(i) there shall be any applicable law, rule or regulation that makes
consummation of the mergers illegal or otherwise prohibited or if any
judgment, injunction, order or decree enjoining any party from consummating
the mergers is entered and such judgment, injunction, order or decree shall
have become final and non-appealable;
(ii) at the Special Meetings or at any adjournment or postponement
thereof, the limited partners' approval referred to in Section 3.1(a) shall
not have been obtained by reason of the failure to obtain the requisite
vote; or
(iii) there shall be any pending suit, action or proceeding filed
against Pioneer, Pioneer USA or any officer, director or affiliate of
Pioneer or Pioneer USA challenging the legality or any aspect of the
mergers or the transactions related thereto;
(c) By Pioneer, if Pioneer USA or any Partnership shall have failed to
perform its agreements and covenants contained herein, which failure has a
material adverse effect on Pioneer USA or such Partnership, as the case may be,
or materially and adversely affects the transactions contemplated by this Merger
Agreement;
(d) By Pioneer USA or any of the Partnerships with respect to that
Partnership's merger, if Pioneer shall have failed to perform its agreements and
covenants contained herein, which failure has a material adverse effect on
Pioneer USA or that Partnership, as the case may be, or materially and adversely
affects the transactions contemplated by this Merger Agreement;
(e) By Pioneer USA, if Pioneer USA, after considering the written advice of
outside legal counsel, determines in good faith that termination of the Merger
Agreement is required for Pioneer USA's board of directors to comply with its
fiduciary duties to its sole stockholder or to the Partnerships imposed by
applicable law; or
(f) By Pioneer, if there shall have occurred any event, circumstance,
condition, development or occurrence causing, resulting in or having a material
adverse effect (i) on any partnership's business, operations, properties (taken
as a whole), condition (financial or otherwise), results of operations, assets
(taken as a whole), liabilities, cash flows or prospects, or (ii) on market
prices for oil and gas prevailing generally in the oil and gas industry since
the date of determination of the oil and gas commodity prices used in the
determination of the merger values.
5.2 Effect of Termination. In the event of termination of this Merger
Agreement by a party as provided in Section 5.1, written notice thereof shall
promptly be given to the other party and this Merger Agreement shall forthwith
terminate without further action by either of the parties hereto. If this Merger
E-8
<PAGE> 103
Agreement is terminated as provided, however, there shall be no liabilities or
obligations hereunder on the part of any party hereto except as provided in
Section 6.13 and except that nothing herein shall relieve any party hereto from
liability for any breach of this Merger Agreement.
ARTICLE 6
MISCELLANEOUS
6.1 Headings. The headings contained in this Merger Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Merger Agreement.
6.2 Amendment. This Merger Agreement may be supplemented, amended or
modified by an instrument in writing signed by Pioneer and Pioneer USA (on
behalf of itself and as (a) general partner, (b) general partner of the
Nonmanaging General Partners, and (c) attorney-in-fact for the limited partners)
at any time prior to the Closing Date; provided, however, that after approval by
the limited partners (with respect to the Special Vote Partnerships, excluding
Pioneer USA and its affiliates) of this Merger Agreement, the Merger Amendment,
the selection of special legal counsel for the limited partners and that
counsel's legal opinion referred to in Section 3.1(c), no amendment may be made
which would change the type or amount of, or the method for determining, the
consideration into which each Partnership interest will be converted upon
consummation of the mergers or which would in any other way materially and
adversely affect the rights of such limited partners (other than a termination
of this Merger Agreement or abandonment of the mergers).
6.3 Waiver. At any time prior to the Closing Date, the parties hereto may
(a) extend the time for the performance of any of the obligations or other acts
of the other parties hereto, (b) waive any inaccuracies in the representations
and warranties contained herein or in any document delivered pursuant hereto,
and (c) waive compliance with any of the agreements or conditions contained
herein. Any such extension or waiver shall not operate as an extension or waiver
of, or estoppel with respect to, any subsequent failure of compliance or other
failure. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid against such party if set forth in an instrument in
writing signed by such party.
6.4 Expiration of Representations and Warranties. All representations and
warranties made pursuant to this Merger Agreement shall expire with, and be
terminated and extinguished by, the mergers at the Closing Date.
6.5 Notices. All notices and other communications to be given or made
hereunder by any party shall be delivered by first class mail, or by personal
delivery, postage or fees prepaid, to (a) Pioneer at 1400 Williams Square West,
5205 North O'Connor Boulevard, Irving, Texas 75039, with a copy to Michael D.
Wortley, Vinson & Elkins L.L.P., 3700 Trammell Crow Center, Dallas, Texas 75201,
and (b) to the other parties at Pioneer Natural Resources USA, Inc., 1400
Williams Square West, 5205 North O'Connor Boulevard, Irving, Texas 75039 with a
copy to Brian M. Lidji, Sayles & Lidji, A Professional Corporation, 4400
Renaissance Tower, 1201 Elm Street, Dallas, Texas 75270.
6.6 Counterparts. This Merger Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
6.7 Severability. If any term or other provision of this Merger Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Merger Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party.
6.8 Entire Agreement. This Merger Agreement, including the documents and
instruments referred to herein, constitutes the entire agreement and supersedes
all other prior agreements and undertakings, both written and oral, between the
parties, or any of them, with respect to the subject matter hereof.
E-9
<PAGE> 104
6.9 Remedies. Except as otherwise expressly provided herein, this Merger
Agreement is not intended to confer upon any other person any rights or remedies
hereunder.
6.10 Assignment. This Merger Agreement shall not be assigned by operation
of law or otherwise without the consent of all parties hereto.
6.11 No Implied Waiver. Except as expressly provided in this Merger
Agreement, no course of dealing among the parties hereto and no delay by any of
them in exercising any right, power or remedy conferred herein or now or
hereafter existing at law or in equity, by statute or otherwise, shall operate
as a waiver of, or otherwise prejudice, any such right, power or remedy.
6.12 Governing Law. Except to the extent that TRLPA is mandatorily
applicable, this Merger Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware (regardless of the laws that
might otherwise govern under applicable principles of conflicts of law) as to
all matters.
6.13 Expenses. Except as otherwise provided herein, the Partnerships,
including the 21 non-public limited partnerships and 13 privately-held employee
partnerships described in the recitals, will pay, pro rata based on their merger
values, all estimated expenses and fees incurred in connection with the mergers
of the Partnerships and the other partnerships with and into Pioneer USA, to the
extent the mergers of those Partnerships or partnerships are completed. If
Pioneer terminates this Merger Agreement or abandons the mergers pursuant to
Section 5.1, Pioneer will pay all estimated expenses and fees of the
Partnerships and the other partnerships incurred in connection with the mergers
before such termination or abandonment.
6.14 Liquidation. The Partnerships, Pioneer and Pioneer USA intend and
agree that the mergers shall be treated as a liquidation of the Partnerships
into Pioneer USA pursuant to Section 332 of the Internal Revenue Code of 1986,
as amended, and shall make all declarations and filings necessary to accomplish
such intent and liquidation.
E-10
<PAGE> 105
IN WITNESS WHEREOF, each of the parties hereto has executed this Merger
Agreement as of the date first written above.
PIONEER NATURAL RESOURCES COMPANY
By:
----------------------------------
Name:
---------------------------------
Title:
---------------------------------
PIONEER NATURAL RESOURCES USA, INC.
By:
----------------------------------
Name:
---------------------------------
Title:
---------------------------------
PARTNERSHIPS:
Parker & Parsley 82-I, Ltd.
Parker & Parsley 82-II, Ltd.
Parker & Parsley 83-A, Ltd.
Parker & Parsley 83-B, Ltd.
Parker & Parsley 84-A, Ltd.
Parker & Parsley 85-A, Ltd.
Parker & Parsley 85-B, Ltd.
Parker & Parsley 86-A, Ltd.
Parker & Parsley 86-B, Ltd.
Parker & Parsley 86-C, Ltd.
Parker & Parsley 87-A, Ltd.
Parker & Parsley 87-B, Ltd.
Parker & Parsley Producing
Properties 87-A, Ltd.
Parker & Parsley Producing
Properties 87-B, Ltd.
Parker & Parsley 88-A, L.P.
Parker & Parsley 88-B, L.P.
Parker & Parsley Producing
Properties 88-A, L.P.
Parker & Parsley 89-A, L.P.
Parker & Parsley 90-A, L.P.
Parker & Parsley 90-B Conv., L.P.
Parker & Parsley 90-B, L.P.
Parker & Parsley 90-C Conv., L.P.
Parker & Parsley 90-C, L.P.
Parker & Parsley 91-A, L.P.
Parker & Parsley 91-B, L.P.
E-11
<PAGE> 106
By: Pioneer Natural Resources USA,
Inc., as general partner of each
Partnership
By:
----------------------------------
Name:
---------------------------------
Title:
---------------------------------
By: Pioneer Natural Resources USA,
Inc., as general partner of the
Nonmanaging General Partner of
each of Parker & Parsley 82-I,
Ltd., Parker & Parsley 82-II,
Ltd., Parker & Parsley 83-A,
Ltd., Parker & Parsley 83-B,
Ltd., and Parker & Parsley 84-A,
Ltd., respectively
By:
----------------------------------
Name:
---------------------------------
Title:
---------------------------------
By: Pioneer Natural Resources USA,
Inc., as attorney-in-fact for
the limited partners of each
Partnership
By:
----------------------------------
Name:
---------------------------------
Title:
---------------------------------
E-12
<PAGE> 107
EXHIBIT A
TO APPENDIX E
MERGER VALUE AND AMOUNT OF INITIAL LIMITED PARTNER INVESTMENT REPAID
This table contains the following summary information for each partnership:
- the aggregate merger values assigned to:
-- Pioneer USA's partnership interests, whether general or limited;
-- its nonmanaging general partners' partnership interests, excluding
Pioneer USA;
-- its limited partners, excluding Pioneer USA; and
- for each $1,000 initial limited partner investment in that partnership:
-- the merger value;
-- the total historical cash distributions through June 30, 1999; and
-- the total amount of initial investment by the limited partners that has
been repaid, after giving effect to the mergers, stated in dollars and
as a percentage.
<TABLE>
<CAPTION>
PER $1,000 INITIAL LIMITED PARTNER INVESTMENT
AGGREGATE MERGER VALUE -----------------------------------------------
-------------------------------------- DISTRIBUTIONS AMOUNT OF
OTHER FROM INITIAL INVESTMENT
NONMANAGING INCEPTION REPAID
GENERAL LIMITED MERGER THROUGH -------------------
PIONEER USA PARTNERS PARTNERS VALUE 6/30/99 $ %
----------- ----------- ---------- -------- -------------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Parker & Parsley 82-I, Ltd........ $160,707 $ 5,579 $ 370,968 $ 34.99 $ 947.88 $ 982.87 98%
Parker & Parsley 82-II, Ltd....... 233,515 7,240 677,990 57.41 1,100.07 1,157.48 116%
Parker & Parsley 83-A, Ltd........ 444,921 17,701 1,314,512 69.55 1,264.54 1,334.09 133%
Parker & Parsley 83-B, Ltd........ 744,776 29,018 2,170,824 96.42 1,461.35 1,557.77 156%
Parker & Parsley 84-A, Ltd........ 637,901 28,200 1,965,607 103.14 1,388.21 1,491.35 149%
Parker & Parsley 85-A, Ltd........ 20,949 -- 695,068 73.73 681.05 754.78 75%
Parker & Parsley 85-B, Ltd........ 14,351 -- 820,575 103.47 879.49 982.96 98%
Parker & Parsley 86-A, Ltd........ 11,133 -- 818,452 81.07 1,282.95 1,364.02 136%
Parker & Parsley 86-B, Ltd........ 39,117 -- 2,213,631 129.61 1,476.23 1,605.84 161%
Parker & Parsley 86-C, Ltd........ 24,353 -- 1,838,218 95.45 1,405.01 1,500.46 150%
Parker & Parsley 87-A, Ltd........ 53,960 -- 3,315,712 115.79 1,232.73 1,348.52 135%
Parker & Parsley Producing
Properties 87-A, Ltd............ 23,968 -- 1,753,345 144.08 892.03 1,036.11 104%
Parker & Parsley 87-B, Ltd........ 32,586 -- 2,634,521 131.44 1,158.39 1,289.83 129%
Parker & Parsley Producing
Properties 87-B, Ltd............ 33,115 -- 1,252,499 208.84 961.03 1,169.87 117%
Parker & Parsley 88-A, L.P........ 51,739 -- 2,174,467 170.38 997.83 1,168.21 117%
Parker & Parsley Producing
Properties 88-A, L.P............ 32,164 -- 1,873,767 336.28 1,086.22 1,422.50 142%
Parker & Parsley 88-B, L.P........ 28,688 -- 1,378,077 155.54 972.69 1,128.23 113%
Parker & Parsley 89-A, L.P........ 33,362 -- 1,449,492 176.51 916.62 1,093.13 109%
Parker & Parsley 90-A, L.P........ 34,154 -- 1,054,698 158.26 789.75 948.01 95%
Parker & Parsley 90-B Conv.,
L.P............................. 31,749 -- 1,874,279 158.61 604.35 762.96 76%
Parker & Parsley 90-B, L.P........ 64,924 -- 5,109,583 158.78 604.43 763.21 76%
Parker & Parsley 90-C Conv.,
L.P............................. 13,545 -- 957,896 127.70 538.46 666.16 67%
Parker & Parsley 90-C, L.P........ 18,948 -- 1,533,135 126.92 538.47 665.39 66%
Parker & Parsley 91-A, L.P........ 32,032 -- 2,283,469 197.28 673.79 871.07 87%
Parker & Parsley 91-B, L.P........ 26,234 -- 2,384,931 212.20 537.98 750.18 75%
</TABLE>
E-13
<PAGE> 108
EXHIBIT B
TO APPENDIX E
CERTIFICATE OF INCORPORATION
OF
PIONEER NEWSUB2, INC.
FIRST: The name of the corporation is Pioneer NewSub2, Inc. (the
"Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, Wilmington, county of New Castle,
Delaware 19801. The name of the registered agent of the Corporation at such
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "General Corporation Law").
FOURTH: The total number of shares of stock which the Corporation shall
have the authority to issue is 1,000 shares of common stock, par value $.01 per
share ("Common Stock").
In the event of a voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation and upon any distribution of the
assets of the Corporation in connection therewith, the holders of Common Stock
shall be entitled to receive all the assets of the Corporation, tangible and
intangible, of whatever kind available for distribution to stockholders, ratably
in proportion to the number of shares of Common Stock held by them.
Each holder of Common Stock shall have one vote in respect of each share of
Common Stock held by such holder on any matter submitted to the stockholders.
Cumulative voting of shares of Common Stock is prohibited.
FIFTH: The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In furtherance and not in
limitation of the powers conferred by statute, the Board of Directors is
expressly authorized to adopt, amend or repeal the Bylaws of the Corporation;
provided, however, that the grant of such authority shall not divest the
stockholders of the power, nor limit their power to adopt, amend or repeal the
Bylaws. The number of directors that shall constitute the whole Board of
Directors of the Corporation shall be as from time to time fixed by, or in the
manner provided in, the Bylaws of the Corporation. The election of directors
need not be by written ballot, unless the Bylaws so provide. In addition to the
authority and powers hereinabove or by statute conferred upon the directors, the
directors are hereby authorized and empowered to exercise all such powers and do
all such acts and things as may be exercised or done by the Corporation, subject
to the provisions of the General Corporation Law, this Certificate of
Incorporation and any Bylaws adopted by the stockholders of the Corporation;
provided, however, that no Bylaws hereafter adopted by the stockholders of the
Corporation shall invalidate any prior act of the directors that would have been
valid if such Bylaws had not been adopted.
SIXTH: No director of the Corporation shall be personally liable to the
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director involving any act or omission of any such director;
provided, however, that the foregoing provision shall not eliminate or limit the
liability of a director (a) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (b) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the General Corporation Law, as the same exists or hereafter may
be amended, or (d) for any transaction from which the director derived an
improper personal benefit. If the General Corporation Law is amended after the
date of filing of this Certificate of Incorporation to authorize corporate
action further limiting or eliminating the personal liability of directors, then
the liability of a director of the Corporation, in addition to the limitation on
personal liability
E-14
<PAGE> 109
provided for herein, shall be limited to the fullest extent permitted by the
General Corporation Law as so amended. Any repeal or modification of this
Article Sixth by the stockholders of the Corporation shall be prospective only,
and shall not adversely affect any limitation on the personal liability of a
director of the Corporation existing at the time of such repeal or modification.
SEVENTH: The Corporation expressly elects not to be governed by Section 203
of the General Corporation Law, as the same exists or hereafter may be amended.
EIGHTH: The name and mailing address of the sole incorporator are as
follows: Patricia F. Reilly, c/o Vinson & Elkins L.L.P., 3700 Trammell Crow
Center, 2001 Ross Avenue, Dallas, Texas 75201.
NINTH: The powers of the sole incorporator shall terminate upon the filing
of this Certificate of Incorporation. The names and mailing addresses of the
persons who are to serve as directors of the Corporation until the first annual
meeting of stockholders or until their successors are elected and qualify are as
follows:
<TABLE>
<CAPTION>
NAME OF DIRECTOR MAILING ADDRESS
- ---------------- ---------------
<S> <C>
Scott D. Sheffield........................... c/o Pioneer Natural Resources Company
1400 Williams Square West
5205 North O'Connor Boulevard
Irving, Texas 75039
Timothy L. Dove.............................. c/o Pioneer Natural Resources Company
1400 Williams Square West
5205 North O'Connor Boulevard
Irving, Texas 75039
Mark L. Withrow.............................. c/o Pioneer Natural Resources Company
1400 Williams Square West
5205 North O'Connor Boulevard
Irving, Texas 75039
M. Garrett Smith............................. c/o Pioneer Natural Resources Company
1400 Williams Square West
5205 North O'Connor Boulevard
Irving, Texas 75039
Dennis E. Fagerstone......................... c/o Pioneer Natural Resources Company
1400 Williams Square West
5205 North O'Connor Boulevard
Irving, Texas 75039
</TABLE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Incorporation this 30th day of December, 1997.
By: /s/ PATRICIA F. REILLY
----------------------------------
Patricia F. Reilly
Incorporator
E-15
<PAGE> 110
ARTICLES OF MERGER
WITH RESPECT TO THE MERGER OF
PIONEER ASSETCO, INC.
A TEXAS CORPORATION
WITH AND INTO
PIONEER NEWSUB2, INC.
A DELAWARE CORPORATION
December 30, 1997
Pursuant to the provisions of Article 5.16 of the Texas Business
Corporation Act, the undersigned corporation adopts the following Articles of
Merger for the purpose of effecting a merger of Pioneer AssetCo, Inc., a Texas
corporation ("AssetCo"), with and into Pioneer NewSub2, Inc., a Delaware
corporation (the "Subsidiary"), with the Subsidiary to continue in existence
following the merger as the surviving corporation.
1. The name, type of entity and respective jurisdiction of organization of
the parties to the merger are as follows:
<TABLE>
<CAPTION>
NAME OF PARENT ENTITY ENTITY STATE
- --------------------- ----------- -----
<S> <C> <C>
Pioneer AssetCo, Inc. ...................................... Corporation Texas
</TABLE>
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY ENTITY ENTITY STATE
- ------------------------- ----------- --------
<S> <C> <C>
Pioneer NewSub2, Inc. ...................................... Corporation Delaware
</TABLE>
2. The name of the entity that shall survive the merger is Pioneer NewSub2,
Inc., which, at the effective time of the merger, shall be changed to Pioneer
Natural Resources USA, Inc.
3. As to the Subsidiary, the total number or percentage of outstanding
shares, identified by class or series of stock of such corporation, and the
number or percentage of shares in each class or series owned by AssetCo are as
follows:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES DESIGNATION OF OWNED BY
NAME OF CORPORATION OUTSTANDING CLASS OR SERIES ASSETCO
- ------------------- ----------- --------------- ----------
<S> <C> <C> <C>
Pioneer NewSub2, Inc. ......................... 1,000 Common Stock 100%
</TABLE>
4. Attached hereto as Exhibit A is a true and correct copy of the
resolution of merger (the "Plan of Merger") adopted on December 30, 1997, by the
Board of Directors of AssetCo, approving the merger of AssetCo with and into the
Subsidiary, with the Subsidiary being the surviving corporation. The Plan of
Merger and the performance of its terms were duly authorized by all action
required by the laws of the State of Delaware and the State of Texas and the
organizational or other constituent documents of the parties to the merger.
5. The address of the registered office of the Subsidiary in the State of
Delaware is 1209 Orange Street, Wilmington, County of New Castle, Delaware
19801.
6. As to the corporation set forth below, the approval of whose
shareholders is required, the number of outstanding shares of each class or
series of stock of such corporation entitled to vote, with other shares or as a
class, on the plan of merger are as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES ENTITLED TO
VOTE AS CLASS OR SERIES:
NUMBER OF ----------------------------
SHARES DESIGNATION OF NUMBER OF
NAME OF CORPORATION OUTSTANDING CLASS OR SERIES SHARES
- ------------------- ----------- ---------------- ----------
<S> <C> <C> <C>
Pioneer AssetCo, Inc. ............................ 1,000 Common 1,000
</TABLE>
E-16
<PAGE> 111
7. As to the corporation set forth below, the approval of whose
shareholders is required, the number of shares voted for and against the plan of
merger, respectively, and, if the shares of any class or series are entitled to
vote as a class, the number of shares of each such class or series voted for and
against the plan of merger are as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
ENTITLED TO VOTE AS
CLASS OR SERIES:
-------------------
TOTAL VOTED TOTAL VOTED CLASS OR VOTED
NAME OF CORPORATION FOR AGAINST SERIES VOTED FOR AGAINST
- ------------------- ----------- ----------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
Pioneer AssetCo, Inc. ........... 1,000 0 Common 1,000 0
</TABLE>
8. The Subsidiary will be responsible for the payment of any fees and
franchise taxes required by law and will be obligated to pay such fees and
franchise taxes if the same are not timely paid.
9. The merger will become effective on the later of (a) the day and at the
time the Secretary of State of the State of Delaware files the Certificate of
Ownership and Merger, or (b) the day and at the time the Secretary of State of
the State of Texas files the Articles of Merger.
DATED the date first above written.
PIONEER ASSETCO, INC.
By: /s/ M. GARRETT SMITH
----------------------------------
M. Garrett Smith
President
E-17
<PAGE> 112
EXHIBIT A
RESOLUTIONS ADOPTED BY THE BOARD OF DIRECTORS
OF
PIONEER ASSETCO, INC.
December 30, 1997
WHEREAS, Pioneer AssetCo, Inc., a Texas corporation ("AssetCo") desires to
merge with and into Pioneer NewSub2, Inc., a Delaware corporation (the
"Subsidiary"), pursuant to the terms of that certain Agreement and Plan of
Merger (the "Merger Agreement") to be entered into by AssetCo and the
Subsidiary, a draft of which has been presented to and reviewed by the Board of
Directors of AssetCo and is attached hereto as Schedule I, and pursuant to which
Merger Agreement the Subsidiary will be possessed of all the estate, property,
rights, privileges and franchises of AssetCo; and
WHEREAS, the Board of Directors of AssetCo believes it is in the best
interests of AssetCo to enter into the Merger Agreement (as it may be changed in
accordance with these resolutions) and to merge with and into the Subsidiary;
NOW, THEREFORE, IT IS RESOLVED, that, subject to prior approval and
adoption by the sole stockholder of AssetCo, AssetCo merge with and into the
Subsidiary pursuant to the provisions of the Merger Agreement (as it may be
changed in accordance with these resolutions), the terms and provisions of which
are hereby authorized, adopted and approved in all respects; that the separate
existence of AssetCo cease at the effective time set forth in the Merger
Agreement; and that the Subsidiary, as the surviving corporation of the merger
pursuant to Section 253 of the General Corporation Law of the State of Delaware
and Article 5.16 of the Texas Business Corporation Act, continue to exist by
virtue of and be governed by the laws of the State of Delaware (such actions,
collectively, being called the "Merger").
RESOLVED FURTHER, that (a) the Merger Agreement be submitted to the sole
stockholder of AssetCo for its approval and adoption thereof, (b) that the Board
of Directors of AssetCo hereby recommends that the sole stockholder approve and
adopt the Merger Agreement (as it may be changed in accordance with these
resolutions), and (c) that, prior to such approval and adoption, a copy of the
Merger Agreement, as approved by the Board of Directors, be made available for
inspection by the sole stockholder.
RESOLVED FURTHER, that the officers of AssetCo be, and each is hereby,
authorized, empowered, and directed, for and on behalf and in the name of
AssetCo, to execute and deliver the Merger Agreement in substantially the form
reviewed by the Board of Directors of AssetCo, but with such changes therein as
the officer or officers executing the same may deem necessary, appropriate, or
advisable, and in the best interest of AssetCo, the execution of the Merger
Agreement in its final form to be conclusive evidence that such officers did
deem any such changes to be so necessary, appropriate, or desirable, and in the
best interest of AssetCo.
RESOLVED FURTHER, that, upon the required approval and adoption of the
Merger Agreement by the sole stockholder of AssetCo, the proper officers of
AssetCo are hereby authorized and directed, in the name and on behalf of
AssetCo, to execute and deliver a Certificate of Ownership and Merger for filing
with the Secretary of State of the State of Delaware and Articles of Merger for
filing with the Secretary of State of the State of Texas.
E-18
<PAGE> 113
SCHEDULE I
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of December 30, 1997 (this
"Merger Agreement"), is entered into by and among Pioneer AssetCo, Inc., a Texas
corporation ("AssetCo"), and Pioneer NewSub2, Inc., a Delaware corporation
("NewSub2").
RECITALS:
A. AssetCo is a wholly-owned subsidiary of Pioneer Natural Resources
Company, a Delaware corporation ("Pioneer"), and NewSub2 is a wholly-owned
subsidiary of AssetCo.
B. The Board of Directors of each of AssetCo and NewSub2 has determined
that it is in the best interests of AssetCo and NewSub2, respectively, to merge
AssetCo with and into NewSub2 upon the terms and subject to the conditions
contained herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein, the parties hereto agree as follows:
ARTICLE 1
THE MERGER
1.1 Merger. At the Effective Time (as defined in Section 1.2), AssetCo
shall be merged with and into NewSub2, the separate existence of AssetCo shall
cease, and NewSub2, as the surviving corporation, shall continue to exist by
virtue of and shall be governed by the laws of the State of Delaware (such
actions, collectively, being called the "Merger").
1.2 Effective Time of Merger. This Merger Agreement, or a Certificate of
Ownership and Merger setting forth the information required by, and otherwise in
compliance with, Section 253 of the General Corporation Law of the State of
Delaware with respect to the Merger, shall be delivered for filing with the
Secretary of State of the State of Delaware. This Merger Agreement, or Articles
of Merger setting forth the information required by, and otherwise in compliance
with, Article 5.16 of the Texas Business Corporation Act with respect to the
Merger, shall be delivered for filing with the Secretary of State of the State
of Texas. The Merger shall become effective upon the later of (i) the day and at
the time the Secretary of State of the State of Delaware files such Certificate
of Ownership and Merger, and (ii) the day and at the time the Secretary of State
of the State of Texas files such Articles of Merger (the time of such
effectiveness is herein called the "Effective Time"). Notwithstanding the
foregoing, by action of its Board of Directors, either of NewSub2 or AssetCo may
terminate this Merger Agreement at any time prior to the filing of the
Certificate of Ownership and Merger with respect to the Merger with Secretary of
State of the State of Delaware and the Articles of Merger with respect to the
Merger with Secretary of State of the State of Texas.
1.3 Effects of Merger. At the Effective Time, NewSub2, without further
action, as provided by the laws of the State of Delaware and the State of Texas,
shall succeed to and possess all the rights, privileges, powers, and franchises,
of a public as well as of a private nature, of AssetCo; and all property, real,
personal and mixed, and all debts due on whatsoever account, including
subscriptions to shares, and all other choses in action, and all and every other
interest, of or belonging to or due to AssetCo shall be deemed to be vested in
NewSub2 without further act or deed; and the title to any real estate, or any
interest therein, vested in NewSub2 or AssetCo shall not revert or be in any way
impaired by reason of the Merger. Such transfer to and vesting in NewSub2 shall
be deemed to occur by operation of law, and no consent or approval of any other
person shall be required in connection with any such transfer or vesting unless
such consent or approval is specifically required in the event of merger or
consolidation by law or express provision in any contract, agreement, decree,
order, or other instrument to which NewSub2 or AssetCo is a party or by which
either of them is bound. At and after the Effective Time, NewSub2
E-19
<PAGE> 114
shall be responsible and liable for all debts, liabilities, and duties of
AssetCo, including franchise taxes, if any, which may be enforced against
NewSub2 to the same extent as if said debts, liabilities, and duties had been
incurred or contracted by it. Neither the rights of creditors nor any liens upon
the property of AssetCo or NewSub2 shall be impaired by the Merger.
1.4 Certificate of Incorporation. The Certificate of Incorporation of
NewSub2 before the merger, as amended by the Certificate of Ownership and
Merger, attached hereto as Exhibit A-1 and Exhibit A-2, respectively, shall be
and remain the Certificate of Incorporation of NewSub2 after the Effective Time,
until the same shall thereafter be altered, amended, or repealed in accordance
with law and the Certificate of Incorporation of NewSub2. The Certificate of
Incorporation of NewSub2, as amended as aforesaid, changes the name of NewSub2
to Pioneer Natural Resources USA, Inc.
1.5 Bylaws. The Bylaws of NewSub2 as in effect at the Effective Time shall
be and remain the Bylaws of NewSub2 as the surviving corporation, until the same
shall thereafter be altered, amended, or repealed in accordance with law, the
Certificate of Incorporation of NewSub2 or such Bylaws.
ARTICLE 2
EFFECT ON OUTSTANDING COMMON STOCK
2.1 AssetCo Common Stock. At the Effective Time, all of the outstanding
shares of common stock of AssetCo shall, without any action on the part of the
holder thereof, be cancelled.
2.2 NewSub2 Common Stock. At the Effective Time, each outstanding share of
common stock of NewSub2 shall remain outstanding and shall continue to represent
one share of common stock of NewSub2.
2.3 Cancellation of Certificates of AssetCo Common Stock. At or after the
Effective Time, Pioneer, as the sole holder of the shares of common stock of
AssetCo that were outstanding immediately prior to the Effective Time, shall
surrender to NewSub2 the certificate(s) that represented such holder's shares
immediately prior to the Effective Time, and NewSub2 shall, upon receipt of such
certificate(s), immediately cancel such certificate(s). Whether or not so
surrendered, at and after the Effective Time, such certificate(s) shall be
deemed for all purposes to have been cancelled and shall not evidence any right
or interest in or claim against AssetCo or NewSub2.
ARTICLE 3
OFFICERS AND DIRECTORS
3.1 Directors. At the Effective Time, each of the persons who was serving
as a director of NewSub2 immediately prior to the Effective Time shall continue
to be a director of NewSub2 and each shall serve in such capacity until the next
annual meeting of stockholders of NewSub2 and until his or her successor is
elected and qualified or, if earlier, until his death, resignation, or removal
from office.
3.2 Officers. At the Effective Time, each of the persons who was serving
as an officer of NewSub2 immediately prior to the Effective Time shall continue
to be an officer of NewSub2 and shall continue to serve in such capacity at the
pleasure of the Board of Directors of NewSub2 or, if earlier, until their
respective death or resignation.
ARTICLE 4
MISCELLANEOUS
4.1 Headings. The headings contained in this Merger Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Merger Agreement.
E-20
<PAGE> 115
4.2 Amendment. To the extent permitted by law, this Merger Agreement may
be amended or supplemented at any time and in any respect, to the extent such
amendment or supplement relates to the Merger, by action taken by the Boards of
Directors of NewSub2 and AssetCo, if prior to the Effective Time, or by the
Board of Directors of NewSub2, if on or after the Effective Time.
4.3 Governing Law. This Merger Agreement shall be governed by and
construed in accordance with the laws of the State of Texas with respect to all
matters except to the extent the laws of the State of Delaware apply to matters
of corporate governance relating to NewSub2.
4.4 Counterparts. This Merger Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
4.5 Liquidation. AssetCo and NewSub2 intend and agree that the Merger
shall be treated as a liquidation of AssetCo into NewSub2 pursuant to Section
332 of the Internal Revenue Code of 1986, as amended, and shall make all
declarations and filings necessary to accomplish such intent and liquidation.
IN WITNESS WHEREOF, each of the parties hereto has executed this Merger
Agreement as of the date first written above.
PIONEER ASSETCO, INC.
By: /s/ M. GARRETT SMITH
----------------------------------
M. Garrett Smith
President
PIONEER NEWSUB2, INC.
By: /s/ M. GARRETT SMITH
----------------------------------
M. Garrett Smith
Senior Vice President -- Finance
Exhibit A-1: Certificate of Incorporation of NewSub2
Exhibit A-2: Certificate of Ownership and Merger
E-21
<PAGE> 116
EXHIBIT A-1
TO
SCHEDULE I
CERTIFICATE OF INCORPORATION
OF
PIONEER NEWSUB2, INC.
FIRST: The name of the corporation is Pioneer NewSub2, Inc. (the
"Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, Wilmington, county of New Castle,
Delaware 19801. The name of the registered agent of the Corporation at such
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "General Corporation Law").
FOURTH: The total number of shares of stock which the Corporation shall
have the authority to issue is 1,000 shares of common stock, par value $.01 per
share ("Common Stock").
In the event of a voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation and upon any distribution of the
assets of the Corporation in connection therewith, the holders of Common Stock
shall be entitled to receive all the assets of the Corporation, tangible and
intangible, of whatever kind available for distribution to stockholders, ratably
in proportion to the number of shares of Common Stock held by them.
Each holder of Common Stock shall have one vote in respect of each share of
Common Stock held by such holder on any matter submitted to the stockholders.
Cumulative voting of shares of Common Stock is prohibited.
FIFTH: The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In furtherance and not in
limitation of the powers conferred by statute, the Board of Directors is
expressly authorized to adopt, amend or repeal the Bylaws of the Corporation;
provided, however, that the grant of such authority shall not divest the
stockholders of the power, nor limit their power to adopt, amend or repeal the
Bylaws. The number of directors that shall constitute the whole Board of
Directors of the Corporation shall be as from time to time fixed by, or in the
manner provided in, the Bylaws of the Corporation. The election of directors
need not be by written ballot, unless the Bylaws so provide. In addition to the
authority and powers hereinabove or by statute conferred upon the directors, the
directors are hereby authorized and empowered to exercise all such powers and do
all such acts and things as may be exercised or done by the Corporation, subject
to the provisions of the General Corporation Law, this Certificate of
Incorporation and any Bylaws adopted by the stockholders of the Corporation;
provided, however, that no Bylaws hereafter adopted by the stockholders of the
Corporation shall invalidate any prior act of the directors that would have been
valid if such Bylaws had not been adopted.
SIXTH: No director of the Corporation shall be personally liable to the
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director involving any act or omission of any such director;
provided, however, that the foregoing provision shall not eliminate or limit the
liability of a director (a) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (b) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the General Corporation Law, as the same exists or hereafter may
be amended, or (d) for any transaction from which the director derived an
improper personal benefit. If the General Corporation Law is amended after the
date of filing of this Certificate of Incorporation to authorize corporate
action further limiting or eliminating the personal liability of directors, then
the liability of a director of the Corporation, in addition to the limitation on
personal liability
E-22
<PAGE> 117
provided for herein, shall be limited to the fullest extent permitted by the
General Corporation Law as so amended. Any repeal or modification of this
Article Sixth by the stockholders of the Corporation shall be prospective only,
and shall not adversely affect any limitation on the personal liability of a
director of the Corporation existing at the time of such repeal or modification.
SEVENTH: The Corporation expressly elects not to be governed by Section 203
of the General Corporation Law, as the same exists or hereafter may be amended.
EIGHTH: The name and mailing address of the sole incorporator are as
follows: Patricia F. Reilly, c/o Vinson & Elkins L.L.P., 3700 Trammell Crow
Center, 2001 Ross Avenue, Dallas, Texas 75201.
NINTH: The powers of the sole incorporator shall terminate upon the filing
of this Certificate of Incorporation. The names and mailing addresses of the
persons who are to serve as directors of the Corporation until the first annual
meeting of stockholders or until their successors are elected and qualify are as
follows:
<TABLE>
<CAPTION>
NAME OF DIRECTOR MAILING ADDRESS
- ---------------- ---------------
<S> <C>
Scott D. Sheffield........................... c/o Pioneer Natural Resources Company 1400
Williams Square West 5205 North O'Connor
Boulevard Irving, Texas 75039
Timothy L. Dove.............................. c/o Pioneer Natural Resources Company 1400
Williams Square West 5205 North O'Connor
Boulevard Irving, Texas 75039
Mark L. Withrow.............................. c/o Pioneer Natural Resources Company 1400
Williams Square West 5205 North O'Connor
Boulevard Irving, Texas 75039
M. Garrett Smith............................. c/o Pioneer Natural Resources Company 1400
Williams Square West 5205 North O'Connor
Boulevard Irving, Texas 75039
Dennis E. Fagerstone......................... c/o Pioneer Natural Resources Company 1400
Williams Square West 5205 North O'Connor
Boulevard Irving, Texas 75039
</TABLE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Incorporation this 30th day of December, 1997.
By: /s/ PATRICIA F. REILLY
----------------------------------
Patricia F. Reilly
Incorporator
E-23
<PAGE> 118
EXHIBIT A-2
TO
SCHEDULE I
CERTIFICATE OF OWNERSHIP AND MERGER
WITH RESPECT TO THE MERGER OF
PIONEER ASSETCO, INC.
A TEXAS CORPORATION
WITH AND INTO
PIONEER NEWSUB2, INC.
A DELAWARE CORPORATION
(Pursuant to Section 253 of the
General Corporation Law of the State of Delaware)
December 30, 1997
Pioneer AssetCo, Inc., a Texas corporation ("AssetCo"), for the purpose of
merging AssetCo with and into Pioneer NewSub2, Inc., a Delaware corporation (the
"Subsidiary"), hereby certifies as follows:
FIRST: The name of AssetCo is Pioneer AssetCo, Inc., and AssetCo is
incorporated under the laws of the State of Texas. The name of the
Subsidiary is Pioneer NewSub2, Inc., and the Subsidiary is incorporated
under the laws of the State of Delaware.
SECOND: AssetCo owns all of the issued and outstanding capital stock
of the Subsidiary.
THIRD: Attached hereto as Exhibit A is a true and correct copy of the
resolution adopted on December 30, 1997, by the Board of Directors of
AssetCo approving the merger of AssetCo with and into the Subsidiary.
FOURTH: The merger has been approved by Pioneer Natural Resources
Company, a Delaware corporation and sole stockholder of AssetCo, by written
consent thereof dated December 30, 1997, in accordance with the provisions
of Sections 228(a) and 253(a) of the General Corporation Law of the State
of Delaware.
FIFTH: The name of the surviving corporation is Pioneer NewSub2, Inc.,
which, at the effective time of the merger, shall hereby be changed to
Pioneer Natural Resources USA, Inc.
SIXTH: The certificate of incorporation of the Subsidiary, as amended
hereby, shall be the certificate of incorporation of the surviving
corporation.
IN WITNESS WHEREOF, AssetCo has caused this Certificate to be signed by its
duly authorized officer on the date first above written.
PIONEER ASSETCO, INC.
By: /s/ M. GARRETT SMITH
----------------------------------
M. Garrett Smith
President
E-24
<PAGE> 119
CERTIFICATION OF NON-FOREIGN STATUS
FOR INDIVIDUAL PARTNERS
Section 1446 of the Internal Revenue Code provides that a partnership must
pay a withholding tax to the Internal Revenue Service with respect to a
partner's allocable share of the partnership's effectively connected taxable
income, if the partner is a foreign person. To inform (insert
name of partnership) that the provisions of section 1446 do not apply I,
, hereby certify the following:
1. I am not a nonresident alien for purposes of U.S. income taxation;
2. My U.S. taxpayer identification number (social security number) is
; and
3. My home address is
-----------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------ .
I hereby agree that if I become a nonresident alien, I will notify the
partnership within sixty (60) days of doing so, I understand that this
certification may be disclosed to the Internal Revenue Service by the
partnership and that any false statement I have made here could be punished by
fine, imprisonment, or both.
Under penalties of perjury I declare that I have examined this
certification and to the best of my knowledge and belief it is true, correct,
and complete.
Executed this day of , 1999.
------------------------------------
Printed Name:
------------------------------------
<PAGE> 120
CERTIFICATION OF NON-FOREIGN STATUS
FOR PARTNERS THAT ARE ENTITIES
Section 1446 of the Internal Revenue Code provides that a partnership must
pay a withholding tax to the Internal Revenue Service with respect to a
partner's allocable share of the partnership's effectively connected taxable
income, if the partner is a foreign person. To inform (name of
partnership) that the provisions of section 1446 do not apply the undersigned
hereby certifies on behalf of (name of entity) ("Partner") the
following:
1. Partner is not a foreign corporation, foreign partnership, foreign
trust, or foreign estate (as those terms are defined in the Internal
Revenue Code and Income Tax Regulations);
2. Partner's U.S. employer identification number is ; and
3. Partner's office address is
-----------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
---------------------------------------------------------------- .
Partner hereby agrees to notify the partnership within sixty (60) days of
the date Partner becomes a foreign person. Partner understands that this
certification may be disclosed to the Internal Revenue Service by the
partnership and that any false statement contained herein could be punished by
fine, imprisonment, or both.
Under penalties of perjury I declare that I have examined this
certification and to the best of my knowledge and belief it is true, correct,
and complete, and I further declare that I have authority to sign this document
on behalf of Partner.
Executed this day of , 1999.
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
<PAGE> 121
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 82-I, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT DATED , 1999
----------------------
THE DATE OF THIS SUPPLEMENT IS , 1999
----------------------
This document contains important information specific to Parker & Parsley
82-I, Ltd. and supplements the proxy statement dated , 1999, of
Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies
to be voted at a special meeting of limited partners of the partnerships
described in the proxy statement. The purpose of the special meeting is for you
to vote upon the merger of Parker & Parsley 82-I, Ltd. with and into Pioneer USA
that, if completed, will result in your receiving cash for your partnership
interests.
This supplement contains the following information concerning Parker &
Parsley 82-I, Ltd.:
- A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through June
30, 1999
-- the merger value per $1,000 limited partner investment as of June 30,
1999
-- the merger value per $1,000 limited partner investment as a multiple
of distributions for the 12 months ended June 30, 1999
-- the book value per $1,000 limited partner investment as of June 30,
1999 and as of December 31, 1998 and
-- the ordinary tax loss per $1,000 limited partner investment in year
of initial investment
- Quarterly Report on Form 10-Q for the six months ended June 30, 1999
- Annual Report on Form 10-K for the year ended December 31, 1998
- Disclosures about the partnership's oil and gas producing activities
<PAGE> 122
PARKER & PARSLEY 82-I, LTD.
SUPPLEMENTAL INFORMATION TABLE
<TABLE>
<S> <C>
Aggregate Initial Investment by the Limited Partners(a),
(b)....................................................... $11,805
Aggregate Historical Limited Partner Distributions through
June 30, 1999(a).......................................... $11,189
Merger Value per $1,000 Limited Partner Investment as of
June 30, 1999(c).......................................... $ 34.99
Merger Value per $1,000 Limited Partner Investment as a
Multiple of Distributions for the 12 Months ended June 30,
1999(c)................................................... 8.29times
Book Value per $1,000 Limited Partner Investment:
-- as of June 30, 1999(c)................................. $ 20.93
-- as of December 31, 1998(c)............................. $ 26.37
Ordinary Tax Loss per $1,000 Limited Partner Investment in
Year of Initial Investment(c), (d)........................ $ 470
</TABLE>
- ---------------
(a) Stated in thousands.
(b) Includes approximately $2,022,500 of assessment capital.
(c) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as any
value or amount attributable to a single unit investment.
(d) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
<PAGE> 123
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JUNE 30, 1999
COMMISSION FILE NO. 2-75530A
PARKER & PARSLEY 82-I, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-1825545
(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)
</TABLE>
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> 124
PARKER & PARSLEY 82-I, LTD.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1999 and December 31,
1998.................................................. 3
Statements of Operations for the three and six months
ended June 30, 1999 and 1998.......................... 4
Statement of Partners' Capital for the six months ended
June 30, 1999......................................... 5
Statements of Cash Flows for the six months ended June
30, 1999 and 1998..................................... 6
Notes to Financial Statements.......................... 7
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................. 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 11
27.1 Financial Data Schedule
Signatures............................................. 12
</TABLE>
2
<PAGE> 125
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER & PARSLEY 82-I, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 45,923 $ 44,427
Accounts receivable -- oil and gas sales.................. 53,781 36,699
----------- -----------
Total current assets.............................. 99,704 81,126
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 9,884,775 9,885,470
Accumulated depletion....................................... (9,573,517) (9,492,068)
----------- -----------
Net oil and gas properties........................ 311,258 393,402
----------- -----------
$ 410,962 $ 474,528
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 17,968 $ 12,288
Partners' capital:
General partners.......................................... 145,939 150,932
Limited partners (4,891 interests)........................ 247,055 311,308
----------- -----------
392,994 462,240
----------- -----------
$ 410,962 $ 474,528
=========== ===========
</TABLE>
The financial information included as of June 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
<PAGE> 126
PARKER & PARSLEY 82-I, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas...................................... $101,099 $ 86,663 $186,502 $205,570
Interest......................................... 529 1,202 1,037 2,519
Gain on disposition of assets.................... -- 199 -- 199
-------- -------- -------- --------
101,628 88,064 187,539 208,288
-------- -------- -------- --------
Costs and expenses:
Oil and gas production........................... 75,833 100,496 150,511 175,267
General and administrative....................... 3,538 2,240 6,851 6,722
Depletion........................................ 7,995 29,095 81,449 55,636
-------- -------- -------- --------
87,366 131,831 238,811 237,625
-------- -------- -------- --------
Net income (loss).................................. $ 14,262 $(43,767) $(51,272) $(29,337)
======== ======== ======== ========
Allocation of net income (loss):
General partners................................. $ 4,765 $ (6,611) $ (601) $ 981
======== ======== ======== ========
Limited partners................................. $ 9,497 $(37,156) $(50,671) $(30,318)
======== ======== ======== ========
Net income (loss) per limited partnership
interest...................................... $ 1.94 $ (7.60) $ (10.36) $ (6.20)
======== ======== ======== ========
Distributions per limited partnership interest... $ 1.28 $ 3.38 $ 2.78 $ 13.20
======== ======== ======== ========
</TABLE>
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> 127
PARKER & PARSLEY 82-I, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1, 1999................................. $150,932 $311,308 $462,240
Distributions............................................ (4,392) (13,582) (17,974)
Net loss................................................. (601) (50,671) (51,272)
-------- -------- --------
Balance at June 30, 1999................................... $145,939 $247,055 $392,994
======== ======== ========
</TABLE>
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> 128
PARKER & PARSLEY 82-I, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(51,272) $(29,337)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depletion.............................................. 81,449 55,636
Gain on disposition of assets.......................... -- (199)
Changes in assets and liabilities:
Accounts receivable.................................... (17,082) 23,708
Accounts payable....................................... 5,680 (2,360)
-------- --------
Net cash provided by operating activities......... 18,775 47,448
-------- --------
Cash flows from investing activities:
Additions to oil and gas properties....................... -- (4,750)
Proceeds from asset dispositions.......................... 695 14,397
-------- --------
Net cash provided by investing activities......... 695 9,647
-------- --------
Cash flows used in financing activities:
Cash distributions to partners............................ (17,974) (81,995)
-------- --------
Net increase (decrease) in cash............................. 1,496 (24,900)
Cash at beginning of period................................. 44,427 83,286
-------- --------
Cash at end of period....................................... $ 45,923 $ 58,386
======== ========
</TABLE>
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> 129
PARKER & PARSLEY 82-I, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 82-I, Ltd. (the "Partnership") is a limited partnership
organized in 1982 under the laws of the State of Texas.
The Partnership engages primarily in oil and gas exploration, development
and production in Texas and New Mexico 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 June 30, 1999 and for the three and six months ended June 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.
7
<PAGE> 130
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
RESULTS OF OPERATIONS
Six months ended June 30, 1999 compared with six months ended June 30, 1998
Revenues:
The Partnership's oil and gas revenues decreased 9% to $186,502 from
$205,570 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from lower average prices received, offset by an
increase in production. For the six months ended June 30, 1999, 9,297 barrels of
oil, 3,592 barrels of natural gas liquids ("NGLs") and 24,947 mcf of gas were
sold, or 17,047 barrel of oil equivalents ("BOEs"). For the six months ended
June 30, 1998, 9,753 barrels of oil, 2,988 barrels of NGLs and 23,991 mcf of gas
were sold, or 16,740 BOEs.
The average price received per barrel of oil decreased $1.29, or 9%, from
$14.20 for the six months ended June 30, 1998 to $12.91 for the same period in
1999. The average price received per barrel of NGLs decreased $1.44, or 17%,
from $8.43 for the six months ended June 30, 1998 to $6.99 for the same period
in 1999. The average price received per mcf of gas decreased 5% from $1.74
during the six months ended June 30, 1998 to $1.66 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 six months ended June 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 $199 was received during the six months
ended June 30, 1998 from post closing adjustments received from the sale of
eight oil and gas wells during 1997.
Costs and Expenses:
Total costs and expenses increased to $238,811 for the six months ended
June 30, 1999 as compared to $237,625 for the same period in 1998, an increase
of $1,186. This increase was attributable to higher depletion costs and general
and administrative expenses ("G&A"), offset by a decline in production costs.
Production costs were $150,511 for the six months ended June 30, 1999 and
$175,267 for the same period in 1998 resulting in a $24,756 decrease, or 14%.
This decrease was due to declines in well maintenance costs 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
increased from $6,722 for the six months ended June 30, 1998 to $6,851 for the
same period in 1999.
Depletion was $81,449 for the six months ended June 30, 1999 compared to
$55,636 for the same period in 1998. This represented an increase in depletion
of $25,813, or 46%. This increase was the result of a combination of factors
that included a decline in proved reserves during the period ended March 31,
1999 due to reserve revisions and 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 1998 and a reduction in oil production
of 456 barrels for the period ended June 30, 1999 compared to the same period in
1998.
Three months ended June 30, 1999 compared with three months ended June 30,
1998
Revenues:
The Partnership's oil and gas revenues increased 17% to $101,099 from
$86,663 for the three months ended June 30, 1999 and 1998, respectively. The
increase in revenues resulted from increases in production
8
<PAGE> 131
and higher average prices received. For the three months ended June 30, 1999,
4,285 barrels of oil, 1,840 barrels of NGLs and 12,774 mcf of gas were sold, or
8,254 BOEs. For the three months ended June 30, 1998, 4,429 barrels of oil, 957
barrels of NGLs and 8,265 mcf of gas were sold, or 6,764 BOEs.
The average price received per barrel of oil increased 6%, from $13.39 for
the three months ended June 30, 1998 to $14.21 for the same period in 1999. The
average price received per barrel of NGLs increased 5% from $8.51 during the
three months ended June 30, 1998 to $8.90 in 1999. The average price received
per mcf of gas decreased 19% from $2.32 during the three months ended June 30,
1998 to $1.87 in 1999.
A gain on disposition of assets of $199 was received during the three
months ended June 30, 1998 from post closing adjustments received from the sale
of eight oil and gas wells during 1997.
Costs and Expenses:
Total costs and expenses decreased to $87,366 for the three months ended
June 30, 1999 as compared to $131,831 for the same period in 1998, a decrease of
$44,465, or 34%. This decrease was due to declines in production costs and
depletion, offset by an increase in G&A.
Production costs were $75,833 for the three months ended June 30, 1999 and
$100,496 for the same period in 1998 resulting in a $24,663 decrease, or 25%.
This decrease was primarily due to a decline in well maintenance costs.
During this period, G&A increased, in aggregate, 58% from $2,240 for the
three months ended June 30, 1998 to $3,538 for the same period in 1999.
Depletion was $7,995 for the three months ended June 30, 1999 compared to
$29,095 for the same period in 1998, a decrease of $21,100, or 73%. This
decrease was primarily attributable to an increase in proved reserves during the
period ended June 30, 1999 as a result of higher commodity prices, a reduction
in oil production of 144 barrels for the three months ended June 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.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $28,673 during the six
months ended June 30, 1999 from the same period ended June 30, 1998. This
decrease was due to a decline in oil and gas sales receipts, offset by decreases
in production costs and G&A expenses paid.
Net Cash Provided by Investing Activities
The Partnership's principle investing activities during the six months
ended June 30, 1998 were related to the additions of oil and gas equipment on
active properties.
Proceeds from asset dispositions of $695 were received during the six
months ended June 30, 1999 primarily from equipment credits received on active
properties. Proceeds of $14,397 were received during the same period in 1998
from the sale of properties during 1997.
Net Cash Used in Financing Activities
Cash was sufficient for the six months ended June 30, 1999 to cover
distributions to the partners of $17,974 of which $4,392 was distributed to the
general partners and $13,582 to the limited partners. For the same period ended
June 30, 1998, cash was sufficient for distributions to the partners of $81,995
of which $17,433 was distributed to the general partners and $64,562 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 levels. During the first quarter of 1999, the
Organization of Petroleum Exporting Countries and
9
<PAGE> 132
certain other crude oil exporting nations announced reductions in their planned
export volumes. These announcements, together with early indications that the
nations have initiated their planned reductions, have had some stabilizing
effect on commodity prices during the latter part of the first quarter of 1999
and into August 1999. However, no assurances can be given that the stabilizing
effect of these actions, or the planned reductions in export volumes, will 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.
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 June 30, 1999, the managing general partner estimates that the
assessment phase is approximately 99% complete and has included, but is not
limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- the formulation of contingency plans for mission-critical information
technology systems.
Through June 30, 1999, the managing general partner had 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 varying 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 June 30, 1999, the managing general partner
estimates that the remedial phase is approximately 83% complete, on a worldwide
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 is expected
to be completed by 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 expects to complete the testing of
information technology systems by October 1999. The
10
<PAGE> 133
testing of the non-information technology remediation is scheduled to be
completed by the end of November 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. As of June 30, 1999, the managing general partner's total costs
incurred on the Year 2000 problem were $2.3 million, of which approximately $200
thousand were incurred to replace non-compliant systems.
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
11
<PAGE> 134
SIGNATURES
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 82-1, LTD.
By: Pioneer Natural Resources USA,
Inc.
Managing General Partner
By: /s/ RICH DEALY
----------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
Dated: August 10, 1999
12
<PAGE> 135
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 2-75530A
PARKER & PARSLEY 82-I, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-1825545
(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)
</TABLE>
Registrant's Telephone Number, including area code: (915) 683-4768
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($2,000 PER UNIT)
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]
No market currently exists for the limited partnership interests of the
Registrant. Based on original purchase price the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$8,593,500.
As of March 8, 1999, the number of outstanding limited partnership
interests was 4,891.
The following documents are incorporated by reference into the indicated
parts of this Annual Report on Form 10-K: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 136
Parts I and II of this Report contain 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. See "Item 1.
Business" for a description of various factors that could materially affect the
ability of the Partnership to achieve the anticipated results described in the
forward looking statements.
PART I
ITEM 1. BUSINESS
Parker & Parsley 82-I, Ltd. (the "Partnership") is a limited partnership
organized in 1982 under the laws of the State of Texas. On August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership, joining the existing general partner, P&P Employees
82-I, Ltd. ("EMPL"), a Texas limited partnership whose general partner is
Pioneer USA, and 4,891 limited partnership interests as of March 8, 1999. Prior
to August 8, 1997, the Partnership's managing general partner and the general
partner of EMPL was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. ("Mesa") received shareholder approval
to merge and create Pioneer Natural Resources Company ("Pioneer"). On August 8,
1997, PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership and the general partner of EMPL as PPDLP's successor by merger. For
a more complete description of the Parker & Parsley and Mesa merger, see
Pioneer's Registration Statement on Form S-4 as filed with the Securities and
Exchange Commission.
A Registration Statement, as amended, filed pursuant to the Securities Act
of 1933, registering limited partnership interests aggregating $33,000,000 in a
series of Texas limited partnerships formed under the Parker & Parsley 82
Drilling Program, was declared effective by the Securities and Exchange
Commission on February 4, 1982. On June 1, 1982, the offering of limited
partnership interests in the Partnership, the first partnership formed under
such registration statement, was closed, with interests aggregating $9,782,000
being sold to 624 subscribers.
The Partnership engages primarily in oil and gas exploration, development
and production and is not involved in any industry segment other than oil and
gas. See "Item 6. Selected Financial Data" and "Item 8. Financial Statements and
Supplementary Data" of this report for a summary of the Partnership's revenue,
income and identifiable assets.
The principal markets during 1998 for the oil produced by the Partnership
were refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. The principal markets for the
Partnership's gas were companies that have pipelines located near the
Partnership's gas producing properties. Of the Partnership's total oil and gas
revenues for 1998, approximately 65%, 13% and 10% were attributable to sales
made to Genesis Crude Oil, L.P., GPM Gas Corporation and Western Gas Resources,
Inc., respectively.
The Partnership's revenues, profitability, cash flow and future rate of
growth are highly dependent on the prevailing prices of oil and gas, which are
affected by numerous factors beyond the Partnership's control. Oil and gas
prices historically have been very volatile. A substantial or extended decline
in the prices of oil or gas could have a material adverse effect on the
Partnership's revenues, profitability and cash flow and could, under certain
circumstances, result in a reduction in the carrying value of the Partnership's
oil and gas properties.
Because of the demand for oil and gas, the Partnership does not believe
that the termination of the sales of its products to any one customer would have
a material adverse impact on its operations. The loss of a particular customer
for gas may have an effect if that particular customer has the only gas pipeline
located in the areas of the Partnership's gas producing properties. The
Partnership believes, however, that the effect would be temporary, until
alternative arrangements could be made.
1
<PAGE> 137
Federal and state regulation of oil and gas operations generally includes
the fixing of maximum prices for regulated categories of natural gas, the
imposition of maximum allowable production rates, the taxation of income and
other items, and the protection of the environment. Although the Partnership
believes that its business operations do not impair environmental quality and
that its costs of complying with any applicable environmental regulations are
not currently significant, the Partnership cannot predict what, if any, effect
these environmental regulations may have on its current or future operations.
The Partnership does not have any employees of its own. Pioneer USA employs
818 persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this report is filed. Pioneer
USA supplies all management functions.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the
Partnership conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist primarily of leasehold interests in
properties on which oil and gas wells are located. Such property interests are
often subject to landowner royalties, overriding royalties and other oil and gas
leasehold interests.
Fractional working interests in developmental and exploratory oil and gas
prospects located in Texas and New Mexico were acquired by the Partnership,
resulting in the Partnership's participation in the drilling of 34 oil and gas
wells. There were six dry holes from previous periods, two wells plugged and
abandoned and nine wells sold. At December 31, 1998, 17 wells were producing.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 1998, 1997 and 1996 and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been estimated by the engineering staff of Pioneer USA with a review by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
2
<PAGE> 138
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 8, 1999, the Partnership had 4,891 outstanding limited partnership
interests held of record by 612 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are
not required to meet the Partnership's obligations are distributed to the
partners at least quarterly in accordance with the limited partnership
agreement. During the years ended December 31, 1998 and 1997, distributions of
$95,712 and $231,378, respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Oil and gas sales............. $ 392,883 $ 608,207 $ 710,173 $ 613,929 $ 636,470
========= ========== ========== ========== ==========
Litigation settlement, net.... $ -- $ -- $ 43,618 $ -- $ --
========= ========== ========== ========== ==========
Impairment of oil and gas
properties................. $ 294,610 $ 165,201 $ 2,277 $ 20,719 $ --
========= ========== ========== ========== ==========
Net income (loss)............. $(563,993) $ (60,847) $ 312,582 $ 34,081 $ 102,033
========= ========== ========== ========== ==========
Allocation of net income
(loss):
General partners........... $ (49,472) $ 31,736 $ 92,811 $ 35,122 $ 45,462
========= ========== ========== ========== ==========
Limited partners........... $(514,521) $ (92,583) $ 219,771 $ (1,041) $ 56,571
========= ========== ========== ========== ==========
Limited partners' net income
(loss) per limited
partnership interest....... $ (105.20) $ (18.93) $ 44.93 $ (.21) $ 11.57
========= ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest....... $ 19.57 $ 47.31 $ 51.40(a) $ 40.96 $ 31.92
========= ========== ========== ========== ==========
AT YEAR END:
Total assets.................. $ 474,528 $1,158,135 $1,526,765 $1,585,711 $1,786,274
========= ========== ========== ========== ==========
</TABLE>
- ---------------
(a) Including litigation settlement per limited partnership interest of $6.96
in 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1998 compared to 1997
The Partnership's 1998 oil and gas revenues decreased 35% to $392,883 from
$608,207 in 1997. The decrease in revenues resulted from lower average prices
received. In 1998, 19,150 barrels of oil, 6,748 barrels of natural gas liquids
("NGLs") and 48,971 mcf of gas were sold, or 34,060 barrel of oil equivalents
("BOEs"). In 1997, 20,742 barrels of oil, 2,902 barrels of NGLs and 66,728 mcf
of gas were sold, or 34,765 BOEs. Due to the decline characteristics of the
Partnership's oil and gas properties, management expects a certain amount of
decline in production in the future until the Partnership's economically
recoverable reserves are fully depleted.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. Effective September 30, 1997, as a result
3
<PAGE> 139
of the merger with Mesa, the managing general accounts for processed natural gas
production in two components: natural gas liquids and dry residue gas. As a
result of the change in the managing general partner's policy, the Partnership
now accounts for processed natural gas production as processed natural gas
liquids and dry residue gas. Consequently, separate product volumes will not be
comparable for 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
year ended December 31, 1998 is the price received for dry residue gas and the
price per mcf for natural gas produced prior to October 1997 was presented as a
price for wet gas (i.e., natural gas liquids combined with dry residue gas).
The average price received per barrel of oil decreased $6.36, or 32%, from
$19.68 in 1997 to $13.32 in 1998. The average price received per barrel of NGLs
decreased $5.14, or 42%, from $12.34 in 1997 to $7.20 in 1998. The average price
received per mcf of gas decreased 26% from $2.46 in 1997 to $1.82 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 in 1998.
A gain on disposition of assets of $199 was recognized during 1998 from
post closing adjustments received from the sale of eight oil and gas wells
during 1997. A gain on disposition of assets of $3,621 recognized during 1997
was comprised of $3,174 in equipment credits received on two fully depleted
wells and a $447 gain from the sale of eight oil and gas wells.
Total costs and expenses increased in 1998 to $961,319 as compared to
$678,703 in 1997, an increase of $282,616, or 42%. The increase was primarily
due to increases in depletion and the impairment of oil and gas properties,
offset by declines in general and administrative expenses ("G&A") and production
costs.
Production costs were $336,406 in 1998 and $339,942 in 1997, resulting in a
$3,536 decrease. The decrease was due to a decline in production taxes and lease
operating expenses due to the sale of eight oil and gas wells during the fourth
quarter of 1997, offset by an increase in well maintenance costs incurred in an
effort to stimulate well production.
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, 35% from $22,386 in 1997 to $14,542 in 1998. The
Partnership paid the managing general partner $11,786 in 1998 and $18,246 in
1997 for G&A incurred on behalf of the Partnership. G&A is allocated, in part,
to the Partnership by the managing general partner. Such allocated expenses are
determined by the managing general partner based upon its judgement of the level
of activity of the Partnership relative to the managing general partner's
activities and other entities it manages. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
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"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. Declining commodity prices prompted
impairment reviews in 1998 and 1997. As a result of the review and evaluation of
its long-lived assets for impairment, the Partnership recognized non-cash
charges of $294,610 and $165,201 related to its oil and gas properties during
1998 and 1997, respectively.
Depletion was $315,761 in 1998 compared to $151,174 in 1997, representing
an increase of $164,587. This increase was the result of a combination of
factors that included a decline in proved reserves during 1998 due to the lower
commodity prices, 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 and a reduction in oil production of 1,592 barrels for the period ended
December 31, 1998 compared to the same period in 1997.
4
<PAGE> 140
1997 compared to 1996
The Partnership's 1997 oil and gas revenues decreased 14% to $608,207 from
$710,173 in 1996. The decrease in revenues resulted from declines in production
and lower average prices received. In 1997, 20,742 barrels of oil, 2,902 barrels
of NGLs and 66,728 mcf of gas were sold, or 34,765 BOEs. In 1996, 22,544 barrels
of oil and 85,404 mcf of gas were sold, or 36,778 BOEs.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. As is described above in "Results of
Operations -- 1998 compared to 1997", the Partnership changed its method of
accounting for processed natural gas to a dry gas basis in the fourth quarter of
1997. As a result of this change, the Partnership now accounts for processed
natural gas production as processed natural gas liquids and dry residue gas.
Consequently, 1997 and 1996 separate product volumes are not comparable.
The decreases in production volumes were primarily due to the normal
decline characteristics of the Partnership's oil and gas properties.
The average price received per barrel of oil decreased $2.27, or 10%, from
$21.95 in 1996 to $19.68 in 1997. The average price received per barrel of NGLs
during 1997 was $12.34. The average price received per mcf of gas decreased from
$2.52 in 1996 to $2.46 in 1997.
As is described in "Results of Operations -- 1998 compared to 1997", gain
on disposition of assets of $3,621 was recognized during 1997 from equipment
credits received on two fully depleted wells plugged and abandoned in 1997 and a
gain on the sale of oil and gas wells.
On April 29, 1996, Southmark Corporation, Pioneer USA and the Partnership
entered into a final $7.4 million settlement agreement with Jack N. Price
resolving all outstanding litigation between the parties. As a result, all of
the pending lawsuits and judgments have been dismissed, the supersedeas bond
released, and the Reserve released as collateral. On June 28, 1996, a final
distribution was made to the working interest owners of $43,618 which included
$34,033, or $6.96 per limited partnership interest, to the Partnership and its
partners.
Total costs and expenses increased in 1997 to $678,703 as compared to
$446,662 in 1996, an increase of $232,041, or 52%. The increase was primarily
due to increases in the impairment of oil and gas properties, depletion and
production costs, offset by a decrease in G&A.
Production costs were $339,942 in 1997 and $316,410 in 1996, resulting in a
$23,532 increase, or 7%. The increase was due to an increase in well maintenance
costs.
During this period, G&A decreased, in aggregate, 5% from $23,688 in 1996 to
$22,386 in 1997. The Partnership paid the managing general partner $18,246 in
1997 and $21,308 in 1996 for G&A incurred on behalf of the Partnership.
The Partnership recognized non-cash SFAS 121 impairment provisions of
$165,201 and $2,277 related to its proved oil and gas properties during the
fourth quarters of 1997 and 1996, respectively.
Depletion was $151,174 in 1997 compared to $104,287 in 1996, representing
an increase of $46,887, or 45%. This increase was the result of a decline in oil
reserves during 1997 due to the lower commodity prices.
IMPACT OF INFLATION AND CHANGING PRICES ON SALES AND NET INCOME
Inflation impacts the fixed overhead rate charges of the lease operating
expenses for the Partnership. During 1998, the annual change in the index of
average weekly earnings of crude petroleum and gas production workers issued by
the U.S. Department of Labor, Bureau of Labor Statistics increased (effective
April 1, 1998) 10.3%. The 1997 annual change in average weekly earnings
increased by 2%. The 1996 index increased 4.1%. The impact of inflation for
other lease operating expenses is small due to the current economic condition of
the oil industry.
5
<PAGE> 141
The oil and gas industry experienced volatility during the past decade
because of the fluctuation of the supply of most fossil fuels relative to the
demand for such products and other uncertainties in the world energy markets
causing significant fluctuations in oil and gas prices. During 1998, the price
per barrel for oil production similar to the Partnership's ranged from
approximately $9.50 to $15.50. During most of 1997 and 1996, 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 March 1999. On March 8, 1999, the market price for West Texas intermediate
crude was $11.00 per barrel. A continuation of the current commodity price
environment will continue to have an adverse effect on the Partnership's
revenues, operating cash flow and distributions and could result in additional
decreases in the carrying value of the Partnership's oil and gas properties.
Prices for natural gas are subject to ordinary seasonal fluctuations, and
this volatility of natural gas prices may result in production being curtailed
and, in some cases, wells being completely shut-in.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $209,294 during the
year ended December 31, 1998 from 1997. This decrease was primarily due to a
decline in oil and gas sales receipts, offset by a decline in G&A expenses paid.
Net Cash Provided by Investing Activities
The Partnership's principle investing activities during 1998 and 1997 were
related to the replacement of oil and gas equipment on various oil and gas
properties.
Proceeds from asset dispositions of $14,397 were received during 1998 from
the sale of properties during 1997. During 1997, $18,068 were received, of which
$14,198 was received from the sale of eight oil and gas wells, $696 from the
disposal of oil and gas equipment on one fully depleted well included in the
sale and $3,174 from the disposal of equipment on one fully depleted well
plugged and abandoned during 1997.
Net Cash Used in Financing Activities
Cash was sufficient in 1998 for distributions to the partners of $116,427
of which $20,715 was distributed to the general partners and $95,712 to the
limited partners. In 1997, cash was sufficient for distributions to the partners
of $306,509 of which $75,131 was distributed to the general partners and
$231,378 to the limited partners.
The current commodity price environment will continue to impact the
distributions and could result in limited or no distributions to the partners.
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.
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
6
<PAGE> 142
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
at varying stages of completion as it pertains to information technology and
non-information technology applications and systems in the United States, Canada
and Argentina. As of December 31, 1998, the managing general partner estimates
that the assessment phase is approximately 86% complete, on a worldwide basis,
and has included, but is not limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- 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 to
approximately 37% of those inquiries.
The remedial phase of the managing general partner's Year 2000 project is
also at varying 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 December 31, 1998, the
managing general partner estimates that the remedial phase is approximately 54%
complete, on a worldwide basis, subject to the continuing 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 through remedial coding and is currently testing this system for Year
2000 compliance. The remediation of non-information technology is expected to be
completed during July 1999. The managing general partner's Year 2000 remedial
actions have not significantly 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 and non-information technology remediation by the end of the third
quarter of 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. The managing general partner intends to use its working capital to pay
for the costs of the Year 2000 projects. As of December 31, 1998, the managing
general partner's total costs incurred on the Year 2000 problem were $1.8
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 in accordance with the general and
administration allocation. (See Note 2 of Notes to Financial Statements included
in "Item 8. Financial Statements and Supplementary Data".)
7
<PAGE> 143
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 assessment phase of the managing general partner's Year 2000
project, contingency plans are being 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.
8
<PAGE> 144
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Parker & Parsley 82-I, Ltd:
Independent Auditors' Report -- Ernst & Young LLP......... 10
Independent Auditors' Report -- KPMG LLP.................. 11
Balance Sheets as of December 31, 1998 and 1997........... 12
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996.................................... 13
Statements of Partners' Capital for the Years Ended
December 31, 1998, 1997 and 1996....................... 14
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996.................................... 15
Notes to Financial Statements............................. 16
</TABLE>
9
<PAGE> 145
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 82-I, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheet of Parker & Parsley 82-I, Ltd. as of
December 31, 1998, and the related statements of operations, partners' capital
and cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 82-I, Ltd.
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Dallas, Texas
March 15, 1999
10
<PAGE> 146
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 82-I, Ltd.
(A Texas Limited Partnership):
We have audited the financial statements of Parker & Parsley 82-I, Ltd. as
of December 31, 1997, and the related statements of operations, partners'
capital and cash flows for the years ended December 31, 1997 and 1996. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 82-I, Ltd.
as of December 31, 1997, and the results of its operations and its cash flows
for the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
KPMG LLP
Midland, Texas
March 20, 1998
11
<PAGE> 147
PARKER & PARSLEY 82-I, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 44,427 $ 83,286
Accounts receivable:
Oil and gas sales...................................... 36,699 63,698
Other.................................................. -- 14,198
----------- -----------
Total current assets.............................. 81,126 161,182
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 9,885,470 9,878,650
Accumulated depletion....................................... (9,492,068) (8,881,697)
----------- -----------
Net oil and gas properties........................ 393,402 996,953
----------- -----------
$ 474,528 $ 1,158,135
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 12,288 $ 15,475
Partners' capital:
General partners.......................................... 150,932 221,119
Limited partners (4,891 interests)........................ 311,308 921,541
----------- -----------
462,240 1,142,660
----------- -----------
$ 474,528 $ 1,158,135
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 148
PARKER & PARSLEY 82-I, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Revenues:
Oil and gas............................................... $ 392,883 $608,207 $710,173
Interest.................................................. 4,244 6,028 5,453
Gain on disposition of assets............................. 199 3,621 --
Litigation settlement..................................... -- -- 43,618
--------- -------- --------
397,326 617,856 759,244
--------- -------- --------
Costs and expenses:
Oil and gas production.................................... 336,406 339,942 316,410
General and administrative................................ 14,542 22,386 23,688
Impairment of oil and gas properties...................... 294,610 165,201 2,277
Depletion................................................. 315,761 151,174 104,287
--------- -------- --------
961,319 678,703 446,662
--------- -------- --------
Net income (loss)........................................... $(563,993) $(60,847) $312,582
========= ======== ========
Allocation of net income (loss):
General partners.......................................... $ (49,472) $ 31,736 $ 92,811
========= ======== ========
Limited partners.......................................... $(514,521) $(92,583) $219,771
========= ======== ========
Net income (loss) per limited partnership interest.......... $ (105.20) $ (18.93) $ 44.93
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 149
PARKER & PARSLEY 82-I, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Partners' capital at January 1, 1996...................... $258,529 $1,277,125 $1,535,654
Distributions........................................... (86,826) (251,394) (338,220)
Net income.............................................. 92,811 219,771 312,582
-------- ---------- ----------
Partners' capital at December 31, 1996.................... 264,514 1,245,502 1,510,016
Distributions........................................... (75,131) (231,378) (306,509)
Net income (loss)....................................... 31,736 (92,583) (60,847)
-------- ---------- ----------
Partners' capital at December 31, 1997.................... 221,119 921,541 1,142,660
Distributions........................................... (20,715) (95,712) (116,427)
Net loss................................................ (49,472) (514,521) (563,993)
-------- ---------- ----------
Partners' capital at December 31, 1998.................... $150,932 $ 311,308 $ 462,240
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 150
PARKER & PARSLEY 82-I, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $(563,993) $ (60,847) $ 312,582
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Impairment of oil and gas properties................. 294,610 165,201 2,277
Depletion............................................ 315,761 151,174 104,287
Gain on disposition of assets........................ (199) (3,621) --
Changes in assets and liabilities:
Accounts receivable.................................. 26,999 28,652 (43,962)
Accounts payable..................................... (3,187) (1,274) (34,164)
--------- --------- ---------
Net cash provided by operating activities....... 69,991 279,285 341,020
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties..................... (6,820) (2,089) --
Proceeds from asset dispositions........................ 14,397 18,068 7,841
--------- --------- ---------
Net cash provided by investing activities....... 7,577 15,979 7,841
--------- --------- ---------
Cash flows from financing activities:
Cash distributions to partners.......................... (116,427) (306,509) (338,220)
--------- --------- ---------
Net increase (decrease) in cash........................... (38,859) (11,245) 10,641
Cash at beginning of year................................. 83,286 94,531 83,890
--------- --------- ---------
Cash at end of year....................................... $ 44,427 $ 83,286 $ 94,531
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 151
PARKER & PARSLEY 82-I, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 82-I, Ltd. (the "Partnership") is a limited partnership
organized in 1982 under the laws of the State of Texas. On August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership, joining the existing general partner, P&P Employees
82-I, Ltd. ("EMPL"), a Texas limited partnership whose general partner is
Pioneer USA, and 4,891 limited partnership interests as of March 8, 1999. Prior
to August 8, 1997, the Partnership's managing general partner and the general
partner of EMPL was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. received shareholder approval to merge
and create Pioneer Natural Resources Company ("Pioneer"). On August 8, 1997,
PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership and the general partner of EMPL as PPDLP's successor by merger.
The Partnership engages primarily in oil and gas exploration, development
and production in Texas and New Mexico and is not involved in any industry
segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties -- The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as determined by the engineering staff of Pioneer
USA, the Partnership's managing general partner, and reviewed by independent
petroleum consultants. The carrying amounts of properties sold or otherwise
disposed of and the related allowances for depletion are eliminated from the
accounts and any gain or loss is included in operations.
Impairment of long-lived assets -- 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"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -- Preparation
of the accompanying financial statements 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 reporting amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest -- The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
16
<PAGE> 152
PARKER & PARSLEY 82-I, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes -- A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows -- For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses -- General and administrative expenses
are allocated in part to the Partnership by the managing general partner or its
affiliates. Such allocated expenses are determined by the managing general
partner based upon its judgement of the level of activity of the Partnership
relative to the managing general partner's activities and other entities it
manages. The method of allocation has been consistent over the past several
years with certain modifications incorporated to reflect changes in Pioneer
USA's overall business activities.
Reclassifications -- Certain reclassifications may have been made to the
1997 and 1996 financial statements to conform to the 1998 financial statement
presentation.
Environmental -- The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 1998.
Revenue recognition -- The Partnership uses the entitlements method of
accounting for crude oil and natural gas revenues.
Reporting comprehensive income -- Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes
standards for the reporting and display of comprehensive income (loss) and its
components in a full set of general purpose financial statements. Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss).
The Partnership has no items of other comprehensive income (loss), as defined by
SFAS No. 130. Consequently, the provisions of SFAS No. 130 do not apply to the
Partnership.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. Based upon a decline in the Partnership's outlook for future
commodity prices, the Partnership has estimated the expected future cash flows
of its oil and gas properties as of December 31, 1998, 1997 and 1996, and
compared such estimated future cash flows to the respective carrying amount of
the oil and gas properties to determine if the carrying amounts were likely to
be recoverable. For those proved oil and gas properties for which the carrying
amount exceeded the estimated future cash flows, an impairment was determined to
exist; therefore, the Partnership adjusted the carrying amount of those oil and
gas properties to their fair value as determined by discounting their expected
future cash flows at a discount rate commensurate with the risks involved in the
industry. As a result, the Partnership recognized non-cash impairment provisions
of $294,610, $165,201 and $2,277 related to its proved oil and gas properties
during 1998, 1997 and 1996, respectively.
17
<PAGE> 153
PARKER & PARSLEY 82-I, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $549,986 less than the tax basis at December 31, 1998.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Net income (loss) per statements of operations...... $(563,993) $(60,847) $312,582
Depletion and depreciation provisions for tax
reporting purposes less than amounts for financial
reporting purposes................................ 312,201 150,206 100,718
Impairment of oil and gas properties for financial
reporting purposes................................ 294,610 165,201 2,277
Gain on disposition of assets....................... (116) 14,447 7,232
Other, net.......................................... 786 (6,327) 659
--------- -------- --------
Net income per Federal income tax
returns................................. $ 43,488 $262,680 $423,468
========= ======== ========
</TABLE>
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ -------
<S> <C> <C> <C>
Development costs......................................... $6,820 $1,855 $(6,985)
====== ====== =======
</TABLE>
Capitalized oil and gas properties consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Proved properties:
Property acquisition costs............................... $ 360,899 $ 360,899
Completed wells and equipment............................ 9,524,571 9,517,751
----------- -----------
9,885,470 9,878,650
Accumulated depletion...................................... (9,492,068) (8,881,697)
----------- -----------
Net capitalized costs............................ $ 393,402 $ 996,953
=========== ===========
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $150,391 $146,626 $137,520
Reimbursement of general and administrative
expenses........................................... $ 11,786 $ 18,246 $ 21,308
</TABLE>
18
<PAGE> 154
PARKER & PARSLEY 82-I, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Pioneer USA, EMPL and the Partnership are parties to the Partnership
agreement. EMPL is a limited partnership in which Pioneer USA owns 77.5% and the
remaining portion is owned by former affiliates. In addition, Pioneer USA owned
594 limited partner interests at January 1, 1999.
The costs and revenues of the Partnership are allocated as follows:
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS
-------- --------
<S> <C> <C>
Revenues:
Proceeds from property dispositions prior to cost
recovery............................................... 10% 90%
All other Partnership revenues............................ 25% 75%
Costs and expenses:
Lease acquisition costs, drilling and completion costs.... 10% 90%
Operating costs, direct costs and general and
administrative expenses................................ 25% 75%
</TABLE>
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 1998, 1997 and 1996 and
changes in such quantities during the years then ended. Due to a change in the
accounting policy of the managing general partner in 1997, the Partnership began
accounting for processed natural gas production in two components: processed
natural gas liquids ("NGLs") and dry residue gas. NGLs are reflected in "Oil and
NGLs" in the table below. All of the Partnership's reserves are proved developed
and located within the United States. The Partnership's reserves are based on an
evaluation prepared by the engineering staff of Pioneer USA and reviewed by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant,
using criteria established by the Securities and Exchange Commission. Reserve
value information is available to limited partners pursuant to the Partnership
agreement and, therefore, is not presented.
<TABLE>
<CAPTION>
OIL AND NGLS GAS
(BBLS) (MCF)
------------ ---------
<S> <C> <C>
Net proved reserves at January 1, 1996...................... 335,301 1,294,119
Revisions................................................... (30,088) (179,795)
Production.................................................. (22,544) (85,404)
-------- ---------
Net proved reserves at December 31, 1996.................... 282,669 1,028,920
Revisions................................................... 68,237 (494,786)
Sale of reserves............................................ (5,785) (19,359)
Production.................................................. (23,644) (66,728)
-------- ---------
Net proved reserves at December 31, 1997.................... 321,477 448,047
Revisions................................................... (230,755) (305,609)
Production.................................................. (25,898) (48,971)
-------- ---------
Net proved reserves at December 31, 1998.................... 64,824 93,467
======== =========
</TABLE>
As of December 31, 1998, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 1998 prices of $10.35 per
barrel of oil, $6.09 per barrel of NGLs and $1.48 per mcf of gas, discounted at
10% was approximately $66,000 and undiscounted was $77,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The
19
<PAGE> 155
PARKER & PARSLEY 82-I, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Partnership emphasizes that reserve estimates are inherently imprecise and,
accordingly, the estimates are expected to change as future information becomes
available.
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Genesis Crude Oil, L.P. .................................... 65% 65% 67%
GPM Gas Corporation......................................... 13% 10% 10%
Western Gas Resources, Inc. ................................ 10% 9% 8%
</TABLE>
At December 31, 1998, the amounts receivable from Genesis Crude Oil, L.P.,
GPM Gas Corporation and Western Gas Resources, Inc. were $13,887, $10,238 and
$6,244, respectively, which are included in the caption "Accounts
receivable -- oil and gas sales" in the accompanying Balance Sheet.
The Partnership's share of oil and gas production is sold to various
purchasers. Pioneer USA is of the opinion that the loss of any one purchaser
would not have an adverse effect on the ability of the Partnership to sell its
oil and gas production.
NOTE 9. ORGANIZATION AND OPERATIONS
The Partnership was organized June 1, 1982 as a limited partnership under
the Texas Uniform Limited Partnership Act for the purpose of acquiring and
developing oil and gas properties. The following is a brief summary of the more
significant provisions of the limited partnership agreement:
General partners -- The general partners of the Partnership are
Pioneer USA and EMPL. Pioneer USA, the managing general partner, has the
power and authority to manage, control and administer all Partnership
affairs. As managing general partner and operator of the Partnership's
properties, all production expenses are incurred by Pioneer USA and billed
to the Partnership and a portion of revenue is initially received by
Pioneer USA prior to being paid to the Partnership.
Limited partner liability -- The maximum amount of liability of any
limited partner is the total contributions of such partner plus his share
of any undistributed profits.
Initial capital contributions -- The limited partners entered into
subscription agreements for aggregate capital contributions of $9,782,000.
During 1985, the Partnership received a total of $1,372,500 from its
limited partners in response to an assessment called by the general
partner. Additionally, $650,000 was contributed by the managing general
partner for limited partnership interests on unpaid assessments of which
$500,000 was paid in 1985 and $150,000 in 1986. The general partners are
required to contribute amounts equal to 10% of Partnership expenditures for
lease acquisition, drilling and completion and 25% of direct, general and
administrative and operating expenses, and by agreement must maintain a
calculated minimum capital balance.
20
<PAGE> 156
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and
executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve
until the next annual meeting of stockholders or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31,
NAME 1998 POSITION
- ---- ------------ --------
<S> <C> <C>
Scott D. Sheffield................... 46 President and Director
Timothy L. Dove...................... 42 Executive Vice President and Director
Dennis E. Fagerstone................. 49 Executive Vice President and Director
Mark L. Withrow...................... 51 Executive Vice President, General Counsel
and Director
M. Garrett Smith..................... 37 Executive Vice President, Chief Financial
Officer and Director
Mel Fischer(a)....................... 64 Executive Vice President
Lon C. Kile.......................... 43 Executive Vice President
Rich Dealy........................... 32 Vice President and Chief Accounting
Officer
</TABLE>
- ---------------
(a) Mr. Fischer was a director and officer until his retirement from Pioneer
and Pioneer USA on February 15, 1999.
Scott D. Sheffield. Mr. Sheffield is a distinguished graduate of The
University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he
has served as President, Chief Executive Officer and a director of Pioneer and
President and a director of Pioneer USA. Mr. Sheffield was the President and a
director of Parker & Parsley from May 1990 until August 1997 and was the
Chairman of the Board and Chief Executive Officer of Parker & Parsley from
October 1990 until August 1997. He was the sole director of Parker & Parsley
from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley
Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum
engineer in 1979. He served as Vice President -- Engineering of PPDC from
September 1981 until April 1985 when he was elected President and a director. In
March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive
Officer of PPDC. Before joining PPDC, Mr. Sheffield was employed as a production
and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President -- Business
Development of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. Mr. Dove joined Parker & Parsley in May
1994 as Vice President -- International and was promoted to Senior Vice
President -- Business Development in October 1996, in which position he served
until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with
Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various
capacities in international exploration and production, marketing, refining and
marketing and planning and development. Mr. Dove earned a B.S. in Mechanical
21
<PAGE> 157
Engineering from Massachusetts Institute of Technology in 1979 and received his
M.B.A. in 1981 from the University of Chicago.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of Mesa from March 1, 1997 until August 1997. From October
1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief
Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice
President -- Exploration and Production of Mesa. From June 1988 to May 1991, Mr.
Fagerstone served as Vice President -- Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President -- General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President -- General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
M. Garrett Smith. Mr. Smith, a graduate of The University of Texas with a
B.S. in Electrical Engineering and Southern Methodist University with an M.B.A.,
was appointed Executive Vice President and Chief Financial Officer of Pioneer in
December 1997. He served as Senior Vice President -- Finance of Pioneer from
August 1997 until December 1997. Mr. Smith was elected Senior Vice President --
Finance and a director of Pioneer USA in August 1997. He served as Vice
President -- Corporate Acquisitions of Mesa from January 1997 until August 1997.
From October 1996 to December 1996, Mr. Smith served as Vice
President -- Finance of Mesa and from 1994 to 1996 he served as Director of
Financial Planning of Mesa. Mr. Smith was employed by BTC Partners, Inc. (a
former financial advisor to Mesa) from 1989 to 1994.
Mel Fischer. Mr. Fischer, a graduate of the University of California at
Berkeley with a Masters degree in Geology, became Executive Vice
President -- Worldwide Exploration of Pioneer and Pioneer USA in August 1997. He
served as a director of Parker & Parsley from November 1995 until August 1997
and was Executive Vice President -- Worldwide Exploration for Parker & Parsley
from February 1997 to August 1997. Mr. Fischer retired from Pioneer and Pioneer
USA effective February 15, 1999. He worked in the petroleum industry for 32
years, starting as a Petroleum Geologist with Texaco in 1962, and retiring as
President, Occidental International Exploration and Production Company in March
1994. For the 10 years prior to becoming President of Occidental International,
he served as Executive Vice President, World Wide Exploration with Occidental
Oil and Gas Corporation. He is a registered geologist in the State of
California, a member of the American Association of Petroleum Geologists and an
emeritus member of the Board of Advisors for the Earth Sciences Research
Institute at the University of Utah.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a
B.B.A. in Accounting, became Executive Vice President of Pioneer and Pioneer USA
in August 1997. Mr. Kile was Senior Vice President -- Investor Relations from
October 1996 to August 1997. Previously, he served as Vice President and Manager
of the Mid-Continent Division, Vice President -- Equity Finance & Analysis and
Vice President -- Marketing & Program Administration. Prior to joining Parker &
Parsley in 1985, he was employed as Supervisor -- Senior, Audit, in charge of
Parker & Parsley's audit, with Arthur Young.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a
B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became
Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
22
<PAGE> 158
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is vested in Pioneer USA, the managing general partner. Under the
Partnership agreement, Pioneer USA pays 8% of the Partnership's acquisition,
drilling and completion costs and 20% of its operating and general and
administrative expenses. In return, Pioneer USA is allocated 20% of the
Partnership's revenues. See Notes 6 and 9 of Notes to Financial Statements
included in "Item 8. Financial Statements and Supplementary Data" for
information regarding fees and reimbursements paid to the managing general
partner or its affiliates by the Partnership.
EMPL is a co-general partner of the Partnership. Under this arrangement,
EMPL pays 2% of the Partnership's acquisition, drilling and completion costs and
5% of its operating and general and administrative expenses. In return, EMPL is
allocated 5% of the Partnership's revenues. EMPL does not receive any fees or
reimbursements from the Partnership.
The Partnership does not directly pay any salaries of the executive
officers of Pioneer USA, but does pay a portion of Pioneer USA's general and
administrative expenses of which these salaries are a part. See Note 6 of Notes
to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more
of the outstanding limited partnership interests of the Partnership. Pioneer USA
and EMPL respectively own 80% and 20% of the general partners' interests in the
Partnership. Pioneer USA owned 594 limited partner interests at January 1, 1999.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing
general partner of the Partnership, Pioneer USA, has the exclusive right and
full authority to manage, control and administer the Partnership's business.
Under the limited partnership agreement, limited partners holding a majority of
the outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner or its affiliates
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $150,391 $146,626 $137,520
Reimbursement of general and administrative
expenses........................................... $ 11,786 $ 18,246 $ 21,308
</TABLE>
Under the limited partnership agreement, the general partners, Pioneer USA
and EMPL, together pay 10% of Partnership's acquisition, drilling and completion
costs and 25% of its operating and general and administrative expenses. In
return, they are allocated 25% of the Partnership's revenues. Twenty percent of
the general partners' share of costs and revenues is allocated to EMPL and the
remainder is allocated to Pioneer USA. Certain former affiliates of Pioneer USA
are limited partners of EMPL. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary
23
<PAGE> 159
Data" regarding the Partnership's participation with the managing general
partner in oil and gas activities of the Partnership.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial statements
The following are filed as part of this annual report:
Independent Auditors' Report -- Ernst & Young LLP
Independent Auditors' Report -- KPMG LLP
Balance sheets as of December 31, 1998 and 1997
Statements of operations for the years ended December 31, 1998, 1997
and 1996
Statements of partners' capital for the years ended December 31, 1998,
1997 and 1996
Statements of cash flows for the years ended December 31, 1998, 1997
and 1996
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this annual report.
24
<PAGE> 160
SIGNATURES
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 82-I, LTD.
By: Pioneer Natural Resources USA,
Inc.
Managing General Partner
By: /s/ SCOTT D. SHEFFIELD
----------------------------------
Scott D. Sheffield,
President
Dated: March 23, 1999
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 date indicated.
<TABLE>
<C> <S> <C>
/s/ SCOTT D. SHEFFIELD President and Director of March 23, 1999
- ----------------------------------------------------- Pioneer USA
Scott D. Sheffield
/s/ TIMOTHY L. DOVE Executive Vice President and March 23, 1999
- ----------------------------------------------------- Director of Pioneer USA
Timothy L. Dove
/s/ DENNIS E. FAGERSTONE Executive Vice President and March 23, 1999
- ----------------------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ MARK L. WITHROW Executive Vice President, March 23, 1999
- ----------------------------------------------------- General Counsel and Director
Mark L. Withrow of Pioneer USA
/s/ M. GARRETT SMITH Executive Vice President, March 23, 1999
- ----------------------------------------------------- Chief Financial Officer and
M. Garrett Smith Director of Pioneer USA
/s/ LON C. KILE Executive Vice President of March 23, 1999
- ----------------------------------------------------- Pioneer USA
Lon C. Kile
/s/ RICH DEALY Vice President and Chief March 23, 1999
- ----------------------------------------------------- Accounting Officer of
Rich Dealy Pioneer USA
</TABLE>
25
<PAGE> 161
PARKER & PARSLEY 82-I, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1 -- Agreement of Limited Partnership of Parker & Parsley
82-I, Ltd. incorporated by reference to Exhibit 4(e) of
Partnership's Registration Statement on Form S-1
(Registration No. 2-75503A), as amended on February 4,
1982, the effective date thereof (hereinafter called, the
Partnership's Registration Statement)
3.2 -- Amended and Restated Certificate of Limited Partnership
of Parker & Parsley 82-I, Ltd. incorporated by reference
to Exhibit 3.2 of the Partnership's Annual Report on Form
10-K for the year ended December 31, 1983
4.1 -- Form of Subscription Agreement and Power of Attorney
incorporated by reference to Exhibit 4(b) of the
Partnership's Registration Statement
4.2 -- Specimen Certificate of Limited Partnership Interest
incorporated by reference to Exhibit 4(d) of the
Partnership's Registration Statement
27.1* -- Financial Data Schedule
99.1 -- Mutual Release and Indemnity Agreement dated May 25, 1993
incorporated by reference to Exhibit 99.1 of the
Partnership's Annual Report on Form 10-K for the year
ended December 31, 1993
</TABLE>
- ---------------
* filed herewith
<PAGE> 162
PARKER & PARSLEY 82-I, LTD.
(A TEXAS LIMITED PARTNERSHIP)
DECEMBER 31, 1998, 1997 AND 1996
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. Future income taxes are calculated by comparing
discounted future cash flows to the tax basis of oil and gas properties plus
available carryforwards and credits and applying the current tax rates to the
difference.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and gas producing activities:
Future cash inflows....................................... $ 701 $ 6,060 $11,000
Future production costs................................... (624) (4,119) (6,801)
Future development costs.................................. -- -- 110
------- ------- -------
77 1,941 4,309
10% annual discount factor................................ (11) (762) (1,913)
------- ------- -------
Standardized measure of discounted future net cash
flows.................................................. $ 66 $ 1,179 $ 2,396
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1998 1997 1996
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs................ $ (56) $ (268) $ (394)
Net changes in prices and production costs................ (898) (1,034) 1,130
Extensions and discoveries................................ -- -- --
Sales of minerals-in-place................................ -- (40) --
Purchases of minerals-in-place............................ -- -- --
Revisions of estimated future development costs........... -- (67) (61)
Revisions of previous quantity estimates and reserves
added by development drilling.......................... (164) (39) (309)
Accretion of discount..................................... 118 240 186
Changes in production rates, timing and other............. (113) (9) (17)
------- ------- ------
Change in present value of future net revenues............ (1,113) (1,217) 535
------- ------- ------
Balance, beginning of year................................ 1,179 2,396 1,861
------- ------- ------
Balance, end of year...................................... $ 66 $ 1,179 $2,396
======= ======= ======
</TABLE>
<PAGE> 163
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 82-II, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT DATED , 1999
----------------------
THE DATE OF THIS SUPPLEMENT IS , 1999
----------------------
This document contains important information specific to Parker & Parsley
82-II, Ltd. and supplements the proxy statement dated , 1999, of
Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies
to be voted at a special meeting of limited partners of the partnerships
described in the proxy statement. The purpose of the special meeting is for you
to vote upon the merger of Parker & Parsley 82-II, Ltd. with and into Pioneer
USA that, if completed, will result in your receiving cash for your partnership
interests.
This supplement contains the following information concerning Parker &
Parsley 82-II, Ltd.:
- A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through June
30, 1999
-- the merger value per $1,000 limited partner investment as of June 30,
1999
-- the merger value per $1,000 limited partner investment as a multiple
of distributions for the 12 months ended June 30, 1999
-- the book value per $1,000 limited partner investment as of June 30,
1999 and as of December 31, 1998 and
-- the ordinary tax loss per $1,000 limited partner investment in year
of initial investment
- Quarterly Report on Form 10-Q for the six months ended June 30, 1999
- Annual Report on Form 10-K for the year ended December 31, 1998
- Disclosures about the partnership's oil and gas producing activities
<PAGE> 164
PARKER & PARSLEY 82-II, LTD.
SUPPLEMENTAL INFORMATION TABLE
<TABLE>
<S> <C>
Aggregate Initial Investment by the Limited Partners(a)..... $12,252
Aggregate Historical Limited Partner Distributions through
June 30, 1999(a).......................................... $13,478
Merger Value per $1,000 Limited Partner Investment as of
June 30, 1999(b).......................................... $ 57.41
Merger Value per $1,000 Limited Partner Investment as a
Multiple of Distributions for the 12 Months ended June 30,
1999(b)................................................... 3.15times
Book Value per $1,000 Limited Partner Investment:
-- as of June 30, 1999(b)................................. $ 68.24
-- as of December 31, 1998(b)............................. $ 69.49
Ordinary Tax Loss per $1,000 Limited Partner Investment in
Year of Initial Investment(b), (c)........................ $ 448
</TABLE>
- ---------------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as any
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
<PAGE> 165
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JUNE 30, 1999
COMMISSION FILE NO. 2-75530B
PARKER & PARSLEY 82-II, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-1867115
(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)
</TABLE>
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> 166
PARKER & PARSLEY 82-II, LTD.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1999 and December 31,
1998..................................................
3
Statements of Operations for the three and six months
ended June 30, 1999 and 1998..........................
4
Statement of Partners' Capital for the six months ended
June 30, 1999.........................................
5
Statements of Cash Flows for the six months ended June
30, 1999 and 1998.....................................
6
Notes to Financial Statements..........................
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................
8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K....................
11
27.1 Financial Data Schedule
Signatures.............................................
12
</TABLE>
2
<PAGE> 167
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER & PARSLEY 82-II, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 74,244 $ 64,274
Accounts receivable -- oil and gas sales.................. 58,393 36,762
----------- -----------
Total current assets.............................. 132,637 101,036
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 8,433,646 8,434,066
Accumulated depletion....................................... (7,599,658) (7,563,712)
----------- -----------
Net oil and gas properties........................ 833,988 870,354
----------- -----------
$ 966,625 $ 971,390
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 16,030 $ 9,153
Partners' capital:
General partners.......................................... 114,527 110,889
Limited partners (6,126 interests)........................ 836,068 851,348
----------- -----------
950,595 962,237
----------- -----------
$ 966,625 $ 971,390
=========== ===========
</TABLE>
The financial information included as of June 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
<PAGE> 168
PARKER & PARSLEY 82-II, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas...................................... $108,222 $106,337 $179,090 $215,630
Interest......................................... 711 3,470 1,383 6,660
Gain on disposition of assets.................... -- 1,281 -- 1,281
-------- -------- -------- --------
108,933 111,088 180,473 223,571
-------- -------- -------- --------
Costs and expenses:
Oil and gas production........................... 75,482 76,077 137,257 139,621
General and administrative....................... 3,741 3,151 6,568 7,166
Depletion........................................ 14,408 49,684 35,946 74,280
-------- -------- -------- --------
93,631 128,912 179,771 221,067
-------- -------- -------- --------
Net income (loss).................................. $ 15,302 $(17,824) $ 702 $ 2,504
======== ======== ======== ========
Allocation of net income (loss):
General partners................................. $ 6,110 $ 2,805 $ 5,866 $ 11,535
======== ======== ======== ========
Limited partners................................. $ 9,192 $(20,629) $ (5,164) $ (9,031)
======== ======== ======== ========
Net income (loss) per limited partnership
interest......................................... $ 1.50 $ (3.36) $ (.84) $ (1.47)
======== ======== ======== ========
Distributions per limited partnership interest..... $ -- $ 3.80 $ 1.65 $ 13.20
======== ======== ======== ========
</TABLE>
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> 169
PARKER & PARSLEY 82-II, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1, 1999.................................. $110,889 $851,348 $962,237
Distributions............................................. (2,228) (10,116) (12,344)
Net income (loss)......................................... 5,866 (5,164) 702
-------- -------- --------
Balance at June 30, 1999.................................... $114,527 $836,068 $950,595
======== ======== ========
</TABLE>
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> 170
PARKER & PARSLEY 82-II, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 702 $ 2,504
Adjustments to reconcile net income to net cash provided
by operating activities:
Depletion.............................................. 35,946 74,280
Gain on disposition of assets.......................... -- (1,281)
Changes in assets and liabilities:
Accounts receivable.................................... (21,631) 8,286
Accounts payable....................................... 6,877 (1,940)
-------- ---------
Net cash provided by operating activities......... 21,894 81,849
-------- ---------
Cash flows from investing activities:
Additions to oil and gas properties....................... -- (4,224)
Proceeds from asset dispositions.......................... 420 153,683
-------- ---------
Net cash provided by investing activities......... 420 149,459
-------- ---------
Cash flows used in financing activities:
Cash distributions to partners............................ (12,344) (104,005)
-------- ---------
Net increase in cash........................................ 9,970 127,303
Cash at beginning of period................................. 64,274 151,079
-------- ---------
Cash at end of period....................................... $ 74,244 $ 278,382
======== =========
</TABLE>
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> 171
PARKER & PARSLEY 82-II, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 82-II, Ltd. (the "Partnership") is a limited partnership
organized in 1982 under the laws of the State of Texas.
The Partnership engages primarily in oil and gas exploration, development
and production in Texas and New Mexico 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 June 30, 1999 and for the three and six months ended June 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. However, 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.
7
<PAGE> 172
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
RESULTS OF OPERATIONS
Six months ended June 30, 1999 compared with six months ended June 30, 1998
Revenues:
The Partnership's oil and gas revenues decreased 17% to $179,090 from
$215,630 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from lower average prices received and a decline
in production. For the six months ended June 30, 1999, 8,806 barrels of oil,
4,288 barrels of natural gas liquids ("NGLs") and 20,236 mcf of gas were sold,
or 16,467 barrel of oil equivalents ("BOEs"). For the six months ended June 30,
1998, 10,417 barrels of oil, 4,340 barrels of NGLs and 22,148 mcf of gas were
sold, or 18,448 BOEs.
The average price received per barrel of oil decreased 5% from $13.87 for
the six months ended June 30, 1998 to $13.16 for the same period in 1999. The
average price received per barrel of NGLs decreased 6% from $7.79 during the six
months ended June 30, 1998 to $7.36 for the same period in 1999. The average
price received per mcf of gas decreased 7% from $1.68 during the six months
ended June 30, 1998 to $1.56 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 six months ended June 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 $1,281 was recognized during the six
months ended June 30, 1998 from post closing adjustments received from the sale
of six oil and wells and an overriding royalty interest in one well during 1997.
Costs and Expenses:
Total costs and expenses decreased to $179,771 for the six months ended
June 30, 1999 as compared to $221,067 for the same period in 1998, a decrease of
$41,296, or 19%. This decrease was due to declines in depletion, production
costs and general and administrative expenses ("G&A").
Production costs were $137,257 for the six months ended June 30, 1999 and
$139,621 for the same period in 1998 resulting in a $2,364 decrease. The
decrease was due to declines in production taxes and ad valorem taxes, offset by
an increase in well maintenance costs incurred in an effort to stimulate well
production.
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, 8% from $7,166 for the six months ended June 30, 1998
to $6,568 for the same period in 1999.
Depletion was $35,946 for the six months ended June 30, 1999 compared to
$74,280 for the same period in 1998, a decrease of $38,334, or 52%. This
decrease was attributable to an increase in proved reserves during the period
ended June 30, 1999 due to higher commodity prices, a reduction in oil
production of 1,611 barrels for the six months ended June 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> 173
Three months ended June 30, 1999 compared with three months ended June 30,
1998
Revenues:
The Partnership's oil and gas revenues increased slightly to $108,222 from
$106,337 for the three months ended June 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 June 30, 1999, 4,571 barrels
of oil, 2,585 barrels of NGLs and 10,688 mcf of gas were sold, or 8,937 BOEs.
For the three months ended June 30, 1998, 5,384 barrels of oil, 2,165 barrels of
NGLs and 11,027 mcf of gas were sold, or 9,387 BOEs.
The average price received per barrel of oil increased $1.54, or 12%, from
$13.11 for the three months ended June 30, 1998 to $14.65 for the three months
ended June 30, 1999. The average price received per barrel of NGLs increased
10%, from $8.02 during the three months ended June 30, 1998 to $8.83 for the
three months ended June 30, 1999. The average price received per mcf of gas
increased 3% to $1.72 during the three months ended June 30, 1999 from $1.67
during the same period in 1998.
A gain on disposition of assets of $1,281 was recognized during the three
months ended June 30, 1998 from post closing adjustments received from the sale
of six oil and wells and an overriding royalty interest in one well during 1997.
Costs and Expenses:
Total costs and expenses decreased to $93,631 for the three months ended
June 30, 1999 as compared to $128,912 for the same period in 1998, a decrease of
$35,281, or 27%. This decrease was due to declines in depletion and production
costs, offset by an increase in G&A.
Production costs were $75,482 for the three months ended June 30, 1999 and
$76,077 for the same period in 1998 resulting in a $595 decrease. The decrease
was due to declines in ad valorem and production taxes, offset by an increase in
well maintenance costs incurred in an effort to stimulate well production.
During this period, G&A increased, in aggregate, 19% from $3,151 for the
three months ended June 30, 1998 to $3,741 for the same period in 1999.
Depletion was $14,408 for the three months ended June 30, 1999 compared to
$49,684 for the same period in 1998, a decrease of $35,276, or 71%. This
decrease was attributable to an increase in proved reserves during the period
ended June 30, 1999 as a result of higher commodity prices, a reduction in oil
production of 813 barrels for the three months ended June 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.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $59,955 during the six
months ended June 30, 1999 from the same period ended June 30, 1998. This
decrease was due to a decline in oil and gas sales receipts, offset by decreases
in production costs and G&A expenses paid.
Net Cash Provided by Investing Activities
The Partnership's investing activities during the six months ended June 30,
1998 were related to the addition of oil and gas equipment on active properties.
Proceeds from asset dispositions of $420 were received during the six
months ended June 30, 1999 primarily from equipment credits on active
properties. Proceeds of $153,683 were received during the same period in 1998
from the sale of six oil and gas wells during 1997.
9
<PAGE> 174
Net Cash Used in Financing Activities
Cash was sufficient for the six months ended June 30, 1999 to cover
distributions to the partners of $12,344 of which $2,228 was distributed to the
general partners and $10,116 to the limited partners. For the same period ended
June 30, 1998, cash was sufficient for distributions to the partners of $104,005
of which $23,144 was distributed to the general partners and $80,861 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 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 early indications that the nations have initiated
their planned reductions, have had some stabilizing effect on commodity prices
during the latter part of the first quarter of 1999 and into August 1999.
However, no assurances can be given that the stabilizing effect of these
actions, or the planned reductions in export volumes, will 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.
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 June 30, 1999, the managing general partner estimates that the
assessment phase is approximately 99% complete and has included, but is not
limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- the formulation of contingency plans for mission-critical information
technology systems.
Through June 30, 1999, the managing general partner had 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 varying 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 June 30, 1999, the managing general partner
estimates that the remedial phase is approximately 83% complete, on a worldwide
basis,
10
<PAGE> 175
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 is expected to be
completed by 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 expects to complete the testing of
information technology systems by October 1999. The testing of the
non-information technology remediation is scheduled to be completed by the end
of November 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. As of June 30, 1999, the managing general partner's total costs
incurred on the Year 2000 problem were $2.3 million, of which approximately $200
thousand were incurred to replace non-compliant systems.
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
11
<PAGE> 176
SIGNATURES
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 82-II, LTD.
By: Pioneer Natural Resources USA,
Inc.,
Managing General Partner
By: /s/ RICH DEALY
----------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
Dated: August 10, 1999
12
<PAGE> 177
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 2-75530B
PARKER & PARSLEY 82-II, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-1867115
(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)
</TABLE>
Registrant's Telephone Number, including area code: (915) 683-4768
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($2,000 PER UNIT)
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]
No market currently exists for the limited partnership interests of the
Registrant. Based on original purchase price the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$11,815,000.
As of March 8, 1999, the number of outstanding limited partnership
interests was 6,126.
The following documents are incorporated by reference into the indicated
parts of this Annual Report on Form 10-K: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 178
Parts I and II of this Report contain 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. See "Item 1.
Business" for a description of various factors that could materially affect the
ability of the Partnership to achieve the anticipated results described in the
forward looking statements.
PART I
ITEM 1. BUSINESS
Parker & Parsley 82-II, Ltd. (the "Partnership") is a limited partnership
organized in 1982 under the laws of the State of Texas. On August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership, joining the existing general partner, P&P Employees
82-II, Ltd. ("EMPL"), a Texas limited partnership whose general partner is
Pioneer USA, and 6,126 limited partnership interests as of March 8, 1999. Prior
to August 8, 1997, the Partnership's managing general partner and the general
partner of EMPL was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. ("Mesa") received shareholder approval
to merge and create Pioneer Natural Resources Company ("Pioneer"). On August 8,
1997, PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership and the general partner of EMPL as PPDLP's successor by merger. For
a more complete description of the Parker & Parsley and Mesa merger, see
Pioneer's Registration Statement on Form S-4 as filed with the Securities and
Exchange Commission.
A Registration Statement, as amended, filed pursuant to the Securities Act
of 1933, registering limited partnership interests aggregating $33,000,000 in a
series of Texas limited partnerships formed under the Parker & Parsley 82
Drilling Program, was declared effective by the Securities and Exchange
Commission on February 4, 1982. On September 30, 1982, the offering of limited
partnership interests in the Partnership, the second partnership formed under
such registration statement, was closed, with interests aggregating $12,252,000
being sold to 798 subscribers.
The Partnership engages primarily in oil and gas exploration, development
and production and is not involved in any industry segment other than oil and
gas. See "Item 6. Selected Financial Data" and "Item 8. Financial Statements and
Supplementary Data" of this report for a summary of the Partnership's revenue,
income and identifiable assets.
The principal markets during 1998 for the oil produced by the Partnership
were refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. The principal markets for the
Partnership's gas were companies that have pipelines located near the
Partnership's gas producing properties. Of the Partnership's total oil and gas
revenues for 1998, approximately 66% and 21% were attributable to sales made to
Genesis Crude Oil, L.P. and Western Gas Resources, Inc., respectively.
The Partnership's revenues, profitability, cash flow and future rate of
growth are highly dependent on the prevailing prices of oil and gas, which are
affected by numerous factors beyond the Partnership's control. Oil and gas
prices historically have been very volatile. A substantial or extended decline
in the prices of oil or gas could have a material adverse effect on the
Partnership's revenues, profitability and cash flow and could, under certain
circumstances, result in a reduction in the carrying value of the Partnership's
oil and gas properties.
Because of the demand for oil and gas, the Partnership does not believe
that the termination of the sales of its products to any one customer would have
a material adverse impact on its operations. The loss of a particular customer
for gas may have an effect if that particular customer has the only gas pipeline
located in the areas of the Partnership's gas producing properties. The
Partnership believes, however, that the effect would be temporary, until
alternative arrangements could be made.
1
<PAGE> 179
Federal and state regulation of oil and gas operations generally includes
the fixing of maximum prices for regulated categories of natural gas, the
imposition of maximum allowable production rates, the taxation of income and
other items, and the protection of the environment. Although the Partnership
believes that its business operations do not impair environmental quality and
that its costs of complying with any applicable environmental regulations are
not currently significant, the Partnership cannot predict what, if any, effect
these environmental regulations may have on its current or future operations.
The Partnership does not have any employees of its own. Pioneer USA employs
818 persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this report is filed. Pioneer
USA supplies all management functions.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the
Partnership conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist primarily of leasehold interests in
properties on which oil and gas wells are located. Such property interests are
often subject to landowner royalties, overriding royalties and other oil and gas
leasehold interests.
Fractional working interests in developmental and exploratory oil and gas
prospects located in Texas and New Mexico were acquired by the Partnership,
resulting in the Partnership's participation in the drilling of 52 oil and gas
wells. At December 31, 1998, the Partnership had 16 producing oil and gas wells.
Two wells were plugged and abandoned, five wells were dry holes and 29 wells
have been sold. The Partnership received interests in two additional oil and gas
wells in 1993 due to the Partnership's back-in after payout provisions.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 1998, 1997 and 1996, and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been estimated by the engineering staff of Pioneer USA with a review by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
2
<PAGE> 180
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 8, 1999, the Partnership had 6,126 outstanding limited partnership
interests held of record by 779 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the general partners, are not
required to meet the Partnership's obligations are distributed to the partners
at least quarterly in accordance with the limited partnership agreement. During
the years ended December 31, 1998 and 1997, distributions of $285,906 and
$263,417, respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Oil and gas sales............... $ 379,887 $ 598,339 $ 732,599 $ 672,115 $ 864,129
========= ========== ========== ========== ==========
Litigation settlement, net...... $ -- $ -- $ 45,027 $ -- $ --
========= ========== ========== ========== ==========
Impairment of oil and gas
properties................... $ 65,229 $ 310,732 $ -- $ 264,994 $ --
========= ========== ========== ========== ==========
Net income (loss)............... $(131,488) $ (93,386) $ 322,918 $ 138,715 $ (110,953)
========= ========== ========== ========== ==========
Allocation of net income (loss):
General partner.............. $ 2,863 $ 30,221 $ 98,377 $ 120,537 $ 18,763
========= ========== ========== ========== ==========
Limited partners............. $(134,351) $ (123,607) $ 224,541 $ 18,178 $ (129,716)
========= ========== ========== ========== ==========
Limited partners' net income
(loss) per limited
partnership interest......... $ (21.93) $ (20.18) $ 36.65 $ 2.97 $ (21.17)
========= ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest......... $ 46.67 $ 43.00 $ 49.38(a) $ 69.87 $ 24.33
========= ========== ========== ========== ==========
AT YEAR END:
Total assets.................... $ 971,390 $1,456,326 $1,893,741 $1,996,995 $2,446,061
========= ========== ========== ========== ==========
</TABLE>
- ---------------
(a) Including litigation settlement per limited partnership interest of $6.02
in 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1998 compared to 1997
The Partnership's 1998 oil and gas revenues decreased 37% to $379,887 from
$598,339 in 1997. The decrease in revenues resulted from lower average prices
received. In 1998, 19,042 barrels of oil, 8,812 barrels of natural gas liquids
("NGLs") and 41,862 mcf of gas were sold, or 34,831 barrel of oil equivalents
("BOEs"). In 1997, 21,685 barrels of oil, 3,333 barrels of NGLs and 57,516 mcf
of gas were sold, or 34,604 BOEs. Due to the decline characteristics of the
Partnership's oil and gas properties, management expects a certain amount of
decline in production in the future until the Partnership's economically
recoverable reserves are fully depleted.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. Effective September 30, 1997, as a result
3
<PAGE> 181
of the merger with Mesa, the managing general partner accounts for processed
natural gas production in two components: natural gas liquids and dry residue
gas. As a result of the change in the managing general partner's policy, the
Partnership now accounts for processed natural gas production as processed
natural gas liquids and dry residue gas. Consequently, separate product volumes
will not be comparable for 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
year ended December 31, 1998 is the price received for dry residue gas and the
price per mcf for natural gas produced prior to October 1997 was presented as a
price for wet gas (i.e., natural gas liquids combined with dry residue gas).
The average price received per barrel of oil decreased $6.37, or 33%, from
$19.51 in 1997 to $13.14 in 1998. The average price received per barrel of NGLs
decreased $4.09, or 37%, from $11.02 in 1997 to $6.93 in 1998. The average price
received per mcf of gas decreased 32% from $2.41 in 1997 to $1.64 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 in 1998.
A gain on disposition of assets of $1,281 was recognized during 1998 from
post closing adjustments received from the sale of six oil and gas wells and
overriding royalty interest in one well during 1997. During the same period in
1997, a gain of $88,515 was derived from proceeds of $86,987 received from the
sale of six oil and gas wells and an overriding royalty interest in one well and
$1,528 was received from the sale of equipment on one abandoned well in the same
period. Expenses incurred to plug and abandon this well totaled $691.
Total costs and expenses decreased in 1998 to $523,894 as compared to
$789,298 in 1997, a decrease of $265,404, or 34%. The decrease was primarily due
to a decline in the impairment of oil and gas properties, production costs,
general and administrative expenses ("G&A") and abandoned property costs, offset
by an increase in depletion.
Production costs were $274,382 in 1998 and $323,544 in 1997, resulting in a
decrease of $49,162, or 15%. The decrease was primarily due to less operating
expenses from the sale of six oil and gas wells during the fourth quarter of
1997 and declines in production taxes and ad valorem 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, 40%, from $22,634 in 1997 to $13,493 in 1998. The
Partnership paid the managing general partner $11,397 in 1998 and $17,950 in
1997 for G&A incurred on behalf of the Partnership. G&A is allocated, in part,
to the Partnership by the managing general partner. Such allocated expenses are
determined by the general partners based upon its judgement of the level of
activity of the Partnership relative to the general partner's activities and
other entities it manages. The method of allocation has been consistent over the
past several years with certain modifications incorporated to reflect changes in
Pioneer USA's overall business activities.
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"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. Declining commodity prices prompted
impairment reviews in 1998 and 1997. As a result of the review and evaluation of
its long-lived assets for impairment, the Partnership recognized non-cash
charges of $65,229 and $310,732 related to its oil and gas properties during
1998 and 1997, respectively.
Depletion was $170,790 in 1998 compared to $131,697 in 1997, an increase of
$39,093, or 30%. This increase was the result of a combination of factors that
included a decrease in proved reserves during 1998 as a result of lower
commodity prices, offset by a reduction in the Partnership's net depletable
basis in accordance with SFAS 121 during the fourth quarter of 1997 and a
decline in oil production of 2,643 during 1998 compared to 1997.
4
<PAGE> 182
1997 compared to 1996
The Partnership's 1997 oil and gas revenues decreased 18% to $598,339 from
$732,599 in 1996. The decrease in revenues resulted from declines in production
and lower average prices received. In 1997, 21,685 barrels of oil, 3,333 barrels
of NGLs and 57,516 mcf of gas were sold, or 34,604 BOEs. In 1996, 24,283 barrels
of oil and 77,814 mcf of gas were sold, or 37,252 BOEs.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. As is described above in "Results of
Operations -- 1998 compared to 1997", the Partnership changed its method of
accounting for processed natural gas to a dry gas basis in the fourth quarter of
1997. As a result of this change, the Partnership now accounts for processed
natural gas production as processed natural gas liquids and dry residue gas.
Consequently, 1997 and 1996 separate product volumes are not comparable.
The declines in production volumes were primarily attributable to the
decline characteristics of the Partnership's oil and gas properties.
The average price received per barrel of oil decreased $2.41, or 11%, from
$21.92 in 1996 to $19.51 in 1997. The average price received per barrel of NGLs
during 1997 was $11.02. The average price received per mcf of gas decreased 6%
from $2.57 in 1996 to $2.41 in 1997. 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 in 1997.
As is described in "Results of Operations -- 1998 compared to 1997", gain
on disposition of assets of $88,515 was recognized during 1997 from the sale of
six oil and gas wells, an overriding royalty interest in one well and the sale
of equipment on one well plugged and abandoned during 1997. A loss on
disposition of assets of $18,634 was recognized during 1996. This loss was
comprised of a loss on abandoned property, offset by a gain from the sale of
equipment on one fully depleted property. Expenses to plug and abandon these
wells totaled $691 and $579 during 1997 and 1996, respectively.
On April 29, 1996, Southmark Corporation, Pioneer USA and the Partnership
entered into a final $7.4 million settlement agreement with Jack N. Price
resolving all outstanding litigation between the parties. As a result, all of
the pending lawsuits and judgments have been dismissed, the supersedeas bond
released, and the Reserve released as collateral. On June 28, 1996, a final
distribution was made to the working interest owners of $45,027 which included
$36,851, or $6.02 per limited partnership interest, to the Partnership and its
partners.
Total costs and expenses increased in 1997 to $789,298 as compared to
$445,751 in 1996, an increase of $343,547, or 77%. The increase was primarily
due to the impairment of oil and gas properties and increases in depletion,
production costs and abandoned property costs, offset by a decrease in G&A.
Production costs were $323,544 in 1997 and $308,885 in 1996, resulting in
an increase of $14,659, or 5%. The increase was primarily due to additional well
maintenance costs, offset by declines in production taxes.
During this period, G&A decreased, in aggregate, 12%, from $25,834 in 1996
to $22,634 in 1997. The Partnership paid the managing general partner $17,950 in
1997 and $21,978 in 1996 for G&A incurred on behalf of the Partnership.
The Partnership recognized a non-cash SFAS 121 impairment provision of
$310,732 related to its oil and gas properties during the fourth quarter of
1997.
Depletion was $131,697 in 1997 compared to $110,453 in 1996, an increase of
$21,244, or 19%. This increase was primarily attributable to a decrease in oil
reserves during 1997 as a result of lower commodity prices, offset by a decline
in oil production of 2,598 during 1997 compared to 1996.
5
<PAGE> 183
IMPACT OF INFLATION AND CHANGING PRICES ON SALES AND NET INCOME
Inflation impacts the fixed overhead rate charges of the lease operating
expenses for the Partnership. During 1998, the annual change in the index of
average weekly earnings of crude petroleum and gas production workers issued by
the U.S. Department of Labor, Bureau of Labor Statistics increased (effective
April 1, 1998) 10.3%. The 1997 annual change in average weekly earnings
increased by 2%. The 1996 index increased 4.1%. The impact of inflation for
other lease operating expenses is small due to the current economic condition of
the oil industry.
The oil and gas industry experienced volatility during the past decade
because of the fluctuation of the supply of most fossil fuels relative to the
demand for such products and other uncertainties in the world energy markets
causing significant fluctuations in oil and gas prices. During 1998, the price
per barrel for oil production similar to the Partnership's ranged from
approximately $9.50 to $15.50. During most of 1997 and 1996, 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 March 1999. On March 8, 1999, the market price for West Texas intermediate
crude was $11.00 per barrel. A continuation of the current commodity price
environment will continue to have an adverse effect on the Partnership's
revenues, operating cash flow and distributions and could result in additional
decreases in the carrying value of the Partnership's oil and gas properties.
Prices for natural gas are subject to ordinary seasonal fluctuations, and
this volatility of natural gas prices may result in production being curtailed
and, in some cases, wells being completely shut-in.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $194,682 during the
year ended December 31, 1998 from the year ended December 31, 1997. This
decrease was primarily due to a decline in oil and gas sales receipts, offset by
decreases in production costs and G&A expenses paid.
Net Cash Provided by Investing Activities
The Partnership's principal investing activities during 1998 and 1997
included expenditures related to equipment replacement on several oil and gas
properties.
Proceeds from disposition of assets of $153,683 were received during 1998
from the sale of six oil and gas wells during 1997. Proceeds of $156,440 were
received during 1997 of which $152,402 was derived from the sale of nine oil and
gas wells and an overriding royalty interest in one well, $2,511 was received
from equipment disposals on one of the sold wells and $1,527 was received from
equipment sold on one fully depleted well abandoned during 1997.
Net Cash Used in Financing Activities
Cash was sufficient in 1998 for distributions to the partners of $345,878
of which $59,972 was distributed to the general partners and $285,906 to the
limited partners. In 1997, cash was sufficient for distributions to the partners
of $343,206 of which $79,789 was distributed to the general partners and
$263,417 to the limited partners.
The current commodity price environment will continue to impact the
distributions and could result in limited or no distributions to the partners.
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
6
<PAGE> 184
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
at varying stages of completion as it pertains to information technology and
non-information technology applications and systems in the United States, Canada
and Argentina. As of December 31, 1998, the managing general partner estimates
that the assessment phase is approximately 86% complete, on a worldwide basis,
and has included, but is not limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- 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 to
approximately 37% of those inquiries.
The remedial phase of the managing general partner's Year 2000 project is
also at varying 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 December 31, 1998, the
managing general partner estimates that the remedial phase is approximately 54%
complete, on a worldwide basis, subject to the continuing 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 through remedial coding and is currently testing this system for Year
2000 compliance. The remediation of non-information technology is expected to be
completed during July 1999. The managing general partner's Year 2000 remedial
actions have not significantly 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 and non-information technology remediation by the end of the third
quarter of 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. The managing general partner intends to use its working capital
7
<PAGE> 185
to pay for the costs of the Year 2000 projects. As of December 31, 1998, the
managing general partner's total costs incurred on the Year 2000 problem were
$1.8 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 in accordance with the
general and administration allocation. (See Note 2 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data".)
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 assessment phase of the managing general partner's Year 2000
project, contingency plans are being 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.
8
<PAGE> 186
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Parker & Parsley 82-II, Ltd:
Independent Auditors' Report -- Ernst & Young LLP......... 10
Independent Auditors' Report -- KPMG LLP.................. 11
Balance Sheets as of December 31, 1998 and 1997........... 12
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996.................................... 13
Statements of Partners' Capital for the Years Ended
December 31, 1998, 1997 and 1996....................... 14
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996.................................... 15
Notes to Financial Statements............................. 16
</TABLE>
9
<PAGE> 187
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 82-II, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheet of Parker & Parsley 82-II, Ltd. as of
December 31, 1998, and the related statements of operations, partners' capital
and cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 82-II, Ltd.
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Dallas, Texas
March 15, 1999
10
<PAGE> 188
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 82-II, Ltd.
(A Texas Limited Partnership):
We have audited the financial statements of Parker & Parsley 82-II, Ltd. as
of December 31, 1997, and the related statements of operations, partners'
capital and cash flows for the years ended December 31, 1997 and 1996. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 82-II, Ltd.
as of December 31, 1997, and the results of its operations and its cash flows
for the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
KPMG LLP
Midland, Texas
March 20, 1998
11
<PAGE> 189
PARKER & PARSLEY 82-II, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 64,274 $ 151,079
Accounts receivable:
Oil and gas sales...................................... 36,762 60,072
Other.................................................. -- 152,402
----------- -----------
Total current assets.............................. 101,036 363,553
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 8,434,066 8,420,466
Accumulated depletion....................................... (7,563,712) (7,327,693)
----------- -----------
Net oil and gas properties........................ 870,354 1,092,773
----------- -----------
$ 971,390 $ 1,456,326
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 9,153 $ 16,723
Partners' capital:
General partners.......................................... 110,889 167,998
Limited partners (6,126 interests)........................ 851,348 1,271,605
----------- -----------
962,237 1,439,603
----------- -----------
$ 971,390 $ 1,456,326
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 190
PARKER & PARSLEY 82-II, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Revenues:
Oil and gas.............................................. $ 379,887 $ 598,339 $732,599
Interest................................................. 11,238 9,058 9,677
Gain (loss) on disposition of assets..................... 1,281 88,515 (18,634)
Litigation settlement.................................... -- -- 45,027
--------- --------- --------
392,406 695,912 768,669
--------- --------- --------
Costs and expenses:
Oil and gas production................................... 274,382 323,544 308,885
General and administrative............................... 13,493 22,634 25,834
Impairment of oil and gas properties..................... 65,229 310,732 --
Depletion................................................ 170,790 131,697 110,453
Abandoned property....................................... -- 691 579
--------- --------- --------
523,894 789,298 445,751
--------- --------- --------
Net income (loss).......................................... $(131,488) $ (93,386) $322,918
========= ========= ========
Allocation of net income (loss):
General partners......................................... $ 2,863 $ 30,221 $ 98,377
========= ========= ========
Limited partners......................................... $(134,351) $(123,607) $224,541
========= ========= ========
Net income (loss) per limited partnership interest......... $ (21.93) $ (20.18) $ 36.65
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 191
PARKER & PARSLEY 82-II, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Partners' capital at January 1, 1996...................... $214,194 $1,736,603 $1,950,797
Distributions........................................... (95,005) (302,515) (397,520)
Net income.............................................. 98,377 224,541 322,918
-------- ---------- ----------
Partners' capital at December 31, 1996.................... 217,566 1,658,629 1,876,195
Distributions........................................... (79,789) (263,417) (343,206)
Net income (loss)....................................... 30,221 (123,607) (93,386)
-------- ---------- ----------
Partners' capital at December 31, 1997.................... 167,998 1,271,605 1,439,603
Distributions........................................... (59,972) (285,906) (345,878)
Net income (loss)....................................... 2,863 (134,351) (131,488)
-------- ---------- ----------
Partners' capital at December 31, 1998.................... $110,889 $ 851,348 $ 962,237
======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 192
PARKER & PARSLEY 82-II, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $(131,488) $ (93,386) $ 322,918
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Impairment of oil and gas properties................. 65,229 310,732 --
Depletion............................................ 170,790 131,697 110,453
(Gain) loss on disposition of assets................. (1,281) (88,515) 18,634
Changes in assets and liabilities:
Accounts receivable.................................. 23,310 53,967 (56,531)
Accounts payable..................................... (7,570) (823) (28,648)
--------- --------- ---------
Net cash provided by operating activities....... 118,990 313,672 366,826
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties..................... (13,600) (154,985) (77)
Proceeds from asset dispositions........................ 153,683 156,440 10,509
--------- --------- ---------
Net cash provided by investing activities....... 140,083 1,455 10,432
--------- --------- ---------
Cash flows from financing activities:
Cash distributions to partners.......................... (345,878) (343,206) (397,520)
--------- --------- ---------
Net decrease in cash...................................... (86,805) (28,079) (20,262)
Cash at beginning of year................................. 151,079 179,158 199,420
--------- --------- ---------
Cash at end of year....................................... $ 64,274 $ 151,079 $ 179,158
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 193
PARKER & PARSLEY 82-II, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 82-II, Ltd. (the "Partnership") is a limited partnership
organized in 1982 under the laws of the State of Texas. On August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership, joining the existing general partner, P&P Employees
82-II, Ltd. ("EMPL"), a Texas limited partnership whose general partner is
Pioneer USA, and 6,126 limited partnership interests as of March 8, 1999. Prior
to August 8, 1997, the Partnership's managing general partner and the general
partner of EMPL was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. received shareholder approval to merge
and create Pioneer Natural Resources Company ("Pioneer"). On August 8, 1997,
PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership and the general partner of EMPL as PPDLP's successor by merger.
The Partnership engages primarily in oil and gas exploration, development
and production in Texas and New Mexico and is not involved in any industry
segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties -- The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as determined by the engineering staff of Pioneer
USA, the Partnership's managing general partner, and reviewed by independent
petroleum consultants. The carrying amounts of properties sold or otherwise
disposed of and the related allowances for depletion are eliminated from the
accounts and any gain or loss is included in operations.
Impairment of long-lived assets -- 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"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -- Preparation
of the accompanying financial statements 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 reporting amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest -- The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
16
<PAGE> 194
PARKER & PARSLEY 82-II, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes -- A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows -- For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses -- General and administrative expenses
are allocated in part to the Partnership by the managing general partner or its
affiliates. Such allocated expenses are determined by the managing general
partner based upon its judgement of the level of activity of the Partnership
relative to the managing general partner's activities and other entities it
manages. The method of allocation has been consistent over the past several
years with certain modifications incorporated to reflect changes in Pioneer
USA's overall business activities.
Reclassifications -- Certain reclassifications may have been made to the
1997 and 1996 financial statements to conform to the 1998 financial statement
presentation.
Environmental -- The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 1998.
Revenue recognition -- The Partnership uses the entitlements method of
accounting for crude oil and natural gas revenues.
Reporting comprehensive income -- Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes
standards for the reporting and display of comprehensive income (loss) and its
components in a full set of general purpose financial statements. Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss).
The Partnership has no items of other comprehensive income (loss), as defined by
SFAS No. 130. Consequently, the provisions of SFAS No. 130 do not apply to the
Partnership.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. Based upon a decline in the Partnership's outlook for future
commodity prices, the Partnership has estimated the expected future cash flows
of its oil and gas properties as of December 31, 1998 and 1997, and compared
such estimated future cash flows to the respective carrying amount of the oil
and gas properties to determine if the carrying amounts were likely to be
recoverable. For those proved oil and gas properties for which the carrying
amount exceeded the estimated future cash flows, an impairment was determined to
exist; therefore, the Partnership adjusted the carrying amount of those oil and
gas properties to their fair value as determined by discounting their expected
future cash flows at a discount rate commensurate with the risks involved in the
industry. As a result, the Partnership recognized non-cash impairment provisions
of $65,229 and $310,732 related to its proved oil and gas properties during 1998
and 1997, respectively.
17
<PAGE> 195
PARKER & PARSLEY 82-II, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $331,537 less than the tax basis at December 31, 1998.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Net income (loss) per statements of operations...... $(131,488) $(93,386) $322,918
Depletion and depreciation provisions for tax
reporting purposes less than amounts for financial
reporting purposes................................ 163,319 129,114 98,829
Impairment of oil and gas properties for financial
reporting purposes................................ 65,229 310,732 --
Other, net.......................................... 217 58,698 29,945
--------- -------- --------
Net income per Federal income tax
returns................................. $ 97,277 $405,158 $451,692
========= ======== ========
</TABLE>
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
Development costs...................................... $13,600 $(4,803) $9,856
======= ======= ======
</TABLE>
Capitalized oil and gas properties consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Proved properties:
Property acquisition costs............................... $ 415,980 $ 415,980
Completed wells and equipment............................ 8,018,086 8,004,486
----------- -----------
8,434,066 8,420,466
Accumulated depletion...................................... (7,563,712) (7,327,693)
----------- -----------
Net capitalized costs............................ $ 870,354 $ 1,092,773
=========== ===========
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $133,844 $133,860 $122,545
Reimbursement of general and administrative
expenses........................................... $ 11,397 $ 17,950 $ 21,978
</TABLE>
Pioneer USA, EMPL and the Partnership are parties to the Partnership
agreement. EMPL is a limited partnership in which Pioneer USA owns 83% and the
remaining portion is owned by former affiliates. In addition, Pioneer USA owned
218.5 limited partner interests at January 1, 1999.
18
<PAGE> 196
PARKER & PARSLEY 82-II, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The costs and revenues of the Partnership are allocated as follows:
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS
-------- --------
<S> <C> <C>
Revenues:
Proceeds from property dispositions prior to cost
recovery............................................... 10% 90%
All other Partnership revenues............................ 25% 75%
Costs and expenses:
Lease acquisition costs, drilling and completion costs.... 10% 90%
Operating costs, direct costs and general and
administrative expenses................................ 25% 75%
</TABLE>
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 1998, 1997 and 1996 and
changes in such quantities during the years then ended. Due to a change in the
accounting policy of the managing general partner in 1997, the Partnership began
accounting for processed natural gas production in two components: processed
natural gas liquids ("NGLs") and dry residue gas. NGLs are reflected in "Oil and
NGLs" in the table below. All of the Partnership's reserves are proved developed
and located within the United States. The Partnership's reserves are based on an
evaluation prepared by the engineering staff of Pioneer USA and viewed by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant,
using criteria established by the Securities and Exchange Commission. Reserve
value information is available to limited partners pursuant to the Partnership
agreement and, therefore, is not presented.
<TABLE>
<CAPTION>
OIL AND NGLS GAS
(BBLS) (MCF)
------------ ---------
<S> <C> <C>
Net proved reserves at January 1, 1996...................... 350,071 1,377,708
Revisions................................................... 25,559 (4,590)
Production.................................................. (24,283) (77,814)
-------- ---------
Net proved reserves at December 31, 1996.................... 351,347 1,295,304
Revisions................................................... 73,904 (696,504)
Sale of reserves............................................ (23,878) (28,436)
Production.................................................. (25,018) (57,516)
-------- ---------
Net proved reserves at December 31, 1997.................... 376,355 512,848
Revisions................................................... (163,438) (164,998)
Production.................................................. (27,854) (41,862)
-------- ---------
Net proved reserves at December 31, 1998.................... 185,063 305,988
======== =========
</TABLE>
As of December 31, 1998, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 1998 prices of $10.61 per
barrel of oil, $5.55 per barrel of NGLs and $1.38 per mcf of gas, discounted at
10% was approximately $332,000 and undiscounted was $560,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
19
<PAGE> 197
PARKER & PARSLEY 82-II, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Genesis Crude Oil, L.P...................................... 66% 66% 67%
Western Gas Resources, Inc. ................................ 21% 17% 15%
</TABLE>
At December 31, 1998, the amounts receivable from Genesis Crude Oil, L.P.
and Western Gas Resources, Inc. were $13,053 and $11,532, respectively, which
are included in the caption "Accounts receivable -- oil and gas sales" in the
accompanying Balance Sheet.
The Partnership's share of oil and gas production is sold to various
purchasers. Pioneer USA is of the opinion that the loss of any one purchaser
would not have an adverse effect on the ability of the Partnership to sell its
oil and gas production.
NOTE 9. ORGANIZATION AND OPERATIONS
The Partnership was organized September 30, 1982 as a limited partnership
under the Texas Uniform Limited Partnership Act for the purpose of acquiring and
developing oil and gas properties. The following is a brief summary of the more
significant provisions of the limited partnership agreement:
General partners -- The general partners of the Partnership are
Pioneer USA and EMPL. Pioneer USA, the managing general partner, has the
power and authority to manage, control and administer all Partnership
affairs. As managing general partner and operator of the Partnership's
properties, all production expenses are incurred by Pioneer USA and billed
to the Partnership and a portion of revenue is initially received by
Pioneer USA prior to being paid to the Partnership.
Limited partner liability -- The maximum amount of liability of any
limited partner is the total contributions of such partner plus his share
of any undistributed profits.
Initial capital contributions -- The limited partners entered into
subscription agreements for aggregate capital contributions of $12,252,000.
The general partners are required to contribute amounts equal to 10% of
Partnership expenditures for lease acquisition, drilling and completion and
25% of direct, general and administrative and operating expenses, and by
agreement must maintain a calculated minimum capital balance.
NOTE 10. DISPOSITION OF ASSETS
Gain on disposition of assets of $88,515 recognized during 1997 primarily
resulted from the sale of six oil and gas wells and an overriding royalty
interest in one well.
20
<PAGE> 198
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and
executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve
until the next annual meeting of stockholders or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31,
NAME 1998 POSITION
- ---- ------------ --------
<S> <C> <C>
Scott D. Sheffield............ 46 President and Director
Timothy L. Dove............... 42 Executive Vice President and Director
Dennis E. Fagerstone.......... 49 Executive Vice President and Director
Mark L. Withrow............... 51 Executive Vice President, General Counsel and
Director
M. Garrett Smith.............. 37 Executive Vice President, Chief Financial Officer
and Director
Mel Fischer(a)................ 64 Executive Vice President
Lon C. Kile................... 43 Executive Vice President
Rich Dealy.................... 32 Vice President and Chief Accounting Officer
</TABLE>
- ---------------
(a) Mr. Fischer was a director and officer until his retirement from Pioneer
and Pioneer USA on February 15, 1999.
Scott D. Sheffield. Mr. Sheffield is a distinguished graduate of The
University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he
has served as President, Chief Executive Officer and a director of Pioneer and
President and a director of Pioneer USA. Mr. Sheffield was the President and a
director of Parker & Parsley from May 1990 until August 1997 and was the
Chairman of the Board and Chief Executive Officer of Parker & Parsley from
October 1990 until August 1997. He was the sole director of Parker & Parsley
from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley
Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum
engineer in 1979. He served as Vice President -- Engineering of PPDC from
September 1981 until April 1985 when he was elected President and a director. In
March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive
Officer of PPDC. Before joining PPDC, Mr. Sheffield was employed as a production
and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President -- Business
Development of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. Mr. Dove joined Parker & Parsley in May
1994 as Vice President -- International and was promoted to Senior Vice
President -- Business Development in October 1996, in which position he served
until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with
Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various
capacities in international exploration and production, marketing, refining and
marketing and planning and development. Mr. Dove earned a B.S. in Mechanical
21
<PAGE> 199
Engineering from Massachusetts Institute of Technology in 1979 and received his
M.B.A. in 1981 from the University of Chicago.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of Mesa from March 1, 1997 until August 1997. From October
1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief
Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice
President -- Exploration and Production of Mesa. From June 1988 to May 1991, Mr.
Fagerstone served as Vice President -- Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President -- General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President -- General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
M. Garrett Smith. Mr. Smith, a graduate of The University of Texas with a
B.S. in Electrical Engineering and Southern Methodist University with an M.B.A.,
was appointed Executive Vice President and Chief Financial Officer of Pioneer in
December 1997. He served as Senior Vice President -- Finance of Pioneer from
August 1997 until December 1997. Mr. Smith was elected Senior Vice President --
Finance and a director of Pioneer USA in August 1997. He served as Vice
President -- Corporate Acquisitions of Mesa from January 1997 until August 1997.
From October 1996 to December 1996, Mr. Smith served as Vice
President -- Finance of Mesa and from 1994 to 1996 he served as Director of
Financial Planning of Mesa. Mr. Smith was employed by BTC Partners, Inc. (a
former financial advisor to Mesa) from 1989 to 1994.
Mel Fischer. Mr. Fischer, a graduate of the University of California at
Berkeley with a Masters degree in Geology, became Executive Vice
President -- Worldwide Exploration of Pioneer and Pioneer USA in August 1997. He
served as a director of Parker & Parsley from November 1995 until August 1997
and was Executive Vice President -- Worldwide Exploration for Parker & Parsley
from February 1997 to August 1997. Mr. Fischer retired from Pioneer and Pioneer
USA effective February 15, 1999. Mr. Fischer worked in the petroleum industry
for 32 years, starting as a Petroleum Geologist with Texaco in 1962, and
retiring as President, Occidental International Exploration and Production
Company in March 1994. For the 10 years prior to becoming President of
Occidental International, he served as Executive Vice President, World Wide
Exploration with Occidental Oil and Gas Corporation. He is a registered
geologist in the State of California, a member of the American Association of
Petroleum Geologists and an emeritus member of the Board of Advisors for the
Earth Sciences Research Institute at the University of Utah.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a
B.B.A. in Accounting, became Executive Vice President of Pioneer and Pioneer USA
in August 1997. Mr. Kile was Senior Vice President -- Investor Relations from
October 1996 to August 1997. Previously, he served as Vice President and Manager
of the Mid-Continent Division, Vice President -- Equity Finance & Analysis and
Vice President -- Marketing & Program Administration. Prior to joining Parker &
Parsley in 1985, he was employed as Supervisor -- Senior, Audit, in charge of
Parker & Parsley's audit, with Arthur Young.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a
B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became
Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
22
<PAGE> 200
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is vested in Pioneer USA, the managing general partner. Under the
Partnership agreement, Pioneer USA pays 8% of the Partnership's acquisition,
drilling and completion costs and 20% of its operating and general and
administrative expenses. In return, Pioneer USA is allocated 20% of the
Partnership's revenues. See Notes 6 and 9 of Notes to Financial Statements
included in "Item 8. Financial Statements and Supplementary Data" for
information regarding fees and reimbursements paid to the managing general
partner or its affiliates by the Partnership.
EMPL is a co-general partner of the Partnership. Under this arrangement,
EMPL pays 2% of the Partnership's acquisition, drilling and completion costs and
5% of its operating and general and administrative expenses. In return, EMPL is
allocated 5% of the Partnership's revenues. EMPL does not receive any fees or
reimbursements from the Partnership.
The Partnership does not directly pay any salaries of the executive
officers of Pioneer USA, but does pay a portion of Pioneer USA's general and
administrative expenses of which these salaries are a part. See Note 6 of Notes
to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more
of the outstanding limited partnership interests of the Partnership. Pioneer USA
and EMPL respectively own 80% and 20% of the general partners' interests in the
Partnership. Pioneer USA owned 218.5 limited partner interests at January 1,
1999.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing
general partner of the Partnership, Pioneer USA, has the exclusive right and
full authority to manage, control and administer the Partnership's business.
Under the limited partnership agreement, limited partners holding a majority of
the outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner or its affiliates
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the general partners or its affiliates
during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $133,844 $133,860 $122,545
Reimbursement of general and administrative
expenses........................................... $ 11,397 $ 17,950 $ 21,978
</TABLE>
Under the limited partnership agreement, the general partners, Pioneer USA
and EMPL, together pay 10% of Partnership's acquisition, drilling and completion
costs and 25% of its operating and general and administrative expenses. In
return, they are allocated 25% of the Partnership's revenues. Twenty percent of
the general partner's share of costs and revenues is allocated to EMPL and the
remainder is allocated to Pioneer USA. Certain former affiliates of the managing
general partner are limited partners of EMPL. Also, see Notes 6 and 9 of Notes
to Financial Statements included in "Item 8. Financial Statements and
23
<PAGE> 201
Supplementary Data", regarding the Partnership's participation with the managing
general partner in oil and gas activities of the Partnership.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial statements
The following are filed as part of this annual report:
Independent Auditors' Report -- Ernst & Young LLP
Independent Auditors' Report -- KPMG LLP
Balance sheets as of December 31, 1998 and 1997
Statements of operations for the years ended December 31, 1998, 1997
and 1996
Statements of partners' capital for the years ended December 31, 1998,
1997 and 1996
Statements of cash flows for the years ended December 31, 1998, 1997
and 1996
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this annual report.
24
<PAGE> 202
SIGNATURES
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 82-II, LTD.
By: Pioneer Natural Resources USA,
Inc.
Managing General Partner
By: /s/ SCOTT D. SHEFFIELD
----------------------------------
Scott D. Sheffield,
President
Dated: March 23, 1999
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 date indicated.
<TABLE>
<C> <S> <C>
/s/ SCOTT D. SHEFFIELD President and Director of March 23, 1999
- ------------------------------------- Pioneer USA
Scott D. Sheffield
/s/ TIMOTHY L. DOVE Executive Vice President and March 23, 1999
- ------------------------------------- Director of Pioneer USA
Timothy L. Dove
/s/ DENNIS E. FAGERSTONE Executive Vice President and March 23, 1999
- ------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ MARK L. WITHROW Executive Vice President, General March 23, 1999
- ------------------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ M. GARRETT SMITH Executive Vice President, Chief March 23, 1999
- ------------------------------------- Financial Officer and Director
M. Garrett Smith of Pioneer USA
/s/ LON C. KILE Executive Vice President of March 23, 1999
- ------------------------------------- Pioneer USA
Lon C. Kile
/s/ RICH DEALY Vice President and Chief Accounting March 23, 1999
- ------------------------------------- Officer of Pioneer USA
Rich Dealy
</TABLE>
25
<PAGE> 203
PARKER & PARSLEY 82-II, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1 -- Agreement of Limited Partnership of Parker & Parsley
82-II, Ltd. incorporated by reference to Exhibit 4(e) of
Partnership's Registration Statement on Form S-1
(Registration No. 2-75503B), as amended on February 4,
1982, the effective date thereof (hereinafter called, the
Partnership's Registration Statement)
3.2 -- Amended and Restated Certificate of Limited Partnership
of Parker & Parsley 82-II, Ltd. incorporated by reference
to Exhibit 3.2 of the Partnership's Annual Report on Form
10-K for the year ended December 31, 1983
4.1 -- Form of Subscription Agreement and Power of Attorney
incorporated by reference to Exhibit 4(b) of the
Partnership's Registration Statement
4.2 -- Specimen Certificate of Limited Partnership Interest
incorporated by reference to Exhibit 4(d) of the
Partnership's Registration Statement
27.1* -- Financial Data Schedule
99.1 -- Mutual Release and Indemnity Agreement dated May 25, 1993
incorporated by reference to Exhibit 99.1 of the
Partnership's Annual Report on Form 10-K for the year
ended December 31, 1993
</TABLE>
- ---------------
* filed herewith
<PAGE> 204
PARKER & PARSLEY 82-II, LTD.
(A TEXAS LIMITED PARTNERSHIP)
DECEMBER 31, 1998, 1997 AND 1996
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. Future income taxes are calculated by comparing
discounted future cash flows to the tax basis of oil and gas properties plus
available carryforwards and credits and applying the current tax rates to the
difference.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and gas producing activities:
Future cash inflows....................................... $ 2,024 $ 7,050 $13,506
Future production costs................................... (1,464) (4,279) (7,342)
Future development costs.................................. -- -- 97
------- ------- -------
560 2,771 6,261
10% annual discount factor................................ (228) (1,296) (3,164)
------- ------- -------
Standardized measure of discounted future net cash
flows.................................................. $ 332 $ 1,475 $ 3,097
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs................ $ (106) $ (275) $ (424)
Net changes in prices and production costs................ (871) (1,279) 1,280
Extensions and discoveries................................ -- -- --
Sales of minerals-in-place................................ -- (146) --
Purchases of minerals-in-place............................ -- -- --
Revisions of estimated future development costs........... -- (52) (33)
Revisions of previous quantity estimates and reserves
added by development drilling.......................... (241) (129) 139
Accretion of discount..................................... 147 310 207
Changes in production rates, timing and other............. (72) (51) (145)
------- ------- ------
Change in present value of future net revenues............ (1,143) (1,622) 1,024
------- ------- ------
Balance, beginning of year................................ 1,475 3,097 2,073
------- ------- ------
Balance, end of year...................................... $ 332 $ 1,475 $3,097
======= ======= ======
</TABLE>
<PAGE> 205
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 83-A, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT DATED , 1999
----------------------
THE DATE OF THIS SUPPLEMENT IS , 1999
----------------------
This document contains important information specific to Parker & Parsley
83-A, Ltd. and supplements the proxy statement dated , 1999, of
Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies
to be voted at a special meeting of limited partners of the partnerships
described in the proxy statement. The purpose of the special meeting is for you
to vote upon the merger of Parker & Parsley 83-A, Ltd. with and into Pioneer USA
that, if completed, will result in your receiving cash for your partnership
interests.
This supplement contains the following information concerning Parker &
Parsley 83-A, Ltd.:
- A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through June
30, 1999
-- the merger value per $1,000 limited partner investment as of June 30,
1999
-- the merger value per $1,000 limited partner investment as a multiple
of distributions for the 12 months ended June 30, 1999
-- the book value per $1,000 limited partner investment as of June 30,
1999 and as of December 31, 1998 and
-- the ordinary tax loss per $1,000 limited partner investment in year
of initial investment
- Quarterly Report on Form 10-Q for the six months ended June 30, 1999
- Annual Report on Form 10-K for the year ended December 31, 1998
- Disclosures about the partnership's oil and gas producing activities
<PAGE> 206
PARKER & PARSLEY 83-A, LTD.
SUPPLEMENTAL INFORMATION TABLE
<TABLE>
<S> <C>
Aggregate Initial Investment by the Limited Partners(a)..... $19,505
Aggregate Historical Limited Partner Distributions through
June 30, 1999(a).......................................... $24,665
Merger Value per $1,000 Limited Partner Investment as of
June 30, 1999(b).......................................... $ 69.56
Merger Value per $1,000 Limited Partner Investment as a
Multiple of Distributions for the 12 Months ended June 30,
1999(b)................................................... 4.73times
Book Value per $1,000 Limited Partner Investment:
-- as of June 30, 1999(b)................................. $ 74.93
-- as of December 31, 1998(b)............................. $ 77.11
Ordinary Tax Loss per $1,000 Limited Partner Investment in
Year of Initial Investment(b), (c)........................ $ 499
</TABLE>
- ---------------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as any
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
<PAGE> 207
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JUNE 30, 1999
COMMISSION FILE NO. 2-81398A
PARKER & PARSLEY 83-A, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-1891384
(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)
</TABLE>
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> 208
PARKER & PARSLEY 83-A, LTD.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1999 and December 31,
1998.................................................. 3
Statements of Operations for the three and six months
ended June 30, 1999 and 1998.......................... 4
Statement of Partners' Capital for the six months ended
June 30, 1999......................................... 5
Statements of Cash Flows for the six months ended June
30, 1999 and 1998..................................... 6
Notes to Financial Statements.......................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................. 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
27.1 Financial Data Schedule........................... 11
Signatures............................................. 12
</TABLE>
2
<PAGE> 209
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER & PARSLEY 83-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 123,761 $ 94,700
Accounts receivable -- oil and gas sales.................. 146,474 101,658
------------ ------------
Total current assets.............................. 270,235 196,358
------------ ------------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 16,884,557 16,884,175
Accumulated depletion....................................... (15,482,848) (15,388,824)
------------ ------------
Net oil and gas properties........................ 1,401,709 1,495,351
------------ ------------
$ 1,671,944 $ 1,691,709
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 42,190 $ 23,407
Partners' capital:
General partners.......................................... 168,330 164,245
Limited partners (19,505 interests)....................... 1,461,424 1,504,057
------------ ------------
1,629,754 1,668,302
------------ ------------
$ 1,671,944 $ 1,691,709
============ ============
</TABLE>
The financial information included as of June 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
<PAGE> 210
PARKER & PARSLEY 83-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas................................... $265,731 $234,748 $439,976 $498,027
Interest...................................... 1,145 5,066 2,231 10,021
Gain on disposition of assets................. -- 3,702 -- 3,702
-------- -------- -------- --------
266,876 243,516 442,207 511,750
-------- -------- -------- --------
Costs and expenses:
Oil and gas production........................ 187,295 192,845 369,495 380,882
General and administrative.................... 8,752 9,429 15,845 16,961
Depletion..................................... 30,992 80,390 94,024 138,680
-------- -------- -------- --------
227,039 282,664 479,364 536,523
-------- -------- -------- --------
Net income (loss)............................... $ 39,837 $(39,148) $(37,157) $(24,773)
======== ======== ======== ========
Allocation of net income (loss):
General partners.............................. $ 14,803 $ 2,023 $ 5,476 $ 14,558
======== ======== ======== ========
Limited partners.............................. $ 25,034 $(41,171) $(42,633) $(39,331)
======== ======== ======== ========
Net income (loss) per limited partnership
interest...................................... $ 1.28 $ (2.11) $ (2.19) $ (2.02)
======== ======== ======== ========
Distributions per limited partnership
interest...................................... $ -- $ 1.10 $ -- $ 6.48
======== ======== ======== ========
</TABLE>
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> 211
PARKER & PARSLEY 83-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1, 1999................................ $164,245 $1,504,057 $1,668,302
Distributions........................................... (1,391) -- (1,391)
Net income (loss)....................................... 5,476 (42,633) (37,157)
-------- ---------- ----------
Balance at June 30, 1999.................................. $168,330 $1,461,424 $1,629,754
======== ========== ==========
</TABLE>
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> 212
PARKER & PARSLEY 83-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(37,157) $ (24,773)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depletion.............................................. 94,024 138,680
Gain on disposition of assets.......................... -- (3,702)
Changes in assets and liabilities:
Accounts receivable.................................... (44,816) 27,314
Accounts payable....................................... 18,783 4,485
-------- ---------
Net cash provided by operating activities......... 30,834 142,004
-------- ---------
Cash flows from investing activities:
Additions to oil and gas properties....................... (1,192) (7,697)
Proceeds from asset disposition........................... 810 271,839
-------- ---------
Net cash provided by (used in) investing
activities...................................... (382) 264,142
-------- ---------
Cash flows used in financing activities:
Cash distributions to partners............................ (1,391) (170,715)
-------- ---------
Net increase in cash........................................ 29,061 235,431
Cash at beginning of period................................. 94,700 173,276
-------- ---------
Cash at end of period....................................... $123,761 $ 408,707
======== =========
</TABLE>
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> 213
PARKER & PARSLEY 83-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 83-A, Ltd. (the "Partnership") is a limited partnership
organized in 1983 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 June 30, 1999 and for the three and six months ended June 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. However, 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.
7
<PAGE> 214
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
RESULTS OF OPERATIONS
Six months ended June 30, 1999 compared with six months ended June 30, 1998
Revenues:
The Partnership's oil and gas revenues decreased 12% to $439,976 from
$498,027 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from lower average prices received and a decrease
in production. For the six months ended June 30, 1998, 21,076 barrels of oil,
12,312 barrels of natural gas liquids ("NGLs") and 52,185 mcf of gas were sold,
or 42,086 barrel of oil equivalents ("BOEs"). For the six months ended June 30,
1998, 24,420 barrels of oil, 9,853 barrels of NGLs and 48,253 mcf of gas were
sold, or 42,315 BOEs.
The average price received per barrel of oil decreased $1.40, or 10%, from
$14.31 for the six months ended June 30, 1998 to $12.91 for the same period in
1999. The average price received per barrel of NGLs increased slightly from
$7.13 during the six months ended June 30, 1998 to $7.21 for the same period in
1999. The average price received per mcf of gas decreased 6% from $1.62 during
the six months ended June 30, 1998 to $1.52 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 six months ended June 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 $3,702 was recognized during the six
months ended June 30, 1998 from post closing adjustments received from the sale
of 16 oil and gas wells during 1997.
Costs and Expenses:
Total costs and expenses decreased to $479,364 for the six months ended
June 30, 1999 as compared to $536,523 for the same period in 1998, a decrease of
$57,159, or 11%. This decrease was due to declines in depletion, production
costs and general and administrative expenses ("G&A").
Production costs were $369,495 for the six months ended June 30, 1999 and
$380,882 for the same period in 1998 resulting in an $11,387 decrease, or 3%.
The decrease was due to declines in production taxes and ad valorem 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, 7% from $16,961 for the six months ended June 30, 1998
to $15,845 for the same period in 1999.
Depletion was $94,024 for the six months ended June 30, 1999 compared to
$138,680 for the same period in 1999, a decrease of $44,656, or 32%. This
decrease was primarily attributable to an increase in proved reserves during the
period ended June 30, 1999 due to higher commodity prices, a reduction in oil
production of 3,344 barrels for the six months ended June 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.
Three months ended June 30, 1999 compared with three months ended June 30,
1998
Revenues:
The Partnership's oil and gas revenues increased 13% to $265,731 from
$234,748 for the three months ended June 30, 1999 and 1998, respectively. The
increase in revenues resulted from higher average prices received and an
increase in production. For the three months ended June 30, 1999, 10,609 barrels
of oil,
8
<PAGE> 215
7,264 barrels of NGLs and 28,207 mcf of gas were sold, or 22,574 BOEs. For the
three months ended June 30, 1998, 11,785 barrels of oil, 5,131 barrels of NGLs
and 23,837 mcf of gas were sold, or 20,889 BOEs.
The average price received per barrel of oil increased $1.39, or 10%, from
$13.46 for the three months ended June 30, 1998 to $14.85 for the same period in
1999. The average price received per barrel of NGLs increased $1.17, or 16%,
from $7.40 during the three months ended June 30, 1998 to $8.57 for the same
period in 1999. The average price received per mcf of gas increased slightly to
$1.63 for the three months ended June 30, 1999 from $1.60 in 1998.
A gain on disposition of assets of $3,702 was recognized during the three
months ended June 30, 1998 from post closing adjustments received from the sale
of 16 oil and gas wells during 1997.
Costs and Expenses:
Total costs and expenses decreased to $227,039 for the three months ended
June 30, 1999 as compared to $282,664 for the same period in 1998, a decrease of
$55,625, or 20%. This decrease was due to declines in depletion, production
costs and G&A.
Production costs were $187,295 for the three months ended June 30, 1999 and
$192,845 for the same period in 1998 resulting in a $5,550 decrease, or 3%. The
decrease was due to lower well maintenance costs and a decline in ad valorem
taxes.
During this period, G&A decreased, in aggregate, 7% from $9,429 for the
three months ended June 30, 1998 to $8,752 for the same period in 1999.
Depletion was $30,992 for the three months ended June 30, 1999 compared to
$80,390 for the same period in 1998. This represented a decrease in depletion of
$49,398, or 61%. This decrease was primarily attributable to an increase in
proved reserves during the period ended June 30, 1999 as a result of higher
commodity prices, a reduction in oil production of 1,176 barrels for the three
months ended June 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.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $111,170 during the six
months ended June 30, 1999 from the same period in 1998. This decrease was
attributable to a decline in oil and gas sales receipts, offset by declines in
production costs and G&A expenses paid.
Net Cash Provided by (Used in) Investing Activities
The Partnership's investment activities during the six months ended June
30, 1999 and 1998 included expenditures related to equipment replacement on
various oil and gas properties.
Proceeds from asset dispositions of $810 were received during the six
months ended June 30, 1999 from equipment credits on active properties. Proceeds
of $271,839 were received during the same period in 1998 from the sale of 16 oil
and gas wells during 1997.
Net Cash Used in Financing Activities
For the six months ended June 30, 1999, $1,391 was distributed to the
general partners with no distribution to the limited partners. For the same
period ended June 30, 1998, cash was sufficient for distributions to the
partners of $170,715 of which $44,388 was distributed to the general partners
and $126,327 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 levels. During the first quarter of 1999, the
Organization of Petroleum Exporting Countries and
9
<PAGE> 216
certain other crude oil exporting nations announced reductions in their planned
export volumes. These announcements, together with early indications that the
nations have initiated their planned reductions, have had some stabilizing
effect on commodity prices during the latter part of the first quarter of 1999
and into August 1999. However, no assurances can be given that the stabilizing
effect of these actions, or the planned reductions in export volumes, will 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.
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 June 30, 1999, the managing general partner estimates that the
assessment phase is approximately 99% complete and has included, but is not
limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- the formulation of contingency plans for mission-critical information
technology systems.
Through June 30, 1999, the managing general partner had 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 varying 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 June 30, 1999, the managing general partner
estimates that the remedial phase is approximately 83% complete, on a worldwide
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 is expected
to be completed by 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 expects to complete the testing of
information technology systems by October 1999. The
10
<PAGE> 217
testing of the non-information technology remediation is scheduled to be
completed by the end of November 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. As of June 30, 1999, the managing general partner's total costs
incurred on the Year 2000 problem were $2.3 million, of which approximately $200
thousand were incurred to replace non-compliant systems.
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
11
<PAGE> 218
SIGNATURES
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 83-A, LTD.
By: Pioneer Natural Resources USA,
Inc.
Managing General Partner
By: /s/ RICH DEALY
----------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
Dated: August 6, 1999
12
<PAGE> 219
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 2-81398A
PARKER & PARSLEY 83-A, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-1891384
(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)
</TABLE>
Registrant's Telephone Number, including area code: (915) 683-4768
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
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]
No market currently exists for the limited partnership interests of the
Registrant. Based on original purchase price the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$18,918,000.
As of March 8, 1999, the number of outstanding limited partnership
interests was 19,505.
The following documents are incorporated by reference into the indicated
parts of this Annual Report on Form 10-K: None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 220
Parts I and II of this Report contain 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. See "Item 1.
Business" for a description of various factors that could materially affect the
ability of the Partnership to achieve the anticipated results described in the
forward looking statements.
PART I
ITEM 1. BUSINESS
Parker & Parsley 83-A, Ltd. (the "Partnership") is a limited partnership
organized in 1983 under the laws of the State of Texas. On August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership, joining the existing general partner, P&P Employees
83-A, Ltd. ("EMPL"), a Texas limited partnership whose general partner is
Pioneer USA, and 19,505 limited partnership interests as of March 8, 1999. Prior
to August 8, 1997, the Partnership's managing general partner and the general
partner of EMPL was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. ("Mesa") received shareholder approval
to merge and create Pioneer Natural Resources Company ("Pioneer"). On August 8,
1997, PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership and the general partner of EMPL as Pioneer USA's successor by
merger. For a more complete description of the Parker & Parsley and Mesa merger,
see Pioneer's Registration Statement on Form S-4 as filed with the Securities
and Exchange Commission.
A Registration Statement, as amended, filed pursuant to the Securities Act
of 1933, registering limited partnership interests aggregating $44,000,000 in a
series of Texas limited partnerships formed under the Parker & Parsley 83
Development Drilling Program, was declared effective by the Securities and
Exchange Commission on April 26, 1983. On July 1, 1983, the offering of limited
partnership interests in the Partnership, the first partnership formed under
such registration statement, was closed, with interests aggregating $19,505,000
being sold to 1,364 subscribers.
The Partnership engages primarily in oil and gas development and production
and is not involved in any industry segment other than oil and gas. See "Item 6.
Selected Financial Data" and "Item 8. Financial Statements and Supplementary
Data" of this report for a summary of the Partnership's revenue, income and
identifiable assets.
The principal markets during 1998 for the oil produced by the Partnership
were refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. The principal markets for the
Partnership's gas were companies that have pipelines located near the
Partnership's gas producing properties. Of the Partnership's total oil and gas
revenues for 1998, approximately 64% and 17% were attributable to sales made to
Genesis Crude Oil, L.P. and Western Gas Resources, Inc., respectively.
The Partnership's revenues, profitability, cash flow and future rate of
growth are highly dependent on the prevailing prices of oil and gas, which are
affected by numerous factors beyond the Partnership's control. Oil and gas
prices historically have been very volatile. A substantial or extended decline
in the prices of oil or gas could have a material adverse effect on the
Partnership's revenues, profitability and cash flow and could, under certain
circumstances, result in a reduction in the carrying value of the Partnership's
oil and gas properties.
Because of the demand for oil and gas, the Partnership does not believe
that the termination of the sales of its products to any one customer would have
a material adverse impact on its operations. The loss of a particular customer
for gas may have an effect if that particular customer has the only gas pipeline
located in the areas of the Partnership's gas producing properties. The
Partnership believes, however, that the effect would be temporary, until
alternative arrangements could be made.
1
<PAGE> 221
Federal and state regulation of oil and gas operations generally includes
the fixing of maximum prices for regulated categories of natural gas, the
imposition of maximum allowable production rates, the taxation of income and
other items, and the protection of the environment. Although the Partnership
believes that its business operations do not impair environmental quality and
that its costs of complying with any applicable environmental regulations are
not currently significant, the Partnership cannot predict what, if any, effect
these environmental regulations may have on its current or future operations.
The Partnership does not have any employees of its own. Pioneer USA employs
818 persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this report is filed. Pioneer
USA is responsible for all management functions.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the
Partnership conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist primarily of leasehold interests in
properties on which oil and gas wells are located. Such property interests are
often subject to landowner royalties, overriding royalties and other oil and gas
leasehold interests.
Fractional working interests in developmental oil and gas prospects located
primarily in the Spraberry Trend Area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 69
oil and gas wells. Two wells were dry holes from previous periods, 22 wells have
been sold and three wells have been plugged and abandoned due to unprofitable
operations. The Partnership received interests in six additional wells in 1993
due to the Partnership's back-in after payout provisions. At December 31, 1998,
42 wells were producing.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 1998, 1997 and 1996, and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been estimated by the engineering staff of Pioneer USA with a review by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
2
<PAGE> 222
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 8, 1999, the Partnership had 19,505 outstanding limited
partnership interests held of record by 1,301 subscribers. There is no
established public trading market for the limited partnership interests. Under
the limited partnership agreement, Pioneer USA has made certain commitments to
purchase partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are
not required to meet the Partnership's obligations are distributed to the
partners at least quarterly in accordance with the limited partnership
agreement. During the years ended December 31, 1998 and 1997, distributions of
$404,324 and $477,874, respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating results:
Oil and gas sales................. $ 910,252 $1,402,306 $1,768,325 $1,433,517 $1,441,190
========== ========== ========== ========== ==========
Impairment of oil and gas
properties..................... $ 430,351 $1,194,023 $ -- $ 147,353 $ 491,050
========== ========== ========== ========== ==========
Litigation settlement, net........ $ -- $ -- $ 852,211 $ -- $ --
========== ========== ========== ========== ==========
Net income (loss)................. $ (784,583) $ (811,642) $1,483,261 $ (12,017) $ (474,032)
========== ========== ========== ========== ==========
Allocation of net income (loss):
General partners............... $ (52,520) $ (1,662) $ 389,185 $ 104,436 $ 34,602
========== ========== ========== ========== ==========
Limited partners............... $ (732,063) $ (809,980) $1,094,076 $ (116,453) $ (508,634)
========== ========== ========== ========== ==========
Limited partners' net income
(loss) per limited partnership
interest....................... $ (37.53) $ (41.53) $ 56.09 $ (5.97) $ (26.08)
========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest........... $ 20.73 $ 24.50 $ 72.73(a) $ 21.54 $ 20.21
========== ========== ========== ========== ==========
At year end:
Total assets...................... $1,691,709 $3,015,116 $4,459,272 $4,865,672 $5,385,572
========== ========== ========== ========== ==========
</TABLE>
- ---------------
(a) Including litigation settlement per limited partnership interest of $34.33
in 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1998 compared to 1997
The Partnership's 1998 oil and gas revenues decreased 35% to $910,252 from
$1,402,306 in 1997. The decrease in revenues resulted from lower average prices
received. In 1998, 46,586 barrels of oil, 21,026 barrels of natural gas liquids
("NGLs") and 95,156 mcf of gas were sold, or 83,471 barrel of oil equivalents
("BOEs"). In 1997, 50,079 barrels of oil, 9,475 barrels of NGLs and 141,525 mcf
of gas were sold, or 83,142 BOEs. Due to the decline characteristics of the
Partnership's oil and gas properties, management expects a certain amount of
decline in production in the future until the Partnership's economically
recoverable reserves are fully depleted.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. Effective September 30, 1997, as a result of the
merger with Mesa, the managing general partner accounts for processed natural
gas production in
3
<PAGE> 223
two components: natural gas liquids and dry residue gas. As a result of the
change in the managing general partner's policy, the Partnership now accounts
for processed natural gas production as processed natural gas liquids and dry
residue gas. Consequently, separate product volumes will not be comparable for
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 year ended December 31,
1998 is the price received for dry residue gas and the price per mcf for natural
gas produced prior to October 1997 was presented as a price for wet gas (i.e.,
natural gas liquids combined with dry residue gas).
The average price received per barrel of oil decreased $6.11, or 31%, from
$19.45 in 1997 to $13.34 in 1998. The average price received per barrel of NGLs
decreased $4.07, or 39%, from $10.56 in 1997 to $6.49 in 1998. The average price
received per mcf of gas decreased 31% from $2.32 in 1997 to $1.60 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 in 1998.
A gain on disposition of assets of $3,702 and $194,795 was recognized
during 1998 and 1997, respectively, from the sale of 16 oil and gas wells.
Total costs and expenses decreased in 1998 to $1,715,723 as compared to
$2,420,282 in 1997, a decrease of $704,559, or 29%. The decrease was primarily
due to declines in the impairment of oil and gas properties, production costs
and general and administrative expenses ("G&A"), offset by an increase in
depletion.
Production costs were $731,005 in 1998 and $848,492 in 1997, resulting in a
$117,487 decrease, or 14%. The decrease was attributable to less operating
expenses due to the sale of 16 oil and gas wells during 1997 and declines in
production taxes and workover expenses.
G&A's components are independent accounting and engineering fees, computer
services, postage and managing general partner personnel costs. During this
period, G&A decreased, in aggregate, 37% from $52,167 in 1997 to $33,000 in
1998. The Partnership paid the managing general partner $27,308 in 1998 and
$42,069 in 1997 for G&A incurred on behalf of the Partnership. G&A is allocated,
in part, to the Partnership by the managing general partner. Such allocated
expenses are determined by the managing general partner based upon its judgement
of the level of activity of the Partnership relative to the managing general
partner's activities and other entities it manages. The method of allocation has
been consistent over the past several years with certain modifications
incorporated to reflect changes in Pioneer USA's overall business activities.
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"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. Declining commodity prices prompted
impairment reviews in 1998 and 1997. As a result of the review and evaluation of
its long-lived assets for impairment, the Partnership recognized non-cash
charges of $430,351 and $1,194,023 related to its oil and gas properties during
1998 and 1997, respectively.
Depletion was $521,367 in 1998 compared to $325,600 in 1997. This
represented an increase of $195,767, or 60%. The increase was the result of a
combination of factors that included a decline in proved reserves during 1998
due to the lower commodity prices, 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 and a reduction in oil production of 3,493 barrels for
the period ended December 31, 1998 compared to the same period in 1997.
1997 compared to 1996
The Partnership's 1997 oil and gas revenues decreased 21% to $1,402,306
from $1,768,325 in 1996. The decrease in revenues resulted from declines in
production and lower average prices received. In 1997,
4
<PAGE> 224
50,079 barrels of oil, 9,475 barrels of NGLs and 141,525 mcf of gas were sold,
or 83,142 BOEs. In 1996, 58,125 barrels of oil and 190,717 mcf of gas were sold,
or 89,911 BOEs.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. As is described above in "Results of
Operations -- 1998 compared to 1997", the Partnership changed its method of
accounting for processed natural gas to a dry gas basis in the fourth quarter of
1997. As a result of this change, the Partnership now accounts for processed
natural gas production as processed natural gas liquids and dry residue gas.
Consequently, 1997 and 1996 separate product volumes are not comparable.
The declines in production volumes were primarily attributable to the
decline characteristics of the Partnership's oil and gas properties.
The average price received per barrel of oil decreased $2.30, or 11%, from
$21.75 in 1996 to $19.45 in 1997. The average price received per barrel of NGLs
during 1997 was $10.56. The average price received per mcf of gas decreased 12%
from $2.64 in 1996 to $2.32 in 1997. 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 in 1997.
As is described in "Results of Operations" -- 1998 compared to 1997", gain
on disposition of assets of $194,795 was recognized during 1997 from the sale of
16 oil and gas wells. A gain on disposition of assets of $932 was received
during 1996 from equipment credits received on two fully depleted wells.
On April 29, 1996, Southmark Corporation, Pioneer USA and the Partnership
entered into a final $7.4 million settlement agreement with Jack N. Price
resolving all outstanding litigation between the parties. As a result, all of
the pending lawsuits and judgments have been dismissed, the supersedeas bond
released, and the Reserve released as collateral. On June 28, 1996, a final
distribution was made to the working interest owners of $852,211 which included
$669,535, or $34.33 per limited partnership interest, to the Partnership and its
partners.
Total costs and expenses increased in 1997 to $2,420,282 as compared to
$1,157,195 in 1996, an increase of $1,263,087. The increase was primarily due to
the impairment of oil and gas properties in addition to increases in production
costs and depletion, offset by a decrease in G&A.
Production costs were $848,492 in 1997 and $784,014 in 1996, resulting in a
$64,478 increase, or 8%. The increase was attributable to higher well
maintenance costs and workover expenses incurred in an effort to stimulate well
production, offset by a decline in production taxes.
During this period, G&A decreased, in aggregate, 15% from $61,613 in 1996
to $52,167 in 1997. The Partnership paid the managing general partner $42,069 in
1997 and $53,004 in 1996 for G&A incurred on behalf of the Partnership.
The Partnership recognized a non-cash SFAS 121 impairment provision of
$1,194,023 related to its proved oil and gas properties during the fourth
quarter of 1997.
Depletion was $325,600 in 1997 compared to $311,568 in 1996. This
represented an increase of $14,032, or 5%. The increase was attributable to a
decline in oil reserves during 1997 as a result of lower commodity prices,
offset by a decline in oil production of 8,046 barrels for 1997 as compared to
1996.
IMPACT OF INFLATION AND CHANGING PRICES ON SALES AND NET INCOME
Inflation impacts the fixed overhead rate charges of the lease operating
expenses for the Partnership. During 1998, the annual change in the index of
average weekly earnings of crude petroleum and gas production workers issued by
the U.S. Department of Labor, Bureau of Labor Statistics increased (effective
April 1, 1998) 10.3%. The 1997 annual change in average weekly earnings
increased by 2%. The 1996 index increased 4.1%. The impact of inflation for
other lease operating expenses is small due to the current economic condition of
the oil industry.
5
<PAGE> 225
The oil and gas industry experienced volatility during the past decade
because of the fluctuation of the supply of most fossil fuels relative to the
demand for such products and other uncertainties in the world energy markets
causing significant fluctuations in oil and gas prices. During 1998, the price
per barrel for oil production similar to the Partnership's ranged from
approximately $9.50 to $15.50. During most of 1997 and 1996, 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 March 1999. On March 8, 1999, the market price for West Texas intermediate
crude was $11.00 per barrel. A continuation of the current commodity price
environment experienced will continue to have an adverse effect on the
Partnership's revenues, operating cash flow and distributions and could result
in additional decreases in the carrying value of the Partnership's oil and gas
properties.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $186,202 during the
year ended December 31, 1998 from 1997. This decrease was primarily due to a
decline in oil and gas sales receipts, offset by declines in production costs
and G&A expenses paid.
Net Cash Provided by (Used in) Investing Activities
The Partnership's investing activities during 1998 and 1997 included
expenditures related to equipment replacement on various oil and gas properties.
Proceeds from disposition of assets of $271,839 and $268,137, respectively,
were received during 1998 and 1997 from the sale of 16 oil and gas wells in
1997.
Net Cash Used in Financing Activities
Cash was sufficient in 1998 for distributions to the partners of $523,583
of which $119,259 was distributed to the general partners and $404,324 to the
limited partners. In 1997, cash was sufficient for distributions to the partners
of $632,355 of which $154,481 general partners and $477,874 to the limited
partners.
The current commodity price environment will continue to impact the
distributions and could result in limited or no distributions to the partners.
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.
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
at varying stages of completion as it pertains to information technology and
non-information technology applications and
6
<PAGE> 226
systems in the United States, Canada and Argentina. As of December 31, 1998, the
managing general partner estimates that the assessment phase is approximately
86% complete, on a worldwide basis, and has included, but is not limited to, the
following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- 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 to
approximately 37% of those inquiries.
The remedial phase of the managing general partner's Year 2000 project is
also at varying 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 December 31, 1998, the
managing general partner estimates that the remedial phase is approximately 54%
complete, on a worldwide basis, subject to the continuing 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 through remedial coding and is currently testing this system for Year
2000 compliance. The remediation of non-information technology is expected to be
completed during July 1999. The managing general partner's Year 2000 remedial
actions have not significantly 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 and non-information technology remediation by the end of the third
quarter of 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. The managing general partner intends to use its working capital to pay
for the costs of the Year 2000 projects. As of December 31, 1998, the managing
general partner's total costs incurred on the Year 2000 problem were $1.8
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 in accordance with the general and
administration allocation. (See Note 2 of Notes to Financial Statements included
in "Item 8. Financial Statements and Supplementary Data".)
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.
7
<PAGE> 227
In the assessment phase of the managing general partner's Year 2000
project, contingency plans are being 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.
8
<PAGE> 228
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Parker & Parsley 83-A, Ltd:
Independent Auditors' Report -- Ernst & Young LLP......... 10
Independent Auditors' Report -- KPMG LLP.................. 11
Balance Sheets as of December 31, 1998 and 1997........... 12
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996.................................... 13
Statements of Partners' Capital for the Years Ended
December 31, 1998, 1997 and 1996....................... 14
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996.................................... 15
Notes to Financial Statements............................. 16
</TABLE>
9
<PAGE> 229
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 83-A, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheet of Parker & Parsley 83-A, Ltd. as of
December 31, 1998, and the related statements of operations, partners' capital
and cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 83-A, Ltd.
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Dallas, Texas
March 15, 1999
10
<PAGE> 230
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 83-A, Ltd.
(A Texas Limited Partnership):
We have audited the financial statements of Parker & Parsley 83-A, Ltd. as
of December 31, 1997, and the related statements of operations, partners'
capital and cash flows for the years ended December 31, 1997 and 1996. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 83-A, Ltd.
as of December 31, 1997, and the results of its operations and its cash flows
for the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
KPMG LLP
Midland, Texas
March 20, 1998
11
<PAGE> 231
PARKER & PARSLEY 83-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash...................................................... $ 94,700 $ 173,276
Accounts receivable:
Oil and gas sales...................................... 101,658 141,577
Other.................................................. -- 268,137
------------ ------------
Total current assets.............................. 196,358 582,990
------------ ------------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 16,884,175 16,869,232
Accumulated depletion....................................... (15,388,824) (14,437,106)
------------ ------------
Net oil and gas properties........................ 1,495,351 2,432,126
------------ ------------
$ 1,691,709 $ 3,015,116
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable -- affiliate............................. $ 23,407 $ 38,648
Partners' capital:
General partners.......................................... 164,245 336,024
Limited partners (19,505 interests)....................... 1,504,057 2,640,444
------------ ------------
1,668,302 2,976,468
------------ ------------
$ 1,691,709 $ 3,015,116
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 232
PARKER & PARSLEY 83-A, LTD
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Oil and gas............................................ $ 910,252 $1,402,306 $1,768,325
Interest............................................... 17,186 11,539 18,988
Gain on disposition of assets.......................... 3,702 194,795 932
Litigation settlement.................................. -- -- 852,211
---------- ---------- ----------
931,140 1,608,640 2,640,456
---------- ---------- ----------
Costs and expenses:
Oil and gas production................................. 731,005 848,492 784,014
General and administrative............................. 33,000 52,167 61,613
Impairment of oil and gas properties................... 430,351 1,194,023 --
Depletion.............................................. 521,367 325,600 311,568
---------- ---------- ----------
1,715,723 2,420,282 1,157,195
---------- ---------- ----------
Net income (loss)........................................ $ (784,583) $ (811,642) $1,483,261
========== ========== ==========
Allocation of net income (loss):
General partners....................................... $ (52,520) $ (1,662) $ 389,185
========== ========== ==========
Limited partners....................................... $ (732,063) $ (809,980) $1,094,076
========== ========== ==========
Net income (loss) per limited partnership interest....... $ (37.53) $ (41.53) $ 56.09
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 233
PARKER & PARSLEY 83-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
--------- ----------- -----------
<S> <C> <C> <C>
Partners' capital at January 1, 1996................... $ 498,847 $ 4,252,851 $ 4,751,698
Distributions........................................ (395,865) (1,418,629) (1,814,494)
Net income........................................... 389,185 1,094,076 1,483,261
--------- ----------- -----------
Partners' capital at December 31, 1996................. 492,167 3,928,298 4,420,465
Distributions........................................ (154,481) (477,874) (632,355)
Net loss............................................. (1,662) (809,980) (811,642)
--------- ----------- -----------
Partners' capital at December 31, 1997................. 336,024 2,640,444 2,976,468
Distributions........................................ (119,259) (404,324) (523,583)
Net loss............................................. (52,520) (732,063) (784,583)
--------- ----------- -----------
Partners' capital at December 31, 1998................. $ 164,245 $ 1,504,057 $ 1,668,302
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 234
PARKER & PARSLEY 83-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................... $(784,583) $ (811,642) $ 1,483,261
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Impairment of oil and gas properties............... 430,351 1,194,023 --
Depletion.......................................... 521,367 325,600 311,568
Gain on disposition of assets...................... (3,702) (194,795) (932)
Changes in assets and liabilities:
Accounts receivable................................ 39,919 (138,714) (107,980)
Accounts payable................................... (15,241) (159) (75,160)
--------- ---------- -----------
Net cash provided by operating activities..... 188,111 374,313 1,610,757
--------- ---------- -----------
Cash flows from investing activities:
Additions to oil and gas properties................... (14,943) (8,483) (3,311)
Proceeds from asset dispositions...................... 271,839 268,137 932
--------- ---------- -----------
Net cash provided by (used in) investing
activities.................................. 256,896 259,654 (2,379)
--------- ---------- -----------
Cash flows from financing activities:
Cash distributions to partners........................ (523,583) (632,355) (1,814,494)
--------- ---------- -----------
Net increase (decrease) in cash......................... (78,576) 1,612 (206,116)
Cash at beginning of year............................... 173,276 171,664 377,780
--------- ---------- -----------
Cash at end of year..................................... $ 94,700 $ 173,276 $ 171,664
========= ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 235
PARKER & PARSLEY 83-A LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 83-A, Ltd. (the "Partnership") is a limited partnership
organized in 1983 under the laws of the State of Texas. On August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership, joining the existing general partner, P&P Employees
83-A, Ltd. ("EMPL"), a Texas limited partnership whose general partner is
Pioneer USA, and 19,505 limited partnership interests as of March 8, 1999. Prior
to August 8, 1997, the Partnership's managing general partner and the general
partner of EMPL was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. received shareholder approval to merge
and create Pioneer Natural Resources Company ("Pioneer"). On August 8, 1997,
PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership and the general partner of EMPL as Pioneer USA's successor by
merger.
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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties -- The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as determined by the engineering staff of Pioneer
USA, the Partnership's managing general partner, and reviewed by independent
petroleum consultants. The carrying amounts of properties sold or otherwise
disposed of and the related allowances for depletion are eliminated from the
accounts and any gain or loss is included in operations.
Impairment of long-lived assets -- 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"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -- Preparation
of the accompanying financial statements 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 reporting amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest -- The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
16
<PAGE> 236
PARKER & PARSLEY 83-A LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
Income taxes -- A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows -- For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses -- General and administrative expenses
are allocated in part to the Partnership by the managing general partner or its
affiliates. Such allocated expenses are determined by the managing general
partner based upon its judgement of the level of activity of the Partnership
relative to the managing general partner's activities and other entities it
manages. The method of allocation has been consistent over the past several
years with certain modifications incorporated to reflect changes in Pioneer
USA's overall business activities.
Reclassifications -- Certain reclassifications may have been made to the
1997 and 1996 financial statements to conform to the 1998 financial statement
presentation.
Environmental -- The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 1998.
Revenue recognition -- The Partnership uses the entitlements method of
accounting for crude oil and natural gas revenues.
Reporting comprehensive income -- Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes
standards for the reporting and display of comprehensive income (loss) and its
components in a full set of general purpose financial statements. Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss).
The Partnership has no items of other comprehensive income (loss), as defined by
SFAS No. 130. Consequently, the provisions of SFAS No. 130 do not apply to the
Partnership.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. Based upon a decline in the Partnership's outlook for future
commodity prices, the Partnership has estimated the expected future cash flows
of its oil and gas properties as of December 31, 1998, 1997 and 1996, and
compared such estimated future cash flows to the respective carrying amount of
the oil and gas properties to determine if the carrying amounts were likely to
be recoverable. For those proved oil and gas properties for which the carrying
amount exceeded the estimated future cash flows, an impairment was determined to
exist; therefore, the Partnership adjusted the carrying amount of those oil and
gas properties to their fair value as determined by discounting their expected
future cash flows at a discount rate commensurate with the risks involved in the
industry. As a result, the Partnership recognized non-cash impairment provisions
of $430,351 and $1,194,023 related to its proved oil and gas properties during
1998 and 1997, respectively.
17
<PAGE> 237
PARKER & PARSLEY 83-A LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $867,622 less than the tax basis at December 31, 1998.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ----------
<S> <C> <C> <C>
Net income (loss) per statements of operations........... $(784,583) $(811,642) $1,483,261
Depletion and depreciation provisions for tax reporting
purposes less than amounts for financial reporting
purposes............................................... 510,610 320,988 307,068
Impairment of oil and gas properties for financial
reporting purposes..................................... 430,351 1,194,023 --
Salvage income........................................... -- -- 934
Other, net............................................... 891 45,291 (13,346)
--------- --------- ----------
Net income per Federal income tax returns.............. $ 157,269 $ 748,660 $1,777,917
========= ========= ==========
</TABLE>
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Development costs......................................... $14,943 $8,483 $2,372
======= ====== ======
</TABLE>
Capitalized oil and gas properties consist of the following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Proved properties:
Property acquisition costs................................ $ 1,000,072 $ 1,000,072
Completed wells and equipment............................. 15,884,103 15,869,160
------------ ------------
16,884,175 16,869,232
Accumulated depletion..................................... (15,388,824) (14,437,106)
------------ ------------
Net capitalized costs..................................... $ 1,495,351 $ 2,432,126
============ ============
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $370,984 $364,699 $344,400
Reimbursement of general and administrative
expenses........................................... $ 27,308 $ 42,069 $ 53,004
</TABLE>
Pioneer USA, EMPL and the Partnership are parties to the partnership
agreement. EMPL is a limited partnership in which Pioneer USA owns 79% and the
remaining portion owned by former affiliates. In addition, Pioneer USA owned 587
limited partner interests at January 1, 1999.
18
<PAGE> 238
PARKER & PARSLEY 83-A LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
The costs and revenues of the Partnership are allocated as follows:
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS
-------- --------
<S> <C> <C>
Revenues:
Proceeds from property dispositions prior to cost
recovery............................................... 10% 90%
All other Partnership revenues.............................. 25% 75%
Costs and expenses:
Lease acquisition costs, drilling and completion costs.... 10% 90%
Operating costs, direct costs and general and
administrative expenses................................ 25% 75%
Incremental direct expenses................................. -- 100%
</TABLE>
Incremental direct expenses are direct expenses which would not be incurred
except for the requirements of the securities regulatory authorities. Such
expenses totaled $5,692, $10,098 and $8,609 in 1998, 1997 and 1996,
respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 1998, 1997 and 1996 and
changes in such quantities during the years then ended. Due to a change in the
accounting policy of the managing general partner in 1997, the Partnership began
accounting for processed natural gas production in two components: processed
natural gas liquids ("NGLs") and dry residue gas. NGLs are reflected in "Oil and
NGLs" in the table below. All of the Partnership's reserves are proved developed
and located within the United States. The Partnership's reserves are based on an
evaluation prepared by the engineering staff of Pioneer USA and reviewed by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant,
using criteria established by the Securities and Exchange Commission. Reserve
value information is available to limited partners pursuant to the partnership
agreement and, therefore, is not presented.
<TABLE>
<CAPTION>
OIL AND NGLS GAS
(BBLS) (MCF)
------------ ----------
<S> <C> <C>
Net proved reserves at January 1, 1996...................... 736,467 2,646,857
Revisions................................................... 183,451 866,997
Production.................................................. (58,125) (190,717)
-------- ----------
Net proved reserves at December 31, 1996.................... 861,793 3,323,137
Revisions................................................... 12,176 (1,986,781)
Sale of reserves............................................ (48,924) (14,964)
Production.................................................. (59,554) (141,525)
-------- ----------
Net proved reserves at December 31, 1997.................... 765,491 1,179,867
Revisions................................................... (361,806) (528,746)
Production.................................................. (67,612) (95,156)
-------- ----------
Net proved reserves at December 31, 1998.................... 336,073 555,965
======== ==========
</TABLE>
As of December 31, 1998, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 1998 prices of $10.61 per
barrel of oil, $5.39 per barrel of NGLs and $1.38 per mcf of gas, discounted at
10% was approximately $512,000 and undiscounted was $719,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are
19
<PAGE> 239
PARKER & PARSLEY 83-A LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
based on various assumptions, which may ultimately prove to be inaccurate.
Therefore, such estimates should not be construed as estimates of the current
market value of the Partnership's proved reserves. The Partnership emphasizes
that reserve estimates are inherently imprecise and, accordingly, the estimates
are expected to change as future information becomes available.
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Genesis Crude Oil, L.P...................................... 64% 62% 62%
Western Gas Resources, Inc.................................. 17% 18% 15%
</TABLE>
At December 31, 1998, the amounts receivable from Genesis Crude Oil, L.P.
and Western Gas Resources, Inc. were $35,562 and $24,557, respectively, which
are included in the caption "Accounts receivable -- oil and gas sales" in the
accompanying Balance Sheet.
The Partnership's share of oil and gas production is sold to various
purchasers. Pioneer USA is of the opinion that the loss of any one purchaser
would not have an adverse effect on the ability of the Partnership to sell its
oil and gas production.
NOTE 9. ORGANIZATION AND OPERATIONS
The Partnership was organized July 1, 1983 as a limited partnership under
the Texas Uniform Limited Partnership Act for the purpose of acquiring and
developing oil and gas properties. The following is a brief summary of the more
significant provisions of the limited partnership agreement:
General partners -- The general partners of the Partnership are Pioneer USA
and EMPL. Pioneer USA, the managing general partner, has the power and authority
to manage, control and administer all Partnership affairs. As managing general
partner and operator of the Partnership's properties, all production expenses
are incurred by Pioneer USA and billed to the Partnership and a portion of
revenue is initially received by Pioneer USA prior to being paid to the
Partnership.
Limited partner liability -- The maximum amount of liability of any limited
partner is the total contributions of such partner plus his share of any
undistributed profits.
Initial capital contributions -- The limited partners entered into
subscription agreements for aggregate capital contributions of $19,505,000. The
general partners are required to contribute amounts equal to 10% of Partnership
expenditures for lease acquisition, drilling and completion and 25% of direct,
general and administrative and operating expenses, and by agreement must
maintain a calculated minimum capital balance.
NOTE 10. DISPOSITION OF ASSETS
Gains on disposition of assets of $3,702 and $194,795 were recognized
during 1998 and 1997, respectively, from the sale of 16 oil and gas wells.
20
<PAGE> 240
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and
executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve
until the next annual meeting of stockholders or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31,
NAME 1998 POSITION
---- ------------ --------
<S> <C> <C>
Scott D. Sheffield................. 46 President and Director
Timothy L. Dove.................... 42 Executive Vice President and
Director
Dennis E. Fagerstone............... 49 Executive Vice President and
Director
Mark L. Withrow.................... 51 Executive Vice President, General
Counsel and Director
M. Garrett Smith................... 37 Executive Vice President, Chief
Financial Officer and Director
Mel Fischer(a)..................... 64 Executive Vice President
Lon C. Kile........................ 43 Executive Vice President
Rich Dealy......................... 32 Vice President and Chief Accounting
Officer
</TABLE>
- ---------------
(a) Mr. Fischer was a director and officer until his retirement from Pioneer
and Pioneer USA on February 19, 1999.
Scott D. Sheffield. Mr. Sheffield is a distinguished graduate of The
University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he
has served as President, Chief Executive Officer and a director of Pioneer and
President and a director of Pioneer USA. Mr. Sheffield was the President and a
director of Parker & Parsley from May 1990 until August 1997 and was the
Chairman of the Board and Chief Executive Officer of Parker & Parsley from
October 1990 until August 1997. He was the sole director of Parker & Parsley
from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley
Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum
engineer in 1979. He served as Vice President -- Engineering of PPDC from
September 1981 until April 1985 when he was elected President and a director. In
March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive
Officer of PPDC. Before joining PPDC, Mr. Sheffield was employed as a production
and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President -- Business
Development of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. Mr. Dove joined Parker & Parsley in May
1994 as Vice President -- International and was promoted to Senior Vice
President -- Business Development in October 1996, in which position he served
until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with
Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various
capacities in international exploration and production, marketing, refining and
marketing and planning and development. Mr. Dove earned a B.S. in Mechanical
Engineering from Massachusetts Institute of Technology in 1979 and received his
M.B.A. in 1981 from the University of Chicago.
21
<PAGE> 241
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of Mesa from March 1, 1997 until August 1997. From October
1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief
Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice
President -- Exploration and Production of Mesa. From June 1988 to May 1991, Mr.
Fagerstone served as Vice President -- Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B.S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President -- General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President -- General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
M. Garrett Smith. Mr. Smith, a graduate of The University of Texas with a
B.S. in Electrical Engineering and Southern Methodist University with an M.B.A.,
was appointed Executive Vice President and Chief Financial Officer of Pioneer in
December 1997. He served as Senior Vice President -- Finance of Pioneer from
August 1997 until December 1997. Mr. Smith was elected Senior Vice President --
Finance and a director of Pioneer USA in August 1997. He served as Vice
President -- Corporate Acquisitions of Mesa from January 1997 until August 1997.
From October 1996 to December 1996, Mr. Smith served as Vice
President -- Finance of Mesa and from 1994 to 1996 he served as Director of
Financial Planning of Mesa. Mr. Smith was employed by BTC Partners, Inc. (a
former financial advisor to Mesa) from 1989 to 1994.
Mel Fischer. Mr. Fischer, a graduate of the University of California at
Berkeley with a Masters degree in Geology, became Executive Vice
President -- Worldwide Exploration of Pioneer and Pioneer USA in August 1997. He
served as a director of Parker & Parsley from November 1995 until August 1997
and was Executive Vice President -- Worldwide Exploration for Parker & Parsley
from February 1997 to August 1997. Mr. Fischer retired from Pioneer and Pioneer
USA effective February 19, 1999. He worked in the petroleum industry for 32
years, starting as a Petroleum Geologist with Texaco in 1962, and retiring as
President, Occidental International Exploration and Production Company in March
1994. For the 10 years prior to becoming President of Occidental International,
he served as Executive Vice President, World Wide Exploration with Occidental
Oil and Gas Corporation. He is a registered geologist in the State of
California, a member of the American Association of Petroleum Geologists and an
emeritus member of the Board of Advisors for the Earth Sciences Research
Institute at the University of Utah.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a
B.B.A. in Accounting, became Executive Vice President of Pioneer and Pioneer USA
in August 1997. Mr. Kile was Senior Vice President -- Investor Relations from
October 1996 to August 1997. Previously, he served as Vice President and Manager
of the Mid-Continent Division, Vice President -- Equity Finance & Analysis and
Vice President -- Marketing & Program Administration. Prior to joining Parker &
Parsley in 1985, he was employed as Supervisor -- Senior, Audit, in charge of
Parker & Parsley's audit, with Arthur Young.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a
B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became
Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
22
<PAGE> 242
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is vested in Pioneer USA, the managing general partner. Under the
partnership agreement, Pioneer USA pays 8% of the Partnership's acquisition,
drilling and completion costs and 20% of its operating and general and
administrative expenses. In return, Pioneer USA is allocated 20% of the
Partnership's revenues. See Notes 6 and 9 of Notes to Financial Statements
included in "Item 8. Financial Statements and Supplementary Data" for
information regarding fees and reimbursements paid to the managing general
partner or its affiliates by the Partnership.
EMPL is a co-general partner of the Partnership. Under this arrangement,
EMPL pays 2% of the Partnership's acquisition, drilling and completion costs and
5% of its operating and general and administrative expenses. In return, EMPL is
allocated 5% of the Partnership's revenues. EMPL does not receive any fees or
reimbursements from the Partnership.
The Partnership does not directly pay any salaries of the executive
officers of Pioneer USA, but does pay a portion of Pioneer USA's general and
administrative expenses of which these salaries are a part. See Note 6 of Notes
to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more
of the outstanding limited partnership interests of the Partnership. Pioneer USA
and EMPL respectively own 80% and 20% of the general partners' interests in the
Partnership. Pioneer USA owned 587 limited partner interests at January 1, 1999.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing
general partner of the Partnership, Pioneer USA, has the exclusive right and
full authority to manage, control and administer the Partnership's business.
Under the limited partnership agreement, limited partners holding a majority of
the outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner or its affiliates
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $370,984 $364,699 $344,400
Reimbursement of general and administrative
expenses........................................... $ 27,308 $ 42,069 $ 53,004
</TABLE>
Under the limited partnership agreement, the general partners, Pioneer USA
and EMPL, together pay 10% of Partnership's acquisition, drilling and completion
costs and 25% of its operating and general and administrative expenses. In
return, they are allocated 25% of the Partnership's revenues. Twenty percent of
the general partners' share of costs and revenues is allocated to EMPL and the
remainder is allocated to Pioneer USA. Certain former affiliates of Pioneer USA
are limited partners of EMPL. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Partnership.
23
<PAGE> 243
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial statements
The following are filed as part of this annual report:
Independent Auditors' Report -- Ernst & Young LLP
Independent Auditors' Report -- KPMG LLP
Balance sheets as of December 31, 1998 and 1997
Statements of operations for the years ended December 31, 1998, 1997
and 1996
Statements of partners' capital for the years ended December 31, 1998,
1997 and 1996
Statements of cash flows for the years ended December 31, 1998, 1997
and 1996
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this annual report.
24
<PAGE> 244
SIGNATURES
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 83-A, LTD.
By: Pioneer Natural Resources
USA, Inc.
Managing General Partner
By: /s/ SCOTT D. SHEFFIELD
----------------------------------
Scott D. Sheffield,
President
Dated: March 23, 1999
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 date indicated.
<TABLE>
<C> <S> <C>
/s/ SCOTT D. SHEFFIELD President and Director of Pioneer USA March 23, 1999
- -----------------------------------------------------
Scott D. Sheffield
/s/ TIMOTHY L. DOVE Executive Vice President and Director March 23, 1999
- ----------------------------------------------------- of Pioneer USA
Timothy L. Dove
/s/ DENNIS E. FAGERSTONE Executive Vice President and Director March 23, 1999
- ----------------------------------------------------- of Pioneer USA
Dennis E. Fagerstone
/s/ MARK L. WITHROW Executive Vice President, General March 23, 1999
- ----------------------------------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ M. GARRETT SMITH Executive Vice President, Chief March 23, 1999
- ----------------------------------------------------- Financial Officer and Director of
M. Garrett Smith Pioneer USA
/s/ LON C. KILE Executive Vice President of Pioneer March 23, 1999
- ----------------------------------------------------- USA
Lon C. Kile
/s/ RICH DEALY Vice President and Chief Accounting March 23, 1999
- ----------------------------------------------------- Officer of Pioneer USA
Rich Dealy
</TABLE>
25
<PAGE> 245
PARKER & PARSLEY 83-A, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1 -- Agreement of Limited Partnership of Parker & Parsley
83-A, Ltd. incorporated by reference to Exhibit 4(e) of
Partnership's Registration Statement on Form S-1
(Registration No. 2-81398A), as amended on April 26,
1983, the effective date thereof (hereinafter called, the
Partnership's Registration Statement)
3.2 -- Amended and Restated Certificate of Limited Partnership
of Parker & Parsley 83-A, Ltd. incorporated by reference
to Exhibit 3.2 of the Partnership's Annual Report on Form
10-K for the period from July 1, 1983 (date of
organization) through December 31, 1983
4.1 -- Form of Subscription Agreement and Power of Attorney
incorporated by reference to Exhibit 4(b) of the
Partnership's Registration Statement
4.2 -- Specimen Certificate of Limited Partnership Interest
incorporated by reference to Exhibit 4(d) of the
Partnership's Registration Statement
27.1* -- Financial Data Schedule
99.1 -- Mutual Release and Indemnity Agreement dated May 25, 1993
incorporated by reference to Exhibit 99.1 of the
Partnership's Annual Report on Form 10-K for the year
ended December 31, 1993
</TABLE>
- ---------------
* filed herewith
<PAGE> 246
PARKER & PARSLEY 83-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
DECEMBER 31, 1998, 1997 AND 1996
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. Future income taxes are calculated by comparing
discounted future cash flows to the tax basis of oil and gas properties plus
available carryforwards and credits and applying the current tax rates to the
difference.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and gas producing activities:
Future cash inflows....................................... $ 3,651 $14,585 $ 33,916
Future production costs................................... (2,932) (9,813) (18,662)
Future development costs.................................. -- -- 298
------- ------- --------
719 4,772 15,552
10% annual discount factor................................ (207) (1,922) (7,744)
------- ------- --------
Standardized measure of discounted future net cash
flows.................................................. $ 512 $ 2,850 $ 7,808
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs................ $ (179) $ (554) $ (984)
Net changes in prices and production costs................ (1,843) (3,728) 3,413
Extensions and discoveries................................ -- -- --
Sales of minerals-in-place................................ -- (416) --
Purchases of minerals-in-place............................ -- -- --
Revisions of estimated future development costs........... -- (178) (148)
Revisions of previous quantity estimates and reserves
added by development drilling.......................... (450) (871) 1,978
Accretion of discount..................................... 285 781 403
Changes in production rates, timing and other............. (151) 8 (884)
------- ------- ------
Change in present value of future net revenues............ (2,338) (4,958) 3,778
------- ------- ------
Balance, beginning of year................................ 2,850 7,808 4,030
------- ------- ------
Balance, end of year...................................... $ 512 $ 2,850 $7,808
======= ======= ======
</TABLE>
<PAGE> 247
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 83-B, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT DATED , 1999
----------------------
THE DATE OF THIS SUPPLEMENT IS , 1999
----------------------
This document contains important information specific to Parker & Parsley
83-B, Ltd. and supplements the proxy statement dated , 1999, of
Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies
to be voted at a special meeting of limited partners of the partnerships
described in the proxy statement. The purpose of the special meeting is for you
to vote upon the merger of Parker & Parsley 83-B, Ltd. with and into Pioneer USA
that, if completed, will result in your receiving cash for your partnership
interests.
This supplement contains the following information concerning Parker &
Parsley 83-B, Ltd.:
- A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through June
30, 1999
-- the merger value per $1,000 limited partner investment as of June 30,
1999
-- the merger value per $1,000 limited partner investment as a multiple
of distributions for the 12 months ended June 30, 1999
-- the book value per $1,000 limited partner investment as of June 30,
1999 and as of December 31, 1998 and
-- the ordinary tax loss per $1,000 limited partner investment in year
of initial investment
- Quarterly Report on Form 10-Q for the six months ended June 30, 1999
- Annual Report on Form 10-K for the year ended December 31, 1998
- Disclosures about the partnership's oil and gas producing activities
<PAGE> 248
PARKER & PARSLEY 83-B, LTD.
SUPPLEMENTAL INFORMATION TABLE
<TABLE>
<S> <C>
Aggregate Initial Investment by the Limited Partners(a)..... $23,370
Aggregate Historical Limited Partner Distributions through
June 30, 1999(a).......................................... $34,151
Merger Value per $1,000 Limited Partner Investment as of
June 30, 1999(b).......................................... $ 96.43
Merger Value per $1,000 Limited Partner Investment as a
Multiple of Distributions for the 12 Months ended June 30,
1999(b)................................................... 13.00times
Book Value per $1,000 Limited Partner Investment:
-- as of June 30, 1999(b)................................. $ 92.62
-- as of December 31, 1998(b)............................. $ 94.03
Ordinary Tax Loss per $1,000 Limited Partner Investment in
Year of Initial Investment(b), (c)........................ $ 436
</TABLE>
- ---------------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as any
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
<PAGE> 249
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JUNE 30, 1999
COMMISSION FILE NO. 2-81398B
PARKER & PARSLEY 83-B, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-1907245
(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)
</TABLE>
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> 250
PARKER & PARSLEY 83-B, LTD.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1999 and December 31, 1998.......... 3
Statements of Operations for the three and six months ended June 4
30, 1999 and 1998.................................................
Statement of Partners' Capital for the six months ended June 30, 5
1999..............................................................
Statements of Cash Flows for the six months ended June 30, 1999 6
and 1998..........................................................
Notes to Financial Statements..................................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 8
RESULTS OF OPERATIONS..........................................
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................... 11
27.1 Financial Data Schedule
Signatures........................................................ 12
</TABLE>
2
<PAGE> 251
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER & PARSLEY 83-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 216,407 $ 173,699
Accounts receivable -- oil and gas sales.................. 229,851 150,704
------------ ------------
Total current assets.............................. 446,258 324,403
------------ ------------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 19,491,240 19,489,320
Accumulated depletion....................................... (17,404,813) (17,284,587)
------------ ------------
Net oil and gas properties........................ 2,086,427 2,204,733
------------ ------------
$ 2,532,685 $ 2,529,136
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 59,378 $ 34,427
Partners' capital:
General partners.......................................... 308,663 297,127
Limited partners (23,370 interests)....................... 2,164,644 2,197,582
------------ ------------
2,473,307 2,494,709
------------ ------------
$ 2,532,685 $ 2,529,136
============ ============
</TABLE>
The financial information included as of June 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
<PAGE> 252
PARKER & PARSLEY 83-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas.................................... $379,880 $324,521 $621,001 $669,914
Interest....................................... 2,383 3,077 4,336 6,622
Gain on disposition of assets.................. -- 157 -- 157
-------- -------- -------- --------
382,263 327,755 625,337 676,693
-------- -------- -------- --------
Costs and expenses:
Oil and gas production......................... 210,785 262,138 416,974 529,323
General and administrative..................... 12,187 10,964 21,326 21,809
Depletion...................................... 38,612 74,979 120,226 155,978
-------- -------- -------- --------
261,584 348,081 558,526 707,110
-------- -------- -------- --------
Net income (loss)................................ $120,679 $(20,326) $ 66,811 $(30,417)
======== ======== ======== ========
Allocation of net income (loss):
General partners................................. $ 36,160 $ 6,449 $ 35,411 $ 16,197
======== ======== ======== ========
Limited partners................................. $ 84,519 $(26,775) $ 31,400 $(46,614)
======== ======== ======== ========
Net income (loss) per limited partnership
interest....................................... $ 3.61 $ (1.14) $ 1.34 $ (1.99)
======== ======== ======== ========
Distributions per limited partnership interest... $ 1.79 $ 1.50 $ 2.75 $ 7.10
======== ======== ======== ========
</TABLE>
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> 253
PARKER & PARSLEY 83-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1, 1999................................ $297,127 $2,197,582 $2,494,709
Distributions........................................... (23,875) (64,338) (88,213)
Net income.............................................. 35,411 31,400 66,811
-------- ---------- ----------
Balance at June 30, 1999.................................. $308,663 $2,164,644 $2,473,307
======== ========== ==========
</TABLE>
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> 254
PARKER & PARSLEY 83-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 66,811 $(30,417)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depletion.............................................. 120,226 155,978
Gain on disposition of assets.......................... -- (157)
Changes in assets and liabilities:
Accounts receivable.................................... (79,147) 55,351
Accounts payable....................................... 24,951 11,694
-------- --------
Net cash provided by operating activities......... 132,841 192,449
-------- --------
Cash flows from investing activities:
Additions to oil and gas properties....................... (2,390) (12,611)
Proceeds from asset disposition........................... 470 10,974
-------- --------
Net cash used in investing activities............. (1,920) (1,637)
-------- --------
Cash flows used in financing activities:
Cash distributions to partners............................ (88,213) (222,020)
-------- --------
Net increase (decrease) in cash............................. 42,708 (31,208)
Cash at beginning of period............................... 173,699 232,778
-------- --------
Cash at end of period....................................... $216,407 $201,570
======== ========
</TABLE>
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> 255
PARKER & PARSLEY 83-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. ORGANIZATION AND NATURE OF ORGANIZATION
Parker & Parsley 83-B, Ltd. (the "Partnership") is a limited partnership
organized in 1983 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 June 30, 1999 and for the three and six months ended June 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.
7
<PAGE> 256
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
RESULTS OF OPERATIONS
Six months ended June 30, 1999 compared with six months ended June 30, 1998
Revenues:
The Partnership's oil and gas revenues decreased 7% to $621,001 from
$669,914 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from lower average prices received, offset by a
slight increase in production. For the six months ended June 30, 1999, 27,730
barrels of oil, 17,155 barrels of natural gas liquids ("NGLs") and 79,292 mcf of
gas were sold, or 58,100 barrel of oil equivalents ("BOEs"). For the six months
ended June 30, 1998, 31,285 barrels of oil, 14,787 barrels of NGLs and 71,913
mcf of gas were sold, or 58,058 BOEs.
The average price received per barrel of oil decreased 6% from $14.25 for
the six months ended June 30, 1998 to $13.33 for the same period in 1999. The
average price received per barrel of NGLs increased 6% from $7.46 during the six
months ended June 30, 1998 to $7.94 for the same period in 1999. The average
price received per mcf of gas decreased 8% from $1.58 during the six months
ended June 30, 1998 to $1.45 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 six months ended June 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 $157 was recognized during the six
months ended June 30, 1998 from post closing adjustments received from the sale
of two oil and gas wells and an overriding royalty interest in one well during
1997.
Costs and Expenses:
Total costs and expenses decreased to $558,526 for the six months ended
June 30, 1999 as compared to $707,110 for the same period in 1998, a decrease of
$148,584, or 21%. This decrease resulted from declines in production costs,
depletion and general and administrative expenses ("G&A").
Production costs were $416,974 for the six months ended June 30, 1999 and
$529,323 for the same period in 1998 resulting in a $112,349 decrease, or 21%.
The decrease was due to declines in well maintenance costs, production taxes, ad
valorem taxes and workover expenses.
G&A's components are independent accounting and engineering fees and
managing general partner personnel and operating costs. During this period, G&A
decreased slightly from $21,809 for the six months ended June 30, 1998 to
$21,326 for the same period in 1999.
Depletion was $120,226 for the six months ended June 30, 1999 compared to
$155,978 for the same period in 1998. This represented a decrease in depletion
of $35,752, or 23%. This decrease was primarily attributable to an increase in
proved reserves for the period ended June 30, 1999 due to higher commodity
prices, a reduction in oil production of 3,555 barrels for the six months ended
June 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> 257
Three months ended June 30, 1999 compared with three months ended June 30,
1998
Revenues:
The Partnership's oil and gas revenues increased 17% to $379,880 from
$324,521 for the three months ended June 30, 1999 and 1998, respectively. The
increase in revenues resulted from higher average prices received and an
increase in production. For the three months ended June 30, 1999, 13,447 barrels
of oil, 10,998 barrels of NGLs and 46,749 mcf of gas were sold, or 32,237 BOEs.
For the three months ended June 30, 1998, 15,389 barrels of oil, 7,714 barrels
of NGLs and 36,519 mcf of gas were sold, or 29,190 BOEs.
The average price received per barrel of oil increased $1.45, or 11%, from
$13.60 for the three months ended June 30, 1998 to $15.05 for the three months
ended June 30, 1999. The average price received per barrel of NGLs increased
$1.75, or 23%, from $7.59 during the three months ended June 30, 1998 to $9.34
for the same period in 1999. The average price received per mcf of gas increased
3% from $1.55 during the three months ended June 30, 1998 to $1.60 for the same
period in 1999.
A gain on disposition of assets of $157 was recognized during the three
months ended June 30, 1998 from post closing adjustments received from the sale
of two oil and gas wells and an overriding royalty interest in one well during
1997.
Costs and Expenses:
Total costs and expenses decreased to $261,584 for the three months ended
June 30, 1999 as compared to $348,081 for the same period in 1998, a decrease of
$86,497, or 25%. This decrease resulted from lower production costs and
depletion, offset by an increase in G&A.
Production costs were $210,785 for the three months ended June 30, 1999 and
$262,138 for the same period in 1998 resulting in a $51,353 decrease, or 20%.
The decrease was due to a decline in well maintenance costs.
During this period, G&A increased, in aggregate, 11% from $10,964 for the
three months ended June 30, 1998 to $12,187 for the same period in 1999.
Depletion was $38,612 for the three months ended June 30, 1999 compared to
$74,979 for the same period in 1998, a decrease of $36,367, or 49%. This
decrease was primarily attributable to an increase in proved reserves during the
period ended June 30, 1999 as a result of higher commodity prices, a reduction
in oil production of 1,942 barrels for the three months ended June 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.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $59,608 during the six
months ended June 30, 1999 from the same period ended June 30, 1998. This
decrease was due to a decline in oil and gas sales receipts, offset by decreases
in production costs and G&A expenses paid.
Net Cash Used in Investing Activities
The Partnership's investing activities during the six months ended June 30,
1999 and 1998 were related to oil and gas equipment replacement on active
properties.
Proceeds from asset disposition of $470 were received during the six months
ended June 30, 1999 from equipment credits on active properties. Proceeds of
$10,974 were received during the same period in 1998 from the sale of two oil
and gas wells during 1997.
9
<PAGE> 258
Net Cash Used in Financing Activities
Cash was sufficient for the six months ended June 30, 1999 to cover
distributions to the partners of $88,213 of which $23,875 was distributed to the
general partners and $64,338 to the limited partners. For the same period ended
June 30, 1998, cash was sufficient for distributions to the partners of $222,020
of which $56,182 was distributed to the general partners and $165,838 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 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 early indications that the nations have initiated
their planned reductions, have had some stabilizing effect on commodity prices
during the latter part of the first quarter of 1999 and into August 1999.
However, no assurances can be given that the stabilizing effect of these
actions, or the planned reductions in export volumes, will 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.
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 June 30, 1999, the managing general partner estimates that the
assessment phase is approximately 99% complete and has included, but is not
limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- the formulation of contingency plans for mission-critical information
technology systems.
Through June 30, 1999, the managing general partner had 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 varying 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 June 30, 1999, the managing general partner
estimates that the remedial phase is approximately 83% complete, on a worldwide
basis,
10
<PAGE> 259
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 is expected to be
completed by 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 expects to complete the testing of
information technology systems by October 1999. The testing of the
non-information technology remediation is scheduled to be completed by the end
of November 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. As of June 30, 1999, the managing general partner's total costs
incurred on the Year 2000 problem were $2.3 million, of which approximately $200
thousand were incurred to replace non-compliant systems.
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
11
<PAGE> 260
SIGNATURES
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 83-B, LTD.
By: Pioneer Natural Resources USA,
Inc.,
Managing General Partner
By: /s/ RICH DEALY
----------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
Dated: August 5, 1999
12
<PAGE> 261
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 2-81398B
PARKER & PARSLEY 83-B, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-1907245
(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)
</TABLE>
Registrant's Telephone Number, including area code: (915) 683-4768
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
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]
No market currently exists for the limited partnership interests of the
Registrant. Based on original purchase price the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$22,513,000.
As of March 8, 1999, the number of outstanding limited partnership
interests was 23,370.
The following documents are incorporated by reference into the indicated
parts of this Annual Report on Form 10-K: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 262
Parts I and II of this Report contain 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. See "Item 1.
Business" for a description of various factors that could materially affect the
ability of the Partnership to achieve the anticipated results described in the
forward looking statements.
PART I
ITEM 1. BUSINESS
Parker & Parsley 83-B, Ltd. (the "Partnership") is a limited partnership
organized in 1983 under the laws of the State of Texas. On August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership, joining the existing general partner, P&P Employees
83-B, Ltd. ("EMPL"), a Texas limited partnership whose general partner is
Pioneer USA, and 23,370 limited partnership interests as of March 8, 1999. Prior
to August 8, 1997, the Partnership's managing general partner and the general
partner of EMPL was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. ("Mesa") received shareholder approval
to merge and create Pioneer Natural Resources Company ("Pioneer"). On August 8,
1997, PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership and the general partner of EMPL as PPDLP's successor by merger. For
a more complete description of the Parker & Parsley and Mesa merger, see
Pioneer's Registration Statement on Form S-4 as filed with the Securities and
Exchange Commission.
A Registration Statement, as amended, filed pursuant to the Securities Act
of 1933, registering limited partnership interests aggregating $44,000,000 in a
series of Texas limited partnerships formed under the Parker & Parsley 83
Development Drilling Program, was declared effective by the Securities and
Exchange Commission on April 26, 1983. On September 27, 1983, the offering of
limited partnership interests in the Partnership, the second partnership formed
under such registration statement, was closed, with interests aggregating
$23,370,000 being sold to 1,509 subscribers.
The Partnership engages primarily in oil and gas development and production
and is not involved in any industry segment other than oil and gas. See "Item 6.
Selected Financial Data" and "Item 8. Financial Statements and Supplementary
Data" of this report for a summary of the Partnership's revenue, income and
identifiable assets.
The principal markets during 1998 for the oil produced by the Partnership
were refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. The principal markets for the
Partnership's gas were companies that have pipelines located near the
Partnership's gas producing properties. Of the Partnership's total oil and gas
revenues for 1998, approximately 60% and 29% were attributable to sales made to
Genesis Crude Oil, L.P. and Western Gas Resources, Inc., respectively.
The Partnership's revenues, profitability, cash flow and future rate of
growth are highly dependent on the prevailing prices of oil and gas, which are
affected by numerous factors beyond the Partnership's control. Oil and gas
prices historically have been very volatile. A substantial or extended decline
in the prices of oil or gas could have a material adverse effect on the
Partnership's revenues, profitability and cash flow and could, under certain
circumstances, result in a reduction in the carrying value of the Partnership's
oil and gas properties.
Because of the demand for oil and gas, the Partnership does not believe
that the termination of the sales of its products to any one customer would have
a material adverse impact on its operations. The loss of a particular customer
for gas may have an effect if that particular customer has the only gas pipeline
located in the areas of the Partnership's gas producing properties. The
Partnership believes, however, that the effect would be temporary, until
alternative arrangements could be made.
1
<PAGE> 263
Federal and state regulation of oil and gas operations generally includes
the fixing of maximum prices for regulated categories of natural gas, the
imposition of maximum allowable production rates, the taxation of income and
other items, and the protection of the environment. Although the Partnership
believes that its business operations do not impair environmental quality and
that its costs of complying with any applicable environmental regulations are
not currently significant, the Partnership cannot predict what, if any, effect
these environmental regulations may have on its current or future operations.
The Partnership does not have any employees of its own. Pioneer USA employs
818 persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this report is filed. Pioneer
USA is responsible for all management functions.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the
Partnership conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist primarily of leasehold interests in
properties on which oil and gas wells are located. Such property interests are
often subject to landowner royalties, overriding royalties and other oil and gas
leasehold interests.
Fractional working interests in developmental oil and gas prospects located
primarily in Texas were acquired by the Partnership, resulting in the
Partnership's participation in the drilling of 59 productive oil and gas wells.
At December 31, 1998, the Partnership had 42 producing wells. Twelve wells have
been plugged and abandoned due to unprofitable operations and five wells were
sold. The Partnership received interests in eight additional wells in 1993 due
to the Partnership's back-in after payout provision.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 1998, 1997 and 1996, and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been estimated by the engineering staff of Pioneer USA with a review by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
2
<PAGE> 264
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 8, 1999, the Partnership had 23,370 outstanding limited
partnership interests held of record by 1,405 subscribers. There is no
established public trading market for the limited partnership interests. Under
the limited partnership agreement, Pioneer USA has made certain commitments to
purchase partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are
not required to meet the Partnership's obligations are distributed to the
partners at least quarterly in accordance with the limited partnership
agreement. During the years ended December 31, 1998 and 1997, distributions of
$268,508 and $759,116, respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Oil and gas sales..... $1,267,241 $1,924,748 $2,291,605 $ 1,858,627 $1,917,956
========== ========== ========== =========== ==========
Litigation settlement,
net................ $ -- $ -- $1,392,304 $ -- $ --
========== ========== ========== =========== ==========
Impairment of oil and
gas properties..... $ 362,325 $1,171,409 $ -- $ 1,382,839 $ --
========== ========== ========== =========== ==========
Net income (loss)..... $ (871,809) $ (754,107) $2,309,638 $(1,165,473) $ (69,013)
========== ========== ========== =========== ==========
Allocation of net
income (loss):
General partners... $ (46,980) $ 56,351 $ 578,911 $ 14,921 $ 108,945
========== ========== ========== =========== ==========
Limited partners... $ (824,829) $ (810,458) $1,730,727 $(1,180,394) $ (177,958)
========== ========== ========== =========== ==========
Limited partners' net
income (loss) per
limited partnership
interest........... $ (35.29) $ (34.68) $ 74.06 $ (50.51) $ (7.61)
========== ========== ========== =========== ==========
Limited partners' cash
distributions per
limited partnership
interest........... $ 11.49 $ 32.48 $ 80.43(a) $ 27.36 $ 23.20
========== ========== ========== =========== ==========
AT YEAR END:
Total assets.......... $2,529,136 $3,774,504 $5,537,639 $ 5,750,916 $7,708,783
========== ========== ========== =========== ==========
</TABLE>
- ---------------
(a) Including litigation settlement per limited partnership interest of $46.83
in 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1998 compared to 1997
The Partnership's 1998 oil and gas revenues decreased 34% to $1,267,241
from $1,924,748 in 1997. The decrease in revenues resulted from lower average
prices received. In 1998, 62,162 barrels of oil, 31,533 barrels of natural gas
liquids ("NGLs") and 147,495 mcf of gas were sold, or 118,278 barrel of oil
equivalents ("BOEs"). In 1997, 66,903 barrels of oil, 12,832 barrels of NGLs and
201,100 mcf of gas
3
<PAGE> 265
were sold, or 113,252 BOEs. Due to the decline characteristics of the
Partnership's oil and gas properties, management expects a certain amount of
decline in production in the future until the Partnership's economically
recoverable reserves are fully depleted.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. Effective September 30, 1997, as a result of the
merger with Mesa, the managing general partner accounts for processed natural
gas production in two components: natural gas liquids and dry residue gas. As a
result of the change in the managing general partner's policy, the Partnership
now accounts for processed natural gas production as processed natural gas
liquids and dry residue gas. Consequently, separate product volumes will not be
comparable for 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
year ended December 31, 1998 is the price received for dry residue gas and the
price per mcf for natural gas produced prior to October 1997 was presented as a
price for wet gas (i.e., natural gas liquids combined with dry residue gas).
The average price received per barrel of oil decreased $6.23, or 32%, from
$19.53 in 1997 to $13.30 in 1998. The average price received per barrel of NGLs
decreased $3.95, or 37%, from $10.74 in 1997 to $6.79 in 1998. The average price
received per mcf of gas decreased 36% from $2.39 in 1997 to $1.54 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 in 1998.
A gain on disposition of assets of $157 was recognized during 1998 from
post closing adjustments received from the sale of two oil and gas wells and an
overriding royalty interest on one well during 1997. A gain of $41,460 received
during 1997 consisted of $9,076 derived from the sale of two oil and gas wells
and an overriding royalty interest in one well and $32,384 was received from
equipment credits on four fully depleted wells, abandoned in prior years.
Expenses incurred during 1997 of $2,487 related to wells plugged and abandoned.
Total costs and expenses decreased in 1998 to $2,152,425 as compared to
$2,737,358 in 1997, a decrease of $584,933, or 21%. The decrease was primarily
due to declines in the impairment of oil and gas properties, production costs
and general and administrative expenses ("G&A"), offset by an increase in
depletion.
Production costs were $978,080 in 1998 and $1,011,554 in 1997, resulting in
a $33,474 decrease, or 3%. The decrease was due to a decline in production taxes
and workover expenses, offset by additional well maintenance costs incurred in
an effort to stimulate well production.
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, 35% from $66,617 in 1997 to $43,488 in 1998. The
Partnership paid the managing general partner $38,017 in 1998 and $57,742 in
1997 for G&A incurred on behalf of the Partnership. G&A is allocated, in part,
to the Partnership by the managing general partner. Such allocated expenses are
determined by the managing general partner based upon its judgement of the level
of activity of the Partnership relative to the managing general partner's
activities and other entities it manages. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
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"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. Declining commodity prices prompted
impairment reviews in 1998 and 1997. As a result of the review and evaluation of
its long-lived assets for impairment, the Partnership recognized non-cash
charges of $362,325 and $1,171,409 related to its oil and gas properties during
1998 and 1997, respectively.
4
<PAGE> 266
Depletion was $768,532 in 1998 compared to $485,291 in 1997. This
represented an increase of $283,241, or 58%. This increase was the result of a
combination of factors that included a decline in proved reserves during 1998
due to the lower commodity prices, 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 and a reduction in oil production of 4,741 barrels for
the period ended December 31, 1998 compared to the same period in 1997.
1997 compared to 1996
The Partnership's 1997 oil and gas revenues decreased 16% to $1,924,748
from $2,291,605 in 1996. The decrease in revenues resulted from declines in
production and lower average prices received. In 1997, 66,903 barrels of oil,
12,832 barrels of NGLs and 201,100 mcf of gas were sold, or 113,252 BOEs. In
1996, 76,045 barrels of oil and 256,127 mcf of gas were sold, or 118,733 BOEs.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. As is described above in "Results of
Operations -- 1998 compared to 1997", the Partnership changed its method of
accounting for processed natural gas to a dry gas basis in the fourth quarter of
1997. As a result of this change, the Partnership now accounts for processed
natural gas production as processed natural gas liquids and dry residue gas.
Consequently, 1997 and 1996 separate product volumes are not comparable.
The declines in production volumes were primarily attributable to the
decline characteristics of the Partnership's oil and gas properties.
The average price received per barrel of oil decreased $2.39, or 11%, from
$21.92 in 1996 to $19.53 in 1997. The average price received per barrel of NGLs
during 1997 was $10.74. The average price received per mcf of gas decreased
slightly from $2.44 in 1996 to $2.39 in 1997. 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 in 1997.
As is described in "Results of Operations -- 1998 compared to 1997", gain
on disposition of assets of $41,460 was recognized during 1997 from the sale of
oil and gas wells and an overriding royalty interest in one well and from
equipment credits on fully depleted wells abandoned in prior years. A gain on
disposition of assets of $67,179 was recognized during 1996 from equipment
credits on fully depleted wells abandoned during 1996 and salvage income from
the disposal of equipment on wells plugged and abandoned in prior years.
Expenses incurred during 1997 and 1996 of $2,487 and $31,686, respectively,
related to wells plugged and abandoned in 1996.
On April 29, 1996, Southmark Corporation, Pioneer USA and the Partnership
entered into a final $7.4 million settlement agreement with Jack N. Price
resolving all outstanding litigation between the parties. As a result, all of
the pending lawsuits and judgments have been dismissed, the supersedeas bond
released, and the Reserve released as collateral. On June 28, 1996, a final
distribution was made to the working interest owners of $1,392,304 which
included $1,094,350, or $46.83 per limited partnership interest, to the
Partnership and its partners.
Total costs and expenses increased in 1997 to $2,737,358 as compared to
$1,457,126 in 1996, an increase of $1,280,232, or 88%. The increase was
primarily due to the impairment of oil and gas properties, increases in
depletion and production costs, offset by a decrease in abandoned property costs
and G&A.
Production costs were $1,011,554 in 1997 and $984,640 in 1996, resulting in
a $26,914 increase, or 3%. The increase was due to additional workover expenses
incurred in an effort to stimulate well production, offset by a decline in
production taxes.
During this period, G&A decreased, in aggregate, 12% from $75,597 in 1996
to $66,617 in 1997. The Partnership paid the managing general partner $57,742 in
1997 and $66,888 in 1996 for G&A incurred on behalf of the Partnership.
5
<PAGE> 267
The Partnership recognized a non-cash SFAS 121 impairment provision of
$1,171,409 related to its proved oil and gas properties during the fourth
quarter of 1997.
Depletion was $485,291 in 1997 compared to $365,203 in 1996. This
represented an increase of $120,088, or 33%. This increase was primarily
attributable to the decline in oil reserves during 1997 as a result of lower
commodity prices, offset by a decline in oil production of 9,142 barrels in 1997
compared to 1996.
IMPACT OF INFLATION AND CHANGING PRICES ON SALES AND NET INCOME
Inflation impacts the fixed overhead rate charges of the lease operating
expenses for the Partnership. During 1998, the annual change in the index of
average weekly earnings of crude petroleum and gas production workers issued by
the U.S. Department of Labor, Bureau of Labor Statistics increased (effective
April 1, 1998) 10.3%. The 1997 annual change in average weekly earnings
increased by 2%. The 1996 index increased 4.1%. The impact of inflation for
other lease operating expenses is small due to the current economic condition of
the oil industry.
The oil and gas industry experienced volatility during the past decade
because of the fluctuation of the supply of most fossil fuels relative to the
demand for such products and other uncertainties in the world energy markets
causing significant fluctuations in oil and gas prices. During 1998, the price
per barrel for oil production similar to the Partnership's ranged from
approximately $9.50 to $15.50. During most of 1997 and 1996, 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 March 1999. On March 8, 1999, the market price for West Texas intermediate
crude was $11.00 per barrel. A continuation of the current commodity price
environment will continue to have an adverse effect on the Partnership's
revenues, operating cash flow and distributions and could result in additional
decreases in the carrying value of the Partnership's oil and gas properties.
Prices for natural gas are subject to ordinary seasonal fluctuations, and
this volatility of natural gas prices may result in production being curtailed
and, in some cases, wells being completely shut-in.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $658,702 during the
year ended December 31, 1998 from the year ended December 31, 1997. The decrease
was primarily due to a decline in oil and gas sales receipts, offset by
decreases in production costs and G&A expenses paid.
Net Cash Provided by (Used in) Investing Activities
The Partnership's investing activities during 1998 and 1997 were for
expenditures related to oil and gas equipment replacement on active properties.
Proceeds from asset dispositions of $10,974 were received during 1998 from
the sale of two oil and gas wells during 1997. Proceeds of $43,201 received
during 1997 resulted from proceeds of $10,817 from the sale of two oil and gas
wells and an overriding royalty interest in one well, in addition to $32,384
received from equipment credits on four fully depleted wells abandoned in prior
years.
Net Cash Used in Financing Activities
Cash was sufficient in 1998 for distributions to the partners of $359,926
of which $91,418 was distributed to the general partners and $268,508 to the
limited partners. In 1997, cash was sufficient for distributions to the partners
of $1,009,001 of which $249,885 was distributed to the general partners and
$759,116 to the limited partners.
The current commodity price environment will continue to impact the
distributions and could result in limited or no distributions to the partners.
6
<PAGE> 268
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.
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
at varying stages of completion as it pertains to information technology and
non-information technology applications and systems in the United States, Canada
and Argentina. As of December 31, 1998, the managing general partner estimates
that the assessment phase is approximately 86% complete, on a worldwide basis,
and has included, but is not limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- 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 to
approximately 37% of those inquiries.
The remedial phase of the managing general partner's Year 2000 project is
also at varying 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 December 31, 1998, the
managing general partner estimates that the remedial phase is approximately 54%
complete, on a worldwide basis, subject to the continuing 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 through remedial coding and is currently testing this system for Year
2000 compliance. The remediation of non-information technology is expected to be
completed during July 1999. The managing general partner's Year 2000 remedial
actions have not significantly 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
7
<PAGE> 269
other information technology systems and non-information technology remediation
by the end of the third quarter of 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. The managing general partner intends to use its working capital to pay
for the costs of the Year 2000 projects. As of December 31, 1998, the managing
general partner's total costs incurred on the Year 2000 problem were $1.8
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 in accordance with the general and
administration allocation. (See Note 2 of Notes to Financial Statements included
in "Item 8. Financial Statements and Supplementary Data".)
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 assessment phase of the managing general partner's Year 2000
project, contingency plans are being 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.
8
<PAGE> 270
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Parker & Parsley 83-B, Ltd:
Independent Auditors' Report -- Ernst & Young LLP......... 10
Independent Auditors' Report -- KPMG LLP.................. 11
Balance Sheets as of December 31, 1998 and 1997........... 12
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996.................................... 13
Statements of Partners' Capital for the Years Ended
December 31, 1998, 1997 and 1996....................... 14
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996.................................... 15
Notes to Financial Statements............................. 16
</TABLE>
9
<PAGE> 271
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 83-B, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheet of Parker & Parsley 83-B, Ltd. as of
December 31, 1998, and the related statements of operations, partners' capital
and cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 83-B, Ltd.
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Dallas, Texas
March 15, 1999
10
<PAGE> 272
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 83-B, Ltd.
(A Texas Limited Partnership):
We have audited the financial statements of Parker & Parsley 83-B, Ltd. as
of December 31, 1997, and the related statements of operations, partners'
capital and cash flows for the years ended December 31, 1997 and 1996. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 83-B, Ltd.
as of December 31, 1997, and the results of its operations and its cash flows
for the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
KPMG LLP
Midland, Texas
March 20, 1998
11
<PAGE> 273
PARKER & PARSLEY 83-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash...................................................... $ 173,699 $ 232,778
Accounts receivable -- oil and gas sales.................. 150,704 223,024
Other..................................................... -- 10,817
------------ ------------
Total current assets.............................. 324,403 466,619
------------ ------------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 19,489,320 19,461,615
Accumulated depletion....................................... (17,284,587) (16,153,730)
------------ ------------
Net oil and gas properties........................ 2,204,733 3,307,885
------------ ------------
$ 2,529,136 $ 3,774,504
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable -- affiliate............................. $ 34,427 $ 48,060
Partners' capital:
General partners.......................................... 297,127 435,525
Limited partners (23,370 interests)....................... 2,197,582 3,290,919
------------ ------------
2,494,709 3,726,444
------------ ------------
$ 2,529,136 $ 3,774,504
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 274
PARKER & PARSLEY 83-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Oil and gas............................................ $1,267,241 $1,924,748 $2,291,605
Interest............................................... 13,218 17,043 15,676
Gain on disposition of assets.......................... 157 41,460 67,179
Litigation settlement.................................. -- -- 1,392,304
---------- ---------- ----------
1,280,616 1,983,251 3,766,764
---------- ---------- ----------
Costs and expenses:
Oil and gas production................................. 978,080 1,011,554 984,640
General and administrative............................. 43,488 66,617 75,597
Impairment of oil and gas properties................... 362,325 1,171,409 --
Depletion.............................................. 768,532 485,291 365,203
Abandoned property..................................... -- 2,487 31,686
---------- ---------- ----------
2,152,425 2,737,358 1,457,126
---------- ---------- ----------
Net income (loss)........................................ $ (871,809) $ (754,107) $2,309,638
========== ========== ==========
Allocation of net income (loss):
General partners....................................... $ (46,980) $ 56,351 $ 578,911
========== ========== ==========
Limited partners....................................... $ (824,829) $ (810,458) $1,730,727
========== ========== ==========
Net income (loss) per limited partnership interest....... $ (35.29) $ (34.68) $ 74.06
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 275
PARKER & PARSLEY 83-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
--------- ----------- -----------
<S> <C> <C> <C>
Partners' capital at January 1, 1996................... $ 627,985 $ 5,009,377 $ 5,637,362
Distributions........................................ (577,837) (1,879,611) (2,457,448)
Net income........................................... 578,911 1,730,727 2,309,638
--------- ----------- -----------
Partners' capital at December 31, 1996................. 629,059 4,860,493 5,489,552
Distributions........................................ (249,885) (759,116) (1,009,001)
Net income (loss).................................... 56,351 (810,458) (754,107)
--------- ----------- -----------
Partners' capital at December 31, 1997................. 435,525 3,290,919 3,726,444
Distributions........................................ (91,418) (268,508) (359,926)
Net loss............................................. (46,980) (824,829) (871,809)
--------- ----------- -----------
Partners' capital at December 31, 1998............... $ 297,127 $ 2,197,582 $ 2,494,709
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 276
PARKER & PARSLEY 83-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $(871,809) $ (754,107) $ 2,309,638
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Impairment of oil and gas properties.............. 362,325 1,171,409 --
Depletion......................................... 768,532 485,291 365,203
Gain on disposition of assets..................... (157) (41,460) (67,179)
Changes in assets and liabilities:
Accounts receivable............................... 72,320 115,174 (152,061)
Accounts payable.................................. (13,633) (27) (77,943)
--------- ----------- -----------
Net cash provided by operating activities.... 317,578 976,280 2,377,658
--------- ----------- -----------
Cash flows from investing activities:
Additions to oil and gas properties.................. (27,705) (6,639) (2,559)
Proceeds from disposition of assets.................. 10,974 43,201 67,179
--------- ----------- -----------
Net cash provided by (used in) investing
activities................................. (16,731) 36,562 64,620
--------- ----------- -----------
Cash flows from financing activities:
Cash distributions to partners....................... (359,926) (1,009,001) (2,457,448)
--------- ----------- -----------
Net increase (decrease) in cash........................ (59,079) 3,841 (15,170)
Cash at beginning of year.............................. 232,778 228,937 244,107
--------- ----------- -----------
Cash at end of year.................................... $ 173,699 $ 232,778 $ 228,937
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 277
PARKER & PARSLEY 83-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 83-B, Ltd. (the "Partnership") is a limited partnership
organized in 1983 under the laws of the State of Texas. On August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership, joining the existing general partner, P&P Employees
83-B, Ltd. ("EMPL"), a Texas limited partnership whose general partner is
Pioneer USA, and 23,370 limited partnership interests as of March 8, 1999. Prior
to August 8, 1997, the Partnership's managing general partner and the general
partner of EMPL was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. received shareholder approval to merge
and create Pioneer Natural Resources Company ("Pioneer"). On August 8, 1997,
PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership and the general partner of EMPL as PPDLP's successor by merger.
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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties -- The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as determined by the engineering staff of Pioneer
USA, the Partnership's managing general partner, and reviewed by independent
petroleum consultants. The carrying amounts of properties sold or otherwise
disposed of and the related allowances for depletion are eliminated from the
accounts and any gain or loss is included in operations.
Impairment of long-lived assets -- 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"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -- Preparation
of the accompanying financial statements 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 reporting amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest -- The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
16
<PAGE> 278
PARKER & PARSLEY 83-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes -- A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows -- For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses -- General and administrative expenses
are allocated in part to the Partnership by the managing general partner or its
affiliates. Such allocated expenses are determined by the managing general
partner based upon its judgement of the level of activity of the Partnership
relative to the managing general partner's activities and other entities it
manages. The method of allocation has been consistent over the past several
years with certain modifications incorporated to reflect changes in Pioneer
USA's overall business activities.
Reclassifications -- Certain reclassifications may have been made to the
1997 and 1996 financial statements to conform to the 1998 financial statement
presentation.
Environmental -- The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 1998.
Revenue recognition -- The Partnership uses the entitlements method of
accounting for crude oil and natural gas revenues.
Reporting comprehensive income -- Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes
standards for the reporting and display of comprehensive income (loss) and its
components in a full set of general purpose financial statements. Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss).
The Partnership has no items of other comprehensive income (loss), as defined by
SFAS No. 130. Consequently, the provisions of SFAS No. 130 do not apply to the
Partnership.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. Based upon a decline in the Partnership's outlook for future
commodity prices, the Partnership has estimated the expected future cash flows
of its oil and gas properties as of December 31, 1998, 1997 and 1996, and
compared such estimated future cash flows to the respective carrying amount of
the oil and gas properties to determine if the carrying amounts were likely to
be recoverable. For those proved oil and gas properties for which the carrying
amount exceeded the estimated future cash flows, an impairment was determined to
exist; therefore, the Partnership adjusted the carrying amount of those oil and
gas properties to their fair value as determined by discounting their expected
future cash flows at a discount rate commensurate with the risks involved in the
industry. As a result, the Partnership recognized non-cash impairment provisions
of $362,325 and $1,171,409 related to its proved oil and gas properties during
1998 and 1997, respectively.
17
<PAGE> 279
PARKER & PARSLEY 83-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $654,353 less than the tax basis at December 31, 1998.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ----------
<S> <C> <C> <C>
Net income (loss) per statements of operations.... $(871,809) $(754,107) $2,309,638
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes.................... 749,857 471,271 354,297
Impairment of oil and gas properties for financial
reporting purposes.............................. 362,325 1,171,409 --
Salvage income.................................... 422 9,656 8
Other, net........................................ 7,474 (8,737) (41,954)
--------- --------- ----------
Net income per Federal income tax
returns............................... $ 248,269 $ 889,492 $2,621,989
========= ========= ==========
</TABLE>
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- --------
<S> <C> <C> <C>
Development costs..................................... $27,705 $(23,258) $(20,458)
======= ======== ========
</TABLE>
Capitalized oil and gas properties consist of the following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Proved properties:
Property acquisition costs............................. $ 946,730 $ 946,730
Completed wells and equipment.......................... 18,542,590 18,514,885
------------ ------------
19,489,320 19,461,615
Accumulated depletion.................................... (17,284,587) (16,153,730)
------------ ------------
Net capitalized costs.......................... $ 2,204,733 $ 3,307,885
============ ============
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $426,899 $433,261 $402,584
Reimbursement of general and administrative
expenses........................................... $ 38,017 $ 57,742 $ 66,888
</TABLE>
18
<PAGE> 280
PARKER & PARSLEY 83-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Pioneer USA, EMPL and the Partnership are parties to the partnership
agreement. EMPL is a limited partnership in which Pioneer USA owns 79% and the
remaining portion is owned by former affiliates. In addition, Pioneer USA owned
857 limited partner interests at January 1, 1999.
The costs and revenues of the Partnership are allocated as follows:
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS
-------- --------
<S> <C> <C>
Revenues:
Proceeds from property dispositions prior to cost
recovery............................................... 10% 90%
All other Partnership revenues............................ 25% 75%
Costs and expenses:
Lease acquisition costs, drilling and completion costs.... 10% 90%
Operating costs, direct costs and general and
administrative expenses................................ 25% 75%
Incremental direct expenses............................... -- 100%
</TABLE>
Incremental direct expenses are direct expenses which would not be incurred
except for the requirements of the securities regulatory authorities and totaled
$5,471, $8,875 and $8,709 in 1998, 1997 and 1996, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 1998, 1997 and 1996 and
changes in such quantities during the years then ended. Due to a change in the
accounting policy of the managing general partner in 1997, the Partnership began
accounting for processed natural gas production in two components: processed
natural gas liquids ("NGLs") and dry residue gas. NGLs are reflected in "Oil and
NGLs" in the table below. All of the Partnership's reserves are proved developed
and located within the United States. The Partnership's reserves are based on an
evaluation prepared by the engineering staff of Pioneer USA and reviewed by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant,
using criteria established by the Securities and Exchange Commission. Reserve
value information is available to limited partners pursuant to the partnership
agreement and, therefore, is not presented.
<TABLE>
<CAPTION>
OIL AND NGLS GAS
(BBLS) (MCF)
------------ ----------
<S> <C> <C>
Net proved reserves at January 1, 1996...................... 980,513 3,655,685
Revisions................................................... 284,697 1,098,385
Production.................................................. (76,045) (256,127)
--------- ----------
Net proved reserves at December 31, 1996.................... 1,189,165 4,497,943
Revisions................................................... 108,553 (2,572,439)
Sale of reserves............................................ (2,907) (6,625)
Production.................................................. (79,735) (201,100)
--------- ----------
Net proved reserves at December 31, 1997.................... 1,215,076 1,717,779
Revisions................................................... (498,218) (464,099)
Production.................................................. (93,695) (147,495)
--------- ----------
Net proved reserves at December 31, 1998.................... 623,163 1,106,185
========= ==========
</TABLE>
19
<PAGE> 281
PARKER & PARSLEY 83-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1998, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 1998 prices of $10.61 per
barrel of oil, $5.45 per barrel of NGLs and $1.35 per mcf of gas, discounted at
10% was approximately $1,103,000 and undiscounted was $1,647,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Genesis Crude Oil, L.P...................................... 60% 62% 67%
Western Gas Resources, Inc. ................................ 29% 27% 16%
</TABLE>
At December 31, 1998, the amounts receivable from Genesis Crude Oil, L.P.
and Western Gas Resources, Inc. were $44,497 and $61,150, respectively, which
are included in the caption "Accounts receivable -- oil and gas sales" in the
accompanying Balance Sheet.
The Partnership's share of oil and gas production is sold to various
purchasers. Pioneer USA is of the opinion that the loss of any one purchaser
would not have an adverse effect on the ability of the Partnership to sell its
oil and gas production.
NOTE 9. ORGANIZATION AND OPERATIONS
The Partnership was organized September 27, 1983 as a limited partnership
under the Texas Uniform Limited Partnership Act for the purpose of acquiring and
developing oil and gas properties. The following is a brief summary of the more
significant provisions of the limited partnership agreement:
General partners -- The general partners of the Partnership are
Pioneer USA and EMPL. Pioneer USA, the managing general partner, has the
power and authority to manage, control and administer all Partnership
affairs. As managing general partner and operator of the Partnership's
properties, all production expenses are incurred by Pioneer USA and billed
to the Partnership and a portion of revenue is initially received by
Pioneer USA prior to being paid to the Partnership.
Limited partner liability -- The maximum amount of liability of any
limited partner is the total contributions of such partner plus his share
of any undistributed profits.
Initial capital contributions -- The limited partners entered into
subscription agreements for aggregate capital contributions of $23,370,000.
The general partners are required to contribute amounts equal to 10% of
Partnership expenditures for lease acquisition, drilling and completion and
25% of direct, general and administrative and operating expenses, and by
agreement must maintain a calculated minimum capital balance.
20
<PAGE> 282
PARKER & PARSLEY 83-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10. DISPOSITION OF ASSETS
A gain of $41,460 recognized during 1997 consisted of $32,384 from
equipment credits on four fully depleted wells abandoned in prior years and
$9,076 derived from the sale of two oil and gas wells and an overriding royalty
interest in one well.
21
<PAGE> 283
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and
executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve
until the next annual meeting of stockholders or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31,
NAME 1998 POSITION
- ---- ------------ --------
<S> <C> <C>
Scott D. Sheffield................. 46 President and Director
Executive Vice President and
Timothy L. Dove.................... 42 Director
Executive Vice President and
Dennis E. Fagerstone............... 49 Director
Executive Vice President, General
Mark L. Withrow.................... 51 Counsel and Director
Executive Vice President, Chief
M. Garrett Smith................... 37 Financial Officer and Director
Mel Fischer(a)..................... 64 Executive Vice President
Lon C. Kile........................ 43 Executive Vice President
Vice President and Chief Accounting
Rich Dealy......................... 32 Officer
</TABLE>
- ---------------
(a) Mr. Fischer was a director and officer until his retirement from Pioneer
and Pioneer USA on February 19, 1999.
Scott D. Sheffield. Mr. Sheffield is a distinguished graduate of The
University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he
has served as President, Chief Executive Officer and a director of Pioneer and
President and a director of Pioneer USA. Mr. Sheffield was the President and a
director of Parker & Parsley from May 1990 until August 1997 and was the
Chairman of the Board and Chief Executive Officer of Parker & Parsley from
October 1990 until August 1997. He was the sole director of Parker & Parsley
from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley
Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum
engineer in 1979. He served as Vice President -- Engineering of PPDC from
September 1981 until April 1985 when he was elected President and a director. In
March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive
Officer of PPDC. Before joining PPDC, Mr. Sheffield was employed as a production
and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President -- Business
Development of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. Mr. Dove joined Parker & Parsley in May
1994 as Vice President -- International and was promoted to Senior Vice
President -- Business Development in October 1996, in which position he served
until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with
Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various
capacities in international exploration and production, marketing, refining and
marketing and planning and development. Mr. Dove earned a B.S. in Mechanical
Engineering from Massachusetts Institute of Technology in 1979 and received his
M.B.A. in 1981 from the University of Chicago.
22
<PAGE> 284
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of Mesa from March 1, 1997 until August 1997. From October
1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief
Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice
President -- Exploration and Production of Mesa. From June 1988 to May 1991, Mr.
Fagerstone served as Vice President -- Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President -- General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President -- General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
M. Garrett Smith. Mr. Smith, a graduate of The University of Texas with a
B.S. in Electrical Engineering and Southern Methodist University with an M.B.A.,
was appointed Executive Vice President and Chief Financial Officer of Pioneer in
December 1997. He served as Senior Vice President -- Finance of Pioneer from
August 1997 until December 1997. Mr. Smith was elected Senior Vice President --
Finance and a director of Pioneer USA in August 1997. He served as Vice
President -- Corporate Acquisitions of Mesa from January 1997 until August 1997.
From October 1996 to December 1996, Mr. Smith served as Vice
President -- Finance of Mesa and from 1994 to 1996 he served as Director of
Financial Planning of Mesa. Mr. Smith was employed by BTC Partners, Inc. (a
former financial advisor to Mesa) from 1989 to 1994.
Mel Fischer. Mr. Fischer, a graduate of the University of California at
Berkeley with a Masters degree in Geology, became Executive Vice
President -- Worldwide Exploration of Pioneer and Pioneer USA in August 1997. He
served as a director of Parker & Parsley from November 1995 until August 1997
and was Executive Vice President -- Worldwide Exploration for Parker & Parsley
from February 1997 to August 1997. Mr. Fischer retired from Pioneer and Pioneer
USA effective February 15, 1999. He worked in the petroleum industry for 32
years, starting as a Petroleum Geologist with Texaco in 1962, and retiring as
President, Occidental International Exploration and Production Company in March
1994. For the 10 years prior to becoming President of Occidental International,
he served as Executive Vice President, World Wide Exploration with Occidental
Oil and Gas Corporation. He is a registered geologist in the State of
California, a member of the American Association of Petroleum Geologists and an
emeritus member of the Board of Advisors for the Earth Sciences Research
Institute at the University of Utah.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a
B.B.A. in Accounting, became Executive Vice President of Pioneer and Pioneer USA
in August 1997. Mr. Kile was Senior Vice President -- Investor Relations from
October 1996 to August 1997. Previously, he served as Vice President and Manager
of the Mid-Continent Division, Vice President -- Equity Finance & Analysis and
Vice President -- Marketing & Program Administration. Prior to joining Parker &
Parsley in 1985, he was employed as Supervisor -- Senior, Audit, in charge of
Parker & Parsley's audit, with Arthur Young.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a
B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became
Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
23
<PAGE> 285
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is vested in Pioneer USA, the managing general partner. Under the
partnership agreement, Pioneer USA pays 8% of the Partnership's acquisition,
drilling and completion costs and 20% of its operating and general and
administrative expenses. In return, Pioneer USA is allocated 20% of the
Partnership's revenues. See Notes 6 and 9 of Notes to Financial Statements
included in "Item 8. Financial Statements and Supplementary Data" for
information regarding fees and reimbursements paid to the managing general
partner or its affiliates by the Partnership.
EMPL is a co-general partner of the Partnership. Under this arrangement,
EMPL pays 2% of the Partnership's acquisition, drilling and completion costs and
5% of its operating and general and administrative expenses. In return, EMPL is
allocated 5% of the Partnership's revenues. EMPL does not receive any fees or
reimbursements from the Partnership.
The Partnership does not directly pay any salaries of the executive
officers of Pioneer USA, but does pay a portion of Pioneer USA general and
administrative expenses of which these salaries are a part. See Note 6 of Notes
to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more
of the outstanding limited partnership interests of the Partnership. Pioneer USA
and EMPL respectively own 80% and 20% of the general partners' interests in the
Partnership. Pioneer USA owned 857 limited partner interests at January 1, 1999.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing
general partner of the Partnership, Pioneer USA, has the exclusive right and
full authority to manage, control and administer the Partnership's business.
Under the limited partnership agreement, limited partners holding a majority of
the outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner or its affiliates
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $426,899 $433,261 $402,584
Reimbursement of general and administrative
expenses........................................... $ 38,017 $ 57,742 $ 66,888
</TABLE>
Under the limited partnership agreement, the general partners, Pioneer USA
and EMPL, together pay 10% of Partnership's acquisition, drilling and completion
costs and 25% of its operating and general and administrative expenses. In
return, they are allocated 25% of the Partnership's revenues. Twenty percent of
the general partners' share of costs and revenues is allocated to EMPL and the
remainder is allocated to Pioneer USA. Certain former affiliates of Pioneer USA
are limited partners of EMPL. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary
24
<PAGE> 286
Data", regarding the Partnership's participation with the managing general
partner in oil and gas activities of the Partnership.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial statements
The following are filed as part of this annual report:
Independent Auditors' Report -- Ernst & Young LLP
Independent Auditors' Report -- KPMG LLP
Balance sheets as of December 31, 1998 and 1997
Statements of operations for the years ended December 31, 1998, 1997
and 1996
Statements of partners' capital for the years ended December 31, 1998,
1997 and 1996
Statements of cash flows for the years ended December 31, 1998, 1997
and 1996
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this annual report.
25
<PAGE> 287
SIGNATURES
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 83-B, LTD.
By: Pioneer Natural Resources USA,
Inc.
Managing General Partner
By: /s/ SCOTT D. SHEFFIELD
----------------------------------
Scott D. Sheffield,
President
Dated: March 23, 1999
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 date indicated.
<TABLE>
<C> <S> <C>
/s/ SCOTT D. SHEFFIELD President and Director of March 23, 1999
- ----------------------------------------------------- Pioneer USA
Scott D. Sheffield
/s/ TIMOTHY L. DOVE Executive Vice President and March 23, 1999
- ----------------------------------------------------- Director of Pioneer USA
Timothy L. Dove
/s/ DENNIS E. FAGERSTONE Executive Vice President and March 23, 1999
- ----------------------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ MARK L. WITHROW Executive Vice President, March 23, 1999
- ----------------------------------------------------- General Counsel and Director
Mark L. Withrow of Pioneer USA
/s/ M. GARRETT SMITH Executive Vice President, Chief March 23, 1999
- ----------------------------------------------------- Financial Officer and
M. Garrett Smith Director of Pioneer USA
/s/ LON C. KILE Executive Vice President of March 23, 1999
- ----------------------------------------------------- Pioneer USA
Lon C. Kile
/s/ RICH DEALY Vice President and Chief March 23, 1999
- ----------------------------------------------------- Accounting Officer of Pioneer
Rich Dealy USA
</TABLE>
26
<PAGE> 288
PARKER & PARSLEY 83-B, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1 -- Agreement of Limited Partnership of Parker & Parsley
83-B, Ltd. incorporated by reference to Exhibit 4(e) of
Partnership's Registration Statement on Form S-1
(Registration No. 2-81398B), as amended on April 26,
1983, the effective date thereof (hereinafter called, the
Partnership's Registration Statement)
3.2 -- Amended and Restated Certificate of Limited Partnership
of Parker & Parsley 83-B, Ltd. incorporated by reference
to Exhibit 3.2 of the Partnership's Annual Report on Form
10-K for the period from July 1, 1983 (date of
organization) through December 31, 1983
4.1 -- Form of Subscription Agreement and Power of Attorney
incorporated by reference to Exhibit 4(b) of the
Partnership's Registration Statement
4.2 -- Specimen Certificate of Limited Partnership Interest
incorporated by reference to Exhibit 4(d) of the
Partnership's Registration Statement
27.1* -- Financial Data Schedule
99.1 -- Mutual Release and Indemnity Agreement dated May 25, 1993
incorporated by reference to Exhibit 99.1 of the
Partnership's Annual Report on Form 10-K for the year
ended December 31, 1993
</TABLE>
- ---------------
* filed herewith
<PAGE> 289
PARKER & PARSLEY 83-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
DECEMBER 31, 1998, 1997 AND 1996
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. Future income taxes are calculated by comparing
discounted future cash flows to the tax basis of oil and gas properties plus
available carryforwards and credits and applying the current tax rates to the
difference.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and gas producing activities:
Future cash inflows....................................... $6,816 $22,920 $45,510
Future production costs................................... (5,169) (13,783) (23,862)
Future development costs.................................. -- -- 379
------ ------- -------
1,647 9,137 22,027
10% annual discount factor................................ (544) (4,252) (11,385)
------ ------- -------
Standardized measure of discounted future net cash
flows.................................................. $1,103 $ 4,885 $10,642
====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs................ $ (289) $ (913) $(1,307)
Net changes in prices and production costs................ (3,208) (4,622) 4,300
Extensions and discoveries................................ -- -- --
Sales of minerals-in-place................................ -- (22) --
Purchases of minerals-in-place............................ -- -- --
Revisions of estimated future development costs........... -- (203) (166)
Revisions of previous quantity estimates and reserves
added by development drilling.......................... (627) (942) 2,769
Accretion of discount..................................... 489 1,064 548
Changes in production rates, timing and other............. (147) (119) (988)
------- ------- -------
Change in present value of future net revenues............ (3,782) (5,757) 5,156
------- ------- -------
Balance, beginning of year................................ 4,885 10,642 5,486
------- ------- -------
Balance, end of year...................................... $ 1,103 $ 4,885 $10,642
======= ======= =======
</TABLE>
<PAGE> 290
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 84-A, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT DATED , 1999
----------------------
THE DATE OF THIS SUPPLEMENT IS , 1999
----------------------
This document contains important information specific to Parker & Parsley
84-A, Ltd. and supplements the proxy statement dated , 1999, of
Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies
to be voted at a special meeting of limited partners of the partnerships
described in the proxy statement. The purpose of the special meeting is for you
to vote upon the merger of Parker & Parsley 84-A, Ltd. with and into Pioneer USA
that, if completed, will result in your receiving cash for your partnership
interests.
This supplement contains the following information concerning Parker &
Parsley 84-A, Ltd.:
- A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through June
30, 1999
-- the merger value per $1,000 limited partner investment as of June 30,
1999
-- the merger value per $1,000 limited partner investment as a multiple
of distributions for the 12 months ended June 30, 1999
-- the book value per $1,000 limited partner investment as of June 30,
1999 and as of December 31, 1998 and
-- the ordinary tax loss per $1,000 limited partner investment in year
of initial investment
- Quarterly Report on Form 10-Q for the six months ended June 30, 1999
- Annual Report on Form 10-K for the year ended December 31, 1998
- Disclosures about the partnership's oil and gas producing activities
<PAGE> 291
PARKER & PARSLEY 84-A, LTD.
SUPPLEMENTAL INFORMATION TABLE
<TABLE>
<S> <C>
Aggregate Initial Investment by the Limited Partners(a)..... $19,435
Aggregate Historical Limited Partner Distributions through
June 30, 1999(a).......................................... $26,980
Merger Value per $1,000 Limited Partner Investment as of
June 30, 1999(b).......................................... $103.15
Merger Value per $1,000 Limited Partner Investment as a
Multiple of Distributions for the 12 Months ended June 30,
1999(b)................................................... 12.97times
Book Value per $1,000 Limited Partner Investment:
-- as of June 30, 1999(b)................................. $105.58
-- as of December 31, 1998(b)............................. $108.33
Ordinary Tax Loss per $1,000 Limited Partner Investment in
Year of Initial Investment(b), (c)........................ $ 512
</TABLE>
- ---------------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as any
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
<PAGE> 292
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JUNE 30, 1999
COMMISSION FILE NO. 2-90417
PARKER & PARSLEY 84-A, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-1974814
(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)
</TABLE>
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> 293
PARKER & PARSLEY 84-A, LTD.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1999 and December 31, 3
1998..................................................
Statements of Operations for the three and six months 4
ended June 30, 1999 and 1998..........................
Statement of Partners' Capital for the six months ended 5
June 30, 1999.........................................
Statements of Cash Flows for the six months ended June 6
30, 1999 and 1998.....................................
Notes to Financial Statements.......................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 8
CONDITION AND RESULTS OF OPERATIONS.................
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 11
27.1 Financial Data Schedule
Signatures............................................. 12
</TABLE>
2
<PAGE> 294
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER & PARSLEY 84-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 144,868 $ 124,005
Accounts receivable -- oil and gas sales.................. 202,921 139,623
------------ ------------
Total current assets.............................. 347,789 263,628
------------ ------------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 18,233,645 18,233,825
Accumulated depletion....................................... (16,217,596) (16,106,643)
------------ ------------
Net oil and gas properties........................ 2,016,049 2,127,182
------------ ------------
$ 2,363,838 $ 2,390,810
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 54,124 $ 32,951
Partners' capital:
General partners.......................................... 257,672 252,487
Limited partners (19,435 interests)....................... 2,052,042 2,105,372
------------ ------------
2,309,714 2,357,859
------------ ------------
$ 2,363,838 $ 2,390,810
============ ============
</TABLE>
The financial information included as of June 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
<PAGE> 295
PARKER & PARSLEY 84-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas................................... $350,893 $303,364 $573,345 $594,203
Interest...................................... 1,883 2,457 3,355 5,098
Gain on disposition of assets................. -- 2,100 -- 2,100
-------- -------- -------- --------
352,776 307,921 576,700 601,401
-------- -------- -------- --------
Costs and expenses:
Oil and gas production........................ 205,328 228,371 401,324 445,105
General and administrative.................... 11,263 10,209 19,644 19,165
Depletion..................................... 34,992 88,899 110,953 163,428
-------- -------- -------- --------
251,583 327,479 531,921 627,698
-------- -------- -------- --------
Net income (loss)............................... $101,193 $(19,558) $ 44,779 $(26,297)
======== ======== ======== ========
Allocation of net income (loss):
General partners.............................. $ 30,730 $ 8,401 $ 28,448 $ 17,960
======== ======== ======== ========
Limited partners.............................. $ 70,463 $(27,959) $ 16,331 $(44,257)
======== ======== ======== ========
Net income (loss) per limited partnership
interest...................................... $ 3.63 $ (1.44) $ .84 $ (2.28)
======== ======== ======== ========
Distributions per limited partnership
interest...................................... $ 2.78 $ 2.74 $ 3.58 $ 8.60
======== ======== ======== ========
</TABLE>
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> 296
PARKER & PARSLEY 84-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1, 1999................................ $252,487 $2,105,372 $2,357,859
Distributions........................................... (23,263) (69,661) (92,924)
Net income.............................................. 28,448 16,331 44,779
-------- ---------- ----------
Balance at June 30, 1999.................................. $257,672 $2,052,042 $2,309,714
======== ========== ==========
</TABLE>
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> 297
PARKER & PARSLEY 84-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 44,779 $(26,297)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depletion.............................................. 110,953 163,428
Gain on disposition of assets.......................... -- (2,100)
Changes in assets and liabilities:
Accounts receivable.................................... (63,298) 69,582
Accounts payable....................................... 21,173 12,250
-------- --------
Net cash provided by operating activities......... 113,607 216,863
-------- --------
Cash flows from investing activities:
Additions to oil and gas properties....................... -- (3,479)
Proceeds from asset dispositions.......................... 180 2,100
-------- --------
Net cash provided by (used in) investing
activities....................................... 180 (1,379)
-------- --------
Cash flows used in financing activities:
Cash distributions to partners............................ (92,924) (224,589)
-------- --------
Net increase (decrease) in cash............................. 20,863 (9,105)
Cash at beginning of period................................. 124,005 159,695
-------- --------
Cash at end of period....................................... $144,868 $150,590
======== ========
</TABLE>
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> 298
PARKER & PARSLEY 84-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 84-A, Ltd. (the "Partnership") is a limited partnership
organized in 1984 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 June 30, 1999 and for the three and six months ended June 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.
7
<PAGE> 299
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
RESULTS OF OPERATIONS
Six months ended June 30, 1999 compared with six months ended June 30, 1998
Revenues:
The Partnership's oil and gas revenues decreased 4% to $573,345 from
$594,203 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from lower average prices received, offset by an
increase in production. For the six months ended June 30, 1999, 25,057 barrels
of oil, 18,393 barrels of natural gas liquids ("NGLs") and 80,888 mcf of gas
were sold, or 56,931 barrel of oil equivalents ("BOEs"). For the six months
ended June 30, 1998, 28,194 barrels of oil, 15,777 barrels of NGLs and 67,759
mcf of gas were sold, or 55,264 BOEs.
The average price received per barrel of oil decreased 5% from $14.22 for
the six months ended June 30, 1998 to $13.44 for the same period in 1999. The
average price received per barrel of NGLs increased 8% from $6.55 during the six
months ended June 30, 1998 to $7.07 for the same period in 1999. The average
price received per mcf of gas decreased from $1.33 during the six months ended
June 30, 1998 to $1.32 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 six months ended June 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 $2,100 was received during the six
months ended June 30, 1998 from the sale of equipment on one fully depleted
well.
Costs and Expenses:
Total costs and expenses decreased to $531,921 for the six months ended
June 30, 1999 as compared to $627,698 for the same period in 1998, a decrease of
$95,777, or 15%. This decrease was due to declines in depletion and production
costs, offset by an increase in general and administrative expenses ("G&A").
Production costs were $401,324 for the six months ended June 30, 1999 and
$445,105 for the same period in 1998 resulting in a $43,781 decrease, or 10%.
The decrease was due to declines in well maintenance costs, production taxes and
ad valorem taxes.
G&A's components are independent accounting and engineering fees and
managing general partner personnel and operating costs. During this period, G&A
increased slightly from $19,165 for the six months ended June 30, 1998 to
$19,644 for the same period in 1999.
Depletion was $110,953 for the six months ended June 30, 1999 compared to
$163,428 for the same period in 1998, a decrease of $52,475, or 32%. This
decrease was primarily attributable to an increase in proved reserves during the
period ended June 30, 1999 as a result of higher commodity prices, a reduction
in oil production of 3,137 barrels for the six months ended June 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.
Three months ended June 30, 1999 compared with three months ended June 30,
1998
Revenues:
The Partnership's oil and gas revenues increased 15% to $350,893 from
$303,364 for the three months ended June 30, 1999 and 1998, respectively. The
increase in revenues resulted from higher average prices received and an
increase in production. For the three months ended June 30, 1999, 12,132 barrels
of oil,
8
<PAGE> 300
11,659 barrels of NGLs and 48,305 mcf of gas were sold, or 31,842 BOEs. For the
three months ended June 30, 1998, 14,252 barrels of oil, 8,704 barrels of NGLs
and 34,836 mcf of gas were sold, or 28,762 BOEs.
The average price received per barrel of oil increased $1.44, or 10%, from
$13.79 for the three months ended June 30, 1998 to $15.23 for the three months
ended June 30, 1999. The average price received per barrel of NGLs increased
$1.39, or 20%, from $6.82 during the three months ended June 30, 1998 to $8.21
for the same period in 1999. The average price received per mcf of gas increased
7% to $1.46 for the three months ended June 30, 1999 from $1.36 in 1998.
A gain on disposition of assets of $2,100 was received during the three
months ended June 30, 1998 from the sale of equipment on one fully depleted
well.
Costs and Expenses:
Total costs and expenses decreased to $251,583 for the three months ended
June 30, 1999 as compared to $327,479 for the same period in 1998, a decrease of
$75,896, or 23%. This decrease was due to declines in depletion and production
costs, offset by an increase in G&A.
Production costs were $205,328 for the three months ended June 30, 1999 and
$228,371 for the same period in 1998 resulting in a decrease of $23,043, or 10%.
The decrease was due to a decline in well maintenance costs.
During this period, G&A increased, in aggregate, 10% from $10,209 for the
three months ended June 30, 1998 to $11,263 for the same period in 1999.
Depletion was $34,992 for the three months ended June 30, 1999 compared to
$88,899 for the same period in 1998, a decrease of $53,907, or 61%. This
decrease was primarily attributable to an increase in proved reserves during the
period ended June 30, 1999 as a result of higher commodity prices, a reduction
in oil production of 2,120 barrels for the three months ended June 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.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $103,256 during the six
months ended June 30, 1999 from the same period ended June 30, 1998. This
decrease was due to a decline in oil and gas sales receipts, offset by decreases
in production costs and G&A expenses paid.
Net Cash Provided by (Used in) Investing Activities
The Partnership's principal investing activities during the six months
ended June 30, 1998 included equipment replacement on various oil and gas
properties.
Proceeds from asset dispositions of $180 were received during the six
months ended June 30, 1999 from equipment credits received on active properties.
Proceeds of $2,100, received during the same period in 1998, were derived from
the sale of equipment on one fully depleted well.
Net Cash Used in Financing Activities
Cash was sufficient for the six months ended June 30, 1999 to cover
distributions to the partners of $92,924 of which $23,263 was distributed to the
general partners and $69,661 to the limited partners. For the same period ended
June 30, 1998, cash was sufficient for distributions to the partners of $224,589
of which $57,408 was distributed to the general partners and $167,181 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 levels. During the first quarter of 1999, the
Organization of Petroleum Exporting Countries and
9
<PAGE> 301
certain other crude oil exporting nations announced reductions in their planned
export volumes. These announcements, together with early indications that the
nations have initiated their planned reductions, have had some stabilizing
effect on commodity prices during the latter part of the first quarter of 1999
and into August 1999. However, no assurances can be given that the stabilizing
effect of these actions, or the planned reductions in export volumes, will 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.
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 June 30, 1999, the managing general partner estimates that the
assessment phase is approximately 99% complete and has included, but is not
limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- the formulation of contingency plans for mission-critical information
technology systems.
Through June 30, 1999, the managing general partner had 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 varying 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 June 30, 1999, the managing general partner
estimates that the remedial phase is approximately 83% complete, on a worldwide
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 is expected
to be completed by 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 expects to complete the testing of
information technology systems by October 1999. The
10
<PAGE> 302
testing of the non-information technology remediation is scheduled to be
completed by the end of November 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. As of June 30, 1999, the managing general partner's total costs
incurred on the Year 2000 problem were $2.3 million, of which approximately $200
thousand were incurred to replace non-compliant systems.
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
11
<PAGE> 303
SIGNATURES
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 84-A, LTD.
By: Pioneer Natural Resources USA,
Inc.,
Managing General Partner
By: /s/ RICH DEALY
----------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
Dated: August 9, 1999
12
<PAGE> 304
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 2-90417
PARKER & PARSLEY 84-A, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-1974814
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
303 WEST WALL, SUITE 101, MIDLAND,
TEXAS
(Address of principal executive 79701
offices) (Zip code)
</TABLE>
Registrant's Telephone Number, including area code: (915) 683-4768
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
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]
No market currently exists for the limited partnership interests of the
Registrant. Based on original purchase price the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$19,081,000.
As of March 8, 1999, the number of outstanding limited partnership
interests was 19,435.
The following documents are incorporated by reference into the indicated
parts of this Annual Report on Form 10-K: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 305
Parts I and II of this Report contain 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. See "Item 1.
Business" for a description of various factors that could materially affect the
ability of the Partnership to achieve the anticipated results described in the
forward looking statements.
PART I
ITEM 1. BUSINESS
Parker & Parsley 84-A, Ltd. (the "Partnership") is a limited partnership
organized in 1984 under the laws of the State of Texas. On August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership, joining the existing general partner, P&P Employees
84-A, Ltd. ("EMPL"), a Texas limited partnership whose general partner is
Pioneer USA, and 19,435 limited partnership interests as of March 8, 1999. Prior
to August 8, 1997, the Partnership's managing general partner and the general
partner of EMPL was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. ("Mesa") received shareholder approval
to merge and create Pioneer Natural Resources Company ("Pioneer"). On August 8,
1997, PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership and the general partner of EMPL as PPDLP's successor by merger. For
a more complete description of the Parker & Parsley and Mesa merger, see
Pioneer's Registration Statement on Form S-4 as filed with the Securities and
Exchange Commission.
A Registration Statement, as amended, filed pursuant to the Securities Act
of 1933, registering limited partnership interests aggregating $22,000,000 in a
series of Texas limited partnerships formed under the Parker & Parsley 84
Development Drilling Program, was declared effective by the Securities and
Exchange Commission on May 24, 1984. On July 6, 1984, the offering of limited
partnership interests in the Partnership, the first partnership formed under
such registration statement, was closed, with interests aggregating $19,435,000
being sold to 1,306 subscribers.
The Partnership engages primarily in oil and gas development and production
and is not involved in any industry segment other than oil and gas. See "Item 6.
Selected Financial Data" and "Item 8. Financial Statements and Supplementary
Data" of this report for a summary of the Partnership's revenue, income and
identifiable assets.
The principal markets during 1998 for the oil produced by the Partnership
were refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. The principal markets for the
Partnership's gas were companies that have pipelines located near the
Partnership's gas producing properties. Of the Partnership's total oil and gas
revenues for 1998, approximately 53% and 29% were attributable to sales made to
Genesis Crude Oil, L.P. and Western Gas Resources, Inc., respectively.
The Partnership's revenues, profitability, cash flow and future rate of
growth are highly dependent on the prevailing prices of oil and gas, which are
affected by numerous factors beyond the Partnership's control. Oil and gas
prices historically have been very volatile. A substantial or extended decline
in the prices of oil or gas could have a material adverse effect on the
Partnership's revenues, profitability and cash flow and could, under certain
circumstances, result in a reduction in the carrying value of the Partnership's
oil and gas properties.
Because of the demand for oil and gas, the Partnership does not believe
that the termination of the sales of its products to any one customer would have
a material adverse impact on its operations. The loss of a particular customer
for gas may have an effect if that particular customer has the only gas pipeline
located in the areas of the Partnership's gas producing properties. The
Partnership believes, however, that the effect would be temporary, until
alternative arrangements could be made.
1
<PAGE> 306
Federal and state regulation of oil and gas operations generally includes
the fixing of maximum prices for regulated categories of natural gas, the
imposition of maximum allowable production rates, the taxation of income and
other items, and the protection of the environment. Although the Partnership
believes that its business operations do not impair environmental quality and
that its costs of complying with any applicable environmental regulations are
not currently significant, the Partnership cannot predict what, if any, effect
these environmental regulations may have on its current or future operations.
The Partnership does not have any employees of its own. Pioneer USA employs
818 persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this report is filed. Pioneer
USA supplies all management functions.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the
Partnership conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist primarily of leasehold interests in
properties on which oil and gas wells are located. Such property interests are
often subject to landowner royalties, overriding royalties and other oil and gas
leasehold interests.
Fractional working interests in developmental and exploratory oil and gas
prospects located primarily in the Spraberry Trend Area of West Texas were
acquired by the Partnership, resulting in the Partnership's participation in the
drilling of 42 oil and gas wells. At December 31, 1998, 38 wells were producing
and four wells had been plugged and abandoned due to unprofitable operations.
The Partnership received interests in six additional producing oil and gas wells
in 1993 due to the Partnership's back-in after payout provisions.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 1998, 1997 and 1996, and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been estimated by the engineering staff of Pioneer USA with a review by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
2
<PAGE> 307
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 8, 1999, the Partnership had 19,435 outstanding limited
partnership interests held of record by 1,283 subscribers. There is no
established public trading market for the limited partnership interests. Under
the limited partnership agreement, Pioneer USA has made certain commitments to
purchase partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are
not required to meet the Partnership's obligations are distributed to the
partners at least quarterly in accordance with the limited partnership
agreement. During the years ended December 31, 1998 and 1997, distributions of
$249,067 and $628,201, respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Oil and gas sales............ $1,124,134 $1,668,018 $1,984,346 $ 1,623,611 $1,613,333
========== ========== ========== =========== ==========
Impairment of oil and gas
properties................ $ 425,668 $ 370,361 $ -- $ 1,238,979 $ --
========== ========== ========== =========== ==========
Litigation settlement, net... $ -- $ -- $1,055,353 $ -- $ --
========== ========== ========== =========== ==========
Net income (loss)............ $ (923,346) $ 70,124 $1,782,138 $(1,173,821) $ 54,264
========== ========== ========== =========== ==========
Allocation of net income
(loss):
General partners.......... $ (56,570) $ 121,907 $ 462,041 $ (14,808) $ 98,429
========== ========== ========== =========== ==========
Limited partners.......... $ (866,776) $ (51,783) $1,320,097 $(1,159,013) $ (44,165)
========== ========== ========== =========== ==========
Limited partners' net income
(loss) per limited
partnership interest...... $ (44.60) $ (2.66) $ 67.92 $ (59.64) $ (2.27)
========== ========== ========== =========== ==========
Limited partners' cash
distributions per limited
partnership interest...... $ 12.82 $ 32.32 $ 73.68(a) $ 24.03 $ 22.50
========== ========== ========== =========== ==========
AT YEAR END:
Total assets................. $2,390,810 $3,657,643 $4,436,385 $ 4,598,559 $6,356,430
========== ========== ========== =========== ==========
</TABLE>
- ---------------
(a) Including litigation settlement per limited partnership interest of $42.48
in 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1998 compared to 1997
The Partnership's 1998 oil and gas revenues decreased 33% to $1,124,134
from $1,668,018 in 1997. The decrease in revenues resulted from lower average
prices received. In 1998, 54,153 barrels of oil, 34,549 barrels of natural gas
liquids ("NGLs") and 145,870 mcf of gas were sold, or 113,014 barrel of oil
equivalents ("BOEs"). In 1997, 58,956 barrels of oil, 13,850 barrels of NGLs and
199,235 mcf of gas were sold, or 106,012 BOEs. Due to the decline
characteristics of the Partnership's oil and gas properties, management expects
a certain amount of decline in production in the future until the Partnership's
economically recoverable reserves are fully depleted.
3
<PAGE> 308
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. Effective September 30, 1997, as a result of the
merger with Mesa, the managing general partner accounts for processed natural
gas production in two components: natural gas liquids and dry residue gas. As a
result of the change in the managing general partner's policy, the Partnership
now accounts for processed natural gas production as processed natural gas
liquids and dry residue gas. Consequently, separate product volumes will not be
comparable for 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
year ended December 31, 1998 is the price received for dry residue gas and the
price per mcf for natural gas produced prior to October 1997 was presented as a
price for wet gas (i.e., natural gas liquids combined with dry residue gas).
The average price received per barrel of oil decreased $6.01, or 31%, from
$19.31 in 1997 to $13.30 in 1998. The average price received per barrel of NGLs
decreased $3.15, or 34%, from $9.23 in 1997 to $6.08 in 1998. The average price
received per mcf of gas decreased 34% from $2.02 in 1997 to $1.33 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 in the foreseeable future. The
Partnership may therefore sell its future oil and gas production at average
prices lower or higher than that received in 1998.
A gain on disposition of assets of $2,100 was received during 1998 from the
sale of equipment on one fully depleted well. During 1997, $3,072 was received
from equipment disposals on one saltwater disposal well.
Total costs and expenses increased in 1998 to $2,059,738 as compared to
$1,613,718 in 1997, an increase of $446,020, or 28%. The increase was primarily
due to depletion and the impairment of oil and gas properties, offset by
decreases in general and administrative expenses ("G&A") and production costs.
Production costs were $865,247 in 1998 and $869,909 in 1997, resulting in a
$4,662 decrease. The decrease was due to a decline in production taxes, offset
by increases in well maintenance costs and workover costs incurred in an effort
to stimulate well production.
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, 33% from $57,698 in 1997 to $38,385 in 1998. The
Partnership paid the managing general partner $33,724 in 1998 and $50,041 in
1997 for G&A incurred on behalf of the Partnership. G&A is allocated, in part,
to the Partnership by the managing general partner. Such allocated expenses are
determined by the managing general partner based upon its judgement of the level
of activity of the Partnership relative to the managing general partner's
activities and other entities it manages. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
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"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. Declining commodity prices prompted
impairment reviews in 1998 and 1997. As a result of the review and evaluation of
its long-lived assets for impairment, the Partnership recognized non-cash
charges of $425,668 and $370,361 related to its oil and gas properties during
1998 and 1997, respectively.
Depletion was $730,438 in 1998 compared to $315,750 in 1997. This
represented an increase of $414,688. This increase was the result of a
combination of factors that included a decline in proved reserves during 1998
due to the lower commodity prices, 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 and a reduction in oil production of 4,803 barrels for
the period ended December 31, 1998 compared to the same period in 1997.
4
<PAGE> 309
1997 compared to 1996
The Partnership's 1997 oil and gas revenues decreased 16% to $1,668,018
from $1,984,346 in 1996. The decrease in revenues resulted from lower average
prices received. In 1997, 58,956 barrels of oil, 13,850 barrels of NGLs and
199,235 mcf of gas were sold, or 106,012 barrel of BOEs. In 1996, 64,490 barrels
of oil and 236,446 mcf of gas were sold, or 103,898 BOEs.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. As is described above in "Results of
Operations -- 1998 compared to 1997", the Partnership changed its method of
accounting for processed natural gas to a dry gas basis in the fourth quarter of
1997. As a result of this change, the Partnership now accounts for processed
natural gas production as processed natural gas liquids and dry residue gas.
Consequently, 1997 and 1996 separate product volumes are not comparable.
The average price received per barrel of oil decreased $2.57, or 12%, from
$21.88 in 1996 to $19.31 in 1997. The average price received per barrel of NGLs
was $9.23 in 1997. The average price received per mcf of gas decreased 17% from
$2.42 in 1996 to $2.02 in 1997.
As is described in "Results of Operations -- 1998 compared to 1997", gain
on disposition of assets of $3,072 was received during 1997 from equipment
disposals on one saltwater disposal well.
On April 29, 1996, Southmark Corporation, Pioneer USA and the Partnership
entered into a final $7.4 million settlement agreement with Jack N. Price
resolving all outstanding litigation between the parties. As a result, all of
the pending lawsuits and judgments have been dismissed, the supersedeas bond
released, and the Reserve released as collateral. On June 28, 1996, a final
distribution was made to the working interest owners of $1,055,353 which
included $825,594, or $42.48 per limited partnership interest, to the
Partnership and its partners.
Total costs and expenses increased in 1997 to $1,613,718 as compared to
$1,267,952 in 1996, an increase of $345,766, or 27%. The increase was primarily
due to the impairment of oil and gas properties, offset by decreases in
abandoned property costs, G&A, depletion and production costs.
Production costs were $869,909 in 1997 and $876,376 in 1996, resulting in a
$6,467 decrease. The decrease was due to a decline in production taxes, offset
by an increase in well maintenance costs.
During this period, G&A decreased, in aggregate, 14% from $67,319 in 1996
to $57,698 in 1997. The Partnership paid the managing general partner $50,041 in
1997 and $59,530 in 1996 for G&A incurred on behalf of the Partnership.
The Partnership recognized a non-cash SFAS 121 impairment provision of
$370,361 related to its proved oil and gas properties during the fourth quarter
of 1997.
Depletion was $315,750 in 1997 compared to $323,910 in 1996. This
represented a decrease of $8,160, or 3%. This decrease was primarily
attributable to a decline in oil production of 5,534 barrels in 1997 compared to
1996, offset by a decrease in oil reserves during 1997 as a result of lower
commodity prices.
Abandoned property costs of $347 were incurred during 1996 from one well
abandoned in a prior year.
IMPACT OF INFLATION AND CHANGING PRICES ON SALES AND NET INCOME
Inflation impacts the fixed overhead rate charges of the lease operating
expenses for the Partnership. During 1998, the annual change in the index of
average weekly earnings of crude petroleum and gas production workers issued by
the U.S. Department of Labor, Bureau of Labor Statistics increased (effective
April 1, 1998) 10.3%. The 1997 annual change in average weekly earnings
increased by 2%. The 1996 index increased 4.1%. The impact of inflation for
other lease operating expenses is small due to the current economic condition of
the oil industry.
5
<PAGE> 310
The oil and gas industry experienced volatility during the past decade
because of the fluctuation of the supply of most fossil fuels relative to the
demand for such products and other uncertainties in the world energy markets
causing significant fluctuations in oil and gas prices. During 1998, the price
per barrel for oil production similar to the Partnership's ranged from
approximately $9.50 to $15.50. During most of 1997 and 1996, 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 March 1999. On March 8, 1999, the market price for West Texas intermediate
crude was $11.00 per barrel. A continuation of the current commodity price
environment will continue to have an adverse effect on the Partnership's
revenues, operating cash flow and distributions and could result in additional
decreases in the carrying value of the Partnership's oil and gas properties.
Prices for natural gas are subject to ordinary seasonal fluctuations, and
this volatility of natural gas prices may result in production being curtailed
and, in some cases, wells being completely shut-in.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $546,622 during the
year ended December 31, 1998 from the year ended December 31, 1997. The decrease
was primarily due to a decline in oil and gas sales receipts, offset by a
decline in G&A expenses paid.
Net Cash Used in Investing Activities
The Partnership's investing activities during 1998 and 1997 were related to
expenditures for equipment replacement on various oil and gas properties.
Proceeds from asset dispositions of $2,100, received during 1998, were
derived from the sale of equipment on one fully depleted well. During 1997,
$3,072 was received from the disposal of equipment on one saltwater disposal
well.
Net Cash Used in Financing Activities
Cash was sufficient in 1998 for distributions to the partners of $335,255
of which $86,188 was distributed to the general partners and $249,067 to the
limited partners. In 1997, cash was sufficient for distributions to the partners
of $845,250 of which $217,049 was distributed to the general partners and
$628,201 to the limited partners.
The current commodity price environment will continue to impact the
distributions and could result in limited or no distributions to the partners.
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.
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
6
<PAGE> 311
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
at varying stages of completion as it pertains to information technology and
non-information technology applications and systems in the United States, Canada
and Argentina. As of December 31, 1998, the managing general partner estimates
that the assessment phase is approximately 86% complete, on a worldwide basis,
and has included, but is not limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- 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 to
approximately 37% of those inquiries.
The remedial phase of the managing general partner's Year 2000 project is
also at varying 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 December 31, 1998, the
managing general partner estimates that the remedial phase is approximately 54%
complete, on a worldwide basis, subject to the continuing 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 through remedial coding and is currently testing this system for Year
2000 compliance. The remediation of non-information technology is expected to be
completed during July 1999. The managing general partner's Year 2000 remedial
actions have not significantly 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 and non-information technology remediation by the end of the third
quarter of 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. The managing general partner intends to use its working capital to pay
for the costs of the Year 2000 projects. As of December 31, 1998, the managing
general partner's total costs incurred on the Year 2000 problem were $1.8
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 in accordance with the general and
administration allocation. (See Note 2 of Notes to Financial Statements included
in "Item 8. Financial Statements and Supplementary Data".)
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
7
<PAGE> 312
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 assessment phase of the managing general partner's Year 2000
project, contingency plans are being 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.
8
<PAGE> 313
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Parker & Parsley 84-A, Ltd:
Independent Auditors' Report -- Ernst & Young LLP......... 10
Independent Auditors' Report -- KPMG LLP.................. 11
Balance Sheets as of December 31, 1998 and 1997........... 12
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996.................................... 13
Statements of Partners' Capital for the Years Ended
December 31, 1998, 1997 and 1996....................... 14
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996.................................... 15
Notes to Financial Statements............................. 16
</TABLE>
9
<PAGE> 314
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 84-A, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheet of Parker & Parsley 84-A, Ltd. as of
December 31, 1998, and the related statements of operations, partners' capital
and cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 84-A, Ltd.
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Dallas, Texas
March 15, 1999
10
<PAGE> 315
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 84-A, Ltd.
(A Texas Limited Partnership):
We have audited the financial statements of Parker & Parsley 84-A, Ltd. as
of December 31, 1997, and the related statements of operations, partners'
capital and cash flows for the years ended December 31, 1997 and 1996. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 84-A, Ltd.
as of December 31, 1997, and the results of its operations and its cash flows
for the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
KPMG LLP
Midland, Texas
March 20, 1998
11
<PAGE> 316
PARKER & PARSLEY 84-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash...................................................... $ 124,005 $ 159,695
Accounts receivable -- oil and gas sales.................. 139,623 225,232
------------ ------------
Total current assets.............................. 263,628 384,927
------------ ------------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 18,233,825 18,223,253
Accumulated depletion....................................... (16,106,643) (14,950,537)
------------ ------------
Net oil and gas properties........................ 2,127,182 3,272,716
------------ ------------
$ 2,390,810 $ 3,657,643
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 32,951 $ 41,183
Partners' capital:
General partners.......................................... 252,487 395,245
Limited partners (19,435 interests)....................... 2,105,372 3,221,215
------------ ------------
2,357,859 3,616,460
------------ ------------
$ 2,390,810 $ 3,657,643
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 317
PARKER & PARSLEY 84-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Oil and gas............................................ $1,124,134 $1,668,018 $1,984,346
Interest............................................... 10,158 12,752 10,391
Gain on disposition of assets.......................... 2,100 3,072 --
Litigation settlement.................................. -- -- 1,055,353
---------- ---------- ----------
1,136,392 1,683,842 3,050,090
---------- ---------- ----------
Costs and expenses:
Oil and gas production................................. 865,247 869,909 876,376
General and administrative............................. 38,385 57,698 67,319
Impairment of oil and gas properties................... 425,668 370,361 --
Depletion.............................................. 730,438 315,750 323,910
Abandoned property..................................... -- -- 347
---------- ---------- ----------
2,059,738 1,613,718 1,267,952
---------- ---------- ----------
Net income (loss)........................................ $ (923,346) $ 70,124 $1,782,138
========== ========== ==========
Allocation of net income (loss):
General partners....................................... $ (56,570) $ 121,907 $ 462,041
========== ========== ==========
Limited partners....................................... $ (866,776) $ (51,783) $1,320,097
========== ========== ==========
Net income (loss) per limited partnership interest....... $ (44.60) $ (2.66) $ 67.92
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 318
PARKER & PARSLEY 84-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
--------- ----------- -----------
<S> <C> <C> <C>
Partners' capital at January 1, 1996................... $ 479,777 $ 4,013,044 $ 4,492,821
Distributions........................................ (451,431) (1,431,942) (1,883,373)
Net income........................................... 462,041 1,320,097 1,782,138
--------- ----------- -----------
Partners' capital at December 31, 1996................. 490,387 3,901,199 4,391,586
Distributions........................................ (217,049) (628,201) (845,250)
Net income (loss).................................... 121,907 (51,783) 70,124
--------- ----------- -----------
Partners' capital at December 31, 1997................. 395,245 3,221,215 3,616,460
Distributions........................................ (86,188) (249,067) (335,255)
Net loss............................................. (56,570) (866,776) (923,346)
--------- ----------- -----------
Partners' capital at December 31, 1998................. $ 252,487 $ 2,105,372 $ 2,357,859
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 319
PARKER & PARSLEY 84-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $(923,346) $ 70,124 $ 1,782,138
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Impairment of oil and gas properties................ 425,668 370,361 --
Depletion........................................... 730,438 315,750 323,910
Gain on disposition of assets....................... (2,100) (3,072) --
Changes in assets and liabilities:
Accounts receivable................................. 85,609 105,112 (149,380)
Accounts payable.................................... (8,232) (3,616) (60,266)
--------- --------- -----------
Net cash provided by operating activities...... 308,037 854,659 1,896,402
--------- --------- -----------
Cash flows from investing activities:
Additions to oil and gas properties.................... (10,572) (15,259) (7,944)
Proceeds from asset dispositions....................... 2,100 3,072 --
--------- --------- -----------
Net cash used in investing activities.......... (8,472) (12,187) (7,944)
--------- --------- -----------
Cash flows from financing activities:
Cash distributions to partners...................... (335,255) (845,250) (1,883,373)
--------- --------- -----------
Net increase (decrease) in cash.......................... (35,690) (2,778) 5,085
Cash at beginning of year................................ 159,695 162,473 157,388
--------- --------- -----------
Cash at end of year...................................... $ 124,005 $ 159,695 $ 162,473
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 320
PARKER & PARSLEY 84-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 84-A, Ltd. (the "Partnership") is a limited partnership
organized in 1984 under the laws of the State of Texas. On August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership, joining the existing general partner, P&P Employees
84-A, Ltd. ("EMPL"), a Texas limited partnership whose general partner is
Pioneer USA, and 19,435 limited partnership interests as of March 8, 1999. Prior
to August 8, 1997, the Partnership's managing general partner and the general
partner of EMPL was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. received shareholder approval to merge
and create Pioneer Natural Resources Company ("Pioneer"). On August 8, 1997,
PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership and the general partner of EMPL as PPDLP's successor by merger.
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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties -- The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as determined by the engineering staff of Pioneer
USA, the Partnership's managing general partner, and reviewed by independent
petroleum consultants. The carrying amounts of properties sold or otherwise
disposed of and the related allowances for depletion are eliminated from the
accounts and any gain or loss is included in operations.
Impairment of long-lived assets -- 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"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -- Preparation
of the accompanying financial statements 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 reporting amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest -- The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
16
<PAGE> 321
PARKER & PARSLEY 84-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes -- A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows -- For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses -- General and administrative expenses
are allocated in part to the Partnership by the managing general partner or its
affiliates. Such allocated expenses are determined by the managing general
partner based upon its judgement of the level of activity of the Partnership
relative to the managing general partner's activities and other entities it
manages. The method of allocation has been consistent over the past several
years with certain modifications incorporated to reflect changes in Pioneer
USA's overall business activities.
Reclassifications -- Certain reclassifications may have been made to the
1997 and 1996 financial statements to conform to the 1998 financial statement
presentations.
Environmental -- The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 1998.
Revenue recognition -- The Partnership uses the entitlements method of
accounting for crude oil and natural gas revenues.
Reporting comprehensive income -- Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes
standards for the reporting and display of comprehensive income (loss) and its
components in a full set of general purpose financial statements. Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss).
The Partnership has no items of other comprehensive income (loss), as defined by
SFAS No. 130. Consequently, the provisions of SFAS No. 130 do not apply to the
Partnership.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. Based upon a decline in the Partnership's outlook for future
commodity prices, the Partnership has estimated the expected future cash flows
of its oil and gas properties as of December 31, 1998, 1997 and 1996, and
compared such estimated future cash flows to the respective carrying amount of
the oil and gas properties to determine if the carrying amounts were likely to
be recoverable. For those proved oil and gas properties for which the carrying
amount exceeded the estimated future cash flows, an impairment was determined to
exist; therefore, the Partnership adjusted the carrying amount of those oil and
gas properties to their fair value as determined by discounting their expected
future cash flows at a discount rate commensurate with the risks involved in the
industry. As a result, the Partnership recognized non-cash impairment provisions
of $425,668 and $370,361 related to its proved oil and gas properties during
1998 and 1997, respectively.
17
<PAGE> 322
PARKER & PARSLEY 84-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $127,151 less than the tax basis at December 31, 1998.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- ----------
<S> <C> <C> <C>
Net income (loss) per statements of operations..... $(923,346) $ 70,124 $1,782,138
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes..................... 695,743 299,048 304,033
Impairment of oil and gas properties for financial
reporting purposes............................... 425,668 370,361 --
Salvage income..................................... 2,967 -- --
Other, net......................................... 5,121 (12,815) (23,369)
--------- -------- ----------
Net income per Federal income tax
returns................................ $ 206,153 $726,718 $2,062,802
========= ======== ==========
</TABLE>
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
Development costs........................................ $10,572 $12,231 $7,618
======= ======= ======
</TABLE>
Capitalized oil and gas properties consist of the following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Proved properties:
Property acquisition costs............................. $ 923,276 $ 923,276
Completed wells and equipment.......................... 17,310,549 17,299,977
------------ ------------
18,233,825 18,223,253
Accumulated depletion.................................... (16,106,643) (14,950,537)
------------ ------------
Net capitalized costs.......................... $ 2,127,182 $ 3,272,716
============ ============
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $382,325 $393,853 $372,085
Reimbursement of general and administrative
expenses........................................... $ 33,724 $ 50,041 $ 59,530
</TABLE>
Pioneer USA, EMPL and the Partnership are parties to the Partnership
agreement. EMPL is a limited partnership in which Pioneer USA owns 77.5% and the
remaining portion is owned by former
18
<PAGE> 323
PARKER & PARSLEY 84-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
affiliates. In addition, Pioneer USA owned 354 limited partner interests in the
Partnership at January 1, 1999.
The costs and revenues of the Partnership are allocated as follows:
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS
-------- --------
<S> <C> <C>
Revenues:
Proceeds from property dispositions prior to cost
recovery............................................... 10% 90%
All other Partnership revenues............................ 25% 75%
Costs and expenses:
Lease acquisition costs, drilling and completion costs.... 10% 90%
Operating costs, direct costs and general and
administrative expenses................................ 25% 75%
Incremental direct expenses............................... -- 100%
</TABLE>
Incremental direct expenses are direct expenses which would not be incurred
except for the requirements of the securities regulatory authorities and totaled
$4,661, $7,657 and $7,789 in 1998, 1997 and 1996, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 1998, 1997 and 1996 and
changes in such quantities during the years then ended. Due to a change in the
accounting policy of the managing general partner in 1997, the Partnership began
accounting for processed natural gas production in two components: processed
natural gas liquids ("NGLs") and dry residue gas. NGLs are reflected in "Oil and
NGLs" in the table below. All of the Partnership's reserves are proved developed
and located within the United States. The Partnership's reserves are based on an
evaluation prepared by the engineering staff of Pioneer USA and reviewed by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant,
using criteria established by the Securities and Exchange Commission. Reserve
value information is available to limited partners pursuant to the Partnership
agreement and, therefore, is not presented.
<TABLE>
<CAPTION>
OIL AND NGLS GAS
(BBLS) (MCF)
------------ ----------
<S> <C> <C>
Net proved reserves at January 1, 1996...................... 774,985 2,813,959
Revisions................................................... 225,257 1,245,386
Production.................................................. (64,490) (236,446)
--------- ----------
Net proved reserves at December 31, 1996.................... 935,752 3,822,899
Revisions................................................... 190,095 (2,106,976)
Production.................................................. (72,806) (199,235)
--------- ----------
Net proved reserves at December 31, 1997.................... 1,053,041 1,516,688
Revisions................................................... (400,628) (306,319)
Production.................................................. (88,702) (145,870)
--------- ----------
Net proved reserves at December 31, 1998.................... 563,711 1,064,499
========= ==========
</TABLE>
As of December 31, 1998, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 1998 prices of $10.61 per
barrel of oil, $5.34 per barrel of NGLs and $1.34 per mcf of gas, discounted at
10% was approximately $999,000 and undiscounted was $1,597,000.
19
<PAGE> 324
PARKER & PARSLEY 84-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Genesis Crude Oil, L.P...................................... 53% 58% 60%
Western Gas Resources, Inc. ................................ 29% 26% 15%
GPM Gas Corporation......................................... 6% 5% 12%
</TABLE>
At December 31, 1998, the amounts receivable from Genesis Crude Oil, L.P.
and Western Gas Resources, Inc. were $40,037 and $60,660, respectively, which
are included in the caption "Accounts receivable -- oil and gas sales" in the
accompanying Balance Sheet.
The Partnership's share of oil and gas production is sold to various
purchasers. Pioneer USA is of the opinion that the loss of any one purchaser
would not have an adverse effect on the ability of the Partnership to sell its
oil and gas production.
NOTE 9. ORGANIZATION AND OPERATIONS
The Partnership was organized July 6, 1984 as a limited partnership under
the Texas Uniform Limited Partnership Act for the purpose of acquiring and
developing oil and gas properties. The following is a brief summary of the more
significant provisions of the limited partnership agreement:
General partners -- The general partners of the Partnership are
Pioneer USA and EMPL. Pioneer USA, the managing general partner, has the
power and authority to manage, control and administer all Partnership
affairs. As managing general partner and operator of the Partnership's
properties, all production expenses are incurred by Pioneer USA and billed
to the Partnership and a portion of revenue is initially received by
Pioneer USA prior to being paid to the Partnership.
Limited partner liability -- The maximum amount of liability of any
limited partner is the total contributions of such partner plus his share
of any undistributed profits.
Initial capital contributions -- The limited partners entered into
subscription agreements for aggregate capital contributions of $19,435,000.
The general partners are required to contribute amounts equal to 10% of
Partnership expenditures for lease acquisition, drilling and completion and
25% of direct, general and administrative and operating expenses, and by
agreement must maintain a calculated minimum capital balance.
20
<PAGE> 325
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and
executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve
until the next annual meeting of stockholders or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31,
NAME 1998 POSITION
- ---- ------------ --------
<S> <C> <C>
Scott D. Sheffield................. 46 President and Director
Timothy L. Dove.................... 42 Executive Vice President and
Director
Dennis E. Fagerstone............... 49 Executive Vice President and
Director
Mark L. Withrow.................... 51 Executive Vice President, General
Counsel and Director
M. Garrett Smith................... 37 Executive Vice President, Chief
Financial Officer and Director
Mel Fischer(a)..................... 64 Executive Vice President
Lon C. Kile........................ 43 Executive Vice President
Rich Dealy......................... 32 Vice President and Chief Accounting
Officer
</TABLE>
- ---------------
(a) Mr. Fischer was a director and officer until his retirement from Pioneer
and Pioneer USA on February 19, 1999.
Scott D. Sheffield. Mr. Sheffield is a distinguished graduate of The
University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he
has served as President, Chief Executive Officer and a director of Pioneer and
President and a director of Pioneer USA. Mr. Sheffield was the President and a
director of Parker & Parsley from May 1990 until August 1997 and was the
Chairman of the Board and Chief Executive Officer of Parker & Parsley from
October 1990 until August 1997. He was the sole director of Parker & Parsley
from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley
Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum
engineer in 1979. He served as Vice President -- Engineering of PPDC from
September 1981 until April 1985 when he was elected President and a director. In
March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive
Officer of PPDC. Before joining PPDC, Mr. Sheffield was employed as a production
and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President -- Business
Development of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. Mr. Dove joined Parker & Parsley in May
1994 as Vice President -- International and was promoted to Senior Vice
President -- Business Development in October 1996, in which position he served
until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with
Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various
capacities in international exploration and production, marketing, refining and
marketing and planning and development. Mr. Dove earned a B.S. in Mechanical
Engineering from Massachusetts Institute of Technology in 1979 and received his
M.B.A. in 1981 from the University of Chicago.
21
<PAGE> 326
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of Mesa from March 1, 1997 until August 1997. From October
1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief
Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice
President -- Exploration and Production of Mesa. From June 1988 to May 1991, Mr.
Fagerstone served as Vice President -- Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B.S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President -- General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President -- General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
M. Garrett Smith. Mr. Smith, a graduate of The University of Texas with a
B.S. in Electrical Engineering and Southern Methodist University with an M.B.A.,
was appointed Executive Vice President and Chief Financial Officer of Pioneer in
December 1997. He served as Senior Vice President -- Finance of Pioneer from
August 1997 until December 1997. Mr. Smith was elected Senior Vice President --
Finance and a director of Pioneer USA in August 1997. He served as Vice
President -- Corporate Acquisitions of Mesa from January 1997 until August 1997.
From October 1996 to December 1996, Mr. Smith served as Vice
President -- Finance of Mesa and from 1994 to 1996 he served as Director of
Financial Planning of Mesa. Mr. Smith was employed by BTC Partners, Inc. (a
former financial advisor to Mesa) from 1989 to 1994.
Mel Fischer. Mr. Fischer, a graduate of the University of California at
Berkeley with a Masters degree in Geology, became Executive Vice
President -- Worldwide Exploration of Pioneer and Pioneer USA in August 1997. He
served as a director of Parker & Parsley from November 1995 until August 1997
and was Executive Vice President -- Worldwide Exploration for Parker & Parsley
from February 1997 to August 1997. Mr. Fischer retired from Pioneer and Pioneer
USA effective February 15, 1999. He worked in the petroleum industry for 32
years, starting as a Petroleum Geologist with Texaco in 1962, and retiring as
President, Occidental International Exploration and Production Company in March
1994. For the 10 years prior to becoming President of Occidental International,
he served as Executive Vice President, World Wide Exploration with Occidental
Oil and Gas Corporation. He is a registered geologist in the State of
California, a member of the American Association of Petroleum Geologists and an
emeritus member of the Board of Advisors for the Earth Sciences Research
Institute at the University of Utah.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a
B.B.A. in Accounting, became Executive Vice President of Pioneer and Pioneer USA
in August 1997. Mr. Kile was Senior Vice President -- Investor Relations from
October 1996 to August 1997. Previously, he served as Vice President and Manager
of the Mid-Continent Division, Vice President -- Equity Finance & Analysis and
Vice President -- Marketing & Program Administration. Prior to joining Parker &
Parsley in 1985, he was employed as Supervisor -- Senior, Audit, in charge of
Parker & Parsley's audit, with Arthur Young.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a
B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became
Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
22
<PAGE> 327
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is vested in Pioneer USA, the managing general partner. Under the
Partnership agreement, Pioneer USA pays 8% of the Partnership's acquisition,
drilling and completion costs and 20% of its operating and general and
administrative expenses. In return, Pioneer USA is allocated 20% of the
Partnership's revenues. See Notes 6 and 9 of Notes to Financial Statements
included in "Item 8. Financial Statements and Supplementary Data" for
information regarding fees and reimbursements paid to the managing general
partner or its affiliates by the Partnership.
EMPL is a co-general partner of the Partnership. Under this arrangement,
EMPL pays 2% of the Partnership's acquisition, drilling and completion costs and
5% of its operating and general and administrative expenses. In return, EMPL is
allocated 5% of the Partnership's revenues. EMPL does not receive any fees or
reimbursements from the Partnership.
The Partnership does not directly pay any salaries of the executive
officers of Pioneer USA, but does pay a portion of Pioneer USA's general and
administrative expenses of which these salaries are a part. See Note 6 of Notes
to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more
of the outstanding limited partnership interests of the Partnership. Pioneer USA
and EMPL respectively own 80% and 20% of the general partners' interests in the
Partnership. Pioneer USA owned 354 limited partner interests at January 1, 1999.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing
general partner of the Partnership, Pioneer USA, has the exclusive right and
full authority to manage, control and administer the Partnership's business.
Under the limited partnership agreement, limited partners holding a majority of
the outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner or its affiliates
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $382,325 $393,853 $372,085
Reimbursement of general and administrative
expenses........................................... $ 33,724 $ 50,041 $ 59,530
</TABLE>
Under the limited partnership agreement, the general partners, Pioneer USA
and EMPL, together pay 10% of Partnership's acquisition, drilling and completion
costs and 25% of its operating and general and administrative expenses. In
return, they are allocated 25% of the Partnership's revenues. Twenty percent of
the general partners' share of costs and revenues is allocated to EMPL and the
remainder is allocated to Pioneer USA. Certain former affiliates of Pioneer USA
are limited partners of EMPL. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary
23
<PAGE> 328
Data", regarding the Partnership's participation with the managing general
partner in oil and gas activities of the Partnership.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial statements
The following are filed as part of this annual report:
Independent Auditors' Report -- Ernst & Young LLP
Independent Auditors' Report -- KPMG LLP
Balance sheets as of December 31, 1998 and 1997
Statements of operations for the years ended December 31, 1998, 1997
and 1996
Statements of partners' capital for the years ended December 31, 1998,
1997 and 1996
Statements of cash flows for the years ended December 31, 1998, 1997
and 1996
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this annual report.
24
<PAGE> 329
SIGNATURES
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 84-A, LTD.
By: Pioneer Natural Resources USA, Inc.
Managing General Partner
By: /s/ SCOTT D. SHEFFIELD
-------------------------------------
Scott D. Sheffield,
President
Dated: March 23, 1999
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 date indicated.
<TABLE>
<C> <S> <C>
/s/ SCOTT D. SHEFFIELD President and Director of March 23, 1999
- ----------------------------------------------------- Pioneer USA
Scott D. Sheffield
/s/ TIMOTHY L. DOVE Executive Vice President and March 23, 1999
- ----------------------------------------------------- Director of Pioneer USA
Timothy L. Dove
/s/ DENNIS E. FAGERSTONE Executive Vice President and March 23, 1999
- ----------------------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ MARK L. WITHROW Executive Vice President, March 23, 1999
- ----------------------------------------------------- General Counsel and Director
Mark L. Withrow of Pioneer USA
/s/ M. GARRETT SMITH Executive Vice President, March 23, 1999
- ----------------------------------------------------- Chief Financial Officer and
M. Garrett Smith Director of Pioneer USA
/s/ LON C. KILE Executive Vice President of March 23, 1999
- ----------------------------------------------------- Pioneer USA
Lon C. Kile
/s/ RICH DEALY Vice President and Chief March 23, 1999
- ----------------------------------------------------- Accounting Officer of
Rich Dealy Pioneer USA
</TABLE>
25
<PAGE> 330
PARKER & PARSLEY 84-A, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1 -- Agreement of limited partnership of Parker & Parsley
84-A, Ltd. incorporated by reference to Exhibit 4(e) of
Partnership's Registration Statement on Form S-1
(Registration No. 2-90417), as amended on May 24, 1984,
the effective date thereof (hereinafter called, the
Partnership's Registration Statement)
3.2 -- Amended and Restated Certificate of Limited Partnership
of Parker & Parsley 84-A, Ltd. incorporated by reference
to Exhibit 3.2 of the Partnership's Annual Report on Form
10-K for the period from July 6, 1984 (date of
organization) through December 31, 1984
4.1 -- Form of Subscription Agreement and Power of Attorney
incorporated by reference to Exhibit 4(b) of the
Partnership's Registration Statement
4.2 -- Specimen Certificate of Limited Partnership Interest
incorporated by reference to Exhibit 4(d) of the
Partnership's Registration Statement
27.1* -- Financial Data Schedule
99.1 -- Mutual Release and Indemnity Agreement dated May 25, 1993
incorporated by reference to Exhibit 99.1 of the
Partnership's Annual Report on Form 10-K for the year
ended December 31, 1993
</TABLE>
- ---------------
* filed herewith
<PAGE> 331
PARKER & PARSLEY 84-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
DECEMBER 31, 1998, 1997 AND 1996
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. Future income taxes are calculated by comparing
discounted future cash flows to the tax basis of oil and gas properties plus
available carryforwards and credits and applying the current tax rates to the
difference.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and gas producing activities:
Future cash inflows....................................... $ 6,111 $ 19,840 $ 36,425
Future production costs................................... (4,514) (12,732) (20,443)
Future development costs.................................. -- -- 350
------- -------- --------
1,597 7,108 16,332
10% annual discount factor................................ (598) (3,052) (8,105)
------- -------- --------
Standardized measure of discounted future net cash
flows.................................................. $ 999 $ 4,056 $ 8,227
======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs................ $ (259) $ (798) $(1,107)
Net changes in prices and production costs................ (2,438) (3,615) 3,198
Extensions and discoveries................................ -- -- --
Sales of minerals-in-place................................ -- -- --
Purchases of minerals-in-place............................ -- -- --
Revisions of estimated future development costs........... -- (199) (173)
Revisions of previous quantity estimates and reserves
added by development drilling.......................... (555) (442) 2,425
Accretion of discount..................................... 406 823 418
Changes in production rates, timing and other............. (211) 60 (710)
------- ------- -------
Change in present value of future net revenues............ (3,057) (4,171) 4,051
------- ------- -------
Balance, beginning of year................................ 4,056 8,227 4,176
------- ------- -------
Balance, end of year...................................... $ 999 $ 4,056 $ 8,227
======= ======= =======
</TABLE>
<PAGE> 332
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 85-A, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT DATED , 1999
----------------------
THE DATE OF THIS SUPPLEMENT IS , 1999
----------------------
This document contains important information specific to Parker & Parsley
85-A, Ltd. and supplements the proxy statement dated , 1999, of
Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies
to be voted at a special meeting of limited partners of the partnerships
described in the proxy statement. The purpose of the special meeting is for you
to vote upon the merger of Parker & Parsley 85-A, Ltd. with and into Pioneer USA
that, if completed, will result in your receiving cash for your partnership
interests.
This supplement contains the following information concerning Parker &
Parsley 85-A, Ltd.:
- A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through June
30, 1999
-- the merger value per $1,000 limited partner investment as of June 30,
1999
-- the merger value per $1,000 limited partner investment as a multiple
of distributions for the 12 months ended June 30, 1999
-- the book value per $1,000 limited partner investment as of June 30,
1999 and as of December 31, 1998 and
-- the ordinary tax loss per $1,000 limited partner investment in year
of initial investment
- Quarterly Report on Form 10-Q for the six months ended June 30, 1999
- Annual Report on Form 10-K for the year ended December 31, 1998
- Disclosures about the partnership's oil and gas producing activities
<PAGE> 333
PARKER & PARSLEY 85-A, LTD.
SUPPLEMENTAL INFORMATION TABLE
<TABLE>
<S> <C>
Aggregate Initial Investment by the Limited Partners(a)..... $ 9,613
Aggregate Historical Limited Partner Distributions through
June 30, 1999(a).......................................... $ 6,547
Merger Value per $1,000 Limited Partner Investment as of
June 30, 1999(b).......................................... $ 73.74
Merger Value per $1,000 Limited Partner Investment as a
Multiple of Distributions for the 12 Months ended June 30,
1999(b)................................................... 16.29times
Book Value per $1,000 Limited Partner Investment:
-- as of June 30, 1999(b)................................. $ 70.30
-- as of December 31, 1998(b)............................. $ 69.39
Ordinary Tax Loss per $1,000 Limited Partner Investment in
Year of Initial Investment(b), (c)........................ $ 467
</TABLE>
- ---------------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as any
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
<PAGE> 334
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JUNE 30, 1999
COMMISSION FILE NO. 2-99079A
PARKER & PARSLEY 85-A, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-2064518
(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)
</TABLE>
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> 335
PARKER & PARSLEY 85-A, LTD.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1999 and December 31,
1998.................................................. 3
Statements of Operations for the three and six months
ended June 30, 1999 and 1998.......................... 4
Statement of Partners' Capital for the six months ended
June 30, 1999......................................... 5
Statements of Cash Flows for the six months ended June
30, 1999 and 1998..................................... 6
Notes to Financial Statements.......................... 7
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS
OF OPERATIONS..................................... 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 11
27.1 Financial Data Schedule
Signatures............................................. 12
</TABLE>
2
<PAGE> 336
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER & PARSLEY 85-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 54,784 $ 41,498
Accounts receivable -- oil and gas sales.................. 69,805 42,116
----------- -----------
Total current assets.............................. 124,589 83,614
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 7,393,725 7,388,678
Accumulated depletion....................................... (6,819,996) (6,788,159)
----------- -----------
Net oil and gas properties........................ 573,729 600,519
----------- -----------
$ 698,318 $ 684,133
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 15,727 $ 10,323
Partners' capital:
Managing general partner.................................. 6,838 6,750
Limited partners (9,613 interests)........................ 675,753 667,060
----------- -----------
682,591 673,810
----------- -----------
$ 698,318 $ 684,133
=========== ===========
</TABLE>
The financial information included as of June 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
<PAGE> 337
PARKER & PARSLEY 85-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas...................................... $122,223 $ 95,999 $201,384 $194,486
Interest......................................... 658 941 1,155 2,025
-------- -------- -------- --------
122,881 96,940 202,539 196,511
-------- -------- -------- --------
Costs and expenses:
Oil and gas production........................... 74,972 77,824 133,355 146,539
General and administrative....................... 3,669 2,880 6,044 5,835
Depletion........................................ 11,205 34,079 31,837 58,645
-------- -------- -------- --------
89,846 114,783 171,236 211,019
-------- -------- -------- --------
Net income (loss).................................. $ 33,035 $(17,843) $ 31,303 $(14,508)
======== ======== ======== ========
Allocation of net income (loss):
Managing general partner......................... $ 330 $ (178) $ 313 $ (145)
======== ======== ======== ========
Limited partners................................. $ 32,705 $(17,665) $ 30,990 $(14,363)
======== ======== ======== ========
Net income (loss) per limited partnership
interest......................................... $ 3.40 $ (1.83) $ 3.22 $ (1.49)
======== ======== ======== ========
Distributions per limited partnership interest..... $ 1.49 $ 2.21 $ 2.32 $ 7.50
======== ======== ======== ========
</TABLE>
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> 338
PARKER & PARSLEY 85-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1, 1999.................................. $6,750 $667,060 $673,810
Distributions............................................. (225) (22,297) (22,522)
Net income................................................ 313 30,990 31,303
------ -------- --------
Balance at June 30, 1999.................................... $6,838 $675,753 $682,591
====== ======== ========
</TABLE>
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> 339
PARKER & PARSLEY 85-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 31,303 $(14,508)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depletion.............................................. 31,837 58,645
Changes in assets and liabilities:
Accounts receivable.................................... (27,689) 18,296
Accounts payable....................................... 5,404 (1,920)
-------- --------
Net cash provided by operating activities......... 40,855 60,513
-------- --------
Cash flows used in investing activities:
Additions to oil and gas properties....................... (5,325) (7,746)
Proceeds from asset dispositions.......................... 278 --
-------- --------
Net cash used in investing activities............. (5,047) (7,746)
-------- --------
Cash flows from financing activities:
Cash distributions to partners............................ (22,522) (72,801)
-------- --------
Net increase (decrease) in cash............................. 13,286 (20,034)
Cash at beginning of period................................. 41,498 70,438
-------- --------
Cash at end of period....................................... $ 54,784 $ 50,404
======== ========
</TABLE>
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> 340
PARKER & PARSLEY 85-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 85-A, Ltd. (the "Partnership") is a limited partnership
organized in 1985 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 June 30, 1999 and for the three and six months ended June 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.
7
<PAGE> 341
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
RESULTS OF OPERATIONS
Six months ended June 30, 1999 compared with six months ended June 30, 1998
Revenues:
The Partnership's oil and gas revenues increased 4% to $201,384 from
$194,486 for the six months ended June 30, 1999 and 1998, respectively. The
increase in revenues resulted from an increase in production, offset by lower
average prices received. For the six months ended June 30, 1999, 8,668 barrels
of oil, 6,436 barrels of natural gas liquids ("NGLs") and 26,371 mcf of gas were
sold, or 19,499 barrel of oil equivalents ("BOEs"). For the six months ended
June 30, 1998, 9,116 barrels of oil, 4,300 barrels of NGLs and 20,967 mcf of gas
were sold, or 16,911 BOEs.
The average price received per barrel of oil decreased $1.02, or 7%, from
$14.17 for the six months ended June 30, 1998 to $13.15 for the same period in
1999. The average price received per barrel of NGLs increased slightly from
$7.30 during the six months ended June 30, 1998 to $7.34 for the same period in
1999. The average price received per mcf of gas decreased 6% from $1.62 during
the six months ended June 30, 1998 to $1.52 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 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 six months ended June 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.
Costs and Expenses:
Total costs and expenses decreased to $171,236 for the six months ended
June 30, 1999 as compared to $211,019 for the same period in 1998, a decrease of
$39,783, or 19%. This decrease was due to declines in depletion and production
costs, offset by an increase in general and administrative expenses ("G&A").
Production costs were $133,355 for the six months ended June 30, 1999 and
$146,539 for the same period in 1998 resulting in a decrease of $13,184, or 9%.
The decrease was primarily due to lower well maintenance costs and a decline in
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
increased, in aggregate, 4% from $5,835 for the six months ended June 30, 1998
to $6,044 for the same period in 1999.
Depletion was $31,837 for the six months ended June 30, 1999 compared to
$58,645 for the same period in 1998, a decrease of $26,808, or 46%. This
decrease was primarily due to an increase in proved reserves during the period
ended June 30, 1999 due to the higher commodity prices, a reduction in oil
production of 448 barrels for the six months ended June 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.
Three months ended June 30, 1999 compared with three months ended June 30,
1998
Revenues:
The Partnership's oil and gas revenues increased 27% to $122,223 from
$95,999 for the three months ended June 30, 1999 and 1998, respectively. The
increase in revenues resulted from higher average prices received and an
increase in production. For the three months ended June 30, 1999, 4,347 barrels
of oil, 3,965 barrels of NGLs and 14,678 mcf of gas were sold, or 10,758 BOEs.
For the three months ended June 30, 1998, 4,541 barrels of oil, 2,291 barrels of
NGLs and 11,108 mcf of gas were sold, or 8,683 BOEs.
8
<PAGE> 342
The average price received per barrel of oil increased $1.02, or 8%, from
$13.49 for the three months ended June 30, 1998 to $14.57 for the same period in
1999. The average price received per barrel of NGLs increased $1.24, or 17%,
from $7.49 during the three months ended June 30, 1998 to $8.73 for the same
period in 1999. The average price received per mcf of gas increased 4% from
$1.58 during the three months ended June 30, 1998 to $1.65 for the same period
in 1999.
Costs and Expenses:
Total costs and expenses decreased to $89,846 for the three months ended
June 30, 1999 as compared to $114,783 for the same period in 1998, a decrease of
$24,937, or 22%. This decrease was due to declines in depletion and production
costs, offset by an increase in G&A.
Production costs were $74,972 for the three months ended June 30, 1999 and
$77,824 for the same period in 1998 resulting in a $2,852 decrease, or 4%. The
decrease was primarily due to lower well maintenance costs and a decline in
production taxes.
During this period, G&A increased, in aggregate, 27% from $2,880 for the
three months ended June 30, 1998 to $3,669 for the same period in 1999.
Depletion was $11,205 for the three months ended June 30, 1999 compared to
$34,079 for the same period in 1998, a decrease of $22,874, or 67%. This
decrease was primarily attributable to an increase in proved reserves during the
period ended June 30, 1999 as a result of higher commodity prices, a reduction
in oil production of 194 barrels for the three months ended June 30, 1999 as
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.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $19,658 during the six
months ended June 30, 1999 from the same period ended June 30, 1998. This
decrease was primarily due to a decline in oil and gas sales receipts, offset by
decreases in production costs and G&A expenses paid.
Net Cash Used in Investing Activities
The Partnership's investing activities during the six months ended June 30,
1999 and 1998 included expenditures related to equipment replacement on various
oil and gas properties.
Proceeds from asset dispositions of $278 were received during the six
months ended June 30, 1999 from equipment credits received on active properties.
Net Cash Used in Financing Activities
Cash was sufficient for the six months ended June 30, 1999 to cover
distributions to the partners of $22,522 of which $225 was distributed to the
managing general partner and $22,297 to the limited partners. For the same
period ended June 30, 1998, cash was sufficient for distributions to the
partners of $72,801 of which $727 was distributed to the managing general
partner and $72,074 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 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 early indications that the nations have initiated
their planned reductions, have had some stabilizing effect on commodity prices
during the latter part of the first quarter of 1999 and into August 1999.
However, no assurances can be given that the stabilizing effect of these
actions, or the planned reductions in export volumes, will be sustained for an
extended period of time.
9
<PAGE> 343
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.
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 June 30, 1999, the managing general partner estimates that the
assessment phase is approximately 99% complete and has included, but is not
limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- the formulation of contingency plans for mission-critical information
technology systems.
Through June 30, 1999, the managing general partner had 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 varying 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 June 30, 1999, the managing general partner
estimates that the remedial phase is approximately 83% complete, on a worldwide
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 is expected
to be completed by 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 expects to complete the testing of
information technology systems by October 1999. The testing of the
non-information technology remediation is scheduled to be completed by the end
of November 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. As of June 30, 1999, the managing general partner's total costs
10
<PAGE> 344
incurred on the Year 2000 problem were $2.3 million, of which approximately $200
thousand were incurred to replace non-compliant systems.
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
11
<PAGE> 345
SIGNATURES
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 85-A, LTD.
By: Pioneer Natural Resources USA,
Inc.,
Managing General Partner
By: /s/ RICH DEALY
----------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
Dated: August 5, 1999
12
<PAGE> 346
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 2-99079A
PARKER & PARSLEY 85-A, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-2064518
(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)
</TABLE>
Registrant's Telephone Number, including area code: (915) 683-4768
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
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]
No market currently exists for the limited partnership interests of the
Registrant. Based on original purchase price the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$9,426,000.
As of March 8, 1999, the number of outstanding limited partnership
interests was 9,613.
The following documents are incorporated by reference into the indicated
parts of this Annual Report on Form 10-K: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 347
Parts I and II of this Report contain 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. See "Item 1.
Business" for a description of various factors that could materially affect the
ability of the Partnership to achieve the anticipated results described in the
forward looking statements.
PART I
ITEM 1. BUSINESS
Parker & Parsley 85-A, Ltd. (the "Partnership") is a limited partnership
organized in 1985 under the laws of the State of Texas. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. ("Mesa") received shareholder approval
to merge and create Pioneer Natural Resources Company ("Pioneer"). On August 8,
1997, PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership as PPDLP's successor by merger. For a more complete description of
the Parker & Parsley and Mesa merger, see Pioneer's Registration Statement on
Form S-4 as filed with the Securities & Exchange Commission.
A Registration Statement, as amended, filed pursuant to the Securities Act
of 1933, registering limited partnership interests aggregating $40,000,000 in a
series of Texas limited partnerships formed under the Parker & Parsley 85
Development Drilling Program, was declared effective by the Securities and
Exchange Commission on August 28, 1985. On October 26, 1985, the offering of
limited partnership interests in the Partnership, the first partnership formed
under such registration statement, was closed, with interests aggregating
$9,613,000 being sold to 828 subscribers.
The Partnership engages primarily in oil and gas development and production
and is not involved in any industry segment other than oil and gas. See "Item 6.
Selected Financial Data" and "Item 8. Financial Statements and Supplementary
Data" of this report for a summary of the Partnership's revenue, income and
identifiable assets.
The principal markets during 1998 for the oil produced by the Partnership
were refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. The principal markets for the
Partnership's gas were companies that have pipelines located near the
Partnership's gas producing properties. Of the Partnership's total oil and gas
revenues for 1998, approximately 60% and 19% were attributable to sales made to
Genesis Crude Oil, L.P. and Western Gas Resources, Inc., respectively.
The Partnership's revenues, profitability, cash flow and future rate of
growth are highly dependent on the prevailing prices of oil and gas, which are
affected by numerous factors beyond the Partnership's control. Oil and gas
prices historically have been very volatile. A substantial or extended decline
in the prices of oil or gas could have a material adverse effect on the
Partnership's revenues, profitability and cash flow and could, under certain
circumstances, result in a reduction in the carrying value of the Partnership's
oil and gas properties.
Because of the demand for oil and gas, the Partnership does not believe
that the termination of the sales of its products to any one customer would have
a material adverse impact on its operations. The loss of a particular customer
for gas may have an effect if that particular customer has the only gas pipeline
located in the areas of the Partnership's gas producing properties. The
Partnership believes, however, that the effect would be temporary, until
alternative arrangements could be made.
Federal and state regulation of oil and gas operations generally includes
the fixing of maximum prices for regulated categories of natural gas, the
imposition of maximum allowable production rates, the taxation
1
<PAGE> 348
of income and other items, and the protection of the environment. Although the
Partnership believes that its business operations do not impair environmental
quality and that its costs of complying with any applicable environmental
regulations are not currently significant, the Partnership cannot predict what,
if any, effect these environmental regulations may have on its current or future
operations.
The Partnership does not have any employees of its own. Pioneer USA employs
818 persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this report is filed. Pioneer
USA is responsible for all management functions.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the
Partnership conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist primarily of leasehold interests in
properties on which oil and gas wells are located. Such property interests are
often subject to landowner royalties, overriding royalties and other oil and gas
leasehold interests.
Fractional working interests in developmental oil and gas prospects located
primarily in the Spraberry Trend Area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 25
productive oil and gas wells. At December 31, 1998, 21 wells were producing with
four wells sold during 1996. The Partnership received an additional interest in
one producing oil and gas well in 1993 due to the Partnership's back-in after
payout provisions.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 1998, 1997 and 1996 and changes in such quantities for
the years then ended, see Note 6 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been estimated by the engineering staff of Pioneer USA with a review by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter 1998.
2
<PAGE> 349
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 8, 1999, the Partnership had 9,613 outstanding limited partnership
interests held of record by 827 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are
not required to meet the Partnership's obligations are distributed to the
partners at least quarterly in accordance with the limited partnership
agreement. During the years ended December 31, 1998 and 1997, distributions of
$92,435 and $242,850 respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating results:
Oil and gas sales................. $ 371,098 $ 548,786 $ 631,838 $ 570,205 $ 598,850
========= ========== ========== ========== ==========
Impairment of oil and gas
properties..................... $ 22,031 $ 270,187 $ -- $ -- $ 431,446
========= ========== ========== ========== ==========
Litigation settlement, net........ $ -- $ -- $ 32,694 $ -- $ --
========= ========== ========== ========== ==========
Net income (loss)................. $(274,769) $ (158,804) $ 221,854 $ 60,241 $ (435,081)
========= ========== ========== ========== ==========
Allocation of net income (loss):
Managing general partner....... $ (2,747) $ (1,588) $ 2,219 $ 603 $ (4,351)
========= ========== ========== ========== ==========
Limited partners............... $(272,022) $ (157,216) $ 219,635 $ 59,638 $ (430,730)
========= ========== ========== ========== ==========
Limited partners' net income
(loss) per limited partnership
interest....................... $ (28.30) $ (16.35) $ 22.85 $ 6.20 $ (44.81)
========= ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest........... $ 9.62 $ 25.26 $ 26.55(a) $ 19.89 $ 18.57
========= ========== ========== ========== ==========
At year end:
Total assets...................... $ 684,133 $1,059,494 $1,460,408 $1,524,789 $1,658,967
========= ========== ========== ========== ==========
</TABLE>
- ---------------
(a) Including litigation settlement per limited partnership interest of $3.37
in 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1998 compared to 1997
The Partnership's 1998 oil and gas revenues decreased 32% to $371,098 from
$548,786 in 1997. The decrease in revenues resulted from lower average prices
received. In 1998, 18,178 barrels of oil, 9,630 barrels of natural gas liquids
("NGLs") and 43,021 mcf of gas were sold, or 34,978 barrel of oil equivalents
("BOEs"). In 1997, 19,067 barrels of oil, 3,804 barrels of NGLs and 57,213 mcf
of gas were sold, or 32,407 BOEs. Due to the decline characteristics of the
Partnership's oil and gas properties, management expects a certain amount of
decline in production in the future until the Partnership's economically
recoverable reserves are fully depleted.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. Effective September 30, 1997, as a result of the
merger with Mesa, the managing general partner accounts for processed natural
gas production in
3
<PAGE> 350
two components: natural gas liquids and dry residue gas. As a result of the
change in the managing general partner's policy, the Partnership now accounts
for processed natural gas production as processed natural gas liquids and dry
residue gas. Consequently, separate product volumes will not be comparable for
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 year ended December 31,
1998 is the price received for dry residue gas and the price per mcf for natural
gas produced prior to October 1997 was presented as a price for wet gas (i.e.,
natural gas liquids combined with dry residue gas).
The average price received per barrel of oil decreased $6.21, or 32%, from
$19.48 in 1997 to $13.27 in 1998. The average price received per barrel of NGLs
decreased $4.50, or 41%, from $11.01 in 1997 to $6.51 in 1998. The average price
received per mcf of gas decreased 34% from $2.37 in 1997 to $1.56 in 1998. The
market price received for oil and gas has been extremely volatile in the past
decade and management expects a certain amount of volatility in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 1998.
Total costs and expenses decreased in 1998 to $649,476 as compared to
$712,497 in 1997, a decrease of $63,021, or 9%. The decrease was primarily due
to declines in the impairment of oil and gas properties and general and
administrative expenses ("G&A"), offset by an increase in depletion.
Production costs were $304,333 in 1998 and $304,651 in 1997, resulting in a
slight decrease of $318. The decrease was the combination of a decline in
production taxes due to the decrease in oil and gas revenues, offset by an
increase in well maintenance costs.
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, 36% from $17,403 in 1997 to $11,133 in 1998. The
Partnership paid the managing general partner $8,231 in 1998 and $14,081 in 1997
for G&A incurred on behalf of the Partnership. G&A is allocated, in part, to the
Partnership by the managing general partner. Such allocated expenses are
determined by the managing general partner based upon its judgement of the level
of activity to the Partnership relative to the managing general partner's
activities and other entities it manages. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
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"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. Declining commodity prices prompted
impairment reviews in 1998 and 1997. As a result of the review and evaluation of
its long-lived assets for impairment, the Partnership recognized non-cash
charges of $22,031 and $270,187 related to its oil and gas properties during
1998 and 1997, respectively.
Depletion was $311,979 in 1998 compared to $120,256 in 1997. This
represented an increase of $191,723. This increase was the result of a decline
in proved reserves during 1998 due to the lower commodity prices, 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 and a reduction in
oil production of 889 barrels for the period ended December 31, 1998 compared to
the same period in 1997.
1997 compared to 1996
The Partnership's 1997 oil and gas revenues decreased 13% to $548,786 from
$631,838 in 1996. The decrease in revenues resulted from a lower average price
received per barrel of oil. In 1997, 19,067 barrels of oil, 3,804 barrels of
NGLs and 57,213 mcf of gas were sold, or 32,407 BOEs. In 1996, 21,203 barrels of
oil and 72,178 mcf of gas were sold, or 33,233 BOEs.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. As is described above in "Results of
4
<PAGE> 351
Operations -- 1998 compared to 1997", the Partnership changed its method of
accounting for processed natural gas to a dry gas basis in the fourth quarter of
1997. As a result of this change, the Partnership now accounts for processed
natural gas production as processed natural gas liquids and dry residue gas.
Consequently, 1997 and 1996 separate product volumes are not comparable.
The average price received per barrel of oil decreased $2.31, or 11%, from
$21.79 in 1996 to $19.48 in 1997. The average price received per barrel of NGLs
during 1997 was $11.01. The average price received per mcf of gas increased
slightly from $2.35 in 1996 to $2.37 in 1997.
On April 29, 1996, Southmark Corporation, Pioneer USA and the Partnership
entered into a final $7.4 million settlement agreement with Jack N. Price
resolving all outstanding litigation between the parties. As a result, all of
the pending lawsuits and judgments have been dismissed, the supersedeas bond
released, and the Reserve released as collateral. On June 28, 1996, a final
distribution was made to the working interest owners of $32,694 which included
$32,367, or $3.37 per limited partnership interest, to the Partnership and its
partners.
Total costs and expenses increased in 1997 to $712,497 as compared to
$446,635 in 1996, an increase of $265,862, or 60%. The increase was primarily
due to the impairment of oil and gas properties and an increase in depletion,
offset by lower production cost and G&A.
Production costs were $304,651 in 1997 and $320,643 in 1996, resulting in a
$15,992 decrease, or 5%. The decrease was due to a reduction in well maintenance
costs and a decrease in production taxes.
During this period, G&A decreased, in aggregate, 8% from $18,955 in 1996 to
$17,403 in 1997. The Partnership paid the managing general partner $14,081 in
1997 and $16,083 in 1996 for G&A incurred on behalf of the Partnership.
The Partnership recognized a non-cash SFAS 121 impairment provision of
$270,187 related to its proved oil and gas properties during the fourth quarter
of 1997.
Depletion was $120,256 in 1997 compared to $105,185 in 1996. This
represented an increase of $15,071, or 14%. This increase was primarily
attributable to the decrease in oil reserves during 1997 as a result of lower
commodity prices, offset by a decline in oil production of 2,136 barrels for
1997 as compared to 1996.
A loss on disposition of assets of $1,852 was recognized during 1996. This
loss resulted from the sale of four fully depleted oil and gas wells and four
saltwater disposal wells and the write-off of associated capitalized well costs
of $3,769, offset by a $1,917 receivable due from the sale for post-closing
adjustments.
IMPACT OF INFLATION AND CHANGING PRICES ON SALES AND NET INCOME
Inflation impacts the fixed overhead rate charges of the lease operating
expenses for the Partnership. During 1998, the annual change in the index of
average weekly earnings of crude petroleum and gas production workers issued by
the U.S. Department of Labor, Bureau of Labor Statistics increased (effective
April 1, 1998) 10.3%. The 1997 annual change in average weekly earnings
increased by 2%. The 1996 index increased 4.1%. The impact of inflation for
other lease operating expenses is small due to the current economic condition of
the oil industry.
The oil and gas industry experienced volatility during the past decade
because of the fluctuation of the supply of most fossil fuels relative to the
demand for such products and other uncertainties in the world energy markets
causing significant fluctuations in oil and gas prices. During 1998, the price
per barrel for oil production similar to the Partnership's ranged from
approximately $9.50 to $15.50. During most of 1997 and 1996, 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 March 1999. On March 8, 1999, the market price for West Texas intermediate
crude was $11.00 per barrel. A continuation of the current commodity price
environment will continue to have an adverse effect on the
5
<PAGE> 352
Partnership's revenues, operating cash flow and distributions and could result
in additional decreases in the carrying value of the Partnership's oil and gas
properties.
Prices for natural gas are subject to ordinary seasonal fluctuations, and
this volatility of natural gas prices may result in production being curtailed
and, in some cases, wells being completely shut-in.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $191,449 during the
year ended December 31, 1998 from the year ended December 31, 1997. This
decrease was due primarily to declines in oil and gas sales receipts and an
increase in production costs, offset by a decrease in G&A expenses paid.
Net Cash Provided by (Used in) Investing Activities
The Partnership's investing activities during 1998 and 1997 were related to
expenditures for equipment replacement on various oil and gas properties.
Proceeds from asset dispositions of $323 were from equipment credits
received on active properties.
Net Cash Used in Financing Activities
Cash was sufficient in 1998 for distributions to the partners of $93,368 of
which $933 was distributed to the managing general partner and $92,435 to the
limited partners. In 1997, cash was sufficient for distributions to the partners
of $245,304 of which $2,454 was distributed to the managing general partner and
$242,850 to the limited partners.
The current commodity price environment will continue to impact the
distributions and could result in limited or no distributions to the partners.
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.
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
at varying stages of completion as it pertains to information technology and
non-information technology applications and systems in the United States, Canada
and Argentina. As of December 31, 1998, the managing general partner estimates
that the assessment phase is approximately 86% complete, on a worldwide basis,
and has included, but is not limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
6
<PAGE> 353
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- 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 to
approximately 37% of those inquiries.
The remedial phase of the managing general partner's Year 2000 project is
also at varying 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 December 31, 1998, the
managing general partner estimates that the remedial phase is approximately 54%
complete, on a worldwide basis, subject to the continuing 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 through remedial coding and is currently testing this system for Year
2000 compliance. The remediation of non-information technology is expected to be
completed during July 1999. The managing general partner's Year 2000 remedial
actions have not significantly 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 and non-information technology remediation by the end of the third
quarter of 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. The managing general partner intends to use its working capital to pay
for the costs of the Year 2000 projects. As of December 31, 1998, the managing
general partner's total costs incurred on the Year 2000 problem were $1.8
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 in accordance with the general and
administration allocation. (See Note 2 of Notes to Financial Statements included
in "Item 8. Financial Statements and Supplementary Data".)
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 assessment phase of the managing general partner's Year 2000
project, contingency plans are being 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.
7
<PAGE> 354
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Parker & Parsley 85-A, Ltd:
Independent Auditors' Report -- Ernst & Young LLP......... 9
Independent Auditors' Report -- KPMG LLP.................. 10
Balance Sheets as of December 31, 1998 and 1997........... 11
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996.................................... 12
Statements of Partners' Capital for the Years Ended
December 31, 1998, 1997 and 1996....................... 13
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996.................................... 14
Notes to Financial Statements............................. 15
</TABLE>
8
<PAGE> 355
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 85-A, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheet of Parker & Parsley 85-A, Ltd. as of
December 31, 1998, and the related statements of income, partners' capital and
cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 85-A, Ltd.
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Dallas, Texas
March 15, 1999
9
<PAGE> 356
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 85-A, Ltd.
(A Texas Limited Partnership):
We have audited the financial statements of Parker & Parsley 85-A, Ltd. as
of December 31, 1997, and the related statements of operations, partners'
capital and cash flows for the years ended December 31, 1997 and 1996. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 85-A, Ltd.
as of December 31, 1997, and the results of its operations and its cash flows
for the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
KPMG LLP
Midland, Texas
March 20, 1998
10
<PAGE> 357
PARKER & PARSLEY 85-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 41,498 $ 70,438
Accounts receivable -- oil and gas sales.................. 42,116 66,815
----------- -----------
Total current assets.............................. 83,614 137,253
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 7,388,678 7,376,390
Accumulated depletion....................................... (6,788,159) (6,454,149)
----------- -----------
Net oil and gas properties........................ 600,519 922,241
----------- -----------
$ 684,133 $ 1,059,494
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 10,323 $ 17,547
Partners' capital:
Managing general partner.................................. 6,750 10,430
Limited partners (9,613 interests)........................ 667,060 1,031,517
----------- -----------
673,810 1,041,947
----------- -----------
$ 684,133 $ 1,059,494
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 358
PARKER & PARSLEY 85-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Revenues:
Oil and gas.............................................. $ 371,098 $ 548,786 $631,838
Interest................................................. 3,609 4,907 3,957
Litigation settlement, net............................... -- -- 32,694
--------- --------- --------
374,707 553,693 668,489
--------- --------- --------
Costs and expenses:
Oil and gas production................................... 304,333 304,651 320,643
General and administrative............................... 11,133 17,403 18,955
Impairment of oil and gas properties..................... 22,031 270,187 --
Depletion................................................ 311,979 120,256 105,185
Loss on disposition of assets............................ -- -- 1,852
--------- --------- --------
649,476 712,497 446,635
--------- --------- --------
Net income (loss).......................................... $(274,769) $(158,804) $221,854
========= ========= ========
Allocation of net income (loss):
Managing general partner................................. $ (2,747) $ (1,588) $ 2,219
========= ========= ========
Limited partners......................................... $(272,022) $(157,216) $219,635
========= ========= ========
Net income (loss) per limited partnership interest......... $ (28.30) $ (16.35) $ 22.85
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 359
PARKER & PARSLEY 85-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Partners' capital at January 1, 1996....................... $14,831 $1,467,142 $1,481,973
Distributions............................................ (2,578) (255,194) (257,772)
Net income............................................... 2,219 219,635 221,854
------- ---------- ----------
Partners' capital at December 31, 1996..................... 14,472 1,431,583 1,446,055
Distributions............................................ (2,454) (242,850) (245,304)
Net loss................................................. (1,588) (157,216) (158,804)
------- ---------- ----------
Partners' capital at December 31, 1997..................... 10,430 1,031,517 1,041,947
Distributions............................................ (933) (92,435) (93,368)
Net loss................................................. (2,747) (272,022) (274,769)
------- ---------- ----------
Partners' capital at December 31, 1998..................... $ 6,750 $ 667,060 $ 673,810
======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 360
PARKER & PARSLEY 85-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................ $(274,769) $(158,804) $221,854
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Loss on disposition of assets......................... -- -- 1,852
Impairment of oil and gas properties.................. 22,031 270,187 --
Depletion............................................. 311,979 120,256 105,185
Changes in assets and liabilities:
Accounts receivable................................... 24,699 33,332 (33,195)
Accounts payable...................................... (7,224) 3,194 (26,418)
--------- --------- --------
Net cash provided by operating activities........ 76,716 268,165 269,278
--------- --------- --------
Cash flows from investing activities:
Additions to oil and gas properties...................... (12,611) (2,702) --
Proceeds from asset dispositions......................... 323 -- 1,818
--------- --------- --------
Net cash provided by (used in) investing
activities..................................... (12,288) (2,702) 1,818
--------- --------- --------
Cash flows from financing activities:
Cash distributions to partners........................... (93,368) (245,304) (257,772)
--------- --------- --------
Net increase (decrease) in cash............................ (28,940) 20,159 13,324
Cash at beginning of year.................................. 70,438 50,279 36,955
--------- --------- --------
Cash at end of year........................................ $ 41,498 $ 70,438 $ 50,279
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 361
PARKER & PARSLEY 85-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 85-A, Ltd. (the "Partnership") is a limited partnership
organized in 1985 under the laws of the State of Texas. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. received shareholder approval to merge
and create Pioneer Natural Resources Company ("Pioneer"). On August 8, 1997,
PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership as PPDLP's successor by merger.
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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties -- The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as determined by the engineering staff of Pioneer
USA, the Partnership's managing general partner, and reviewed by independent
petroleum consultants. The carrying amounts of properties sold or otherwise
disposed of and the related allowances for depletion are eliminated from the
accounts and any gain or loss is included in operations.
Impairment of long-lived assets -- 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"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -- Preparation
of the accompanying financial statements 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 reporting amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest -- The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes -- A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
15
<PAGE> 362
PARKER & PARSLEY 85-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statements of cash flows -- For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses -- General and administrative expenses
are allocated in part to the Partnership by the managing general partner or its
affiliates. Such allocated expenses are determined by the managing general
partner based upon its judgement of the level of activity of the Partnership
relative to the managing general partner's activities and other entities it
manages. The method of allocation has been consistent over the past several
years with certain modifications incorporated to reflect changes in Pioneer
USA's overall business activities.
Reclassifications -- Certain reclassifications may have been made to the
1997 and 1996 financial statements to conform to the 1998 financial statement
presentation.
Environmental -- The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 1998.
Revenue recognition -- The Partnership uses the entitlements method of
accounting for crude oil and natural gas revenues.
Reporting comprehensive income -- Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes
standards for the reporting and display of comprehensive income (loss) and its
components in a full set of general purpose financial statements. Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss).
The Partnership has no items of other comprehensive income (loss), as defined by
SFAS No. 130. Consequently, the provisions of SFAS No. 130 do not apply to the
Partnership.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. Based upon a decline in the Partnership's outlook for future
commodity prices, the Partnership has estimated the expected future cash flows
of its oil and gas properties as of December 31, 1998, 1997 and 1996, and
compared such estimated future cash flows to the respective carrying amount of
the oil and gas properties to determine if the carrying amounts were likely to
be recoverable. For those proved oil and gas properties for which the carrying
amount exceeded the estimated future cash flows, an impairment was determined to
exist; therefore, the Partnership adjusted the carrying amount of those oil and
gas properties to their fair value as determined by discounting their expected
future cash flows at a discount rate commensurate with the risks involved in the
industry. As a result, the Partnership recognized non-cash impairment provisions
of $22,031 and $270,187 related to its proved oil and gas properties during 1998
and 1997, respectively.
16
<PAGE> 363
PARKER & PARSLEY 85-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $430,692 less than the tax basis at December 31, 1998.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Net income (loss) per statements of operations..... $(274,769) $(158,804) $221,854
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes..................... 307,564 116,807 101,013
Impairment of oil and gas properties for financial
reporting purposes............................... 22,031 270,187 --
Salvage income..................................... -- 6,705
Other.............................................. 1,515 (1,436) (4,243)
--------- --------- --------
Net income per Federal income tax
returns................................ $ 56,341 $ 226,754 $325,329
========= ========= ========
</TABLE>
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ -------
<S> <C> <C> <C>
Development costs........................................ $12,611 $2,702 $(1,946)
======= ====== =======
</TABLE>
Capitalized oil and gas properties consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Proved properties:
Property acquisition costs.............................. $ 488,509 $ 488,509
Completed wells and equipment........................... 6,900,169 6,887,881
----------- -----------
7,388,678 7,376,390
Accumulated depletion..................................... (6,788,159) (6,454,149)
----------- -----------
Net capitalized costs........................... $ 600,519 $ 922,241
=========== ===========
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $144,020 $138,188 $138,540
Reimbursement of general and administrative
expenses........................................... $ 8,231 $ 14,081 $ 16,083
</TABLE>
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. In addition,
Pioneer USA and the Partnership are parties to the Program agreement.
17
<PAGE> 364
PARKER & PARSLEY 85-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The costs and revenues of the Program are allocated to Pioneer USA and the
Partnership as follows:
<TABLE>
<CAPTION>
PIONEER
USA (1) PARTNERSHIP
--------- -----------
<S> <C> <C>
Revenues:
Proceeds from disposition of depreciable properties....... 9.09091% 90.90909%
All other revenues........................................ 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion costs.... 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative
expenses............................................... 24.242425% 75.757575%
</TABLE>
- ---------------
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at
the Partnership level and 187 limited partner interests owned by Pioneer
USA.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 1998, 1997 and 1996 and
changes in such quantities during the years then ended. Due to a change in the
accounting policy of the managing general partner in 1997, the Partnership began
accounting for processed natural gas production in two components: processed
natural gas liquids ("NGLs") and dry residue gas. NGLs are reflected in "Oil and
NGLs" in the table below. All of the Partnership's reserves are proved developed
and located within the United States. The Partnership's reserves are based on an
evaluation prepared by the engineering staff of Pioneer USA and reviewed by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant,
using criteria established by the Securities and Exchange Commission. Reserve
value information is available to limited partners pursuant to the partnership
agreement and, therefore, is not presented.
<TABLE>
<CAPTION>
OIL AND NGLS GAS
(BBLS) (MCF)
------------ ---------
<S> <C> <C>
Net proved reserves at January 1, 1996...................... 259,527 1,056,282
Revisions................................................... 59,598 145,991
Production.................................................. (21,203) (72,178)
-------- ---------
Net proved reserves at December 31, 1996.................... 297,922 1,130,095
Revisions................................................... 43,614 (649,459)
Production.................................................. (22,871) (57,213)
-------- ---------
Net proved reserves at December 31, 1997.................... 318,665 423,423
Revisions................................................... (154,837) (135,041)
Production.................................................. (27,808) (43,021)
-------- ---------
Net proved reserves at December 31, 1998.................... 136,020 245,361
======== =========
</TABLE>
As of December 31, 1998, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 1998 prices of $10.61 per
barrel of oil, $5.43 per barrel of NGLs and $1.36 per mcf of gas, discounted at
10% was approximately $230,000 and undiscounted was $332,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The
18
<PAGE> 365
PARKER & PARSLEY 85-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Partnership emphasizes that reserve estimates are inherently imprecise and,
accordingly, the estimates are expected to change as future information becomes
available.
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Genesis Crude Oil, L.P...................................... 60% 64% 67%
Western Gas Resources, Inc. ................................ 19% 17% 10%
</TABLE>
At December 31, 1998, the amounts receivable from Genesis Crude Oil, L.P.
and Western Gas Resources, Inc. were $14,544 and $10,788, respectively, which
are included in the caption "Accounts receivable -- oil and gas sales" in the
accompanying Balance Sheet.
The Partnership's share of oil and gas production is sold to various
purchasers. Pioneer USA is of the opinion that the loss of any one purchaser
would not have an adverse effect on the ability of the Partnership to sell its
oil and gas production.
NOTE 9. ORGANIZATION AND OPERATIONS
The Partnership was organized October 26, 1985 as a limited partnership
under the Texas Uniform Limited Partnership Act for the purpose of acquiring and
developing oil and gas properties. The following is a brief summary of the more
significant provisions of the limited partnership agreement:
Managing general partner -- The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Partnership affairs. As managing general
partner and operator of the Partnership's properties, all production
expenses are incurred by Pioneer USA and billed to the Partnership and a
portion of revenue is initially received by Pioneer USA prior to being paid
to the Partnership. Under the limited partnership agreement, the managing
general partner pays 1% of the Partnership's acquisition, drilling and
completion costs and 1% of its operating and general and administrative
expenses. In return, it is allocated 1% of the Partnership's revenues.
Limited partner liability -- The maximum amount of liability of any
limited partner is the total contributions of such partner plus his share
of any undistributed profits.
Initial capital contributions -- The limited partners entered into
subscription agreements for aggregate capital contributions of $9,613,000.
Pioneer USA is required to contribute amounts equal to 1% of initial
Partnership capital less commission and offering expenses allocated to the
limited partners and to contribute amounts necessary to pay costs and
expenses allocated to it under the partnership agreement to the extent its
share of revenues does not cover such costs.
NOTE 10. DISPOSITION OF ASSETS
Loss on disposition of assets was primarily due to a loss of $1,852 on sale
of assets recognized during 1996, resulting from the sale of four fully depleted
oil and gas wells and four saltwater disposal wells.
19
<PAGE> 366
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and
executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve
until the next annual meeting of stockholders or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31,
1998 POSITION
-------- --------
<S> <C> <C>
Scott D. Sheffield................. 46 President and Director
Timothy L. Dove.................... 42 Executive Vice President and
Director
Dennis E. Fagerstone............... 49 Executive Vice President and
Director
Mark L. Withrow.................... 51 Executive Vice President, General
Counsel and Director
M. Garrett Smith................... 37 Executive Vice President, Chief
Financial Officer and Director
Mel Fischer(a)..................... 64 Executive Vice President
Lon C. Kile........................ 43 Executive Vice President
Rich Dealy......................... 32 Vice President and Chief Accounting
Officer
</TABLE>
- ---------------
(a) Mr. Fischer was a director and officer until his retirement from Pioneer
and Pioneer USA on February 19, 1999.
Scott D. Sheffield. Mr. Sheffield is a distinguished graduate of The
University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he
has served as President, Chief Executive Officer and a director of Pioneer and
President and a director of Pioneer USA. Mr. Sheffield was the President and a
director of Parker & Parsley from May 1990 until August 1997 and was the
Chairman of the Board and Chief Executive Officer of Parker & Parsley from
October 1990 until August 1997. He was the sole director of Parker & Parsley
from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley
Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum
engineer in 1979. He served as Vice President -- Engineering of PPDC from
September 1981 until April 1985 when he was elected President and a director. In
March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive
Officer of PPDC. Before joining PPDC, Mr. Sheffield was employed as a production
and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President -- Business
Development of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. Mr. Dove joined Parker & Parsley in May
1994 as Vice President -- International and was promoted to Senior Vice
President -- Business Development in October 1996, in which position he served
until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with
Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various
capacities in international exploration and production, marketing, refining and
marketing and planning and development. Mr. Dove earned a B.S. in Mechanical
Engineering from Massachusetts Institute of Technology in 1979 and received his
M.B.A. in 1981 from the University of Chicago.
20
<PAGE> 367
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of Mesa from March 1, 1997 until August 1997. From October
1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief
Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice
President -- Exploration and Production of Mesa. From June 1988 to May 1991, Mr.
Fagerstone served as Vice President -- Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B.S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President -- General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President -- General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
M. Garrett Smith. Mr. Smith, a graduate of The University of Texas with a
B.S. in Electrical Engineering and Southern Methodist University with an M.B.A.,
was appointed Executive Vice President and Chief Financial Officer of Pioneer in
December 1997. He served as Senior Vice President -- Finance of Pioneer from
August 1997 until December 1997. Mr. Smith was elected Senior Vice President --
Finance and a director of Pioneer USA in August 1997. He served as Vice
President -- Corporate Acquisitions of Mesa from January 1997 until August 1997.
From October 1996 to December 1996, Mr. Smith served as Vice
President -- Finance of Mesa and from 1994 to 1996 he served as Director of
Financial Planning of Mesa. Mr. Smith was employed by BTC Partners, Inc. (a
former financial advisor to Mesa) from 1989 to 1994.
Mel Fischer. Mr. Fischer, a graduate of the University of California at
Berkeley with a Masters degree in Geology, became Executive Vice
President -- Worldwide Exploration of Pioneer and Pioneer USA in August 1997. He
served as a director of Parker & Parsley from November 1995 until August 1997
and was Executive Vice President -- Worldwide Exploration for Parker & Parsley
from February 1997 to August 1997. Mr. Fischer retired from Pioneer and Pioneer
USA effective February 15, 1998. He worked in the petroleum industry for 32
years, starting as a Petroleum Geologist with Texaco in 1962, and retiring as
President, Occidental International Exploration and Production Company in March
1994. For the 10 years prior to becoming President of Occidental International,
he served as Executive Vice President, World Wide Exploration with Occidental
Oil and Gas Corporation. He is a registered geologist in the State of
California, a member of the American Association of Petroleum Geologists and an
emeritus member of the Board of Advisors for the Earth Sciences Research
Institute at the University of Utah.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a
B.B.A. in Accounting, became Executive Vice President of Pioneer and Pioneer USA
in August 1997. Mr. Kile was Senior Vice President -- Investor Relations from
October 1996 to August 1997. Previously, he served as Vice President and Manager
of the Mid-Continent Division, Vice President -- Equity Finance & Analysis and
Vice President -- Marketing & Program Administration. Prior to joining Parker &
Parsley in 1985, he was employed as Supervisor -- Senior, Audit, in charge of
Parker & Parsley's audit, with Arthur Young.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a
B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became
Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
21
<PAGE> 368
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is vested in Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA pays approximately 10% of the Partnership's acquisition,
drilling and completion costs and approximately 25% of its operating and general
and administrative expenses. In return, Pioneer USA is allocated approximately
25% of the Partnership's revenues. See Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data" for
information regarding fees and reimbursements paid to the managing general
partner or its affiliates by the Partnership.
The Partnership does not directly pay any salaries of the executive
officers of Pioneer USA, but does pay a portion of Pioneer USA's general and
administrative expenses of which these salaries are a part. See Note 5 of Notes
to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more
of the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 187 limited partner interests at January 1, 1999.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing
general partner of the Partnership, Pioneer USA, has the exclusive right and
full authority to manage, control and administer the Partnership's business.
Under the limited partnership agreement, limited partners holding a majority of
the outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner or its affiliates
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $144,020 $138,188 $138,540
Reimbursement of general and administrative
expenses........................................... $ 8,231 $ 14,081 $ 16,083
</TABLE>
Under the limited partnership agreement, the managing general partner pays
1% of the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Partnership.
22
<PAGE> 369
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial statements
The following are filed as part of this annual report:
Independent Auditors' Report -- Ernst & Young LLP
Independent Auditors' Report -- KPMG LLP
Balance sheets as of December 31, 1998 and 1997
Statements of operations for the years ended December 31, 1998, 1997
and 1996
Statements of partners' capital for the years ended December 31, 1998,
1997 and 1996
Statements of cash flows for the years ended December 31, 1998, 1997
and 1996
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this annual report.
23
<PAGE> 370
SIGNATURES
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 85-A, LTD.
By: Pioneer Natural Resources USA,
Inc.
Managing General Partner
By: /s/ SCOTT D. SHEFFIELD
----------------------------------
Scott D. Sheffield,
President
Dated: March 26, 1999
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 date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ SCOTT D. SHEFFIELD President and Director of March 26, 1999
- ----------------------------------------------------- Pioneer USA
Scott D. Sheffield
/s/ TIMOTHY L. DOVE Executive Vice President and March 26, 1999
- ----------------------------------------------------- Director of Pioneer USA
Timothy L. Dove
/s/ DENNIS E. FAGERSTONE Executive Vice President and March 26, 1999
- ----------------------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ MARK L. WITHROW Executive Vice President, March 26, 1999
- ----------------------------------------------------- General Counsel and Director
Mark L. Withrow of Pioneer USA
/s/ M. GARRETT SMITH Executive Vice President, March 26, 1999
- ----------------------------------------------------- Chief Financial Officer and
M. Garrett Smith Director of Pioneer USA
/s/ LON C. KILE Executive Vice President of March 26, 1999
- ----------------------------------------------------- Pioneer USA
Lon C. Kile
/s/ RICH DEALY Vice President and Chief March 26, 1999
- ----------------------------------------------------- Accounting Officer of
Rich Dealy Pioneer USA
</TABLE>
24
<PAGE> 371
PARKER & PARSLEY 85-A, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3(a) -- Amended and Restated Certificate of Limited Partnership
of Parker & Parsley 85-A, Ltd. incorporated by reference
to Exhibit A of the Partnership's Registration Statement
on Form S-1 (Registration No. 2-99079) (hereinafter
called the Partnership's Registration Statement)
4(b) -- Agreement of Limited Partnership of Parker & Parsley
85-A, Ltd. incorporated by reference to an Exhibit of the
Partnership's Registration Statement
4(c) -- Form of Subscription Agreement and Power of Attorney
incorporated by reference to an Exhibit of the
Partnership's Registration Statement
4(d) -- Specimen Certificate of Limited Partnership Interest
incorporated by reference to an Exhibit of the
Partnership's Registration Statement
27.1* -- Financial Data Schedule
99.1 -- Mutual Release and Indemnity Agreement dated May 25, 1993
incorporated by reference to Exhibit 99.1 of the
Partnership's Annual Report on Form 10-K for the year
ended December 31, 1993
</TABLE>
- ---------------
* filed herewith
<PAGE> 372
PARKER & PARSLEY 85-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
DECEMBER 31, 1998, 1997 AND 1996
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. Future income taxes are calculated by comparing
discounted future cash flows to the tax basis of oil and gas properties plus
available carryforwards and credits and applying the current tax rates to the
difference.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and gas producing activities:
Future cash inflows....................................... $ 1,487 $ 5,881 $11,594
Future production costs................................... (1,155) (3,942) (6,610)
Future development costs.................................. -- -- 114
------- ------- -------
332 1,939 5,098
10% annual discount factor................................ (102) (800) (2,473)
------- ------- -------
Standardized measure of discounted future net cash
flows.................................................. $ 230 $ 1,139 $ 2,625
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997 1996
------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs................ $ (67) $ (244) $ (311)
Net changes in prices and production costs................ (709) (1,270) 1,214
Extensions and discoveries................................ -- -- --
Sales of minerals-in-place................................ -- -- --
Purchases of minerals-in-place............................ -- -- --
Revisions of estimated future development costs........... -- (67) (65)
Revisions of previous quantity estimates and reserves
added by development drilling.......................... (195) (166) 487
Accretion of discount..................................... 114 262 143
Changes in production rates, timing and other............. (52) (1) (278)
------ ------- ------
Change in present value of future net revenues............ (909) (1,486) 1,190
------ ------- ------
Balance, beginning of year................................ 1,139 2,625 1,435
------ ------- ------
Balance, end of year...................................... $ 230 $ 1,139 $2,625
====== ======= ======
</TABLE>
<PAGE> 373
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 85-B, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT DATED , 1999
----------------------
THE DATE OF THIS SUPPLEMENT IS , 1999
----------------------
This document contains important information specific to Parker & Parsley
85-B, Ltd. and supplements the proxy statement dated , 1999, of
Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies
to be voted at a special meeting of limited partners of the partnerships
described in the proxy statement. The purpose of the special meeting is for you
to vote upon the merger of Parker & Parsley 85-B, Ltd. with and into Pioneer USA
that, if completed, will result in your receiving cash for your partnership
interests.
This supplement contains the following information concerning Parker &
Parsley 85-B, Ltd.:
- A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through June
30, 1999
-- the merger value per $1,000 limited partner investment as of June 30,
1999
-- the merger value per $1,000 limited partner investment as a multiple
of distributions for the 12 months ended June 30, 1999
-- the book value per $1,000 limited partner investment as of June 30,
1999 and as of December 31, 1998 and
-- the ordinary tax loss per $1,000 limited partner investment in year
of initial investment
- Quarterly Report on Form 10-Q for the six months ended June 30, 1999
- Annual Report on Form 10-K for the year ended December 31, 1998
- Disclosures about the partnership's oil and gas producing activities
<PAGE> 374
PARKER & PARSLEY 85-B, LTD.
SUPPLEMENTAL INFORMATION TABLE
<TABLE>
<S> <C>
Aggregate Initial Investment by the Limited Partners(a)..... $ 7,988
Aggregate Historical Limited Partner Distributions through
June 30, 1999(a).......................................... $ 7,025
Merger Value per $1,000 Limited Partner Investment as of
June 30, 1999(b).......................................... $103.48
Merger Value per $1,000 Limited Partner Investment as a
Multiple of Distributions for the 12 Months ended June 30,
1999(b)................................................... 18.50times
Book Value per $1,000 Limited Partner Investment:
-- as of June 30, 1999(b)................................. $132.41
-- as of December 31, 1998(b)............................. $137.70
Ordinary Tax Loss per $1,000 Limited Partner Investment in
Year of Initial Investment(b), (c)........................ $ 414
</TABLE>
- ---------------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as any
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
<PAGE> 375
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JUNE 30, 1999
COMMISSION FILE NO. 2-99079B
PARKER & PARSLEY 85-B, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-2075492
(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)
</TABLE>
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> 376
PARKER & PARSLEY 85-B, LTD.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1999 and December 31,
1998.................................................. 3
Statements of Operations for the three and six months
ended June 30, 1999 and 1998.......................... 4
Statement of Partners' Capital for the six months ended
June 30, 1999......................................... 5
Statements of Cash Flows for the six months ended June
30, 1999 and 1998..................................... 6
Notes to Financial Statements.......................... 7
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................. 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 11
27.1 Financial Data Schedule
Signatures............................................. 12
</TABLE>
2
<PAGE> 377
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER & PARSLEY 85-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 43,539 $ 47,370
Accounts receivable -- oil and gas sales.................. 59,173 38,501
----------- -----------
Total current assets.............................. 102,712 85,871
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 5,314,799 5,312,024
Accumulated depletion....................................... (4,333,333) (4,275,826)
----------- -----------
Net oil and gas properties........................ 981,466 1,036,198
----------- -----------
$ 1,084,178 $ 1,122,069
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 15,414 $ 10,661
Partners' capital:
Managing general partner.................................. 11,039 11,465
Limited partners (7,988 interests)........................ 1,057,725 1,099,943
----------- -----------
1,068,764 1,111,408
----------- -----------
$ 1,084,178 $ 1,122,069
=========== ===========
</TABLE>
The financial information included as of June 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
<PAGE> 378
PARKER & PARSLEY 85-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas...................................... $85,896 $86,581 $144,877 $186,404
Interest......................................... 708 1,162 1,230 2,578
------- ------- -------- --------
86,604 87,743 146,107 188,982
------- ------- -------- --------
Costs and expenses:
Oil and gas production........................... 51,665 65,171 101,350 124,962
General and administrative....................... 2,578 2,597 4,347 5,592
Depletion........................................ 17,864 29,229 57,507 55,567
------- ------- -------- --------
72,107 96,997 163,204 186,121
------- ------- -------- --------
Net income (loss).................................. $14,497 $(9,254) $(17,097) $ 2,861
======= ======= ======== ========
Allocation of net income (loss):
Managing general partner......................... $ 145 $ (93) $ (171) $ 28
======= ======= ======== ========
Limited partners................................. $14,352 $(9,161) $(16,926) $ 2,833
======= ======= ======== ========
Net income (loss) per limited partnership
interest......................................... $ 1.80 $ (1.15) $ (2.12) $ .35
======= ======= ======== ========
Distributions per limited partnership interest..... $ 3.17 $ 5.10 $ 3.17 $ 14.90
======= ======= ======== ========
</TABLE>
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> 379
PARKER & PARSLEY 85-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1, 1999................................. $11,465 $1,099,943 $1,111,408
Distributions............................................ (255) (25,292) (25,547)
Net loss................................................. (171) (16,926) (17,097)
------- ---------- ----------
Balance at June 30, 1999................................... $11,039 $1,057,725 $1,068,764
======= ========== ==========
</TABLE>
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> 380
PARKER & PARSLEY 85-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $(17,097) $ 2,861
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depletion.............................................. 57,507 55,567
Changes in assets and liabilities:
Accounts receivable.................................... (20,672) 25,337
Accounts payable....................................... 4,753 (914)
-------- ---------
Net cash provided by operating activities......... 24,491 82,851
-------- ---------
Cash flows used in investing activities:
Additions to oil and gas properties....................... (2,909) (2,261)
Proceeds from asset dispositions.......................... 134 --
-------- ---------
Net cash used in investing activities............. (2,775) (2,261)
-------- ---------
Cash flows used in financing activities:
Cash distributions to partners............................ (25,547) (120,262)
-------- ---------
Net decrease in cash........................................ (3,831) (39,672)
Cash at beginning of period................................. 47,370 89,812
-------- ---------
Cash at end of period....................................... $ 43,539 $ 50,140
======== =========
</TABLE>
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> 381
PARKER & PARSLEY 85-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 85-B, Ltd. (the "Partnership") is a limited partnership
organized in 1985 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 June 30, 1999 and for the three and six months ended June 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 of operations 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.
7
<PAGE> 382
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
RESULTS OF OPERATIONS
Six months ended June 30, 1999 compared with six months ended June 30, 1998
Revenues:
The Partnership's oil and gas revenues decreased 22% to $144,877 from
$186,404 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from lower average prices received and a decrease
in production. For the six months ended June 30, 1999, 6,915 barrels of oil,
3,410 barrels of natural gas liquids ("NGLs") and 16,651 mcf of gas were sold,
or 13,100 barrel of oil equivalents ("BOEs"). For the six months ended June 30,
1998, 8,480 barrels of oil, 4,196 barrels of NGLs and 21,106 mcf of gas were
sold, or 16,194 BOEs.
The average price received per barrel of oil decreased 2% from $14.20 for
the six months ended June 30, 1998 to $13.86 for the same period in 1999. The
average price received per barrel of NGLs decreased 6% from $7.57 during the six
months ended June 30, 1998 to $7.09 for the same period in 1999. The average
price received per mcf of gas decreased 8% from $1.62 during the six months
ended June 30, 1998 to $1.49 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 six months ended June 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.
Costs and Expenses:
Total costs and expenses decreased to $163,204 for the six months ended
June 30, 1999 as compared to $186,121 for the same period in 1998, a decrease of
$22,917, or 12%. This decrease was due to declines in production costs and
general and administrative expenses ("G&A"), offset by an increase in depletion.
Production costs were $101,350 for the six months ended June 30, 1999 and
$124,962 for the same period in 1998 resulting in a $23,612 decrease, or 19%.
The decrease was attributable to declines in well maintenance costs 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, 22% from $5,592 for the six months ended June 30, 1998
to $4,347 for the same period in 1999.
Depletion was $57,507 for the six months ended June 30, 1999 compared to
$55,567 for the same period in 1998, an increase of $1,940, or 3%. This increase
was the result of a combination of factors that included a decline in proved
reserves during the period ended March 31, 1999 due to reserve revisions and
lower commodity prices, offset by a reduction in oil production of 1,565 barrels
for the six months ended June 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.
Three months ended June 30, 1999 compared with three months ended June 30,
1998
Revenues:
The Partnership's oil and gas revenues decreased slightly to $85,896 from
$86,581 for the three months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from a decrease in production, offset by higher
average prices received. For the three months ended June 30, 1999, 3,520 barrels
of oil, 1,855 barrels of NGLs and 8,083 mcf of gas were sold, or 6,722 BOEs. For
the three
8
<PAGE> 383
months ended June 30, 1998, 4,041 barrels of oil, 2,052 barrels of NGLs and
10,167 mcf of gas were sold, or 7,788 BOEs.
The average price received per barrel of oil increased $2.59, or 19%, from
$13.42 for the three months ended June 30, 1998 to $16.01 for the same period in
1999. The average price received per barrel of NGLs increased 8% from $7.79
during the three months ended June 30, 1998 to $8.41 for the same period in
1999. The average price received per mcf of gas increased 7% from $1.61 during
the three months ended June 30, 1998 to $1.72 for the same period in 1999.
Costs and Expenses:
Total costs and expenses decreased to $72,107 for the three months ended
June 30, 1999 as compared to $96,997 for the same period in 1998, a decrease of
$24,890, or 26%. This decrease was due to declines in production costs,
depletion and G&A.
Production costs were $51,665 for the three months ended June 30, 1999 and
$65,171 for the same period in 1998 resulting in a $13,506 decrease, or 21%. The
decrease was the result of lower well maintenance costs and production taxes.
During this period, G&A decreased slightly from $2,597 for the three months
ended June 30, 1998 to $2,578 for the same period in 1999.
Depletion was $17,864 for the three months ended June 30, 1999 compared to
$29,229 for the same period in 1998. This represented a decrease in depletion of
$11,365, or 39%. This decrease was primarily attributable to an increase in
proved reserves during the period ended June 30, 1999 as a result of higher
commodity prices, a reduction in oil production of 521 barrels for the three
months ended June 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.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $58,360 during the six
months ended June 30, 1999 from the same period ended June 30, 1998. This
decrease was primarily due to a decline in oil and gas sales receipts, offset by
declines in production costs and G&A expenses paid.
Net Cash Used in Investing Activities
The Partnership's investing activities for the six months ended June 30,
1999 and 1998 included expenditures related to equipment replacement on several
oil and gas properties.
Proceeds from asset dispositions of $134 were received during the six
months ended June 30, 1999 from equipment credits received on active properties.
Net Cash Used in Financing Activities
Cash was sufficient for the six months ended June 30, 1999 to cover
distributions to the partners of $25,547 of which $255 was distributed to the
managing general partner and $25,292 to the limited partners. For the same
period ended June 30, 1998, cash was sufficient for distributions to the
partners of $120,262 of which $1,202 was distributed to the managing general
partner and $119,060 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 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 early indications that the nations have initiated
their planned reductions, have had some stabilizing effect on commodity prices
during the latter part of the first quarter of 1999 and
9
<PAGE> 384
into August 1999. However, no assurances can be given that the stabilizing
effect of these actions, or the planned reductions in export volumes, will 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.
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 June 30, 1999, the managing general partner estimates that the
assessment phase is approximately 99% complete and has included, but is not
limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- the formulation of contingency plans for mission-critical information
technology systems.
Through June 30, 1999, the managing general partner had 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 varying 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 June 30, 1999, the managing general partner
estimates that the remedial phase is approximately 83% complete, on a worldwide
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 is expected
to be completed by 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 expects to complete the testing of
information technology systems by October 1999. The testing of the
non-information technology remediation is scheduled to be completed by the end
of November 1999.
10
<PAGE> 385
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. As of June 30, 1999, the managing general partner's total costs
incurred on the Year 2000 problem were $2.3 million, of which approximately $200
thousand were incurred to replace non-compliant systems.
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
11
<PAGE> 386
SIGNATURES
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 85-B, LTD.
By: Pioneer Natural Resources USA,
Inc.,
Managing General Partner
By: /s/ RICH DEALY
----------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
Dated: August 10, 1999
12
<PAGE> 387
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 2-99079B
PARKER & PARSLEY 85-B, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-2075492
(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)
</TABLE>
Registrant's Telephone Number, including area code: (915) 683-4768
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
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]
No market currently exists for the limited partnership interests of the
Registrant. Based on original purchase price the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$7,930,000.
As of March 8, 1999, the number of outstanding limited partnership
interests was 7,988.
The following documents are incorporated by reference into the indicated
parts of this Annual Report on Form 10-K: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 388
Parts I and II of this Report contain 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. See "Item 1.
Business" for a description of various factors that could materially affect the
ability of the Partnership to achieve the anticipated results described in the
forward looking statements.
PART I
ITEM 1. BUSINESS
Parker & Parsley 85-B, Ltd. (the "Partnership") is a limited partnership
organized in 1985 under the laws of the State of Texas. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. ("Mesa") received shareholder approval
to merge and create Pioneer Natural Resources Company ("Pioneer"). On August 8,
1997, PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership as PPDLP's successor by merger. For a more complete description of
the Parker & Parsley and Mesa merger, see Pioneer's Registration Statement on
Form S-4 as filed with the Securities & Exchange Commission.
A Registration Statement, as amended, filed pursuant to the Securities Act
of 1933, registering limited partnership interests aggregating $40,000,000 in a
series of Texas limited partnerships formed under the Parker & Parsley 85
Development Drilling Program, was declared effective by the Securities and
Exchange Commission on August 28, 1985. On December 20, 1985, the offering of
limited partnership interests in the Partnership, the second partnership formed
under such registration statement, was closed, with interests aggregating
$7,988,000 being sold to 728 subscribers.
The Partnership engages primarily in oil and gas development and production
and is not involved in any industry segment other than oil and gas. See "Item 6.
Selected Financial Data" and "Item 8. Financial Statements and Supplementary
Data" of this report for a summary of the Partnership's revenue, income and
identifiable assets.
The principal markets during 1998 for the oil produced by the Partnership
were refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. The principal markets for the
Partnership's gas were companies that have pipelines located near the
Partnership's gas producing properties. Of the Partnership's total oil and gas
revenues for 1998, approximately 45%, 29% and 18% were attributable to sales
made to Mobil Oil Corporation, Western Gas Resources, Inc. and Genesis Crude
Oil, L.P., respectively.
The Partnership's revenues, profitability, cash flow and future rate of
growth are highly dependent on the prevailing prices of oil and gas, which are
affected by numerous factors beyond the Partnership's control. Oil and gas
prices historically have been very volatile. A substantial or extended decline
in the prices of oil or gas could have a material adverse effect on the
Partnership's revenues, profitability and cash flow and could, under certain
circumstances, result in a reduction in the carrying value of the Partnership's
oil and gas properties.
Because of the demand for oil and gas, the Partnership does not believe
that the termination of the sales of its products to any one customer would have
a material adverse impact on its operations. The loss of a particular customer
for gas may have an effect if that particular customer has the only gas pipeline
located in the areas of the Partnership's gas producing properties. The
Partnership believes, however, that the effect would be temporary, until
alternative arrangements could be made.
1
<PAGE> 389
Federal and state regulation of oil and gas operations generally includes
the fixing of maximum prices for regulated categories of natural gas, the
imposition of maximum allowable production rates, the taxation of income and
other items, and the protection of the environment. Although the Partnership
believes that its business operations do not impair environmental quality and
that its costs of complying with any applicable environmental regulations are
not currently significant, the Partnership cannot predict what, if any, effect
these environmental regulations may have on its current or future operations.
The Partnership does not have any employees of its own. Pioneer USA employs
818 persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this report is filed. Pioneer
USA supplies all management functions.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the
Partnership conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist primarily of leasehold interests in
properties on which oil and gas wells are located. Such property interests are
often subject to landowner royalties, overriding royalties and other oil and gas
leasehold interests.
Fractional working interests in developmental oil and gas prospects located
primarily in the Spraberry Trend Area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 22
productive oil and gas wells. One well was converted to a saltwater disposal
well during 1987 and four wells have been plugged and abandoned. At December 31,
1998, the Partnership had 17 producing wells.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 1998, 1997 and 1996, and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been estimated by the engineering staff of Pioneer USA with a review by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
2
<PAGE> 390
PART II
ITEM 5.MARKET FOR PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 8, 1999, the Partnership had 7,988 outstanding limited partnership
interests held of record by 723 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are
not required to meet the Partnership's obligations are distributed to the
partners at least quarterly in accordance with the limited partnership
agreement. During the years ended December 31, 1998 and 1997, distributions of
$138,128 and $269,325, respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Oil and gas sales............. $ 341,048 $ 538,813 $ 616,863 $ 491,135 $ 521,358
========== ========== ========== ========== ==========
Impairment of oil and gas
properties................. $ 52,922 $ 324,374 $ -- $ 238,903 $ --
========== ========== ========== ========== ==========
Litigation settlement, net.... $ -- $ -- $ 62,948 $ -- $ --
========== ========== ========== ========== ==========
Net income (loss)............. $ (117,257) $ (177,091) $ 286,574 $ (178,243) $ (94,362)
========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general partner... $ (1,172) $ (1,771) $ 2,866 $ (1,782) $ (944)
========== ========== ========== ========== ==========
Limited partners........... $ (116,085) $ (175,320) $ 283,708 $ (176,461) $ (93,418)
========== ========== ========== ========== ==========
Limited partners' net income
(loss) per limited
partnership interest....... $ (14.53) $ (21.95) $ 35.52 $ (22.09) $ (11.69)
========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest....... $ 17.29 $ 33.72 $ 42.90(a) $ 28.05 $ 27.55
========== ========== ========== ========== ==========
AT YEAR END:
Total assets.......... $1,122,069 $1,386,758 $1,831,497 $1,913,492 $2,308,210
========== ========== ========== ========== ==========
</TABLE>
- ---------------
(a) Including litigation settlement per limited partnership interest of $7.80
in 1996.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1998 compared to 1997
The Partnership's 1998 oil and gas revenues decreased 37% to $341,048 from
$538,813 in 1997. The decrease in revenues resulted from lower average prices
received. In 1998, 16,204 barrels of oil, 8,599 barrels of natural gas liquids
("NGLs") and 41,501 mcf of gas were sold, or 31,720 barrel of oil equivalents
("BOEs"). In 1997, 17,840 barrels of oil, 4,153 barrels of NGLs and 60,076 mcf
of gas were sold, or 32,006 BOEs. Due to the decline characteristics of the
Partnership's oil and gas properties, management expects a certain amount of
decline in production in the future until the Partnership's economically
recoverable reserves are fully depleted.
3
<PAGE> 391
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. Effective September 30, 1997, as a result of the
merger with Mesa, the managing general partner accounts for processed natural
gas production in two components: natural gas liquids and dry residue gas. As a
result of the change in the managing general partner's policy, the Partnership
now accounts for processed natural gas production as processed natural gas
liquids and dry residue gas. Consequently, separate product volumes will not be
comparable for 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
year ended December 31, 1998 is the price received for dry residue gas and the
price per mcf for natural gas produced prior to October 1997 was presented as a
price for wet gas (i.e., natural gas liquids combined with dry residue gas).
The average price received per barrel of oil decreased $6.26, or 32%, from
$19.56 in 1997 to $13.30 in 1998. The average price received per barrel of NGLs
decreased $4.18, or 38%, from $11.13 in 1997 to $6.95 in 1998. The average price
received per mcf of gas decreased 34% from $2.39 in 1997 to $1.58 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 in the foreseeable future. The
Partnership may therefore sell its future oil and gas production at average
prices lower or higher than that received in 1998.
Total costs and expenses decreased in 1998 to $462,704 as compared to
$721,521 in 1997, a decrease of $258,817, or 36%. The decrease was primarily due
to declines in the impairment of oil and gas properties and general and
administrative expenses ("G&A"), offset by increases in production costs and
depletion.
Production costs were $269,093 in 1998 and $251,942 in 1997, resulting in a
$17,151 increase, or 7%. The increase was attributable to additional well repair
costs, offset by a decline in production taxes due to the decline in oil and gas
revenues.
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, 40% from $16,928 in 1997 to $10,231 in 1998. The
Partnership paid the managing general partner $7,884 in 1998 and $14,186 in 1997
for G&A incurred on behalf of the Partnership. G&A is allocated, in part, to the
Partnership by the managing general partner. Such allocated expenses are
determined by the managing general partner based upon its judgement of the level
of activity of the Partnership relative to the managing general partner's
activities and other entities it manages. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
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"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. Declining commodity prices prompted
impairment reviews in 1998 and 1997. As a result of the review and evaluation of
its long-lived assets for impairment, the Partnership recognized non-cash
charges of $52,922 and $324,374 related to its oil and gas properties during
1998 and 1997, respectively.
Depletion was $130,458 in 1998 compared to $128,277 in 1997. This
represented an increase of $2,181. This increase was the result of a decline in
proved reserves during 1998 due to the lower commodity prices, 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 and a reduction in
oil production of 1,636 barrels for the period ended December 31, 1998 compared
to the same period in 1997.
1997 compared to 1996
The Partnership's 1997 oil and gas revenues decreased 13% to $538,813 from
$616,863 in 1996. The decrease in revenues resulted from lower average prices
received. In 1997, 17,840 barrels of oil,
4
<PAGE> 392
4,153 barrels of NGLs and 60,076 mcf of gas were sold, or 32,006 BOEs. In 1996,
19,541 barrels of oil and 72,343 mcf of gas were sold, or 31,598 BOEs.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. As is described above in "Results of
Operations -- 1998 compared to 1997", the Partnership changed its method of
accounting for processed natural gas to a dry gas basis in the fourth quarter of
1997. As a result of this change, the Partnership now accounts for processed
natural gas production as processed natural gas liquids and dry residue gas.
Consequently, 1997 and 1996 separate product volumes are not comparable.
The average price received per barrel of oil decreased $2.29, or 10%, from
$21.85 in 1996 to $19.56 in 1997. The average price received per barrel of NGLs
during 1997 was $11.13. The average price received per mcf of gas decreased 9%
from $2.63 in 1996 to $2.39 in 1997.
A gain on disposition of assets of $6,287 was recognized in 1996 from
equipment credits received on fully depleted wells that were plugged and
abandoned during 1996. Abandoned property costs of $9,610 were incurred in 1996.
On April 29, 1996, Southmark Corporation, Pioneer USA and the Partnership
entered into a final $7.4 million settlement agreement with Jack N. Price
resolving all outstanding litigation between the parties. As a result, all of
the pending lawsuits and judgments have been dismissed, the supersedeas bond
released, and the Reserve released as collateral. On June 28, 1996, a final
distribution was made to the working interest owners of $62,948 which included
$62,318, or $7.80 per limited partnership interest, to the Partnership and its
partners.
Total costs and expenses increased in 1997 to $721,521 as compared to
$404,304 in 1996, an increase of $317,217, or 78%. The increase was primarily
due to the impairment of oil and gas properties during 1997 and an increase in
depletion, offset by decreases in abandoned property costs, production costs and
G&A.
Production costs were $251,942 in 1997 and $252,095 in 1996, resulting in a
$153 decrease. The decrease was attributable to a reduction in production taxes,
offset by an increase in ad valorem taxes.
During this period, G&A decreased, in aggregate, 9% from $18,506 in 1996 to
$16,928 in 1997. The Partnership paid the managing general partner $14,186 in
1997 and $16,125 in 1996 for G&A incurred on behalf of the Partnership.
The Partnership recognized a non-cash SFAS 121 impairment provision of
$324,374 related to its proved oil and gas properties during the fourth quarter
of 1997.
Depletion was $128,277 in 1997 compared to $124,093 in 1996. This
represented an increase of $4,184, or 3%, attributable to a decrease in oil
reserves during 1997 as a result of lower commodity prices, offset by a decline
in oil production of 1,701 barrels for 1997 as compared to 1996.
IMPACT OF INFLATION AND CHANGING PRICES ON SALES AND NET INCOME
Inflation impacts the fixed overhead rate charges of the lease operating
expenses for the Partnership. During 1998, the annual change in the index of
average weekly earnings of crude petroleum and gas production workers issued by
the U.S. Department of Labor, Bureau of Labor Statistics increased (effective
April 1, 1998) 10.3%. The 1997 annual change in average weekly earnings
increased by 2%. The 1996 index increased 4.1%. The impact of inflation for
other lease operating expenses is small due to the current economic condition of
the oil industry.
The oil and gas industry experienced volatility during the past decade
because of the fluctuation of the supply of most fossil fuels relative to the
demand for such products and other uncertainties in the world energy markets
causing significant fluctuations in oil and gas prices. During 1998, the price
per barrel for oil production similar to the Partnership's ranged from
approximately $9.50 to $15.50. During most of 1997 and 1996, the Partnership
benefitted from higher oil prices as compared to previous years. However,
5
<PAGE> 393
during the fourth quarter of 1997, oil prices began a downward trend that has
continued into March 1999. On March 8, 1999, the market price for West Texas
intermediate crude was $11.00 per barrel. A continuation of the current
commodity price environment will continue to have an adverse effect on the
Partnership's revenues, operating cash flow and distributions and could result
in additional decreases in the carrying value of the Partnership's oil and gas
properties.
Prices for natural gas are subject to ordinary seasonal fluctuations, and
this volatility of natural gas prices may result in production being curtailed
and, in some cases, wells being completely shut-in.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $184,093 during the
year ended December 31, 1998 from the year ended December 31, 1997. This
decrease was primarily due to declines in oil and gas sales receipts and an
increase in production costs paid, offset by a decline in G&A expenses paid.
Net Cash Provided by (Used in) Investing Activities
The Partnership's principal investing activities during 1998 and 1997 were
for expenditures related to oil and gas equipment replacement on active
properties.
Net Cash Used in Financing Activities
Cash was sufficient in 1998 for distributions to the partners of $139,522
of which $1,394 was distributed to the managing general partner and $138,128 to
the limited partners. In 1997, cash was sufficient for distributions to the
partners of $272,045 of which $2,720 was distributed to the managing general
partner and $269,325 to the limited partners.
The current commodity price environment will continue to impact the
distributions and could result in limited or no distributions to the partners.
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.
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
at varying stages of completion as it pertains to information technology and
non-information technology applications and systems in the United States, Canada
and Argentina. As of December 31, 1998, the managing general partner estimates
that the assessment phase is approximately 86% complete, on a worldwide basis,
and has included, but is not limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
6
<PAGE> 394
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- 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 to
approximately 37% of those inquiries.
The remedial phase of the managing general partner's Year 2000 project is
also at varying 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 December 31, 1998, the
managing general partner estimates that the remedial phase is approximately 54%
complete, on a worldwide basis, subject to the continuing 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 through remedial coding and is currently testing this system for Year
2000 compliance. The remediation of non-information technology is expected to be
completed during July 1999. The managing general partner's Year 2000 remedial
actions have not significantly 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 and non-information technology remediation by the end of the third
quarter of 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. The managing general partner intends to use its working capital to pay
for the costs of the Year 2000 projects. As of December 31, 1998, the managing
general partner's total costs incurred on the Year 2000 problem were $1.8
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 in accordance with the general and
administration allocation. (See Note 2 of Notes to Financial Statements included
in "Item 8. Financial Statements and Supplementary Data".)
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 assessment phase of the managing general partner's Year 2000
project, contingency plans are being 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.
7
<PAGE> 395
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Parker & Parsley 85-B, Ltd:
Independent Auditors' Report -- Ernst & Young LLP......... 9
Independent Auditors' Report -- KPMG LLP.................. 10
Balance Sheets as of December 31, 1998 and 1997........... 11
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996.................................... 12
Statements of Partners' Capital for the Years Ended
December 31, 1998, 1997 and 1996....................... 13
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996.................................... 14
Notes to Financial Statements............................. 15
</TABLE>
8
<PAGE> 396
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 85-B, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheet of Parker & Parsley 85-B, Ltd. as of
December 31, 1998, and the related statements of operations, partners' capital
and cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 85-B, Ltd.
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Dallas, Texas
March 15, 1999
9
<PAGE> 397
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 85-B, Ltd.
(A Texas Limited Partnership):
We have audited the financial statements of Parker & Parsley 85-B, Ltd. as
of December 31, 1997, and the related statements of operations, partners'
capital and cash flows for the years ended December 31, 1997 and 1996. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 85-B, Ltd.
as of December 31, 1997, and the results of its operations and its cash flows
for the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
KPMG LLP
Midland, Texas
March 20, 1998
10
<PAGE> 398
PARKER & PARSLEY 85-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 47,370 $ 89,812
Accounts receivable -- oil and gas sales.................. 38,501 85,315
----------- -----------
Total current assets.............................. 85,871 175,127
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 5,312,024 5,304,077
Accumulated depletion....................................... (4,275,826) (4,092,446)
----------- -----------
Net oil and gas properties........................ 1,036,198 1,211,631
----------- -----------
$ 1,122,069 $ 1,386,758
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 10,661 $ 18,571
Partners' capital:
Managing general partner.................................. 11,465 14,031
Limited partners (7,988 interests)........................ 1,099,943 1,354,156
----------- -----------
1,111,408 1,368,187
----------- -----------
$ 1,122,069 $ 1,386,758
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 399
PARKER & PARSLEY 85-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Revenues:
Oil and gas.............................................. $ 341,048 $ 538,813 $616,863
Interest................................................. 4,399 5,601 4,780
Gain on disposition of assets............................ -- 16 6,287
Litigation settlement.................................... -- -- 62,948
--------- --------- --------
345,447 544,430 690,878
--------- --------- --------
Costs and expenses:
Oil and gas production................................... 269,093 251,942 252,095
General and administrative............................... 10,231 16,928 18,506
Impairment of oil and gas properties..................... 52,922 324,374 --
Depletion................................................ 130,458 128,277 124,093
Abandoned property....................................... -- -- 9,610
--------- --------- --------
462,704 721,521 404,304
--------- --------- --------
Net income (loss).......................................... $(117,257) $(177,091) $286,574
========= ========= ========
Allocation of net income (loss):
Managing general partner................................. $ (1,172) $ (1,771) $ 2,866
========= ========= ========
Limited partners......................................... $(116,085) $(175,320) $283,708
========= ========= ========
Net income (loss) per limited partnership interest......... $ (14.53) $ (21.95) $ 35.52
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 400
PARKER & PARSLEY 85-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Partners' capital at January 1, 1996....................... $19,118 $1,857,790 $1,876,908
Distributions............................................ (3,462) (342,697) (346,159)
Net income............................................... 2,866 283,708 286,574
------- ---------- ----------
Partners' capital at December 31, 1996..................... 18,522 1,798,801 1,817,323
Distributions............................................ (2,720) (269,325) (272,045)
Net loss................................................. (1,771) (175,320) (177,091)
------- ---------- ----------
Partners' capital at December 31, 1997..................... 14,031 1,354,156 1,368,187
Distributions............................................ (1,394) (138,128) (139,522)
Net loss................................................. (1,172) (116,085) (117,257)
------- ---------- ----------
Partners' capital at December 31, 1998..................... $11,465 $1,099,943 $1,111,408
======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 401
PARKER & PARSLEY 85-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $(117,257) $(177,091) $ 286,574
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Impairment of oil and gas properties................. 52,922 324,374 --
Depletion............................................ 130,458 128,277 124,093
Gain on disposition of assets........................ -- (16) (6,287)
Changes in assets and liabilities:
Accounts receivable.................................. 46,814 9,179 (42,320)
Accounts payable..................................... (7,910) 4,397 (22,409)
--------- --------- ---------
Net cash provided by operating activities....... 105,027 289,120 339,651
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas equipment...................... (7,947) (4,469) (74)
Proceeds from disposition of assets..................... -- 16 6,287
--------- --------- ---------
Net cash provided by (used in) investing
activities.................................... (7,947) (4,453) 6,213
--------- --------- ---------
Cash flows from financing activities:
Cash distributions to partners.......................... (139,522) (272,045) (346,159)
--------- --------- ---------
Net increase (decrease) in cash........................... (42,442) 12,622 (295)
Cash at beginning of year................................. 89,812 77,190 77,485
--------- --------- ---------
Cash at end of year....................................... $ 47,370 $ 89,812 $ 77,190
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 402
PARKER & PARSLEY 85-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 85-B, Ltd. (the "Partnership") is a limited partnership
organized in 1985 under the laws of the State of Texas. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. received shareholder approval to merge
and create Pioneer Natural Resources Company ("Pioneer"). On August 8, 1997,
PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership as PPDLP's successor by merger.
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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties -- The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as determined by the engineering staff of Pioneer
USA, the Partnership's managing general partner, and reviewed by independent
petroleum consultants. The carrying amounts of properties sold or otherwise
disposed of and the related allowances for depletion are eliminated from the
accounts and any gain or loss is included in operations.
Impairment of long-lived assets -- 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"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -- Preparation
of the accompanying financial statements 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 reporting amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest -- The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes -- A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
15
<PAGE> 403
PARKER & PARSLEY 85-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statements of cash flows -- For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses -- General and administrative expenses
are allocated in part to the Partnership by the managing general partner or its
affiliates. Such allocated expenses are determined by the managing general
partner based upon its judgement of the level of activity of the Partnership
relative to the managing general partner's activities and other entities it
manages. The method of allocation has been consistent over the past several
years with certain modifications incorporated to reflect changes in Pioneer
USA's overall business activities.
Reclassifications -- Certain reclassifications may have been made to the
1997 and 1996 financial statements to conform to the 1998 financial statement
presentation.
Environmental -- The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 1998.
Revenue recognition -- The Partnership uses the entitlements method of
accounting for crude oil and natural gas revenues.
Reporting comprehensive income -- Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes
standards for the reporting and display of comprehensive income (loss) and its
components in a full set of general purpose financial statements. Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss).
The Partnership has no items of other comprehensive income (loss), as defined by
SFAS No. 130. Consequently, the provisions of SFAS No. 130 do not apply to the
Partnership.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. Based upon a decline in the Partnership's outlook for future
commodity prices, the Partnership has estimated the expected future cash flows
of its oil and gas properties as of December 31, 1998, 1997 and 1996, and
compared such estimated future cash flows to the respective carrying amount of
the oil and gas properties to determine if the carrying amounts were likely to
be recoverable. For those proved oil and gas properties for which the carrying
amount exceeded the estimated future cash flows, an impairment was determined to
exist; therefore, the Partnership adjusted the carrying amount of those oil and
gas properties to their fair value as determined by discounting their expected
future cash flows at a discount rate commensurate with the risks involved in the
industry. As a result, the Partnership recognized non-cash impairment provisions
of $52,922 and $324,374 related to its proved oil and gas properties during 1998
and 1997, respectively.
16
<PAGE> 404
PARKER & PARSLEY 85-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $334,339 greater than the tax basis at December 31, 1998.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Net income (loss) per statements of operations..... $(117,257) $(177,091) $286,574
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes..................... 127,807 126,861 122,761
Impairment of oil and gas properties for financial
reporting purposes............................... 52,922 324,374 --
Other, net......................................... 2,207 (1,447) 2,110
--------- --------- --------
Net income per Federal income tax
returns................................ $ 65,679 $ 272,697 $411,445
========= ========= ========
</TABLE>
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Development costs.......................................... $7,947 $4,469 $3,396
====== ====== ======
</TABLE>
Capitalized oil and gas properties consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Proved properties:
Property acquisition costs............................... $ 292,864 $ 292,864
Completed wells and equipment............................ 5,019,160 5,011,213
----------- -----------
5,312,024 5,304,077
Accumulated depletion...................................... (4,275,826) (4,092,446)
----------- -----------
Net capitalized costs............................ $ 1,036,198 $ 1,211,631
=========== ===========
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $111,206 $110,250 $103,744
Reimbursement of general and administrative
expenses........................................... $ 7,884 $ 14,186 $ 16,125
</TABLE>
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. In addition,
Pioneer USA and the Partnership are parties to the Program agreement.
17
<PAGE> 405
PARKER & PARSLEY 85-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The costs and revenues of the Program are allocated to Pioneer USA and the
Partnership as follows:
<TABLE>
<CAPTION>
PIONEER
USA(1) PARTNERSHIP
--------- -----------
<S> <C> <C>
Revenues:
Proceeds from disposition of depreciable properties....... 9.09091% 90.90909%
All other revenues........................................ 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion costs.... 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative expenses................................ 24.242425% 75.757575%
</TABLE>
- ---------------
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at
the Partnership level and 58 limited partner interests owned by Pioneer USA.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 1998, 1997 and 1996 and
changes in such quantities during the years then ended. Due to a change in the
accounting policy of the managing general partner in 1997, the Partnership began
accounting for processed natural gas production in two components: processed
natural gas liquids ("NGLs") and dry residue gas. NGLs are reflected in "Oil and
NGLs" in the table below. All of the Partnership's reserves are proved developed
and located within the United States. The Partnership's reserves are based on an
evaluation prepared by the engineering staff of Pioneer USA and reviewed by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant,
using criteria established by the Securities and Exchange Commission. Reserve
value information is available to limited partners pursuant to the Partnership
agreement and, therefore, is not presented.
<TABLE>
<CAPTION>
OIL AND NGLS GAS
(BBLS) (MCF)
------------ ---------
<S> <C> <C>
Net proved reserves at January 1, 1996...................... 258,407 1,080,633
Revisions................................................... 61,448 229,377
Production.................................................. (19,541) (72,343)
-------- ---------
Net proved reserves at December 31, 1996.................... 300,314 1,237,667
Revisions................................................... 54,887 (645,609)
Production.................................................. (21,993) (60,076)
-------- ---------
Net proved reserves at December 31, 1997.................... 333,208 531,982
Revisions................................................... (139,875) (179,491)
Production.................................................. (24,803) (41,501)
-------- ---------
Net proved reserves at December 31, 1998.................... 168,530 310,990
======== =========
</TABLE>
As of December 31, 1998, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 1998 prices of $10.61 per
barrel of oil, $5.52 per barrel of NGLs and $1.37 per mcf of gas, discounted at
10% was approximately $256,000 and undiscounted was $351,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The
18
<PAGE> 406
PARKER & PARSLEY 85-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Partnership emphasizes that reserve estimates are inherently imprecise and,
accordingly, the estimates are expected to change as future information becomes
available.
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Mobil Oil Corporation....................................... 45% 46% 47%
Western Gas Resources, Inc. ................................ 29% 28% 21%
Genesis Crude Oil, L.P...................................... 18% 19% 23%
</TABLE>
At December 31, 1998, the amounts receivable from Mobil Oil Corporation,
Western Gas Resources, Inc. and Genesis Crude Oil, L.P. were $9,956, $14,670 and
$2,774, respectively, which are included in the caption "Accounts
receivable -- oil and gas sales" in the accompanying Balance Sheet.
The Partnership's share of oil and gas production is sold to various
purchasers. Pioneer USA is of the opinion that the loss of any one purchaser
would not have an adverse effect on the ability of the Partnership to sell its
oil and gas production.
NOTE 9. ORGANIZATION AND OPERATIONS
The Partnership was organized December 20, 1985 as a limited partnership
under the Texas Uniform Limited Partnership Act for the purpose of acquiring and
developing oil and gas properties. The following is a brief summary of the more
significant provisions of the limited partnership agreement:
Managing general partner -- The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Partnership affairs. As managing general
partner and operator of the Partnership's properties, all production
expenses are incurred by Pioneer USA and billed to the Partnership and a
portion of revenue is initially received by Pioneer USA prior to being paid
to the Partnership. Under the limited partnership agreement, the managing
general partner pays 1% of the Partnership's acquisition, drilling and
completion costs and 1% of its operating and general and administrative
expenses. In return, it is allocated 1% of the Partnership's revenues.
Limited partner liability -- The maximum amount of liability of any
limited partner is the total contributions of such partner plus his share
of any undistributed profits.
Initial capital contributions -- The limited partners entered into
subscription agreements for aggregate capital contributions of $7,988,000.
Pioneer USA is required to contribute amounts equal to 1% of initial
Partnership capital less commission and offering expenses allocated to the
limited partners and to contribute amounts necessary to pay costs and
expenses allocated to it under the Partnership agreement to the extent its
share of revenues does not cover such costs.
19
<PAGE> 407
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and
executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve
until the next annual meeting of stockholders or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31,
1998 POSITION
------------ --------
<S> <C> <C>
Scott D. Sheffield................. 46 President and Director
Timothy L. Dove.................... 42 Executive Vice President and
Director
Dennis E. Fagerstone............... 49 Executive Vice President and
Director
Mark L. Withrow.................... 51 Executive Vice President, General
Counsel and Director
M. Garrett Smith................... 37 Executive Vice President, Chief
Financial Officer and Director
Mel Fischer(a)..................... 64 Executive Vice President
Lon C. Kile........................ 43 Executive Vice President
Rich Dealy......................... 32 Vice President and Chief Accounting
Officer
</TABLE>
- ---------------
(a) Mr. Fischer was a director and officer until his retirement from Pioneer
and Pioneer USA on February 19, 1999.
Scott D. Sheffield. Mr. Sheffield is a distinguished graduate of The
University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he
has served as President, Chief Executive Officer and a director of Pioneer and
President and a director of Pioneer USA. Mr. Sheffield was the President and a
director of Parker & Parsley from May 1990 until August 1997 and was the
Chairman of the Board and Chief Executive Officer of Parker & Parsley from
October 1990 until August 1997. He was the sole director of Parker & Parsley
from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley
Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum
engineer in 1979. He served as Vice President -- Engineering of PPDC from
September 1981 until April 1985 when he was elected President and a director. In
March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive
Officer of PPDC. Before joining PPDC, Mr. Sheffield was employed as a production
and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President -- Business
Development of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. Mr. Dove joined Parker & Parsley in May
1994 as Vice President -- International and was promoted to Senior Vice
President -- Business Development in October 1996, in which position he served
until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with
Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various
capacities in international exploration and production, marketing, refining and
marketing and planning and development. Mr. Dove earned a B.S. in Mechanical
Engineering from Massachusetts Institute of Technology in 1979 and received his
M.B.A. in 1981 from the University of Chicago.
20
<PAGE> 408
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of Mesa from March 1, 1997 until August 1997. From October
1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief
Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice
President -- Exploration and Production of Mesa. From June 1988 to May 1991, Mr.
Fagerstone served as Vice President -- Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President -- General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President -- General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
M. Garrett Smith. Mr. Smith, a graduate of The University of Texas with a
B.S. in Electrical Engineering and Southern Methodist University with an M.B.A.,
was appointed Executive Vice President and Chief Financial Officer of Pioneer in
December 1997. He served as Senior Vice President -- Finance of Pioneer from
August 1997 until December 1997. Mr. Smith was elected Senior Vice President --
Finance and a director of Pioneer USA in August 1997. He served as Vice
President -- Corporate Acquisitions of Mesa from January 1997 until August 1997.
From October 1996 to December 1996, Mr. Smith served as Vice
President -- Finance of Mesa and from 1994 to 1996 he served as Director of
Financial Planning of Mesa. Mr. Smith was employed by BTC Partners, Inc. (a
former financial advisor to Mesa) from 1989 to 1994.
Mel Fischer. Mr. Fischer, a graduate of the University of California at
Berkeley with a Masters degree in Geology, became Executive Vice
President -- Worldwide Exploration of Pioneer and Pioneer USA in August 1997. He
served as a director of Parker & Parsley from November 1995 until August 1997
and was Executive Vice President -- Worldwide Exploration for Parker & Parsley
from February 1997 to August 1997. Mr. Fischer retired from Pioneer and Pioneer
USA effective February 15, 1999. He worked in the petroleum industry for 32
years, starting as a Petroleum Geologist with Texaco in 1962, and retiring as
President, Occidental International Exploration and Production Company in March
1994. For the 10 years prior to becoming President of Occidental International,
he served as Executive Vice President, World Wide Exploration with Occidental
Oil and Gas Corporation. He is a registered geologist in the State of
California, a member of the American Association of Petroleum Geologists and an
emeritus member of the Board of Advisors for the Earth Sciences Research
Institute at the University of Utah.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a
B.B.A. in Accounting, became Executive Vice President of Pioneer and Pioneer USA
in August 1997. Mr. Kile was Senior Vice President -- Investor Relations from
October 1996 to August 1997. Previously, he served as Vice President and Manager
of the Mid-Continent Division, Vice President -- Equity Finance & Analysis and
Vice President -- Marketing & Program Administration. Prior to joining Parker &
Parsley in 1985, he was employed as Supervisor -- Senior, Audit, in charge of
Parker & Parsley's audit, with Arthur Young.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a
B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became
Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
21
<PAGE> 409
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is vested in Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA pays 10% of the Partnership's acquisition, drilling and
completion costs and 25% of its operating and general and administrative
expenses. In return, Pioneer USA is allocated 25% of the Partnership's revenues.
See Notes 6 and 9 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" for information regarding fees and
reimbursements paid to the managing general partner or its affiliate by the
Partnership.
The Partnership does not directly pay any salaries of the executive
officers of Pioneer USA, but does pay a portion of Pioneer USA's general and
administrative expenses of which these salaries are a part. See Note 6 of Notes
to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more
of the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 58 limited partner interests at January 1, 1999.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing
general partner of the Partnership, Pioneer USA, has the exclusive right and
full authority to manage, control and administer the Partnership's business.
Under the limited partnership agreement, limited partners holding a majority of
the outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner or its affiliates
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $111,206 $110,250 $103,744
Reimbursement of general and administrative
expenses........................................... $ 7,884 $ 14,186 $ 16,125
</TABLE>
Under the limited partnership agreement, the managing general partner pays
1% of the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
22
<PAGE> 410
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial statements
The following are filed as part of this annual report:
Independent Auditors' Report -- Ernst & Young LLP
Independent Auditors' Report -- KPMG LLP
Balance sheets as of December 31, 1998 and 1997
Statements of operations for the years ended December 31, 1998, 1997
and 1996
Statements of partners' capital for the years ended December 31, 1998,
1997 and 1996
Statements of cash flows for the years ended December 31, 1998, 1997
and 1996
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this annual report.
23
<PAGE> 411
SIGNATURES
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 85-B, LTD.
By: Pioneer Natural Resources USA,
Inc.
Managing General Manager
By: /s/ SCOTT D. SHEFFIELD
----------------------------------
Scott D. Sheffield,
President
Dated: March 24, 1999
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 date indicated.
<TABLE>
<C> <S> <C>
/s/ SCOTT D. SHEFFIELD President and Director of March 24, 1999
- ----------------------------------------------------- Pioneer USA
Scott D. Sheffield
/s/ TIMOTHY L. DOVE Executive Vice President and March 24, 1999
- ----------------------------------------------------- Director of Pioneer USA
Timothy L. Dove
/s/ DENNIS E. FAGERSTONE Executive Vice President and March 24, 1999
- ----------------------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ MARK L. WITHROW Executive Vice President, March 24, 1999
- ----------------------------------------------------- General Counsel and Director
Mark L. Withrow of Pioneer USA
/s/ M. GARRETT SMITH Executive Vice President, March 24, 1999
- ----------------------------------------------------- Chief Financial Officer and
M. Garrett Smith Director of Pioneer USA
/s/ LON C. KILE Executive Vice President of March 24, 1999
- ----------------------------------------------------- Pioneer USA
Lon C. Kile
/s/ RICH DEALY Vice President and Chief March 24, 1999
- ----------------------------------------------------- Accounting Officer of
Rich Dealy Pioneer USA
</TABLE>
24
<PAGE> 412
PARKER & PARSLEY 85-B, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3(a) -- Amended and Restated Certificate of Limited Partnership
of Parker & Parsley 85-B, Ltd. incorporated by reference
to Exhibit A of the Partnership's Registration Statement
on Form S-1 (Registration No. 2-99079) (hereinafter
called the Partnership's Registration Statement)
4(a) -- Agreement of Limited Partnership of Parker & Parsley
85-B, Ltd. incorporated by reference to an Exhibit of the
Partnership's Registration Statement
4(b) -- Form of Subscription Agreement and Power of Attorney
incorporated by reference to an Exhibit of the
Partnership's Registration Statement
4(c) -- Specimen Certificate of Limited Partnership Interest
incorporated by reference to an Exhibit of the
Partnership's Registration Statement
27.1* -- Financial Data Schedule
99.1 -- Mutual Release and Indemnity Agreement dated May 25, 1993
incorporated by reference to the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1993
</TABLE>
- ---------------
* Filed herewith
<PAGE> 413
PARKER & PARSLEY 85-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
DECEMBER 31, 1998, 1997 AND 1996
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. Future income taxes are calculated by comparing
discounted future cash flows to the tax basis of oil and gas properties plus
available carryforwards and credits and applying the current tax rates to the
difference.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and gas producing activities:
Future cash inflows....................................... $ 1,850 $ 6,360 $12,231
Future production costs................................... (1,499) (4,035) (6,548)
Future development costs.................................. -- -- 97
------- ------- -------
351 2,325 5,780
10% annual discount factor................................ (95) (999) (2,925)
------- ------- -------
Standardized measure of discounted future net cash
flows.................................................. $ 256 $ 1,326 $ 2,855
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs................ $ (72) $ (287) $ (365)
Net changes in prices and production costs................ (923) (1,367) 1,379
Extensions and discoveries................................ -- -- --
Sales of minerals-in-place................................ -- -- --
Purchases of minerals-in-place............................ -- -- --
Revisions of estimated future development costs........... -- (55) (51)
Revisions of previous quantity estimates and reserves
added by development drilling.......................... (154) (143) 623
Accretion of discount..................................... 133 285 148
Changes in production rates, timing and other............. (54) 38 (358)
------- ------- ------
Change in present value of future net revenues............ (1,070) (1,529) 1,376
------- ------- ------
Balance, beginning of year................................ 1,326 2,855 1,479
------- ------- ------
Balance, end of year...................................... $ 256 $ 1,326 $2,855
======= ======= ======
</TABLE>
<PAGE> 414
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 86-A, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT DATED , 1999
----------------------
THE DATE OF THIS SUPPLEMENT IS , 1999
----------------------
This document contains important information specific to Parker & Parsley
86-A, Ltd. and supplements the proxy statement dated , 1999, of
Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies
to be voted at a special meeting of limited partners of the partnerships
described in the proxy statement. The purpose of the special meeting is for you
to vote upon the merger of Parker & Parsley 86-A, Ltd. with and into Pioneer USA
that, if completed, will result in your receiving cash for your partnership
interests.
This supplement contains the following information concerning Parker &
Parsley 86-A, Ltd.:
- A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through June
30, 1999
-- the merger value per $1,000 limited partner investment as of June 30,
1999
-- the merger value per $1000 limited partner investment as a multiple
of distributions for the 12 months ended June 30, 1999
-- the book value per $1,000 limited partner investment as of June 30,
1999 and as of December 31, 1998 and
-- the ordinary tax loss per $1,000 limited partner investment in year
of initial investment
- Quarterly Report on Form 10-Q for the six months ended June 30, 1999
- Annual Report on Form 10-K for the year ended December 31, 1998
- Disclosures about the partnership's oil and gas producing activities
<PAGE> 415
PARKER & PARSLEY 86-A, LTD.
SUPPLEMENTAL INFORMATION TABLE
<TABLE>
<S> <C>
Aggregate Initial Investment by the Limited Partners(a)..... $10,131
Aggregate Historical Limited Partner Distributions through
June 30, 1999(a).......................................... $12,997
Merger Value per $1,000 Limited Partner Investment as of
June 30, 1999(b).......................................... $ 81.07
Merger Value per $1,000 Limited Partner Investment as a
Multiple of Distributions for the 12 Months ended June 30,
1999(b)................................................... 14.62times
Book Value per $1,000 Limited Partner Investment:
-- as of June 30, 1999(b)................................. $ 59.35
-- as of December 31, 1998(b)............................. $ 62.12
Ordinary Tax Loss per $1,000 Limited Partner Investment in
Year of Initial Investment(b), (c)........................ $ 449
</TABLE>
- ---------------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as any
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
<PAGE> 416
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JUNE 30, 1999
COMMISSION FILE NO. 33-3353A
PARKER & PARSLEY 86-A, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-2124884
(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)
</TABLE>
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> 417
PARKER & PARSLEY 86-A, LTD.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1999 and December 31,
1998.................................................. 3
Statements of Operations for the three and six months
ended June 30, 1999 and 1998.......................... 4
Statement of Partners' Capital for the six months ended
June 30, 1999......................................... 5
Statements of Cash Flows for the six months ended June
30, 1999 and 1998..................................... 6
Notes to Financial Statements.......................... 7
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................. 8
PART II. OTHER INFORMATION
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K..................... 11
27.1 Financial Data Schedule
Signatures............................................. 12
</TABLE>
2
<PAGE> 418
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER & PARSLEY 86-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 62,058 $ 58,223
Accounts receivable -- oil and gas sales.................. 87,681 47,579
----------- -----------
Total current assets.............................. 149,739 105,802
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 7,118,122 7,118,212
Accumulated depletion....................................... (6,640,151) (6,577,790)
----------- -----------
Net oil and gas properties........................ 477,971 540,422
----------- -----------
$ 627,710 $ 646,224
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 21,682 $ 11,837
Partners' capital:
Managing general partner.................................. 4,755 5,038
Limited partners (10,131 interests)....................... 601,273 629,349
----------- -----------
606,028 634,387
----------- -----------
$ 627,710 $ 646,224
=========== ===========
</TABLE>
The financial information included as of June 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
<PAGE> 419
PARKER & PARSLEY 86-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas...................................... $140,014 $104,404 $233,419 $216,312
Interest......................................... 748 1,149 1,384 2,779
-------- -------- -------- --------
140,762 105,553 234,803 219,091
-------- -------- -------- --------
Costs and expenses:
Oil and gas production........................... 84,182 106,537 162,882 216,919
General and administrative....................... 4,200 3,132 7,002 6,489
Depletion........................................ 9,628 30,757 62,361 60,624
-------- -------- -------- --------
98,010 140,426 232,245 284,032
-------- -------- -------- --------
Net income (loss).................................. $ 42,752 $(34,873) $ 2,558 $(64,941)
======== ======== ======== ========
Allocation of net income (loss):
Managing general partner......................... $ 428 $ (348) $ 26 $ (649)
======== ======== ======== ========
Limited partners................................. $ 42,324 $(34,525) $ 2,532 $(64,292)
======== ======== ======== ========
Net income (loss) per limited partnership
interest......................................... $ 4.18 $ (3.41) $ .25 $ (6.35)
======== ======== ======== ========
Distributions per limited partnership interest..... $ 2.23 $ 1.14 $ 3.02 $ 6.92
======== ======== ======== ========
</TABLE>
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> 420
PARKER & PARSLEY 86-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1, 1999.................................. $5,038 $629,349 $634,387
Distributions............................................. (309) (30,608) (30,917)
Net income................................................ 26 2,532 2,558
------ -------- --------
Balance at June 30, 1999.................................... $4,755 $601,273 $606,028
====== ======== ========
</TABLE>
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> 421
PARKER & PARSLEY 86-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 2,558 $(64,941)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depletion.............................................. 62,361 60,624
Changes in assets and liabilities:
Accounts receivable....................................... (40,102) 27,952
Accounts payable.......................................... 9,845 953
-------- --------
Net cash provided by operating activities......... 34,662 24,588
-------- --------
Cash flows from investing activities:
Additions to oil and gas properties....................... -- (13,588)
Proceeds from asset dispositions.......................... 90 --
-------- --------
Net cash provided by (used in) investing
activities....................................... 90 (13,588)
-------- --------
Cash flows used in financing activities:
Cash distributions to partners............................ (30,917) (70,764)
-------- --------
Net increase (decrease) in cash............................. 3,835 (59,764)
Cash at beginning of period................................. 58,223 118,873
-------- --------
Cash at end of period....................................... $ 62,058 $ 59,109
======== ========
</TABLE>
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> 422
PARKER & PARSLEY 86-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 86-A, 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 June 30, 1999 and for the three and six months ended June 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.
7
<PAGE> 423
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
RESULTS OF OPERATIONS
Six months ended June 30, 1999 compared with six months ended June 30, 1998
Revenues:
The Partnership's oil and gas revenues increased 8% to $233,419 from
$216,312 for the six months ended June 30, 1999 and 1998, respectively. The
increase in revenues resulted from an increase in production, offset by lower
average prices received. For the six months ended June 30, 1999, 9,862 barrels
of oil, 7,595 barrels of natural gas liquids ("NGLs") and 33,171 mcf of gas were
sold, or 22,986 barrel of oil equivalents ("BOEs"). For the six months ended
June 30, 1998, 10,146 barrels of oil, 5,143 barrels of NGLs and 23,870 mcf of
gas were sold, or 19,267 BOEs.
The average price received per barrel of oil decreased 7% from $14.26 for
the six months ended June 30, 1998 to $13.30 for the same period in 1999. The
average price received per barrel of NGLs increased 4% from $7.06 during the six
months ended June 30, 1998 to $7.35 for the same period in 1999. The average
price received per mcf of gas decreased 5% from $1.48 during the six months
ended June 30, 1998 to $1.40 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 six months ended June 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.
Costs and Expenses:
Total costs and expenses decreased to $232,245 for the six months ended
June 30, 1999 as compared to $284,032 for the same period in 1998, a decrease of
$51,787, or 18%. This decrease was due to a decline in production costs, offset
by increases in depletion and general and administrative expenses ("G&A").
Production costs were $162,882 for the six months ended June 30, 1999 and
$216,919 for the same period in 1998 resulting in a $54,037 decrease, or 25%.
This decrease was the result of declines in well maintenance costs and workover
costs.
G&A's components are independent accounting and engineering fees and
managing general partner personnel and operating costs. During this period, G&A
increased, in aggregate, 8% from $6,489 for the six months ended June 30, 1998
to $7,002 for the same period in 1999.
Depletion was $62,361 for the six months ended June 30, 1999 compared to
$60,624 for the same period in 1998, an increase of $1,737, or 3%. This increase
was the result of a combination of factors that included a charge for fully
depleting two wells at March 31, 1999, 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 1998 and a reduction in oil production
of 284 barrels for the six months ended June 30, 1999 compared to the same
period in 1998.
Three months ended June 30, 1999 compared with three months ended June 30,
1998
Revenues:
The Partnership's oil and gas revenues increased 34% to $140,014 from
$104,404 for the three months ended June 30, 1999 and 1998, respectively. The
increase in revenues resulted from higher average prices received and an
increase in production. For the three months ended June 30, 1999, 4,808 barrels
of oil, 4,260 barrels of NGLs and 19,255 mcf of gas were sold, or 12,277 BOEs.
For the three months ended
8
<PAGE> 424
June 30, 1998, 5,122 barrels of oil, 2,609 barrels of NGLs and 11,273 mcf of gas
were sold, or 9,610 BOEs.
The average price received per barrel of oil increased $1.20, or 9%, from
$13.49 for the three months ended June 30, 1998 to $14.69 for the same period in
1999. The average price received per barrel of NGLs increased $2.06, or 29%,
from $7.16 during the three months ended June 30, 1998 to $9.22 for the same
period in 1999. The average price received per mcf of gas increased 6% from
$1.47 during the three months ended June 30, 1998 to $1.56 in 1999.
Costs and Expenses:
Total costs and expenses decreased to $98,010 for the three months ended
June 30, 1999 as compared to $140,426 for the same period in 1998, a decrease of
$42,416, or 30%. This decrease was due to declines in production costs and
depletion, offset by an increase in G&A.
Production costs were $84,182 for the three months ended June 30, 1999 and
$106,537 for the same period in 1998 resulting in a $22,355 decrease, or 21%.
This decrease was primarily the result of a decline in well maintenance costs,
offset by an increase in production taxes.
During this period, G&A increased, in aggregate, 34% from $3,132 for the
three months ended June 30, 1998 to $4,200 for the same period in 1999.
Depletion was $9,628 for the three months ended June 30, 1999 compared to
$30,757 for the same period in 1998, a decrease of $21,129, or 69%. This
decrease was primarily attributable to an increase in proved reserves during the
period ended June 30, 1999 due to higher commodity prices, a reduction in oil
production of 314 barrels for the three months ended June 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.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $10,074 during the six
months ended June 30, 1999 from the same period ended June 30, 1998. This
increase was primarily due to declines in production costs and G&A expenses
paid, offset by a decline in oil and gas sales receipts.
Net Cash Provided by (Used in) Investing Activities
The Partnership's principal investing activities for the six months ended
June 30, 1998 included expenditures related to equipment replacement on various
oil and gas properties.
Proceeds from asset dispositions of $90 received during the six months
ended June 30, 1999 were primarily from equipment credits received on active
properties.
Net Cash Used in Financing Activities
Cash was sufficient for the six months ended June 30, 1999 to cover
distributions to the partners of $30,917 of which $309 was distributed to the
managing general partner and $30,608 to the limited partners. For the same
period ended June 30, 1998, cash was sufficient for distributions to the
partners of $70,764 of which $708 was distributed to the managing general
partner and $70,056 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 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 early indications that the nations have initiated
their planned reductions, have had some stabilizing effect on commodity prices
during the latter part of the first quarter of 1999 and
9
<PAGE> 425
into August 1999. However, no assurances can be given that the stabilizing
effect of these actions, or the planned reductions in export volumes, will 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.
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 June 30, 1999, the managing general partner estimates that the
assessment phase is approximately 99% complete and has included, but is not
limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- the formulation of contingency plans for mission-critical information
technology systems.
Through June 30, 1999, the managing general partner had 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 varying 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 June 30, 1999, the managing general partner
estimates that the remedial phase is approximately 83% complete, on a worldwide
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 is expected
to be completed by 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 expects to complete the testing of
information technology systems by October 1999. The testing of the
non-information technology remediation is scheduled to be completed by the end
of November 1999.
10
<PAGE> 426
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. As of June 30, 1999, the managing general partner's total costs
incurred on the Year 2000 problem were $2.3 million, of which approximately $200
thousand were incurred to replace non-compliant systems.
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
11
<PAGE> 427
SIGNATURES
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-A, LTD.
By: Pioneer Natural Resources USA,
Inc.
Managing General Partner
By: /s/ RICH DEALY
----------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
Dated: August 11, 1999
12
<PAGE> 428
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 33-3353-A
PARKER & PARSLEY 86-A, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-2124884
(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)
</TABLE>
Registrant's Telephone Number, including area code: (915) 683-4768
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
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]
No market currently exists for the limited partnership interests of the
RegistrantBased on original purchase price the aggregate market value of limited
partnership interests owned by non-affiliates of the Registrant is $10,096,000.
As of March 8, 1999, the number of outstanding limited partnership
interests was 10,131.
The following documents are incorporated by reference into the indicated
parts of this Annual Report on Form 10-K: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 429
Parts I and II of this Report contain 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. See "Item 1.
Business" for a description of various factors that could materially affect the
ability of the Partnership to achieve the anticipated results described in the
forward looking statements.
PART I
ITEM 1. BUSINESS
Parker & Parsley 86-A, Ltd. (the "Partnership") is a limited partnership
organized in 1986 under the laws of the State of Texas. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. ("Mesa") received shareholder approval
to merge and create Pioneer Natural Resources Company ("Pioneer"). On August 8,
1997, PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership as PPDLP's successor by merger. For a more complete description of
the Parker & Parsley and Mesa merger, see Pioneer's Registration Statement on
Form S-4 as filed with the Securities & Exchange Commission.
A Registration Statement, as amended, filed pursuant to the Securities Act
of 1933, registering limited partnership interests aggregating $50,000,000 in a
series of Texas limited partnerships formed under the Parker & Parsley 86
Development Drilling Program, was declared effective by the Securities and
Exchange Commission on April 7, 1986. On July 23, 1986, the offering of limited
partnership interests in the Partnership, the first partnership formed under
such statement, was closed, with interests aggregating $10,131,000 being sold to
952 subscribers.
The Partnership engages primarily in oil and gas development and production
and is not involved in any industry segment other than oil and gas. See "Item 6.
Selected Financial Data" and "Item 8. Financial Statements and Supplementary
Data" of this report for a summary of the Partnership's revenue, income and
identifiable assets.
The principal markets during 1998 for the oil produced by the Partnership
were refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. The principal markets for the
Partnership's gas were companies that have pipelines located near the
Partnership's gas producing properties. Of the Partnership's total oil and gas
revenues for 1998 approximately 62% and 29% were attributable to sales made to
Genesis Crude Oil, L.P. and Western Gas Resources, Inc.
The Partnership's revenues, profitability, cash flow and future rate of
growth are highly dependent on the prevailing prices of oil and gas, which are
affected by numerous factors beyond the Partnership's control. Oil and gas
prices historically have been very volatile. A substantial or extended decline
in the prices of oil or gas could have a material adverse effect on the
Partnership's revenues, profitability and cash flow and could, under certain
circumstances, result in a reduction in the carrying value of the Partnership's
oil and gas properties.
Because of the demand for oil and gas, the Partnership does not believe
that the termination of the sales of its products to any one customer would have
a material adverse impact on its operations. The loss of a particular customer
for gas may have an effect if that particular customer has the only gas pipeline
located in the areas of the Partnership's gas producing properties. The
Partnership believes, however, that the effect would be temporary, until
alternative arrangements could be made.
Federal and state regulation of oil and gas operations generally includes
the fixing of maximum prices for regulated categories of natural gas, the
imposition of maximum allowable production rates, the taxation
1
<PAGE> 430
of income and other items, and the protection of the environment. Although the
Partnership believes that its business operations do not impair environmental
quality and that its costs of complying with any applicable environmental
regulations are not currently significant, the Partnership cannot predict what,
if any, effect these environmental regulations may have on its current or future
operations.
The Partnership does not have any employees of its own. Pioneer USA employs
818 persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this report is filed. Pioneer
USA supplies all management functions.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the
Partnership conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist primarily of leasehold interests in
properties on which oil and gas wells are located. Such property interests are
often subject to landowner royalties, overriding royalties and other oil and gas
leasehold interests.
Fractional working interests in developmental oil and gas prospects located
primarily in the Spraberry Trend area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 32
oil and gas wells. Five wells were sold and one well was abandoned. At December
31, 1998, 26 wells were producing.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 1998, 1997 and 1996 and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been estimated by the engineering staff of Pioneer USA with a review by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
2
<PAGE> 431
PART II
ITEM 5.MARKET FOR PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 8, 1999, the Partnership had 10,131 outstanding limited
partnership interests held of record by 962 subscribers. There is no established
public trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are
not required to meet the Partnership's obligations are distributed to the
partners at least quarterly in accordance with the limited partnership
agreement. During the years ended December 31, 1998 and 1997, distributions of
$95,413 and $277,995, respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Oil and gas sales......... $ 415,842 $ 605,964 $ 843,204 $ 791,896 $ 793,615
========= ========== ========== ========== ==========
Litigation settlement,
net.................... $ -- $ -- $ 290,690 $ -- $ --
========= ========== ========== ========== ==========
Impairment of oil and gas
properties............. $ 23,593 $ 496,887 $ -- $ 548,293 $ --
========= ========== ========== ========== ==========
Net income (loss)......... $(248,515) $ (467,727) $ 741,771 $ (532,368) $ (16,117)
========= ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general
partner.............. $ (2,485) $ (4,677) $ 7,417 $ (5,323) $ (161)
========= ========== ========== ========== ==========
Limited partners....... $(246,030) $ (463,050) $ 734,354 $ (527,045) $ (15,956)
========= ========== ========== ========== ==========
Limited partners' net
income (loss) per
limited partnership
interest............... $ (24.28) $ (45.71) $ 72.49 $ (52.02) $ (1.57)
========= ========== ========== ========== ==========
Limited partners' cash
distributions per
limited partnership
interest............... $ 9.42 $ 27.44 $ 94.54(a) $ 25.14 $ 28.46
========= ========== ========== ========== ==========
AT YEAR END:
Total assets.............. $ 646,224 $1,000,424 $1,804,366 $2,016,485 $2,791,726
========= ========== ========== ========== ==========
</TABLE>
- ---------------
(a) Including litigation settlement per limited partnership interest of $28.41
in 1996.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1998 compared to 1997
The Partnership's 1998 oil and gas revenues decreased 31% to $415,842 from
$605,964 in 1997. The decrease in revenues resulted from lower average prices
received. In 1998, 20,308 barrels of oil, 11,164 barrels of natural gas liquids
("NGLs") and 49,805 mcf of gas were sold, or 39,773 barrel of oil equivalents
("BOEs"). In 1997, 20,941 barrels of oil, 4,776 barrels of NGLs and 68,518 mcf
of gas were sold, or 37,137 BOEs. Due to the decline characteristics of the
Partnership's oil and gas properties, management expects a certain amount of
decline in production in the future until the Partnership's economically
recoverable reserves are fully depleted.
3
<PAGE> 432
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. Effective September 30, 1997, as a result of the
merger with Mesa, the managing general partner accounts for processed natural
gas production in two components: natural gas liquids and dry residue gas. As a
result of the change in the managing general partner's policy, the Partnership
now accounts for processed natural gas production as processed natural gas
liquids and dry residue gas. Consequently, separate product volumes will not be
comparable for 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
year ended December 31, 1998 is the price received for dry residue gas and the
price per mcf for natural gas produced prior to October 1997 was presented as a
price for wet gas (i.e., natural gas liquids combined with dry residue gas).
The average price received per barrel of oil decreased $6.14, or 32%, from
$19.46 in 1997 to $13.32 in 1998. The average price received per barrel of NGLs
decreased $3.70, or 36%, from $10.23 in 1997 to $6.53 in 1998. The average price
received per mcf of gas decreased 33% from $2.18 in 1997 to $1.46 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 in 1998.
Total costs and expenses decreased in 1998 to $669,121 as compared to
$1,082,123 in 1997, a decrease of $413,002, or 38%. The decrease was due to a
decline in the impairment of oil and gas properties and decreases in production
costs and general and administrative expense ("G&A"), offset by an increase in
depletion.
Production costs were $372,460 in 1998 and $403,137 in 1997, resulting in a
$30,677 decrease, or 8%. The decrease was due to a decline in well maintenance
costs 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, 36%, from $19,647 in 1997 to $12,476 in 1998. The
Partnership paid the managing general partner $9,062 in 1998 and $15,107 in 1997
for G&A incurred on behalf of the Partnership. G&A is allocated, in part, to the
Partnership by the managing general partner. Such allocated expenses are
determined by the managing general partner based upon its judgement of the level
of activity of the Partnership relative to the managing general partner's
activities and other entities it manages. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
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"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. Declining commodity prices prompted
impairment reviews in 1998 and 1997. As a result of the review and evaluation of
its long-lived assets for impairment, the Partnership recognized non-cash
charges of $23,593 and $496,887 related to its oil and gas properties during
1998 and 1997, respectively.
Depletion was $260,592 in 1998 compared to $162,452 in 1997. This
represented an increase of $98,140, or 60%. This increase was the result of a
combination of factors that included a decline in proved reserves during 1998
due to the lower commodity prices, 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 and a reduction in oil production of 633 barrels for the
period ended December 31, 1998 compared to the same period in 1997.
1997 compared to 1996
The Partnership's 1997 oil and gas revenues decreased 28% to $605,964 from
$843,204 in 1996. The decrease in revenues resulted from declines in production
and lower average prices received. In 1997,
4
<PAGE> 433
20,941 barrels of oil, 4,776 barrels of NGLs and 68,518 mcf of gas were sold, or
37,137 BOEs. In 1996, 26,605 barrels of oil and 109,185 mcf of gas were sold, or
44,803 BOEs.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. As is described above in "Results of
Operations -- 1998 compared to 1997", the Partnership changed its method of
accounting for processed natural gas to a dry gas basis in the fourth quarter of
1997. As a result of this change, the Partnership now accounts for processed
natural gas production as processed natural gas liquids and dry residue gas.
Consequently, 1997 and 1996 separate product volumes are not comparable.
The declines in production volumes were primarily attributable to the
decline characteristics of the Partnership's oil and gas properties.
The average price received per barrel of oil decreased $2.26, or 10%, from
$21.72 in 1996 to $19.46 in 1997. The average price received per barrel of NGLs
during 1997 was $10.23. The average price received per mcf of gas decreased 10%
from $2.43 in 1996 to $2.18 in 1997.
A gain on disposition of assets of $175,662 was recognized in 1996 from
equipment credits received on a fully depleted well and from the sale of oil and
gas wells and saltwater disposal wells.
On April 29, 1996, Southmark Corporation, Pioneer USA and the Partnership
entered into a final $7.4 million settlement agreement with Jack N. Price
resolving all outstanding litigation between the parties. As a result, all of
the pending lawsuits and judgments have been dismissed, the supersedeas bond
released, and the Reserve released as collateral. On June 28, 1996, a final
distribution was made to the working interest owners of $290,690 which included
$287,784, or $28.41 per limited partnership interest, to the Partnership and its
partners.
Total costs and expenses increased in 1997 to $1,082,123 as compared to
$583,194 in 1996, an increase of $498,929, or 86%. The increase was due to the
impairment of oil and gas properties and increases in depletion and production
costs, offset by a decrease in G&A.
Production costs were $403,137 in 1997 and $401,388 in 1996, resulting in a
$1,749 increase. The increase was due to an increase in workover expense
incurred in an effort to stimulate well production, offset by a decline in well
maintenance costs.
During this period, G&A decreased, in aggregate, 22%, from $25,296 in 1996
to $19,647 in 1997. The Partnership paid the managing general partner $15,107 in
1997 and $20,949 in 1996 for G&A incurred on behalf of the Partnership.
The Partnership recognized a non-cash SFAS 121 impairment provision of
$496,887 related to its oil and gas properties during the fourth quarter of
1997.
Depletion was $162,452 in 1997 compared to $156,510 in 1996. This
represented an increase of $5,942, or 4%. This increase was primarily
attributable to the decrease in oil reserves during 1997 as a result of lower
commodity prices, offset by a decline in oil production of 5,664 barrels for
1997 as compared to 1996.
IMPACT OF INFLATION AND CHANGING PRICES ON SALES AND NET INCOME
Inflation impacts the fixed overhead rate charges of the lease operating
expenses for the Partnership. During 1998, the annual change in the index of
average weekly earnings of crude petroleum and gas production workers issued by
the U.S. Department of Labor, Bureau of Labor Statistics increased (effective
April 1, 1998) 10.3%. The 1997 annual change in average weekly earnings
increased by 2%. The 1996 index increased 4.1%. The impact of inflation for
other lease operating expenses is small due to the current economic condition of
the oil industry.
The oil and gas industry experienced volatility during the past decade
because of the fluctuation of the supply of most fossil fuels relative to the
demand for such products and other uncertainties in the world energy markets
causing significant fluctuations in oil and gas prices. During 1998, the price
per barrel for
5
<PAGE> 434
oil production similar to the Partnership's ranged from approximately $9.50 to
$15.50. During most of 1997 and 1996, 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 March 1999. On
March 8, 1999, the market price for West Texas intermediate crude was $11.00 per
barrel. A continuation of the current commodity price environment will continue
to have an adverse effect on the Partnership's revenues, operating cash flow and
distributions and could result in additional decreases in the carrying value of
the Partnership's oil and gas properties.
Prices for natural gas are subject to ordinary seasonal fluctuations, and
this volatility of natural gas prices may result in production being curtailed
and, in some cases, wells being completely shut-in.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $118,949 during the
year ended December 31, 1998 from the year ended December 31, 1997. The decrease
was primarily due to a decline in oil and gas sales receipts, offset by a
decrease in production costs paid.
Net Cash Provided by (Used in) Investing Activities
The Partnership's principal investing activities during 1998 and 1997 were
for expenditures related to oil and gas equipment replacement on active
properties.
Net Cash Used in Financing Activities
Cash available was sufficient in 1998 for distributions to the partners of
$96,377 of which $964 was distributed to the managing general partner and
$95,413 to the limited partners. In 1997, cash was sufficient for distributions
to the partners of $280,803 of which $2,808 was distributed to the managing
general partner and $277,995 to the limited partners.
The current commodity price environment will continue to impact the
distributions and could result in limited or no distributions to the partners.
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.
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
at varying stages of completion as it pertains to information technology and
non-information technology applications and systems in the United States, Canada
and Argentina. As of December 31, 1998, the managing general
6
<PAGE> 435
partner estimates that the assessment phase is approximately 86% complete, on a
worldwide basis, and has included, but is not limited to, the following
procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- 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 to
approximately 37% of those inquiries.
The remedial phase of the managing general partner's Year 2000 project is
also at varying 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 December 31, 1998, the
managing general partner estimates that the remedial phase is approximately 54%
complete, on a worldwide basis, subject to the continuing 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 through remedial coding and is currently testing this system for Year
2000 compliance. The remediation of non-information technology is expected to be
completed during July 1999. The managing general partner's Year 2000 remedial
actions have not significantly 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 and non-information technology remediation by the end of the third
quarter of 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. The managing general partner intends to use its working capital to pay
for the costs of the Year 2000 projects. As of December 31, 1998, the managing
general partner's total costs incurred on the Year 2000 problem were $1.8
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 in accordance with the general and
administration allocation. (See Note 2 of Notes to Financial Statements included
in "Item 8. Financial Statements and Supplementary Data".)
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.
7
<PAGE> 436
In the assessment phase of the managing general partner's Year 2000
project, contingency plans are being 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.
8
<PAGE> 437
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Parker & Parsley 86-A, Ltd:
Independent Auditors' Report -- Ernst & Young LLP......... 10
Independent Auditors' Report -- KPMG LLP.................. 11
Balance Sheets as of December 31, 1998 and 1997........... 12
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996.................................... 13
Statements of Partners' Capital for the Years Ended
December 31, 1998, 1997 and 1996....................... 14
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996.................................... 15
Notes to Financial Statements............................. 16
</TABLE>
9
<PAGE> 438
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 86-A, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheet of Parker & Parsley 86-A, Ltd. as of
December 31, 1998, and the related statements of operations, partners' capital
and cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 86-A, Ltd.
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Dallas, Texas
March 15, 1999
10
<PAGE> 439
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 86-A, Ltd.
(A Texas Limited Partnership):
We have audited the financial statements of Parker & Parsley 86-A, Ltd. as
of December 31, 1997, and the related statements of operations, partners'
capital and cash flows for the years ended December 31, 1997 and 1996. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 86-A, Ltd.
as of December 31, 1997, and the results of its operations and its cash flows
for the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
KPMG LLP
Midland, Texas
March 20, 1998
11
<PAGE> 440
PARKER & PARSLEY 86-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 58,223 $ 118,873
Accounts receivable -- oil and gas sales.................. 47,579 79,774
----------- -----------
Total current assets.............................. 105,802 198,647
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 7,118,212 7,095,382
Accumulated depletion....................................... (6,577,790) (6,293,605)
----------- -----------
Net oil and gas properties........................ 540,422 801,777
----------- -----------
$ 646,224 $ 1,000,424
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable -- affiliate............................. $ 11,837 $ 21,145
Partners' capital:
Managing general partner.................................. 5,038 8,487
Limited partners (10,131 interests)....................... 629,349 970,792
----------- -----------
634,387 979,279
----------- -----------
$ 646,224 $ 1,000,424
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 441
PARKER & PARSLEY 86-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Oil and gas............................................ $ 415,842 $ 605,964 $ 843,204
Interest............................................... 4,764 8,432 15,409
Litigation settlement.................................. -- -- 290,690
Gain on disposition of assets.......................... -- -- 175,662
--------- ---------- ----------
420,606 614,396 1,324,965
--------- ---------- ----------
Costs and expenses:
Oil and gas production................................. 372,460 403,137 401,388
General and administrative............................. 12,476 19,647 25,296
Depletion.............................................. 260,592 162,452 156,510
Impairment of oil and gas properties................... 23,593 496,887 --
--------- ---------- ----------
669,121 1,082,123 583,194
--------- ---------- ----------
Net income (loss)........................................ $(248,515) $ (467,727) $ 741,771
========= ========== ==========
Allocation of net income (loss):
Managing general partner............................... $ (2,485) $ (4,677) $ 7,417
========= ========== ==========
Limited partners....................................... $(246,030) $ (463,050) $ 734,354
========= ========== ==========
Net income (loss) per limited partnership interest....... $ (24.28) $ (45.71) $ 72.49
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 442
PARKER & PARSLEY 86-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Partners' capital at January 1, 1996....................... $18,230 $1,935,262 $1,953,492
Distributions............................................ (9,675) (957,779) (967,454)
Net income............................................... 7,417 734,354 741,771
------- ---------- ----------
Partners' capital at December 31, 1996..................... 15,972 1,711,837 1,727,809
Distributions............................................ (2,808) (277,995) (280,803)
Net loss................................................. (4,677) (463,050) (467,727)
------- ---------- ----------
Partners' capital at December 31, 1997..................... 8,487 970,792 979,279
Distributions............................................ (964) (95,413) (96,377)
Net loss................................................. (2,485) (246,030) (248,515)
------- ---------- ----------
Partners' capital at December 31, 1998..................... $ 5,038 $ 629,349 $ 634,387
======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 443
PARKER & PARSLEY 86-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $(248,515) $(467,727) $ 741,771
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Impairment of oil and gas properties................. 23,593 496,887 --
Depletion............................................ 260,592 162,452 156,510
Gain on disposition of assets........................ -- -- (175,662)
Changes in assets and liabilities:
Accounts receivable.................................. 32,195 42,120 (15,109)
Accounts payable..................................... (9,308) (56,226) 13,835
--------- --------- ---------
Net cash provided by operating activities....... 58,557 177,506 721,345
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties..................... (22,830) (9,969) (2,820)
Proceeds from asset dispositions........................ -- -- 414,443
--------- --------- ---------
Net cash provided by (used in) investing
activities.................................... (22,830) (9,969) 411,623
--------- --------- ---------
Cash flows from financing activities:
Cash distributions to partners.......................... (96,377) (280,803) (967,454)
--------- --------- ---------
Net increase (decrease) in cash........................... (60,650) (113,266) 165,514
Cash at beginning of year................................. 118,873 232,139 66,625
--------- --------- ---------
Cash at end of year....................................... $ 58,223 $ 118,873 $ 232,139
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 444
PARKER & PARSLEY 86-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 86-A, Ltd. (the "Partnership") is a limited partnership
organized in 1986 under the laws of the State of Texas. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. received shareholder approval to merge
and create Pioneer Natural Resources Company ("Pioneer"). On August 8, 1997,
PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership as PPDLP's successor by merger.
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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties -- The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as determined by the engineering staff of Pioneer
USA, the Partnership's managing general partner, and reviewed by independent
petroleum consultants. The carrying amounts of properties sold or otherwise
disposed of and the related allowances for depletion are eliminated from the
accounts and any gain or loss is included in operations.
Impairment of long-lived assets -- 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"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -- Preparation
of the accompanying financial statements 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 reporting amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest -- The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes -- A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
16
<PAGE> 445
PARKER & PARSLEY 86-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statements of cash flows -- For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses -- General and administrative expenses
are allocated in part to the Partnership by the managing general partner or its
affiliates. Such allocated expenses are determined by the managing general
partner based upon its judgement of the level of activity of the Partnership
relative to the managing general partner's activities and other entities it
manages. The method of allocation has been consistent over the past several
years with certain modifications incorporated to reflect changes in Pioneer
USA's overall business activities.
Reclassifications -- Certain reclassifications may have been made to the
1997 and 1996 financial statements to conform to the 1998 financial statement
presentation.
Environmental -- The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 1998.
Revenue recognition -- The Partnership uses the entitlements method of
accounting for crude oil and natural gas revenues.
Reporting comprehensive income -- Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes
standards for the reporting and display of comprehensive income (loss) and its
components in a full set of general purpose financial statements. Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss).
The Partnership has no items of other comprehensive income (loss), as defined by
SFAS No. 130. Consequently, the provisions of SFAS No. 130 do not apply to the
Partnership.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. Based upon a decline in the Partnership's outlook for future
commodity prices, the Partnership has estimated the expected future cash flows
of its oil and gas properties as of December 31, 1998, 1997 and 1996, and
compared such estimated future cash flows to the respective carrying amount of
the oil and gas properties to determine if the carrying amounts were likely to
be recoverable. For those proved oil and gas properties for which the carrying
amount exceeded the estimated future cash flows, an impairment was determined to
exist; therefore, the Partnership adjusted the carrying amount of those oil and
gas properties to their fair value as determined by discounting their expected
future cash flows at a discount rate commensurate with the risks involved in the
industry. As a result, the Partnership recognized non-cash impairment provisions
of $23,593 and $496,887 related to its proved oil and gas properties during 1998
and 1997, respectively.
17
<PAGE> 446
PARKER & PARSLEY 86-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $507,022 less than the tax basis at December 31, 1998.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ----------
<S> <C> <C> <C>
Net income (loss) per statements of operations.... $(248,515) $(467,727) $ 741,771
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes.................... 251,615 156,736 151,416
Impairment of oil and gas properties for financial
reporting purposes.............................. 23,593 496,887 --
Gain on sale of assets for tax reporting purposes
greater than amounts for financial reporting
purposes........................................ -- 245 220,623
Other, net........................................ 2,118 (1,608) 2,176
--------- --------- ----------
Net income per Federal income tax
returns............................... $ 28,811 $ 184,533 $1,115,986
========= ========= ==========
</TABLE>
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Development costs....................................... $22,830 $10,783 $12,057
======= ======= =======
</TABLE>
Capitalized oil and gas properties consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Proved properties:
Property acquisition costs............................... $ 264,211 $ 264,211
Completed wells and equipment............................ 6,854,001 6,831,171
----------- -----------
7,118,212 7,095,382
Accumulated depletion...................................... (6,577,790) (6,293,605)
----------- -----------
Net capitalized costs............................ $ 540,422 $ 801,777
=========== ===========
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $161,913 $167,988 $166,605
Reimbursement of general and administrative
expenses........................................... $ 9,062 $ 15,107 $ 20,949
</TABLE>
18
<PAGE> 447
PARKER & PARSLEY 86-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. In addition,
Pioneer USA and the Partnership are parties to the Program agreement.
The costs and revenues of the Program are allocated to Pioneer USA and the
Partnership as follows:
<TABLE>
<CAPTION>
PIONEER
USA (1) PARTNERSHIP
--------- -----------
<S> <C> <C>
Revenues:
Proceeds from disposition of depreciable properties....... 9.09091% 90.90909%
All other revenues........................................ 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion costs and
all other costs........................................ 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative
expenses............................................... 24.242425% 75.757575%
</TABLE>
- ---------------
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at
the Partnership level and 35 limited partner interests owned by Pioneer USA.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 1998, 1997 and 1996 and
changes in such quantities during the years then ended. Due to a change in the
accounting policy of the managing general partner in 1997, the Partnership began
accounting for processed natural gas production in two components: processed
natural gas liquids ("NGLs") and dry residue gas. NGLs are reflected in "Oil and
NGLs" in the table below. All of the Partnership's reserves are proved developed
and located within the United States. The Partnership's reserves are based on an
evaluation prepared by the engineering staff of Pioneer USA and reviewed by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant,
using criteria established by the Securities and Exchange Commission. Reserve
value information is available to limited partners pursuant to the Partnership
agreement and, therefore, is not presented.
<TABLE>
<CAPTION>
OIL AND NGLS GAS
(BBLS) (MCF)
------------ ----------
<S> <C> <C>
Net proved reserves at January 1, 1996...................... 321,973 1,455,023
Revisions................................................... 88,303 476,274
Sale of reserves............................................ (60,350) (281,449)
Production.................................................. (26,605) (109,185)
-------- ----------
Net proved reserves at December 31, 1996.................... 323,321 1,540,663
Revisions................................................... 18,058 (1,003,080)
Production.................................................. (25,717) (68,518)
-------- ----------
Net proved reserves at December 31, 1997.................... 315,662 469,065
Revisions................................................... (123,571) (148,399)
Production.................................................. (31,472) (49,805)
-------- ----------
Net proved reserves at December 31, 1998.................... 160,619 270,861
======== ==========
</TABLE>
19
<PAGE> 448
PARKER & PARSLEY 86-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1998, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 1998 prices of $10.61 per
barrel of oil, $5.45 per barrel of NGLs and $1.36 per mcf of gas, discounted at
10% was approximately $241,000 and undiscounted was $330,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Genesis Crude Oil, L.P...................................... 62% 64% 60%
Western Gas Resources, Inc.................................. 29% 27% 22%
</TABLE>
At December 31, 1998, the amounts receivable from Genesis Crude Oil, L.P.
and Western Gas Resources, Inc. were $15,261 and $18,503, respectively, which
are included in the caption "Accounts receivable -- oil and gas sales" in the
accompanying Balance Sheet.
The Partnership's share of oil and gas production is sold to various
purchasers. Pioneer USA is of the opinion that the loss of any one purchaser
would not have an adverse effect on the ability of the Partnership to sell its
oil and gas production.
NOTE 9. ORGANIZATION AND OPERATIONS
The Partnership was organized July 23, 1986 as a limited partnership under
the Texas Uniform Limited Partnership Act for the purpose of acquiring and
developing oil and gas properties. The following is a brief summary of the more
significant provisions of the limited partnership agreement:
Managing general partner -- The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Partnership affairs. As managing general
partner and operator of the Partnership's properties, all production
expenses are incurred by Pioneer USA and billed to the Partnership and a
portion of revenue is initially received by Pioneer USA prior to being paid
to the Partnership. Under the limited partnership agreement, the managing
general partner pays 1% of the Partnership's acquisition, drilling and
completion costs and 1% of its operating and general and administrative
expenses. In return, it is allocated 1% of the Partnership's revenues.
Limited partner liability -- The maximum amount of liability of any
limited partner is the total contributions of such partner plus his share
of any undistributed profits.
Initial capital contributions -- The limited partners entered into
subscription agreements for aggregate capital contributions of $10,131,000.
Pioneer USA is required to contribute amounts equal to 1% of initial
Partnership capital less commission and offering expenses allocated to the
limited partners and to contribute amounts necessary to pay costs and
expenses allocated to it under the Partnership agreement to the extent its
share of revenues does not cover such costs.
20
<PAGE> 449
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and
executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve
until the next annual meeting of stockholders or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31,
NAME 1998 POSITION
- ---- ------------ --------
<S> <C> <C>
Scott D. Sheffield................. 46 President and Director
Timothy L. Dove.................... Executive Vice President and
42 Director
Dennis E. Fagerstone............... Executive Vice President and
49 Director
Mark L. Withrow.................... 51 Executive Vice President, General
Counsel and Director
M. Garrett Smith................... 37 Executive Vice President, Chief
Financial Officer and Director
Mel Fischer(a)..................... 64 Executive Vice President
Lon C. Kile........................ 43 Executive Vice President
Rich Dealy......................... 32 Vice President and Chief Accounting
Officer
</TABLE>
- ---------------
(a) Mr. Fischer was a director and officer until his retirement from Pioneer
and Pioneer USA on February 19, 1999.
Scott D. Sheffield. Mr. Sheffield is a distinguished graduate of The
University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he
has served as President, Chief Executive Officer and a director of Pioneer and
President and a director of Pioneer USA. Mr. Sheffield was the President and a
director of Parker & Parsley from May 1990 until August 1997 and was the
Chairman of the Board and Chief Executive Officer of Parker & Parsley from
October 1990 until August 1997. He was the sole director of Parker & Parsley
from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley
Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum
engineer in 1979. He served as Vice President -- Engineering of PPDC from
September 1981 until April 1985 when he was elected President and a director. In
March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive
Officer of PPDC. Before joining PPDC, Mr. Sheffield was employed as a production
and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President -- Business
Development of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. Mr. Dove joined Parker & Parsley in May
1994 as Vice President -- International and was promoted to Senior Vice
President -- Business Development in October 1996, in which position he served
until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with
Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various
capacities in international exploration and production, marketing, refining and
marketing and planning and development. Mr. Dove earned a B.S. in Mechanical
Engineering from Massachusetts Institute of Technology in 1979 and received his
M.B.A. in 1981 from the University of Chicago.
21
<PAGE> 450
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of Mesa from March 1, 1997 until August 1997. From October
1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief
Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice
President -- Exploration and Production of Mesa. From June 1988 to May 1991, Mr.
Fagerstone served as Vice President -- Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President -- General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President -- General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
M. Garrett Smith. Mr. Smith, a graduate of The University of Texas with a
B.S. in Electrical Engineering and Southern Methodist University with an M.B.A.,
was appointed Executive Vice President and Chief Financial Officer of Pioneer in
December 1997. He served as Senior Vice President -- Finance of Pioneer from
August 1997 until December 1997. Mr. Smith was elected Senior Vice President --
Finance and a director of Pioneer USA in August 1997. He served as Vice
President -- Corporate Acquisitions of Mesa from January 1997 until August 1997.
From October 1996 to December 1996, Mr. Smith served as Vice
President -- Finance of Mesa and from 1994 to 1996 he served as Director of
Financial Planning of Mesa. Mr. Smith was employed by BTC Partners, Inc. (a
former financial advisor to Mesa) from 1989 to 1994.
Mel Fischer. Mr. Fischer, a graduate of the University of California at
Berkeley with a Masters degree in Geology, became Executive Vice President
- -Worldwide Exploration of Pioneer and Pioneer USA in August 1997. He served as a
director of Parker & Parsley from November 1995 until August 1997 and was
Executive Vice President -- Worldwide Exploration for Parker & Parsley from
February 1997 to August 1997. Mr. Fischer retired from Pioneer and Pioneer USA
effective February 15, 1999. He worked in the petroleum industry for 32 years,
starting as a Petroleum Geologist with Texaco in 1962, and retiring as
President, Occidental International Exploration and Production Company in March
1994. For the 10 years prior to becoming President of Occidental International,
he served as Executive Vice President, World Wide Exploration with Occidental
Oil and Gas Corporation. He is a registered geologist in the State of
California, a member of the American Association of Petroleum Geologists and an
emeritus member of the Board of Advisors for the Earth Sciences Research
Institute at the University of Utah.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a
B.B.A. in Accounting, became Executive Vice President of Pioneer and Pioneer USA
in August 1997. Mr. Kile was Senior Vice President -- Investor Relations from
October 1996 to August 1997. Previously, he served as Vice President and Manager
of the Mid-Continent Division, Vice President -- Equity Finance & Analysis and
Vice President -- Marketing & Program Administration. Prior to joining Parker &
Parsley in 1985, he was employed as Supervisor -- Senior, Audit, in charge of
Parker & Parsley's audit, with Arthur Young.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a
B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became
Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
22
<PAGE> 451
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is vested in Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA pays approximately 10% of the Partnership's acquisition,
drilling and completion costs and approximately 25% of its operating and general
and administrative expenses. In return, Pioneer USA is allocated approximately
25% of the Partnership's revenues. See Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data" for
information regarding fees and reimbursements paid to the managing general
partner or its affiliates by the Partnership.
The Partnership does not directly pay any salaries of the executive
officers of Pioneer USA, but does pay a portion of Pioneer USA's general and
administrative expenses of which these salaries are a part. See Note 6 of Notes
to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more
of the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 35 limited partner interests at January 1, 1999.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing
general partner of the Partnership, Pioneer USA, has the exclusive right and
full authority to manage, control and administer the Partnership's business.
Under the limited partnership agreement, limited partners holding a majority of
the outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner or its affiliates
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $161,913 $167,988 $166,605
Reimbursement of general and administrative
expenses........................................... $ 9,062 $ 15,107 $ 20,949
</TABLE>
Under the limited partnership agreement, the managing general partner pays
1% of the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
23
<PAGE> 452
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial statements
The following are filed as part of this annual report:
<TABLE>
<S> <C>
Independent Auditors' Report -- Ernst & Young LLP
Independent Auditors' Report -- KPMG LLP
Balance sheets as of December 31, 1998 and 1997
Statements of operations for the years ended December 31,
1998, 1997 and 1996
Statements of partners' capital for the years ended December
31, 1998, 1997 and 1996
Statements of cash flows for the years ended December 31,
1998, 1997 and 1996
Notes to financial statements
</TABLE>
2. Financial statement schedules
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this annual report.
24
<PAGE> 453
SIGNATURES
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-A, LTD.
By: Pioneer Natural Resources USA,
Inc.
Managing General Partner
By: /s/ SCOTT D. SHEFFIELD
----------------------------------
Scott D. Sheffield,
President
Dated: March 24, 1999
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 date indicated.
<TABLE>
<C> <S> <C>
/s/ SCOTT D. SHEFFIELD President and Director of March 24, 1999
- ----------------------------------------------------- Pioneer USA
Scott D. Sheffield
/s/ TIMOTHY L. DOVE Executive Vice President and March 24, 1999
- ----------------------------------------------------- Director of Pioneer USA
Timothy L. Dove
/s/ DENNIS E. FAGERSTONE Executive Vice President and March 24, 1999
- ----------------------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ MARK L. WITHROW Executive Vice President, March 24, 1999
- ----------------------------------------------------- General Counsel and Director
Mark L. Withrow of Pioneer USA
/s/ M. GARRETT SMITH Executive Vice President, March 24, 1999
- ----------------------------------------------------- Chief Financial Officer and
M. Garrett Smith Director of Pioneer USA
/s/ LON C. KILE Executive Vice President of March 24, 1999
- ----------------------------------------------------- Pioneer USA
Lon C. Kile
/s/ RICH DEALY Vice President and Chief March 24, 1999
- ----------------------------------------------------- Accounting Officer of
Rich Dealy Pioneer USA
</TABLE>
25
<PAGE> 454
PARKER & PARSLEY 86-A, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3(a) -- Amended and Restated Certificate of Limited Partnership
of Parker & Parsley 86-A, Ltd. incorporated by reference
to Exhibit 3a of the Partnership's Registration Statement
on Form S-1 (Registration No. 33-3353) (hereinafter
called the Partnership's Registration Statement)
4(a) -- Form of Agreement of Limited Partnership of Parker &
Parsley 86-A, Ltd. incorporated by reference to Exhibit A
of Amendment No. 1 of the Partnership's Registration
Statement
4(b) -- Form of Subscription Agreement incorporated by reference
to Exhibit C of Amendment No. 1 of the Partnership's
Registration Statement
4(b) -- Power of Attorney incorporated by reference to an Exhibit
of the Partnership's Registration Statement
4(c) -- Specimen Certificate of Limited Partnership Interest
incorporated by reference to Exhibit 4c of the
Partnership's Registration Statement
10(b) -- Development Program Agreement incorporated by reference
to Exhibit B of Amendment No. 1 of the Partnership's
Registration Statement
27.1* -- Financial Data Schedule
99.1 -- Mutual Release and Indemnity Agreement dated May 25, 1993
incorporated by reference to Exhibit 99.1 of the
Partnership's Annual Report on Form 10-K for the year
ended December 31, 1993
</TABLE>
- ---------------
* Filed herewith
<PAGE> 455
PARKER & PARSLEY 86-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
DECEMBER 31, 1998, 1997 AND 1996
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. Future income taxes are calculated by comparing
discounted future cash flows to the tax basis of oil and gas properties plus
available carryforwards and credits and applying the current tax rates to the
difference.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and gas producing activities:
Future cash inflows....................................... $ 1,763 $ 5,941 $13,752
Future production costs................................... (1,433) (4,105) (7,940)
Future development costs.................................. -- -- 150
------- ------- -------
330 1,836 5,962
10% annual discount factor................................ (89) (706) (2,832)
------- ------- -------
Standardized measure of discounted future net cash
flows.................................................. $ 241 $ 1,130 $ 3,130
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1998 1997 1996
------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs................ $ (43) $ (203) $ (442)
Net changes in prices and production costs................ (761) (1,610) 1,528
Extensions and discoveries................................ -- -- --
Sales of minerals-in-place................................ -- -- (357)
Purchases of minerals-in-place............................ -- -- --
Revisions of estimated future development costs........... -- (92) (74)
Revisions of previous quantity estimates and reserves
added by development drilling.......................... (147) (365) 937
Accretion of discount..................................... 113 313 182
Changes in production rates, timing and other............. (51) (43) (462)
------ ------- ------
Change in present value of future net revenues............ (889) (2,000) 1,312
------ ------- ------
Balance, beginning of year................................ 1,130 3,130 1,818
------ ------- ------
Balance, end of year...................................... $ 241 $ 1,130 $3,130
====== ======= ======
</TABLE>
<PAGE> 456
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 86-B, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT DATED , 1999
----------------------
THE DATE OF THIS SUPPLEMENT IS , 1999
----------------------
This document contains important information specific to Parker & Parsley
86-B, Ltd. and supplements the proxy statement dated , 1999, of
Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies
to be voted at a special meeting of limited partners of the partnerships
described in the proxy statement. The purpose of the special meeting is for you
to vote upon the merger of Parker & Parsley 86-B, Ltd. with and into Pioneer USA
that, if completed, will result in your receiving cash for your partnership
interests.
This supplement contains the following information concerning Parker &
Parsley 86-B, Ltd.:
- A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through June
30, 1999
-- the merger value per $1,000 limited partner investment as of June 30,
1999
-- the merger value per $1,000 limited partner interest as a multiple of
distributions for the 12 months ended June 30, 1999
-- the book value per $1,000 limited partner investment as of June 30,
1999 and as of December 31, 1998 and
-- the ordinary tax loss per $1,000 limited partner investment in year
of initial investment
- Quarterly Report on Form 10-Q for the six months ended June 30, 1999
- Annual Report on Form 10-K for the year ended December 31, 1998
- Disclosures about the partnership's oil and gas producing activities
<PAGE> 457
PARKER & PARSLEY 86-B, LTD.
SUPPLEMENTAL INFORMATION TABLE
<TABLE>
<S> <C>
Aggregate Initial Investment by the Limited Partners(a)..... $17,208
Aggregate Historical Limited Partner Distributions through
June 30, 1999(a).......................................... $25,403
Merger Value per $1,000 Limited Partner Investment as of
June 30, 1999(b).......................................... $129.60
Merger Value per $1,000 Limited Partner Investment as a
Multiple of Distributions for the 12 Months ended June 30,
1999(b)................................................... 9.90times
Book Value per $1,000 Limited Partner Investment:
-- as of June 30, 1999(b)................................. $128.63
-- as of December 31, 1998(b)............................. $135.43
Ordinary Tax Loss per $1,000 Limited Partner Investment in
Year of Initial Investment(b), (c)........................ $ 475
</TABLE>
- ---------------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as any
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
<PAGE> 458
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JUNE 30, 1999
COMMISSION FILE NO. 33-3353B
PARKER & PARSLEY 86-B, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
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> 459
PARKER & PARSLEY 86-B, LTD.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1999 and December 31,
1998.................................................. 3
Statements of Operations for the three and six months
ended June 30, 1999 and 1998.......................... 4
Statement of Partners' Capital for the six months ended
June 30, 1999......................................... 5
Statements of Cash Flows for the six months ended June
30, 1999 and 1998..................................... 6
Notes to Financial Statements.......................... 7
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................. 8
PART II. OTHER INFORMATION
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K..................... 11
27.1 Financial Data Schedule
Signatures............................................. 12
</TABLE>
2
<PAGE> 460
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER & PARSLEY 86-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 177,370 $ 185,320
Accounts receivable -- oil and gas sales.................. 145,950 120,424
------------ -----------
Total current assets.............................. 323,320 305,744
------------ -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 12,039,945 12,038,382
Accumulated depletion....................................... (10,090,266) (9,980,171)
------------ -----------
Net oil and gas properties........................ 1,949,679 2,058,211
------------ -----------
$ 2,272,999 $ 2,363,955
============ ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 38,442 $ 11,216
Partners' capital:
Managing general partner.................................. 21,070 22,251
Limited partners (17,208 interests)....................... 2,213,487 2,330,488
------------ -----------
2,234,557 2,352,739
------------ -----------
$ 2,272,999 $ 2,363,955
============ ===========
</TABLE>
The financial information included as of June 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
<PAGE> 461
PARKER & PARSLEY 86-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas.................................... $231,875 $239,503 $407,249 $497,072
Interest....................................... 2,338 3,206 4,305 6,774
Gain on disposition of assets.................. -- 4,779 -- 5,435
-------- -------- -------- --------
234,213 247,488 411,554 509,281
-------- -------- -------- --------
Costs and expenses:
Oil and gas production......................... 144,074 172,207 293,691 339,770
General and administrative..................... 6,956 7,185 12,217 14,912
Depletion...................................... 36,312 79,516 110,095 147,760
Abandoned property............................. -- 10,743 -- 20,389
-------- -------- -------- --------
187,342 269,651 416,003 522,831
-------- -------- -------- --------
Net income (loss)................................ $ 46,871 $(22,163) $ (4,449) $(13,550)
======== ======== ======== ========
Allocation of net income (loss):
Managing general partner....................... $ 469 $ (222) $ (44) $ (136)
======== ======== ======== ========
Limited partners............................... $ 46,402 $(21,941) $ (4,405) $(13,414)
======== ======== ======== ========
Net income (loss) per limited partnership
interest....................................... $ 2.69 $ (1.28) $ (.26) $ (.78)
======== ======== ======== ========
Distributions per limited partnership interest... $ 5.01 $ 3.82 $ 6.54 $ 12.26
======== ======== ======== ========
</TABLE>
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> 462
PARKER & PARSLEY 86-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1, 1999................................. $22,251 $2,330,488 $2,352,739
Distributions............................................ (1,137) (112,596) (113,733)
Net loss................................................. (44) (4,405) (4,449)
------- ---------- ----------
Balance at June 30, 1999................................... $21,070 $2,213,487 $2,234,557
======= ========== ==========
</TABLE>
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> 463
PARKER & PARSLEY 86-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (4,449) $ (13,550)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depletion.............................................. 110,095 147,760
Gain on disposition of assets.......................... -- (5,435)
Changes in assets and liabilities:
Accounts receivable.................................... (25,526) 40,163
Accounts payable....................................... 27,226 (5,429)
--------- ---------
Net cash provided by operating activities......... 107,346 163,509
--------- ---------
Cash flows from investing activities:
Additions to oil and gas properties....................... (2,172) (3,555)
Proceeds from asset dispositions.......................... 609 5,435
--------- ---------
Net cash provided by (used in) investing
activities...................................... (1,563) 1,880
--------- ---------
Cash flows used in financing activities:
Cash distributions to partners............................ (113,733) (213,020)
--------- ---------
Net decrease in cash........................................ (7,950) (47,631)
Cash at beginning of period................................. 185,320 259,795
--------- ---------
Cash at end of period....................................... $ 177,370 $ 212,164
========= =========
</TABLE>
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> 464
PARKER & PARSLEY 86-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 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 June 30, 1999 and for the three and six months ended June 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.
7
<PAGE> 465
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
RESULTS OF OPERATIONS
Six months ended June 30, 1999 compared with six months ended June 30, 1998
Revenues:
The Partnership's oil and gas revenues decreased 18% to $407,249 from
$497,072 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from lower average prices received and a decrease
in production. For the six months ended June 30, 1999, 20,359 barrels of oil,
10,775 barrels of natural gas liquids ("NGLs") and 42,002 mcf of gas were sold,
or 38,134 barrel of oil equivalents ("BOEs"). For the six months ended June 30,
1998, 23,912 barrels of oil, 10,780 barrels of NGLs and 49,055 mcf of gas were
sold, or 42,868 BOEs.
The average price received per barrel of oil decreased 5% from $14.01 for
the six months ended June 30, 1998 to $13.27 for the same period in 1999. The
average price received per barrel of NGLs decreased 11% from $7.68 during the
six months ended June 30, 1998 to $6.87 for the same period in 1999. The average
price received per mcf of gas decreased 7% from $1.62 for the six months ended
June 30, 1998 to $1.50 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 six months ended June 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 $5,435 was received during the six
months ended June 30, 1998 from the sale of equipment on one well plugged and
abandoned during 1998. Abandoned property costs of $20,389 were also incurred
during the six months ended June 30, 1998 to plug and abandon this well.
Costs and Expenses:
Total costs and expenses decreased to $416,003 for the six months ended
June 30, 1999 as compared to $522,831 for the same period in 1998, a decrease of
$106,828, or 20%. This decrease was due to declines in production costs,
depletion, abandoned property costs and general and administrative expenses
("G&A").
Production costs were $293,691 for the six months ended June 30, 1999 and
$339,770 for the same period in 1998, resulting in a $46,079 decrease, or 14%.
The decrease was due to declines in well maintenance costs and production taxes,
offset by an increase in ad valorem 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, 18%, from $14,912 for the six months ended June 30,
1998 to $12,217 for the same period in 1999.
Depletion was $110,095 for the six months ended June 30, 1999 compared to
$147,760 for the same period in 1998. This represented a decrease in depletion
of $37,665, or 25%. This decrease was primarily due to a reduction in oil
production of 3,553 barrels for the six months ended June 30, 1999 compared to
the same period in 1998, an increase in proved reserves during the period ended
June 30, 1999 due to higher commodity prices 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> 466
Three months ended June 30, 1999 compared with three months ended June 30,
1998
Revenues:
The Partnership's oil and gas revenues decreased 3% to $231,875 from
$239,503 for the three months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from a decrease in production, offset by higher
average prices received. For the three months ended June 30, 1999, 10,068
barrels of oil, 5,881 barrels of NGLs and 20,138 mcf of gas were sold, or 19,305
BOEs. For the three months ended June 30, 1998, 11,839 barrels of oil, 5,487
barrels of NGLs and 24,366 mcf of gas were sold, or 21,387 BOEs.
The average price received per barrel of oil increased $1.51, or 11%, from
$13.40 for the three months ended June 30, 1998 to $14.91 for the same period in
1999. The average price received per barrel of NGLs increased 7% from $7.64
during the three months ended June 30, 1998 to $8.17 for the same period in
1999. The average price received per mcf of gas increased 4% from $1.60 during
the three months ended June 30, 1998 to $1.67 in 1999.
A gain on disposition of assets of $4,779 was received during the three
months ended June 30, 1998 from the sale of equipment on one well plugged and
abandoned during 1998. Abandoned property costs of $10,743 were also incurred
during the three months ended June 30, 1998 to plug and abandon this well.
Costs and Expenses:
Total costs and expenses decreased to $187,342 for the three months ended
June 30, 1999 as compared to $269,651 for the same period in 1998, a decrease of
$82,309, or 31%. This decrease was due to declines in production costs,
abandoned property costs, G&A and depletion.
Production costs were $144,074 for the three months ended June 30, 1999 and
$172,207 for the same period in 1998 resulting in a $28,133 decrease, or 16%.
The decrease was due to declines in well maintenance costs and production taxes,
offset by an increase in ad valorem taxes.
During this period, G&A decreased, in aggregate, 3%, from $7,185 for the
three months ended June 30, 1998 to $6,956 for the same period in 1999.
Depletion was $36,312 for the three months ended June 30, 1999 compared to
$79,516 for the same period in 1998, a decrease of $43,204, or 54%. This
decrease was primarily attributable to an increase in proved reserves during the
period ended June 30, 1999 as a result of higher commodity prices, a reduction
in oil production of 1,771 barrels for the three months ended June 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.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $56,163 during the six
months ended June 30, 1999 from the same period ended June 30, 1998. This
decrease was primarily due to a decline in oil and gas sale receipts, offset by
declines in G&A expenses and production costs paid.
Net Cash Provided by Investing Activities
The Partnership's investing activities during the six months ended June 30,
1999 and 1998 were related to the expenditures for oil and gas equipment on
active properties.
Proceeds from disposition of assets of $609 and $5,435 were recognized
during the six months ended June 30, 1999 and 1998, respectively. Proceeds
received during the period ended in 1999 were due to equipment credits on active
properties. Proceeds received during the period ended in 1998 were from
equipment credits on one property plugged and abandoned during 1998.
9
<PAGE> 467
Net Cash Used in Financing Activities
Cash was sufficient for the six months ended June 30, 1999 to cover
distributions to the partners of $113,733 of which $1,137 was distributed to the
managing general partner and $112,596 to the limited partners. For the same
period ended June 30, 1998, cash was sufficient for distributions to the
partners of $213,020 of which $2,130 was distributed to the managing general
partner and $210,890 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 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 early indications that the nations have initiated
their planned reductions, have had some stabilizing effect on commodity prices
during the latter part of the first quarter of 1999 and into August 1999.
However, no assurances can be given that the stabilizing effect of these
actions, or the planned reductions in export volumes, will 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.
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 June 30, 1999, the managing general partner estimates that the
assessment phase is approximately 99% complete and has included, but is not
limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- the formulation of contingency plans for mission-critical information
technology systems.
Through June 30, 1999, the managing general partner had 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 varying 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 June 30, 1999, the managing
10
<PAGE> 468
general partner estimates that the remedial phase is approximately 83% complete,
on a worldwide 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
is expected to be completed by 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 expects to complete the testing of
information technology systems by October 1999. The testing of the
non-information technology remediation is scheduled to be completed by the end
of November 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. As of June 30, 1999, the managing general partner's total costs
incurred on the Year 2000 problem were $2.3 million, of which approximately $200
thousand were incurred to replace non-compliant systems.
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
11
<PAGE> 469
SIGNATURES
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
By: /s/ RICH DEALY
----------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
Dated: August 11, 1999
12
<PAGE> 470
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 33-3353B
PARKER & PARSLEY 86-B, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
Registrant's Telephone Number, including area code: (915) 683-4768
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
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]
No market currently exists for the limited partnership interests of the
Registrant. Based on original purchase price the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$17,080,000.
As of March 8, 1999, the number of outstanding limited partnership
interests was 17,208.
The following documents are incorporated by reference into the indicated
parts of this Annual Report on Form 10-K: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 471
Parts I and II of this Report contain 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. See "Item
1. Business" for a description of various factors that could materially affect
the ability of the Partnership to achieve the anticipated results described in
the forward looking statements.
PART I
ITEM 1. BUSINESS
Parker & Parsley 86-B, Ltd. (the "Partnership") is a limited partnership
organized in 1986 under the laws of the State of Texas. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. ("Mesa") received shareholder approval
to merge and create Pioneer Natural Resources Company ("Pioneer"). On August 8,
1997, PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership as PPDLP's successor by merger. For a more complete description of
the Parker & Parsley and Mesa merger, see Pioneer's Registration Statement on
Form S-4 as filed with the Securities & Exchange Commission.
A Registration Statement, as amended, filed pursuant to the Securities Act
of 1933, registering limited partnership interests aggregating $50,000,000 in a
series of Texas limited partnerships formed under the Parker & Parsley 86
Development Drilling Program, was declared effective by the Securities and
Exchange Commission on April 7, 1986. On October 29, 1986, the offering of
limited partnership interests in the Partnership, the second partnership formed
under such statement, was closed, with interests aggregating $17,208,000 being
sold to 1,466 subscribers.
The Partnership engages primarily in oil and gas development and production
and is not involved in any industry segment other than oil and gas. See "Item
6. Selected Financial Data" and "Item 8. Financial Statements and Supplementary
Data" of this report for a summary of the Partnership's revenue, income and
identifiable assets.
The principal markets during 1998 for the oil produced by the Partnership
were refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. The principal markets for the
Partnership's gas were companies that have pipelines located near the
Partnership's gas producing properties. Of the Partnership's total oil and gas
revenues for 1998, approximately 41%, 17%, 15% and 10% were attributable to
sales made to Genesis Crude Oil, L.P., Western Gas Resources, Inc., Mobil Oil
Corporation, and Texaco Trading & Transportation, respectively.
The Partnership's revenues, profitability, cash flow and future rate of
growth are highly dependent on the prevailing prices of oil and gas, which are
affected by numerous factors beyond the Partnership's control. Oil and gas
prices historically have been very volatile. A substantial or extended decline
in the prices of oil or gas could have a material adverse effect on the
Partnership's revenues, profitability and cash flow and could, under certain
circumstances, result in a reduction in the carrying value of the Partnership's
oil and gas properties.
Because of the demand for oil and gas, the Partnership does not believe
that the termination of the sales of its products to any one customer would have
a material adverse impact on its operations. The loss of a particular customer
for gas may have an effect if that particular customer has the only gas pipeline
located in the areas of the Partnership's gas producing properties. The
Partnership believes, however, that the effect would be temporary, until
alternative arrangements could be made.
1
<PAGE> 472
Federal and state regulation of oil and gas operations generally includes
the fixing of maximum prices for regulated categories of natural gas, the
imposition of maximum allowable production rates, the taxation of income and
other items, and the protection of the environment. Although the Partnership
believes that its business operations do not impair environmental quality and
that its costs of complying with any applicable environmental regulations are
not currently significant, the Partnership cannot predict what, if any, effect
these environmental regulations may have on its current or future operations.
The Partnership does not have any employees of its own. Pioneer USA employs
818 persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this report is filed. Pioneer
USA supplies all management functions.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the
Partnership conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist primarily of leasehold interests in
properties on which oil and gas wells are located. Such property interests are
often subject to landowner royalties, overriding royalties and other oil and gas
leasehold interests.
Fractional working interests in developmental oil and gas prospects located
primarily in the Spraberry Trend area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 56
oil and gas wells. At December 31, 1998, 44 wells were producing. Nine wells and
interests in two abandoned wells were sold and one well was plugged and
abandoned. The Partnership received interests in one additional producing oil
and gas well in 1993 due to the Partnership's back-in after payout provision.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 1998, 1997 and 1996, and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been estimated by the engineering staff of Pioneer USA with a review by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
2
<PAGE> 473
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 8, 1999, the Partnership had 17,208 outstanding limited
partnership interests held of record by 1,423 subscribers. There is no
established public trading market for the limited partnership interests. Under
the limited partnership agreement, Pioneer USA has made certain commitments to
purchase partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are
not required to meet the Partnership's obligations are distributed to the
partners at least quarterly in accordance with the limited partnership
agreement. During the years ended December 31, 1998 and 1997, distributions of
$321,805 and $804,804, respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Oil and gas sales.............. $ 928,899 $1,369,807 $1,700,251 $1,481,520 $1,584,722
========== ========== ========== ========== ==========
Litigation settlement, net..... $ -- $ -- $ 565,756 $ -- $ --
========== ========== ========== ========== ==========
Impairment of oil and gas
properties.................. $ 509,585 $ 561,432 $ 4,960 $ 244,024 $ --
========== ========== ========== ========== ==========
Net income (loss).............. $ (807,041) $ (158,796) $1,229,639 $ (31,098) $ 29,196
========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general partner.... $ (8,070) $ (1,587) $ 12,296 $ (310) $ 292
========== ========== ========== ========== ==========
Limited partners............ $ (798,971) $ (157,209) $1,217,343 $ (30,788) $ 28,904
========== ========== ========== ========== ==========
Limited partners' net income
(loss) per limited
partnership interest........ $ (46.43) $ (9.14) $ 70.74 $ (1.79) $ 1.68
========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest........ $ 18.70 $ 46.77 $ 86.49(a) $ 37.11 $ 39.07
========== ========== ========== ========== ==========
AT YEAR END:
Total assets................... $2,363,955 $3,520,172 $4,548,338 $4,800,510 $5,496,873
========== ========== ========== ========== ==========
</TABLE>
- ---------------
(a) Including litigation settlement per limited partnership interest of $32.55
in 1996.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1998 compared to 1997
The Partnership's 1998 oil and gas revenues decreased 32% to $928,899 from
$1,369,807 in 1997. The decrease in revenues resulted from lower average prices
received. In 1998, 47,107 barrels of oil, 23,292 barrels of natural gas liquids
("NGLs") and 97,715 mcf of gas were sold, or 86,685 barrel of oil equivalents
("BOEs"). In 1997, 47,968 barrels of oil, 9,442 barrels of NGLs and 141,058 mcf
of gas were sold, or 80,920 BOEs. Due to the decline characteristics of the
Partnership's oil and gas properties, management expects a certain amount of
decline in production in the future until the Partnership's economically
recoverable reserves are fully depleted.
3
<PAGE> 474
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. Effective September 30, 1997, as a result of the
merger with Mesa, the managing general partner accounts for processed natural
gas production in two components: natural gas liquids and dry residue gas. As a
result of the change in the managing general partner's policy, the Partnership
now accounts for processed natural gas production as processed natural gas
liquids and dry residue gas. Consequently, separate product volumes will not be
comparable for 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
year ended December 31, 1998 is the price received for dry residue gas and the
price per mcf for natural gas produced prior to October 1997 was presented as a
price for wet gas (i.e., natural gas liquids combined with dry residue gas).
The average price received per barrel of oil decreased $6.30, or 33%, from
$19.38 in 1997 to $13.08 in 1998. The average price received per barrel of NGLs
decreased $4.08, or 38%, from $10.88 in 1997 to $6.80 in 1998. The average price
received per mcf of gas decreased 34% from $2.39 in 1997 to $1.58 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 in 1998.
A gain on disposition of assets of $6,371 was recognized during 1998 from
the sale of equipment on one well plugged and abandoned during 1998. Abandoned
property costs of $20,389 were also incurred during 1998 to plug and abandon
this well.
Total costs and expenses increased in 1998 to $1,755,278 as compared to
$1,544,950 in 1997, an increase of $210,328, or 14%. The increase was due to an
increase in depletion, production costs and abandoned property costs, offset by
declines in the impairment of oil and gas properties and general and
administrative expenses ("G&A").
Production costs were $662,691 in 1998 and $628,784 in 1997, resulting in a
$33,907 increase, or 5%. This increase was due to higher well maintenance costs
incurred in an effort to stimulate well production, offset by a decline in
production taxes and ad valorem 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, 36% from $43,678 in 1997 to $27,867 in 1998. The
Partnership paid the managing general partner $21,984 in 1998 and $35,935 in
1997 for G&A incurred on behalf of the Partnership. G&A is allocated, in part,
to the Partnership by the managing general partner. The Partnership agreement
limits allocated G&A to 3% of gross oil and gas revenues. Such allocated
expenses are determined by the managing general partner based upon its judgement
of the level of activity of the Partnership relative to the managing general
partner's activities and other entities it manages. The method of allocation has
been consistent over the past several years with certain modifications
incorporated to reflect changes in Pioneer USA's overall business activities.
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"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. Declining commodity prices prompted
impairment reviews in 1998 and 1997. As a result of the review and evaluation of
its long-lived assets for impairment, the Partnership recognized non-cash
charges of $509,585 and $561,432 related to its oil and gas properties during
1998 and 1997, respectively.
Depletion was $534,746 in 1998 compared to $311,056 in 1997. This
represented an increase of $223,690, or 72%. This increase was the result of a
combination of factors that included a decline in proved reserves during 1998
due to the lower commodity prices, 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 and a reduction in oil production of 861 barrels for the
period ended December 31, 1998 compared to the same period in 1997.
4
<PAGE> 475
1997 compared to 1996
The Partnership's 1997 oil and gas revenues decreased 19% to $1,369,807
from $1,700,251 in 1996. The decrease in revenues resulted from declines in
production and lower average prices received. In 1997, 47,968 barrels of oil,
9,442 barrels of NGLs and 141,058 mcf of gas were sold, or 80,920 BOEs. In 1996,
54,953 barrels of oil and 201,324 mcf of gas were sold, or 88,507 BOEs.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. As is described above in "Results of
Operations -- 1998 compared to 1997", the Partnership changed its method of
accounting for processed natural gas to a dry gas basis in the fourth quarter of
1997. As a result of this change, the Partnership now accounts for processed
natural gas production as processed natural gas liquids and dry residue gas.
Consequently, 1997 and 1996 separate product volumes are not comparable.
The declines in production volumes were primarily attributable to the
decline characteristics of the Partnership's oil and gas properties.
The average price received per barrel of oil decreased $2.19, or 10%, from
$21.57 in 1996 to $19.38 in 1997. The average price received per barrel of NGLs
during 1997 was $10.88. The average price received per mcf of gas decreased 7%
from $2.56 in 1996 to $2.39 in 1997.
During 1996, the Partnership recognized a gain on disposition of assets of
$68,568. Of this amount, $51,377 was received from the sale of six oil and gas
wells and four saltwater disposal wells attributable to proceeds received of
$209,248 less the write-off of remaining capitalized well costs of $157,871. An
additional unrelated sale of four fully depleted oil and gas wells resulted in
proceeds received of $4,332. Salvage income of $12,859 received during 1996
consisted of equipment credits received on two fully depleted wells.
On April 29, 1996, Southmark Corporation, Pioneer USA and the Partnership
entered into a final $7.4 million settlement agreement with Jack N. Price
resolving all outstanding litigation between the parties. As a result, all of
the pending lawsuits and judgments have been dismissed, the supersedeas bond
released, and the Reserve released as collateral. On June 28, 1996, a final
distribution was made to the working interest owners of $565,756, which included
$560,099, or $32.55 per limited partnership interest, to the Partnership and its
partners.
Total costs and expenses increased in 1997 to $1,544,950 as compared to
$1,122,085 in 1996, an increase of $422,865, or 38%. The increase was due to the
impairment of oil and gas properties, offset by a decrease in production costs,
depletion, abandoned property costs and G&A.
Production costs were $628,784 in 1997 and $730,032 in 1996, resulting in a
$101,248 decrease, or 14%. This decrease was due to declines in well maintenance
costs, workover expense and production taxes.
During this period, G&A decreased, in aggregate, 14% from $51,008 in 1996
to $43,678 in 1997. The Partnership paid the managing general partner $35,935 in
1997 and $43,546 in 1996 for G&A incurred on behalf of the Partnership.
The Partnership recognized non-cash SFAS 121 impairment provisions of
$561,432 and $4,960 related to its oil and gas properties during the fourth
quarters of 1997 and 1996, respectively.
Depletion was $311,056 in 1997 compared to $327,745 in 1996. This
represented a decrease of $16,689, or 5%. This decrease was primarily
attributable to a reduction in oil production in 1997 from 1996 of 6,985
barrels, offset by a decrease in oil reserves during 1997 as a result of lower
commodity prices.
Abandoned property costs of $8,340 were incurred during 1996 on one well
plugged and abandoned in 1995.
5
<PAGE> 476
IMPACT OF INFLATION AND CHANGING PRICES ON SALES AND NET INCOME
Inflation impacts the fixed overhead rate charges of the lease operating
expenses for the Partnership. During 1998, the annual change in the index of
average weekly earnings of crude petroleum and gas production workers issued by
the U.S. Department of Labor, Bureau of Labor Statistics increased (effective
April 1, 1998) 10.3%. The 1997 annual change in average weekly earnings
increased by 2%. The 1996 index increased 4.1%. The impact of inflation for
other lease operating expenses is small due to the current economic condition of
the oil industry.
The oil and gas industry experienced volatility during the past decade
because of the fluctuation of the supply of most fossil fuels relative to the
demand for such products and other uncertainties in the world energy markets
causing significant fluctuations in oil and gas prices. During 1998, the price
per barrel for oil production similar to the Partnership's ranged from
approximately $9.50 to $15.50. During most of 1997 and 1996, 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 March 1999. On March 8, 1999, the market price for West Texas intermediate
crude was $11.00 per barrel. A continuation of the current commodity price
environment will continue to have an adverse effect on the Partnership's
revenues, operating cash flow and distributions and could result in additional
decreases in the carrying value of the Partnership's oil and gas properties.
Prices for natural gas are subject to ordinary seasonal fluctuations, and
this volatility of natural gas prices may result in production being curtailed
and, in some cases, wells being completely shut-in.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $504,452 during the
year ended December 31, 1998 from the year ended December 31, 1997. This
decrease was primarily due to a decline in oil and gas sales receipts.
Net Cash Provided by (Used in) Investing Activities
The Partnership's investing activities during 1998 were related to
expenditures for oil and gas equipment replacement on active properties.
Proceeds from disposition of assets of $15,526 received during 1998
consisted of $9,155 in equipment credits on an active property and equipment
credits of $6,371 on one property plugged and abandoned during 1998. Proceeds
from disposition of assets of $18,756 recognized during 1997 were related to the
disposal of oil and gas equipment on active properties.
Net Cash Used in Financing Activities
Cash was sufficient in 1998 for distributions to the partners of $325,056
of which $3,251 was distributed to the managing general partner and $321,805 to
the limited partners. In 1997, cash was sufficient for distributions to the
partners of $812,934 of which $8,130 was distributed to the managing general
partner and $804,804 to the limited partners.
The current commodity price environment will continue to impact the
distributions and could result in limited or no distributions to the partners.
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
6
<PAGE> 477
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
at varying stages of completion as it pertains to information technology and
non-information technology applications and systems in the United States, Canada
and Argentina. As of December 31, 1998, the managing general partner estimates
that the assessment phase is approximately 86% complete, on a worldwide basis,
and has included, but is not limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- 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 to
approximately 37% of those inquiries.
The remedial phase of the managing general partner's Year 2000 project is
also at varying 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 December 31, 1998, the
managing general partner estimates that the remedial phase is approximately 54%
complete, on a worldwide basis, subject to the continuing 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 through remedial coding and is currently testing this system for Year
2000 compliance. The remediation of non-information technology is expected to be
completed during July 1999. The managing general partner's Year 2000 remedial
actions have not significantly 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 and non-information technology remediation by the end of the third
quarter of 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. The managing general partner intends to use its working capital to pay
for the costs of the Year 2000 projects. As of December 31, 1998, the managing
general partner's
7
<PAGE> 478
total costs incurred on the Year 2000 problem were $1.8 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 in accordance with the general and administration
allocation. (See Note 2 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data".)
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 assessment phase of the managing general partner's Year 2000
project, contingency plans are being 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.
8
<PAGE> 479
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Parker & Parsley 86-B, Ltd:
Independent Auditors' Report -- Ernst & Young LLP......... 10
Independent Auditors' Report -- KPMG LLP.................. 11
Balance Sheets as of December 31, 1998 and 1997........... 12
Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996....................... 13
Statements of Partners' Capital for the Years Ended
December 31, 1998, 1997 and 1996....................... 14
Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996....................... 15
Notes to Financial Statements............................. 16
</TABLE>
9
<PAGE> 480
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 86-B, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheet of Parker & Parsley 86-B, Ltd. as of
December 31, 1998, and the related statements of operations, partners' capital
and cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 86-B, Ltd.
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Dallas, Texas
March 15, 1999
10
<PAGE> 481
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 86-B, Ltd.
(A Texas Limited Partnership):
We have audited the financial statements of Parker & Parsley 86-B, Ltd. as
of December 31, 1997, and the related statements of operations, partners'
capital and cash flows for the years ended December 31, 1997 and 1996. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 86-B, Ltd.
as of December 31, 1997, and the results of its operations and its cash flows
for the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
KPMG LLP
Midland, Texas
March 20, 1998
11
<PAGE> 482
PARKER & PARSLEY 86-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 185,320 $ 259,795
Accounts receivable -- oil and gas sales.................. 120,424 168,175
----------- -----------
Total current assets.............................. 305,744 427,970
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 12,038,382 12,263,266
Accumulated depletion....................................... (9,980,171) (9,171,064)
----------- -----------
Net oil and gas properties........................ 2,058,211 3,092,202
----------- -----------
$ 2,363,955 $ 3,520,172
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 11,216 $ 35,336
Partners' capital:
Managing general partner.................................. 22,251 33,572
Limited partners (17,208 interests)....................... 2,330,488 3,451,264
----------- -----------
2,352,739 3,484,836
----------- -----------
$ 2,363,955 $ 3,520,172
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 483
PARKER & PARSLEY 86-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Oil and gas............................................ $ 928,899 $1,369,807 $1,700,251
Interest............................................... 12,967 16,347 17,149
Gain on disposition of assets.......................... 6,371 -- 68,568
Litigation settlement.................................. -- -- 565,756
---------- ---------- ----------
948,237 1,386,154 2,351,724
---------- ---------- ----------
Costs and expenses:
Oil and gas production................................. 662,691 628,784 730,032
General and administrative............................. 27,867 43,678 51,008
Impairment of oil and gas properties................... 509,585 561,432 4,960
Depletion.............................................. 534,746 311,056 327,745
Abandoned property..................................... 20,389 -- 8,340
---------- ---------- ----------
1,755,278 1,544,950 1,122,085
---------- ---------- ----------
Net income (loss)........................................ $ (807,041) $ (158,796) $1,229,639
========== ========== ==========
Allocation of net income (loss):
Managing general partner............................... $ (8,070) $ (1,587) $ 12,296
========== ========== ==========
Limited partners....................................... $ (798,971) $ (157,209) $1,217,343
========== ========== ==========
Net income (loss) per limited partnership interest....... $ (46.43) $ (9.14) $ 70.74
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 484
PARKER & PARSLEY 86-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ----------- -----------
<S> <C> <C> <C>
Partners' capital at January 1, 1996.................... $ 46,026 $ 4,684,266 $ 4,730,292
Distributions......................................... (15,033) (1,488,332) (1,503,365)
Net income............................................ 12,296 1,217,343 1,229,639
-------- ----------- -----------
Partners' capital at December 31, 1996.................. 43,289 4,413,277 4,456,566
Distributions......................................... (8,130) (804,804) (812,934)
Net loss.............................................. (1,587) (157,209) (158,796)
-------- ----------- -----------
Partners' capital at December 31, 1997.................. 33,572 3,451,264 3,484,836
Distributions......................................... (3,251) (321,805) (325,056)
Net loss.............................................. (8,070) (798,971) (807,041)
-------- ----------- -----------
Partners' capital at December 31, 1998.................. $ 22,251 $ 2,330,488 $ 2,352,739
======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 485
PARKER & PARSLEY 86-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $(807,041) $(158,796) $ 1,229,639
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Impairment of oil and gas properties................ 509,585 561,432 4,960
Depletion........................................... 534,746 311,056 327,745
Gain on disposition of assets....................... (6,371) -- (68,568)
Changes in assets and liabilities:
Accounts receivable................................. 47,751 101,746 (91,546)
Accounts payable.................................... (24,120) (56,436) 7,825
--------- --------- -----------
Net cash provided by operating activities...... 254,550 759,002 1,410,055
--------- --------- -----------
Cash flows from investing activities:
Additions to oil and gas properties.................... (19,495) -- --
Proceeds from disposition of assets.................... 15,526 18,756 236,518
--------- --------- -----------
Net cash provided by (used in) investing
activities................................... (3,969) 18,756 236,518
--------- --------- -----------
Cash flows from financing activities:
Cash distributions to partners......................... (325,056) (812,934) (1,503,365)
--------- --------- -----------
Net increase (decrease) in cash.......................... (74,475) (35,176) 143,208
Cash at beginning of year................................ 259,795 294,971 151,763
--------- --------- -----------
Cash at end of year...................................... $ 185,320 $ 259,795 $ 294,971
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 486
PARKER & PARSLEY 86-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
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. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. received shareholder approval to merge
and create Pioneer Natural Resources Company ("Pioneer"). On August 8, 1997,
PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership as PPDLP's successor by merger.
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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties -- The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as determined by the engineering staff of Pioneer
USA, the Partnership's managing general partner, and reviewed by independent
petroleum consultants. The carrying amounts of properties sold or otherwise
disposed of and the related allowances for depletion are eliminated from the
accounts and any gain or loss is included in operations.
Impairment of long-lived assets -- 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"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -- Preparation
of the accompanying financial statements 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 reporting amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest -- The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes -- A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
16
<PAGE> 487
PARKER & PARSLEY 86-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statements of cash flows -- For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses -- General and administrative expenses
are allocated in part to the Partnership by the managing general partner or its
affiliates. Such allocated expenses are determined by the managing general
partner based upon its judgement of the level of activity of the Partnership
relative to the managing general partner's activities and other entities it
manages. The method of allocation has been consistent over the past several
years with certain modifications incorporated to reflect changes in Pioneer
USA's overall business activities.
Reclassifications -- Certain reclassifications may have been made to the
1997 and 1996 financial statements to conform to the 1998 financial statement
presentation.
Environmental -- The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 1998.
Revenue recognition -- The Partnership uses the entitlements method of
accounting for crude oil and natural gas revenues.
Reporting comprehensive income -- Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes
standards for the reporting and display of comprehensive income (loss) and its
components in a full set of general purpose financial statements. Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss).
The Partnership has no items of other comprehensive income (loss), as defined by
SFAS No. 130. Consequently, the provisions of SFAS No. 130 do not apply to the
Partnership.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. Based upon a decline in the Partnership's outlook for future
commodity prices, the Partnership has estimated the expected future cash flows
of its oil and gas properties as of December 31, 1998, 1997 and 1996, and
compared such estimated future cash flows to the respective carrying amount of
the oil and gas properties to determine if the carrying amounts were likely to
be recoverable. For those proved oil and gas properties for which the carrying
amount exceeded the estimated future cash flows, an impairment was determined to
exist; therefore, the Partnership adjusted the carrying amount of those oil and
gas properties to their fair value as determined by discounting their expected
future cash flows at a discount rate commensurate with the risks involved in the
industry. As a result, the Partnership recognized non-cash impairment provisions
of $509,585, $561,432 and $4,960 related to its proved oil and gas properties
during 1998, 1997 and 1996, respectively.
17
<PAGE> 488
PARKER & PARSLEY 86-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $322,842 greater than the tax basis at December 31, 1998.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
Net income (loss) per statements of operations... $(807,041) $ (158,796) $1,229,639
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes................... 525,430 298,532 315,125
Impairment of oil and gas properties for
financial reporting purposes................... 509,585 561,432 4,960
Other, net....................................... 6,831 19,546 146,400
--------- ---------- ----------
Net income per Federal income tax
returns.............................. $ 234,805 $ 720,714 $1,696,124
========= ========== ==========
</TABLE>
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- ----
<S> <C> <C> <C>
Development costs......................................... $19,495 $(18,755) $868
======= ======== ====
</TABLE>
Capitalized oil and gas properties consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Proved properties:
Property acquisition costs............................... $ 446,308 $ 446,308
Completed wells and equipment............................ 11,592,074 11,816,958
----------- -----------
12,038,382 12,263,266
Accumulated depletion...................................... (9,870,171) (9,171,064)
----------- -----------
Net capitalized costs............................ $ 2,168,211 $ 3,092,202
=========== ===========
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $296,383 $300,045 $305,520
Reimbursement of general and administrative
expenses........................................... $ 21,984 $ 35,935 $ 43,546
</TABLE>
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. In addition,
Pioneer USA and the Partnership are parties to the Program agreement.
18
<PAGE> 489
PARKER & PARSLEY 86-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The costs and revenues of the Program are allocated to Pioneer USA and the
Partnership as follows:
<TABLE>
<CAPTION>
PIONEER
USA(1) PARTNERSHIP
--------- -----------
<S> <C> <C>
Revenues:
Proceeds from disposition of depreciable properties....... 9.09091% 90.90909%
All other revenues........................................ 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion costs and
all other costs........................................ 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative expenses................................ 24.242425% 75.757575%
</TABLE>
- ---------------
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at
the Partnership level and 128 limited partner interests owned by Pioneer
USA.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 1998, 1997 and 1996 and
changes in such quantities during the years then ended. Due to a change in the
accounting policy of the managing general partner in 1997, the Partnership began
accounting for processed natural gas production in two components: processed
natural gas liquids ("NGLs") and dry residue gas. NGLs are reflected in "Oil and
NGLs" in the table below. All of the Partnership's reserves are proved developed
and located within the United States. The Partnership's reserves are based on an
evaluation prepared by the engineering staff of Pioneer USA and reviewed by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant,
using criteria established by the Securities and Exchange Commission. Reserve
value information is available to limited partners pursuant to the Partnership
agreement and, therefore, is not presented.
<TABLE>
<CAPTION>
OIL AND NGLS GAS
(BBLS) (MCF)
------------ ----------
<S> <C> <C>
Net proved reserves at January 1, 1996...................... 748,476 3,039,729
Revisions................................................... 148,949 734,788
Sale of reserves............................................ (29,193) (123,822)
Production.................................................. (54,953) (201,324)
-------- ----------
Net proved reserves at December 31, 1996.................... 813,279 3,449,371
Revisions................................................... 184,178 (2,069,107)
Production.................................................. (57,410) (141,058)
-------- ----------
Net proved reserves at December 31, 1997.................... 940,047 1,239,206
Revisions................................................... (401,595) (457,837)
Production.................................................. (70,399) (97,715)
-------- ----------
Net proved reserves at December 31, 1998.................... 468,053 683,654
======== ==========
</TABLE>
As of December 31, 1998, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 1998 prices of $10.61 per
barrel of oil, $5.57 per barrel of NGLs and $1.37 per mcf of gas, discounted at
10% was approximately $819,000 and undiscounted was $1,206,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are
19
<PAGE> 490
PARKER & PARSLEY 86-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
based on various assumptions, which may ultimately prove to be inaccurate.
Therefore, such estimates should not be construed as estimates of the current
market value of the Partnership's proved reserves. The Partnership emphasizes
that reserve estimates are inherently imprecise and, accordingly, the estimates
are expected to change as future information becomes available.
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Genesis Crude Oil, L.P...................................... 41% 41% 43%
Western Gas Resources, Inc. ................................ 17% 16% 13%
Mobil Oil Corporation....................................... 15% 17% 15%
Texaco Trading & Transportation............................. 10% 10% 12%
</TABLE>
At December 31, 1998, the amounts receivable from Genesis Crude Oil, L.P.,
Western Gas Resources, Inc., Mobil Oil Corporation and Texaco Trading &
Transportation were $27,545, $25,218, $9,262 and $10,346, respectively, which
are included in the caption "Accounts receivable -- oil and gas sales" in the
accompanying Balance Sheet.
The Partnership's share of oil and gas production is sold to various
purchasers. Pioneer USA is of the opinion that the loss of any one purchaser
would not have an adverse effect on the ability of the Partnership to sell its
oil and gas production.
NOTE 9. ORGANIZATION AND OPERATIONS
The Partnership was organized October 29, 1986 as a limited partnership
under the Texas Uniform Limited Partnership Act for the purpose of acquiring and
developing oil and gas properties. The following is a brief summary of the more
significant provisions of the limited partnership agreement:
Managing general partner -- The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Program and Partnership affairs. As
managing general partner and operator of the Partnership's properties, all
production expenses are incurred by Pioneer USA and billed to the
Partnership and a portion of revenue is initially received by Pioneer USA
prior to being paid to the Partnership. Under the limited partnership
agreement, the managing general partner pays 1% of the Partnership's
acquisition, drilling and completion costs and 1% of its operating and
general and administrative expenses. In return, it is allocated 1% of the
Partnership's revenues.
Limited partner liability -- The maximum amount of liability of any
limited partner is the total contributions of such partner plus his share
of any undistributed profits.
Initial capital contributions -- The limited partners entered into
subscription agreements for aggregate capital contributions of $17,208,000.
Pioneer USA is required to contribute amounts equal to 1% of initial
Partnership capital less commission and offering expenses allocated to the
limited partners and to contribute amounts necessary to pay costs and
expenses allocated to it under the Partnership agreement to the extent its
share of revenues does not cover such costs.
20
<PAGE> 491
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and
executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve
until the next annual meeting of stockholders or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31,
NAME 1998 POSITION
- ---- ------------ --------
<S> <C> <C>
Scott D. Sheffield................. 46 President and Director
Timothy L. Dove.................... 42 Executive Vice President and
Director
Dennis E. Fagerstone............... 49 Executive Vice President and
Director
Mark L. Withrow.................... 51 Executive Vice President, General
Counsel and Director
M. Garrett Smith................... 37 Executive Vice President, Chief
Financial Officer and Director
Mel Fischer(a)..................... 64 Executive Vice President
Lon C. Kile........................ 43 Executive Vice President
Rich Dealy......................... 32 Vice President and Chief Accounting
Officer
</TABLE>
- ---------------
(a) Mr. Fischer was a director and officer until his retirement from Pioneer
and Pioneer USA on February 19, 1999.
Scott D. Sheffield. Mr. Sheffield is a distinguished graduate of The
University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he
has served as President, Chief Executive Officer and a director of Pioneer and
President and a director of Pioneer USA. Mr. Sheffield was the President and a
director of Parker & Parsley from May 1990 until August 1997 and was the
Chairman of the Board and Chief Executive Officer of Parker & Parsley from
October 1990 until August 1997. He was the sole director of Parker & Parsley
from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley
Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum
engineer in 1979. He served as Vice President -- Engineering of PPDC from
September 1981 until April 1985 when he was elected President and a director. In
March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive
Officer of PPDC. Before joining PPDC, Mr. Sheffield was employed as a production
and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President -- Business
Development of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. Mr. Dove joined Parker & Parsley in May
1994 as Vice President -- International and was promoted to Senior Vice
President -- Business Development in October 1996, in which position he served
until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with
Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various
capacities in international exploration and production, marketing, refining and
marketing and planning and development. Mr. Dove earned a B.S. in Mechanical
Engineering from Massachusetts Institute of Technology in 1979 and received his
M.B.A. in 1981 from the University of Chicago.
21
<PAGE> 492
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of Mesa from March 1, 1997 until August 1997. From October
1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief
Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice
President -- Exploration and Production of Mesa. From June 1988 to May 1991, Mr.
Fagerstone served as Vice President -- Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B.S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President -- General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President -- General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
M. Garrett Smith. Mr. Smith, a graduate of The University of Texas with a
B.S. in Electrical Engineering and Southern Methodist University with an M.B.A.,
was appointed Executive Vice President and Chief Financial Officer of Pioneer in
December 1997. He served as Senior Vice President -- Finance of Pioneer from
August 1997 until December 1997. Mr. Smith was elected Senior Vice President --
Finance and a director of Pioneer USA in August 1997. He served as Vice
President -- Corporate Acquisitions of Mesa from January 1997 until August 1997.
From October 1996 to December 1996, Mr. Smith served as Vice
President -- Finance of Mesa and from 1994 to 1996 he served as Director of
Financial Planning of Mesa. Mr. Smith was employed by BTC Partners, Inc. (a
former financial advisor to Mesa) from 1989 to 1994.
Mel Fischer. Mr. Fischer, a graduate of the University of California at
Berkeley with a Masters degree in Geology, became Executive Vice
President -- Worldwide Exploration of Pioneer and Pioneer USA in August 1997. He
served as a director of Parker & Parsley from November 1995 until August 1997
and was Executive Vice President -- Worldwide Exploration for Parker & Parsley
from February 1997 to August 1997. Mr. Fischer retired from Pioneer and Pioneer
USA effective February 15, 1999. He worked in the petroleum industry for 32
years, starting as a Petroleum Geologist with Texaco in 1962, and retiring as
President, Occidental International Exploration and Production Company in March
1994. For the 10 years prior to becoming President of Occidental International,
he served as Executive Vice President, World Wide Exploration with Occidental
Oil and Gas Corporation. He is a registered geologist in the State of
California, a member of the American Association of Petroleum Geologists and an
emeritus member of the Board of Advisors for the Earth Sciences Research
Institute at the University of Utah.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a
B.B.A. in Accounting, became Executive Vice President of Pioneer and Pioneer USA
in August 1997. Mr. Kile was Senior Vice President -- Investor Relations from
October 1996 to August 1997. Previously, he served as Vice President and Manager
of the Mid-Continent Division, Vice President -- Equity Finance & Analysis and
Vice President -- Marketing & Program Administration. Prior to joining Parker &
Parsley in 1985, he was employed as Supervisor -- Senior, Audit, in charge of
Parker & Parsley's audit, with Arthur Young.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a
B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became
Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
22
<PAGE> 493
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is vested in Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA pays approximately 10% of the Partnership's acquisition,
drilling and completion costs and approximately 25% of its operating and general
and administrative expenses. In return, Pioneer USA is allocated approximately
25% of the Partnership's revenues. See Note 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data" for
information regarding fees and reimbursements paid to the managing general
partner or its affiliates by the Partnership.
The Partnership does not directly pay any salaries of the executive
officers of Pioneer USA, but does pay a portion of Pioneer USA's general and
administrative expenses of which these salaries are a part. See Note 6 of Notes
to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more
of the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 128 limited partner interests at January 1, 1999.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing
general partner of the Partnership, Pioneer USA, has the exclusive right and
full authority to manage, control and administer the Partnership's business.
Under the limited partnership agreement, limited partners holding a majority of
the outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner or its affiliates
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $296,383 $300,045 $305,520
Reimbursement of general and administrative
expenses........................................... $ 21,984 $ 35,935 $ 43,546
</TABLE>
Under the limited partnership agreement, the managing general partner pays
1% of the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
23
<PAGE> 494
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial statements
The following are filed as part of this annual report:
<TABLE>
<S> <C>
Independent Auditors' Report -- Ernst & Young LLP
Independent Auditors' Report -- KPMG LLP
Balance sheets as of December 31, 1998 and 1997
Statements of operations for the years ended December 31,
1998, 1997 and 1996
Statements of partners' capital for the years ended December
31, 1998, 1997 and 1996
Statements of cash flows for the years ended December 31,
1998, 1997 and 1996
Notes to financial statements
</TABLE>
2. Financial statement schedules
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this annual report.
24
<PAGE> 495
SIGNATURES
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
By: /s/ SCOTT D. SHEFFIELD
----------------------------------
Scott D. Sheffield,
President
Dated: March 25, 1999
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 date indicated.
<TABLE>
<C> <S> <C>
/s/ SCOTT D. SHEFFIELD President and Director of March 25, 1999
- ----------------------------------------------------- Pioneer USA
Scott D. Sheffield
/s/ TIMOTHY L. DOVE Executive Vice President and March 25, 1999
- ----------------------------------------------------- Director of Pioneer USA
Timothy L. Dove
/s/ DENNIS E. FAGERSTONE Executive Vice President and March 25, 1999
- ----------------------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ MARK L. WITHROW Executive Vice President, March 25, 1999
- ----------------------------------------------------- General Counsel and Director
Mark L. Withrow of Pioneer USA
/s/ M. GARRETT SMITH Executive Vice President, March 25, 1999
- ----------------------------------------------------- Chief Financial Officer and
M. Garrett Smith Director of Pioneer USA
/s/ LON C. KILE Executive Vice President of March 25, 1999
- ----------------------------------------------------- Pioneer USA
Lon C. Kile
/s/ RICH DEALY Vice President and Chief March 25, 1999
- ----------------------------------------------------- Accounting Officer of
Rich Dealy Pioneer USA
</TABLE>
25
<PAGE> 496
PARKER & PARSLEY 86-B, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3(a) -- Amended and Restated Certificate of Limited Partnership
of Parker & Parsley 86-B, Ltd. incorporated by reference
to Exhibit 3a of the Partnership's Registration Statement
on Form S-1 (Registration No. 33-3353) (hereinafter
called the Partnership's Registration Statement)
4(a) -- Form of Agreement of Limited Partnership of Parker &
Parsley 86-B, Ltd. incorporated by reference to Exhibit A
of Amendment No. 1 of the Partnership's Registration
Statement
4(b) -- Form of Subscription Agreement incorporated by reference
to Exhibit C of Amendment No. 1 of the Partnership's
Registration Statement
4(b) -- Power of Attorney incorporated by reference to an Exhibit
of the Partnership's Registration Statement
4(c) -- Specimen Certificate of Limited Partnership Interest
incorporated by reference to Exhibit 4c of the
Partnership's Registration Statement
10(b) -- Development Program Agreement incorporated by reference
to Exhibit B of Amendment No. 1 of the Partnership's
Registration Statement
27.1* -- Financial Data Schedule
99.1 -- Mutual Release and Indemnity Agreement dated May 25, 1993
incorporated by reference to Exhibit 99.1 of the
Partnership's Annual Report on Form 10-K for the year
ended December 31, 1993
</TABLE>
- ---------------
* Filed herewith
<PAGE> 497
PARKER & PARSLEY 86-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
DECEMBER 31, 1998, 1997 AND 1996
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. Future income taxes are calculated by comparing
discounted future cash flows to the tax basis of oil and gas properties plus
available carryforwards and credits and applying the current tax rates to the
difference.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and gas producing activities:
Future cash inflows....................................... $ 5,045 $ 17,382 $ 33,931
Future production costs................................... (3,839) (10,560) (17,207)
Future development costs.................................. -- -- 270
------- -------- --------
1,206 6,822 16,994
10% annual discount factor................................ (387) (3,050) (8,846)
------- -------- --------
Standardized measure of discounted future net cash
flows.................................................. $ 819 $ 3,772 $ 8,148
======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs................ $ (266) $ (741) $ (970)
Net changes in prices and production costs................ (2,377) (3,918) 3,768
Extensions and discoveries................................ -- -- --
Sales of minerals-in-place................................ -- -- (144)
Purchases of minerals-in-place............................ -- -- --
Revisions of estimated future development costs........... -- (149) (123)
Revisions of previous quantity estimates and reserves
added by development drilling.......................... (547) (458) 1,710
Accretion of discount..................................... 377 815 439
Changes in production rates, timing and other............. (140) 75 (921)
------- ------- ------
Change in present value of future net revenues............ (2,953) (4,376) 3,759
------- ------- ------
Balance, beginning of year................................ 3,772 8,148 4,389
------- ------- ------
Balance, end of year...................................... $ 819 $ 3,772 $8,148
======= ======= ======
</TABLE>
<PAGE> 498
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 86-C, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT DATED , 1999
----------------------
THE DATE OF THIS SUPPLEMENT IS , 1999
----------------------
This document contains important information specific to Parker & Parsley
86-C, Ltd. and supplements the proxy statement dated , 1999, of
Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies
to be voted at a special meeting of limited partners of the partnerships
described in the proxy statement. The purpose of the special meeting is for you
to vote upon the merger of Parker & Parsley 86-C, Ltd. with and into Pioneer USA
that, if completed, will result in your receiving cash for your partnership
interests.
This supplement contains the following information concerning Parker &
Parsley 86-C, Ltd.:
- A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through June
30, 1999
-- the merger value per $1,000 limited partner investment as of June 30,
1999
-- the merger value per $1,000 limited partner investment as a multiple
of distributions for the 12 months ended June 30, 1999
-- the book value per $1,000 limited partner investment as of June 30,
1999 and as of December 31, 1998 and
-- the ordinary tax loss per $1,000 limited partner investment in year
of initial investment
- Quarterly Report on Form 10-Q for the six months ended June 30, 1999
- Annual Report on Form 10-K for the year ended December 31, 1998
- Disclosures about the partnership's oil and gas producing activities
<PAGE> 499
PARKER & PARSLEY 86-C, LTD.
SUPPLEMENTAL INFORMATION TABLE
<TABLE>
<S> <C>
Aggregate Initial Investment by the Limited Partners(a)..... $19,317
Aggregate Historical Limited Partner Distributions through
June 30, 1999(a).......................................... $27,141
Merger Value per $1,000 Limited Partner Investment as of
June 30, 1999(b).......................................... $ 95.46
Merger Value per $1,000 Limited Partner Investment as a
Multiple of Distributions for the 12 Months ended June 30,
1999(b)................................................... 13.85times
Book Value per $1,000 Limited Partner Investment:
-- as of June 30, 1999(b)................................. $ 99.79
-- as of December 31, 1998(b)............................. $105.29
Ordinary Tax Loss per $1,000 Limited Partner Investment in
Year of Initial Investment(b), (c)........................ $ 449
</TABLE>
- ---------------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as any
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
<PAGE> 500
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JUNE 30, 1999
COMMISSION FILE NO. 33-3353C
PARKER & PARSLEY 86-C, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-2142283
(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)
</TABLE>
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> 501
PARKER & PARSLEY 86-C, LTD.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1999 and December 31,
1998.................................................. 3
Statements of Operations for the three and six months
ended June 30, 1999 and 1998.......................... 4
Statement of Partners' Capital for the six months ended
June 30, 1999......................................... 5
Statements of Cash Flows for the six months ended June
30, 1999 and 1998..................................... 6
Notes to Financial Statements.......................... 7
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................. 8
PART II. OTHER INFORMATION
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K..................... 11
27.1 Financial Data Schedule
Signatures............................................. 12
</TABLE>
2
<PAGE> 502
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER & PARSLEY 86-C, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 138,310 $ 126,623
Accounts receivable -- oil and gas sales.................. 142,220 112,233
------------ ------------
Total current assets.............................. 280,530 238,856
------------ ------------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 14,568,207 14,568,090
Accumulated depletion....................................... (12,861,662) (12,735,835)
------------ ------------
Net oil and gas properties........................ 1,706,545 1,832,255
------------ ------------
$ 1,987,075 $ 2,071,111
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 41,234 $ 18,095
Partners' capital:
Managing general partner.................................. 18,151 19,222
Limited partners (19,317 interests)....................... 1,927,690 2,033,794
------------ ------------
1,945,841 2,053,016
------------ ------------
$ 1,987,075 $ 2,071,111
============ ============
</TABLE>
The financial information included as of June 30, 1999 been prepared by
management
without audit by independent public accountants.
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 503
PARKER & PARSLEY 86-C, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas.................................... $244,884 $262,816 $435,922 $532,019
Interest....................................... 1,645 2,249 3,075 5,044
Gain on disposition of assets.................. -- 285 -- 356
-------- -------- -------- --------
246,529 265,350 438,997 537,419
-------- -------- -------- --------
Costs and expenses:
Oil and gas production......................... 162,895 195,142 344,743 383,272
General and administrative..................... 7,347 7,885 13,078 15,961
Depletion...................................... 35,027 66,558 125,827 128,628
Abandoned property............................. -- 115 -- 650
-------- -------- -------- --------
205,269 269,700 483,648 528,511
-------- -------- -------- --------
Net income (loss)................................ $ 41,260 $ (4,350) $(44,651) $ 8,908
======== ======== ======== ========
Allocation of net income (loss):
Managing general partner....................... $ 413 $ (44) $ (446) $ 89
======== ======== ======== ========
Limited partners............................... $ 40,847 $ (4,306) $(44,205) $ 8,819
======== ======== ======== ========
Net income (loss) per limited partnership
interest....................................... $ 2.11 $ (.22) $ (2.29) $ .46
======== ======== ======== ========
Distributions per limited partnership interest... $ 2.38 $ 3.45 $ 3.20 $ 11.53
======== ======== ======== ========
</TABLE>
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> 504
PARKER & PARSLEY 86-C, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1, 1999................................. $19,222 $2,033,794 $2,053,016
Distributions............................................ (625) (61,899) (62,524)
Net loss................................................. (446) (44,205) (44,651)
------- ---------- ----------
Balance at June 30, 1999................................... $18,151 $1,927,690 $1,945,841
======= ========== ==========
</TABLE>
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> 505
PARKER & PARSLEY 86-C, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $(44,651) $ 8,908
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depletion.............................................. 125,827 128,628
Gain on disposition of assets.......................... -- (356)
Changes in assets and liabilities:
Accounts receivable.................................... (29,987) 67,115
Accounts payable....................................... 23,139 (8,216)
-------- ---------
Net cash provided by operating activities......... 74,328 196,079
-------- ---------
Cash flows from investing activities:
Additions to oil and gas properties....................... (854) (7,498)
Proceeds from asset dispositions.......................... 737 356
-------- ---------
Net cash used in investing activities............. (117) (7,142)
-------- ---------
Cash flows used in financing activities:
Cash distributions to partners............................ (62,524) (225,058)
-------- ---------
Net increase (decrease) in cash............................. 11,687 (36,121)
Cash at beginning of period................................. 126,623 163,568
-------- ---------
Cash at end of period....................................... $138,310 $ 127,447
======== =========
</TABLE>
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> 506
PARKER & PARSLEY 86-C, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 86-C, 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 June 30, 1999 and for the three and six months ended June 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 of operations 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.
7
<PAGE> 507
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
RESULTS OF OPERATIONS
Six months ended June 30, 1999 compared with six months ended June 30, 1998
Revenues:
The Partnership's oil and gas revenues decreased 18% to $435,922 from
$532,019 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from lower average prices received and a decrease
in production. For the six months ended June 30, 1999, 19,850 barrels of oil,
13,581 barrels of natural gas liquids ("NGLs") and 56,238 mcf of gas were sold,
or 42,804 barrel of oil equivalents ("BOEs"). For the six months ended June 30,
1998, 23,063 barrels of oil, 14,918 barrels of NGLs and 65,777 mcf of gas were
sold, or 48,944 BOEs.
The average price received per barrel of oil decreased 7% from $14.17 for
the six months ended June 30, 1998 to $13.24 for the same period in 1999. The
average price received per barrel of NGLs decreased from $7.05 during the six
months ended June 30, 1998 to $6.93 for the same period in 1999. The average
price received per mcf of gas decreased 8% from $1.52 during the six months
ended June 30, 1998 to $1.40 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 six months ended June 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.
Gain on disposition of assets of $356 was received during the six months
ended June 30, 1998 from the disposal of oil and gas equipment on fully depleted
wells.
Costs and Expenses:
Total costs and expenses decreased to $483,648 for the six months ended
June 30, 1999 as compared to $528,511 for the same period in 1998, a decrease of
$44,863, or 8%. This decrease was due to declines in production costs, general
and administrative expenses ("G&A"), depletion and abandoned property costs.
Production costs were $344,743 for the six months ended June 30, 1999 and
$383,272 for the same period in 1998 resulting in a $38,529 decrease, or 10%.
This decrease was due to declines in well maintenance costs 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, 18% from $15,961 for the six months ended June 30, 1998
to $13,078 for the same period in 1999.
Depletion was $125,827 for the six months ended June 30, 1999 compared to
$128,628 for the same period in 1998, a decline of $2,801. This decrease was
primarily due to a reduction in oil production of 3,213 barrels for the six
months ended June 30, 1999 compared to the same period in 1998, an increase in
proved reserves during the period ended June 30, 1999 due to the higher
commodity prices 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.
Abandoned property costs incurred during the six months ended June 30, 1998
totaled $650. These costs were in association with the plugging and abandonment
of one uneconomical well.
8
<PAGE> 508
Three months ended June 30, 1999 compared with three months ended June 30,
1998
Revenues:
The Partnership's oil and gas revenues decreased 7% to $244,884 from
$262,816 for the three months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from declines in production, offset by higher
average prices received. For the three months ended June 30, 1999, 9,402 barrels
of oil, 7,313 barrels of NGLs and 27,119 mcf of gas were sold, or 21,235 BOEs.
For the three months ended June 30, 1998, 11,711 barrels of oil, 7,790 barrels
of NGLs and 32,461 mcf of gas were sold, or 24,911 BOEs.
The average price received per barrel of oil increased $1.52, or 11%, from
$13.47 for the three months ended June 30, 1998 to $14.99 for the same period in
1999. The average price received per barrel of NGLs increased $1.09, or 15%,
from $7.24 during the three months ended June 30, 1998 to $8.33 for the same
period in 1999. The average price received per mcf of gas increased 6% from
$1.50 during the three months ended June 30, 1998 to $1.59 in 1999.
Gain on disposition of assets of $285 was received during the three months
ended June 30, 1998 from the disposal of oil and gas equipment on fully depleted
wells.
Costs and Expenses:
Total costs and expenses decreased to $205,269 for the three months ended
June 30, 1999 as compared to $269,700 for the same period in 1998, a decrease of
$64,431, or 24%. This decrease was due to declines in production costs,
depletion, G&A and abandoned property costs.
Production costs were $162,895 for the three months ended June 30, 1999 and
$195,142 for the same period in 1998 resulting in a $32,247 decrease, or 17%.
This decrease was due to declines in well maintenance costs and production
taxes, offset by an increase in ad valorem taxes.
During this period, G&A decreased, in aggregate, 7% from $7,885 for the
three months ended June 30, 1998 to $7,347 for the same period in 1999.
Depletion was $35,027 for the three months ended June 30, 1999 compared to
$66,558 for the same period in 1998. This represented a decrease in depletion of
$31,531, or 47%. This decrease was primarily attributable to an increase in
proved reserves during the period ended June 30, 1999 as a result of higher
commodity prices, a reduction in oil production of 2,308 barrels for the three
months ended June 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.
Abandoned property costs during the three months ended June 30, 1998
totaled $115. These costs were incurred in association with the plugging and
abandonment of one uneconomical well.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $121,751 during the six
months ended June 30, 1999 from the same period ended June 30, 1998. This
decrease was primarily due to declines in oil and gas receipts, offset by
declines in G&A expenses and production costs paid.
Net Cash Used in Investing Activities
The Partnership's investing activities during the six months ended June 30,
1999 and 1998 were related to expenditures for equipment replacement on various
oil and gas properties.
Proceeds from asset dispositions of $737 were received during the six
months ended June 30, 1999 from equipment credits received on active properties.
Proceeds of $356 were received during the same period in 1998 from the sale of
oil and gas equipment on fully depleted wells.
9
<PAGE> 509
Net Cash Used in Financing Activities
Cash was sufficient for the six months ended June 30, 1999 to cover
distributions to the partners of $62,524 of which $625 was distributed to the
managing general partner and $61,899 to the limited partners. For the same
period ended June 30, 1998, cash was sufficient for distributions to the
partners of $225,058 of which $2,251 was distributed to the managing general
partner and $222,807 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 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 early indications that the nations have initiated
their planned reductions, have had some stabilizing effect on commodity prices
during the latter part of the first quarter of 1999 and into August 1999.
However, no assurances can be given that the stabilizing effect of these
actions, or the planned reductions in export volumes, will 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.
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 June 30, 1999, the managing general partner estimates that the
assessment phase is approximately 99% complete and has included, but is not
limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- the formulation of contingency plans for mission-critical information
technology systems.
Through June 30, 1999, the managing general partner had 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 varying 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 June 30, 1999, the managing
10
<PAGE> 510
general partner estimates that the remedial phase is approximately 83% complete,
on a worldwide 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
is expected to be completed by 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 expects to complete the testing of
information technology systems by October 1999. The testing of the
non-information technology remediation is scheduled to be completed by the end
of November 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. As of June 30, 1999, the managing general partner's total costs
incurred on the Year 2000 problem were $2.3 million, of which approximately $200
thousand were incurred to replace non-compliant systems.
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
11
<PAGE> 511
SIGNATURES
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-C, LTD.
By: Pioneer Natural Resources USA,
Inc.
Managing General Partner
By: /s/ RICH DEALY
----------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
Dated: August 6, 1999
12
<PAGE> 512
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 33-3353C
PARKER & PARSLEY 86-C, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-2142283
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
303 WEST WALL, SUITE 101, MIDLAND,
TEXAS
(Address of principal executive 79701
offices) (Zip code)
</TABLE>
Registrant's Telephone Number, including area code: (915) 683-4768
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
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]
No market currently exists for the limited partnership interests of the
Registrant. Based on original purchase price the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$19,257,000.
As of March 8, 1999, the number of outstanding limited partnership
interests was 19,317.
The following documents are incorporated by reference into the indicated
parts of this Annual Report on Form 10-K: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 513
Parts I and II of this Report contain 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. See "Item 1.
Business" for a description of various factors that could materially affect the
ability of the Partnership to achieve the anticipated results described in the
forward looking statements.
PART I
ITEM 1. BUSINESS
Parker & Parsley 86-C, Ltd. (the "Partnership") is a limited partnership
organized in 1986 under the laws of the State of Texas. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. ("Mesa") received shareholder approval
to merge and create Pioneer Natural Resources Company ("Pioneer"). On August 8,
1997, PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership as PPDLP's successor by merger. For a more complete description of
the Parker & Parsley and Mesa merger, see Pioneer's Registration Statement on
Form S-4 as filed with the Securities & Exchange Commission.
A Registration Statement, as amended, filed pursuant to the Securities Act
of 1933, registering limited partnership interests aggregating $50,000,000 in a
series of Texas limited partnerships formed under the Parker & Parsley 86
Development Drilling Program, was declared effective by the Securities and
Exchange Commission on April 7, 1986. On December 30, 1986, the offering of
limited partnership interests in the Partnership, the third partnership formed
under such statement, was closed, with interests aggregating $19,317,000 being
sold to 1,466 subscribers.
The Partnership engages primarily in oil and gas development and production
and is not involved in any industry segment other than oil and gas. See "Item 6.
Selected Financial Data" and "Item 8. Financial Statements and Supplementary
Data" of this report for a summary of the Partnership's revenue, income and
identifiable assets.
The principal markets during 1998 for the oil produced by the Partnership
were refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. The principal markets for the
Partnership's gas were companies that have pipelines located near the
Partnership's gas producing properties. Of the Partnership's total oil and gas
revenues for 1998, approximately 50% and 31% were attributable to sales made to
Genesis Crude Oil, L.P. and Western Gas Resources, Inc., respectively.
The Partnership's revenues, profitability, cash flow and future rate of
growth are highly dependent on the prevailing prices of oil and gas, which are
affected by numerous factors beyond the Partnership's control. Oil and gas
prices historically have been very volatile. A substantial or extended decline
in the prices of oil or gas could have a material adverse effect on the
Partnership's revenues, profitability and cash flow and could, under certain
circumstances, result in a reduction in the carrying value of the Partnership's
oil and gas properties.
Because of the demand for oil and gas, the Partnership does not believe
that the termination of the sales of its products to any one customer would have
a material adverse impact on its operations. The loss of a particular customer
for gas may have an effect if that particular customer has the only gas pipeline
located in the areas of the Partnership's gas producing properties. The
Partnership believes, however, that the effect would be temporary, until
alternative arrangements could be made.
Federal and state regulation of oil and gas operations generally includes
the fixing of maximum prices for regulated categories of natural gas, the
imposition of maximum allowable production rates, the taxation
1
<PAGE> 514
of income and other items, and the protection of the environment. Although the
Partnership believes that its business operations do not impair environmental
quality and that its costs of complying with any applicable environmental
regulations are not currently significant, the Partnership cannot predict what,
if any, effect these environmental regulations may have on its current or future
operations.
The Partnership does not have any employees of its own. Pioneer USA employs
818 persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this report is filed. Pioneer
USA is responsible for all management functions.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the
Partnership conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist primarily of leasehold interests in
properties on which oil and gas wells are located. Such property interests are
often subject to landowner royalties, overriding royalties and other oil and gas
leasehold interests.
Fractional working interests in developmental oil and gas prospects located
primarily in the Spraberry Trend area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 60
productive oil and gas wells. Four wells were sold and three wells were
abandoned due to uneconomical operations. At December 31, 1998, 53 wells were
producing.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 1998, 1997 and 1996, and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been estimated by the engineering staff of Pioneer USA with a review by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
2
<PAGE> 515
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 8, 1999, the Partnership had 19,317 outstanding limited
partnership interests held of record by 1,381 subscribers. There is no
established public trading market for the limited partnership interests. Under
the limited partnership agreement, Pioneer USA has made certain commitments to
purchase partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are
not required to meet the Partnership's obligations are distributed to the
partners at least quarterly in accordance with the limited partnership
agreement. During the years ended December 31, 1998 and 1997, distributions of
$293,607 and $730,927, respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Oil and gas sales............ $ 973,632 $1,484,170 $1,750,717 $ 1,423,091 $1,525,637
========== ========== ========== =========== ==========
Litigation settlement, net... $ -- $ -- $ 704,864 $ -- $ --
========== ========== ========== =========== ==========
Impairment of oil and gas
properties................ $ 277,277 $ 895,701 $ 132,778 $ 877,603 $ --
========== ========== ========== =========== ==========
Net income (loss)............ $ (423,942) $ (577,071) $1,142,509 $(1,054,048) $ (8,694)
========== ========== ========== =========== ==========
Allocation of net income
(loss):
Managing general
partner................. $ (4,240) $ (5,770) $ 11,425 $ (10,540) $ (87)
========== ========== ========== =========== ==========
Limited partners.......... $ (419,702) $ (571,301) $1,131,084 $(1,043,508) $ (8,607)
========== ========== ========== =========== ==========
Limited partners' net income
(loss) per limited
partnership interest...... $ (21.73) $ (29.58) $ 58.55 $ (54.02) $ (.45)
========== ========== ========== =========== ==========
Limited partners' cash
distributions per limited
partnership interest...... $ 15.20 $ 37.84 $ 69.40(a) $ 30.80 $ 35.84
========== ========== ========== =========== ==========
AT YEAR END:
Total assets................. $2,071,111 $2,820,637 $4,193,447 $ 4,413,551 $6,049,557
========== ========== ========== =========== ==========
</TABLE>
- ---------------
(a) Including litigation settlement per limited partnership interest of $36.12
in 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1998 compared to 1997
The Partnership's 1998 oil and gas revenues decreased 34% to $973,632 from
$1,484,170 in 1997. The decrease in revenues resulted from lower average prices
received. In 1998, 44,016 barrels of oil, 30,658 barrels of natural gas liquids
("NGLs") and 129,149 mcf of gas were sold, or 96,199 barrel of oil equivalents
("BOEs"). In 1997, 47,796 barrels of oil, 13,247 barrels of NGLs and 184,965 mcf
of gas were sold, or 91,871 BOEs. Due to the decline characteristics of the
Partnership's oil and gas properties, management expects a certain amount of
decline in production in the future until the Partnership's economically
recoverable reserves are fully depleted.
3
<PAGE> 516
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. Effective September 30, 1997, as a result of the
merger with Mesa, the managing general partner accounts for processed natural
gas production in two components: natural gas liquids and dry residue gas. As a
result of the change in the managing general partner's policy, the Partnership
now accounts for processed natural gas production as processed natural gas
liquids and dry residue gas. Consequently, separate product volumes will not be
comparable for 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
year ended December 31, 1998 is the price received for dry residue gas and the
price per mcf for natural gas produced prior to October 1997 was presented as a
price for wet gas (i.e., natural gas liquids combined with dry residue gas).
The average price received per barrel of oil decreased $6.17, or 32%, from
$19.43 in 1997 to $13.26 in 1998. The average price per barrel of NGL's
decreased $3.76, or 37%, from $10.22 in 1997 to $6.46 in 1998. The average price
received per mcf of gas decreased 34% from $2.27 in 1997 to $1.49 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 in 1998.
A gain on disposition of assets of $20,511 was recognized during 1997. The
gain was received from the disposal of equipment on one fully depleted well.
Total costs and expenses decreased in 1998 to $1,406,971 as compared to
$2,094,098 in 1997, a decrease of $687,127, or 33%. The decrease was due to
declines in the impairment of oil and gas properties, depletion, production
costs, abandoned property costs and general and administrative ("G&A") expenses.
Production costs were $737,587 in 1998 and $767,140 in 1997, resulting in a
$29,553 decrease, or 4%. The decrease was due to a decline in production taxes
due to decreased oil and gas revenues.
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, 38% from $46,992 in 1997 to $29,209 in 1998. The
Partnership paid the managing general partner $21,776 in 1998 and $38,761 in
1997 for G&A incurred on behalf of the Partnership. The Partnership agreement
limits allocated G&A to 3% of gross oil and gas revenues. Such allocated
expenses are determined by the managing general partner based upon its judgement
of the level of activity of the Partnership relative to the managing general
partner's activities and other entities it manages. The method of allocation has
been consistent over the past several years with certain modifications
incorporated to reflect changes in Pioneer USA's overall business activities.
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"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. Declining commodity prices prompted
impairment reviews in 1998 and 1997. As a result of the review and evaluation of
its long-lived assets for impairment, the Partnership recognized non-cash
charges of $277,277 and $895,701 related to its oil and gas properties during
1998 and 1997, respectively.
Depletion was $362,898 in 1998 compared to $371,531 in 1997. This
represented a decrease of $8,633, or 2%. This decrease was the result of a
combination of factors that included reduction in the Partnership's net
depletable basis from charges taken in accordance with SFAS 121 during the
fourth quarter of 1997 and a reduction in oil production of 3,780 barrels for
the period ended December 31, 1998 compared to the same period in 1997, offset
by a decline in proved reserves during 1998 due to the lower commodity prices.
Abandoned property costs of $12,734 incurred during 1997. These costs were
attributable to the plugging and abandonment of one uneconomical well in 1997.
4
<PAGE> 517
1997 compared to 1996
The Partnership's 1997 oil and gas revenues decreased 15% to $1,484,170
from $1,750,717 in 1996. The decrease in revenues resulted from declines in
production and lower average prices received. In 1997, 47,796 barrels of oil,
13,247 barrels of NGLs and 184,965 mcf of gas were sold, or 91,871 BOEs. In
1996, 52,839 barrels of oil and 246,386 mcf of gas were sold, or 93,903 BOEs.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. As is described above in "Results of
Operations -- 1998 compared to 1997", the Partnership changed its method of
accounting for processed natural gas to a dry gas basis in the fourth quarter of
1997. As a result of this change, the Partnership now accounts for processed
natural gas production as processed natural gas liquids and dry residue gas.
Consequently, 1997 and 1996 separate product volumes are not comparable.
The declines in production volumes were primarily attributable to the
decline characteristics of the Partnership's oil and gas properties.
The average price received per barrel of oil decreased $2.33, or 11% from
$21.76 in 1996 to $19.43 in 1997. The average price per barrel of NGL's during
1997 was $10.22. The average price received per mcf of gas decreased 7% from
$2.44 in 1996 to $2.27 in 1997.
Gains on disposition of assets of $20,511 and $58,479 were recognized
during 1997 and 1996, respectively. The gains were comprised of $20,511 and
$28,740 received from the disposal of equipment on two fully depleted wells
during 1997 and 1996, respectively. The additional gain in 1996 of $29,739
resulted from the sale of four oil and gas wells and four saltwater disposal
wells, attributable to proceeds of $31,623 received from the sale, less the
write-off of remaining capitalized well costs of $1,884 during 1996.
On April 29, 1996, Southmark Corporation, Pioneer USA and the Partnership
entered into a final $7.4 million settlement agreement with Jack N. Price
resolving all outstanding litigation between the parties. As a result, all of
the pending lawsuits and judgments have been dismissed, the supersedeas bond
released, and the Reserve released as collateral. On June 28, 1996, a final
distribution was made to the working interest owners of $704,864 of which
included $697,816, or $36.12 per limited partnership interest, to the
Partnership and its partners.
Total costs and expenses increased in 1997 to $2,094,098 as compared to
$1,380,816 in 1996, an increase of $713,282, or 52%. The increase was due to the
impairment of oil and gas properties and an increase in depletion, offset by
decreases in production costs, abandoned property costs and G&A expenses.
Production costs were $767,140 in 1997 and $815,378 in 1996, resulting in a
$48,238 decrease, or 6%. The decrease was due to a reduction in workover costs,
production taxes and well maintenance costs.
During this period, G&A decreased, in aggregate, 11% from $52,521 in 1996
to $46,992 in 1997. The Partnership paid the managing general partner $38,761 in
1997 and $45,387 in 1996 for G&A incurred on behalf of the Partnership.
The Partnership recognized non-cash SFAS 121 impairment provisions of
$895,701 and $132,778 related to its oil and gas properties during the fourth
quarters of 1997 and 1996, respectively.
Depletion was $371,531 in 1997 compared to $352,216 in 1996. This
represented an increase of $19,315, or 5%. This increase was primarily
attributable to a decrease in oil reserves during 1997 as a result of lower
commodity prices, offset by a decline in oil production of 5,043 barrels in 1997
compared to 1996.
Abandoned property costs of $12,734 and $27,923 were incurred during 1997
and 1996, respectively. These costs were attributable to the plugging and
abandonment of one uneconomical well in 1997 and two wells in 1996.
5
<PAGE> 518
IMPACT OF INFLATION AND CHANGING PRICES ON SALES AND NET INCOME
Inflation impacts the fixed overhead rate charges of the lease operating
expenses for the Partnership. During 1998, the annual change in the index of
average weekly earnings of crude petroleum and gas production workers issued by
the U.S. Department of Labor, Bureau of Labor Statistics increased (effective
April 1, 1998) 10.3%. The 1997 annual change in average weekly earnings
increased by 2%. The 1996 index increased 4.1%. The impact of inflation for
other lease operating expenses is small due to the current economic condition of
the oil industry.
The oil and gas industry experienced volatility during the past decade
because of the fluctuation of the supply of most fossil fuels relative to the
demand for such products and other uncertainties in the world energy markets
causing significant fluctuations in oil and gas prices. During 1998, the price
per barrel for oil production similar to the Partnership's ranged from
approximately $9.50 to $15.50. During most of 1997 and 1996, 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 March 1999. On March 8, 1999, the market price for West Texas intermediate
crude was $11.00 per barrel. A continuation of the current commodity price
environment will continue to have an adverse effect on the Partnership's
revenues, operating cash flow and distributions and could result in additional
decreases in the carrying value of the Partnership's oil and gas properties.
Prices for natural gas are subject to ordinary seasonal fluctuations, and
this volatility of natural gas prices may result in production being curtailed
and, in some cases, wells being completely shut-in.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $396,336 during the
year ended December 31, 1998 from the year ended December 31, 1997. The decrease
was primarily attributable to a decline in oil and gas sales receipts, offset by
a decrease in production costs paid.
Net Cash Provided by (Used in) Investing Activities
The Partnership's investing activities during 1998 was related to
expenditures for oil and gas equipment replacement on active properties.
Proceeds from asset dispositions of $626 were recognized during 1998 from
equipment credits received on active properties. During 1997, proceeds of
$21,563 were received consisting of salvage income on equipment disposals of
$20,511 resulting from the sale of two fully depleted wells during 1997 and
$1,052 was received from the sale of equipment on active properties.
Net Cash Used in Financing Activities
Cash was sufficient in 1998 for distributions to the partners of $296,573
of which $2,966 was distributed to the managing general partner and $293,607 to
the limited partners. In 1997, cash was sufficient for distributions to the
partners of $738,310 of which $7,383 was distributed to the managing general
partner and $730,927 to the limited partners.
The current commodity price environment will continue to impact the
distributions and could result in limited or no distributions to the partners.
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
6
<PAGE> 519
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
at varying stages of completion as it pertains to information technology and
non-information technology applications and systems in the United States, Canada
and Argentina. As of December 31, 1998, the managing general partner estimates
that the assessment phase is approximately 86% complete, on a worldwide basis,
and has included, but is not limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- 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 to
approximately 37% of those inquiries.
The remedial phase of the managing general partner's Year 2000 project is
also at varying 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 December 31, 1998, the
managing general partner estimates that the remedial phase is approximately 54%
complete, on a worldwide basis, subject to the continuing 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 through remedial coding and is currently testing this system for Year
2000 compliance. The remediation of non-information technology is expected to be
completed during July 1999. The managing general partner's Year 2000 remedial
actions have not significantly 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 and non-information technology remediation by the end of the third
quarter of 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. The managing general partner intends to use its working capital to pay
for the costs of the Year 2000 projects. As of December 31, 1998, the managing
general partner's
7
<PAGE> 520
total costs incurred on the Year 2000 problem were $1.8 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 in accordance with the general and administration
allocation. (See Note 2 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data".)
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 assessment phase of the managing general partner's Year 2000
project, contingency plans are being 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.
8
<PAGE> 521
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Parker & Parsley 86-C, Ltd:
Independent Auditors' Report -- Ernst & Young LLP......... 10
Independent Auditors' Report -- KPMG LLP.................. 11
Balance Sheets as of December 31, 1998 and 1997........... 12
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996.................................... 13
Statements of Partners' Capital for the Years Ended
December 31, 1998, 1997 and 1996....................... 14
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996.................................... 15
Notes to Financial Statements............................. 16
</TABLE>
9
<PAGE> 522
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 86-C, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheet of Parker & Parsley 86-C, Ltd. as of
December 31, 1998, and the related statements of operations, partners' capital
and cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 86-C, Ltd.
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Dallas, Texas
March 15, 1999
10
<PAGE> 523
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 86-C, Ltd.
(A Texas Limited Partnership):
We have audited the financial statements of Parker & Parsley 86-C, Ltd. as
of December 31, 1997, and the related statements of operations, partners'
capital and cash flows for the years ended December 31, 1997 and 1996. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 86-C, Ltd.
as of December 31, 1997, and the results of its operations and its cash flows
for the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
KPMG LLP
Midland, Texas
March 20, 1998
11
<PAGE> 524
PARKER & PARSLEY 86-C, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash...................................................... $ 126,623 $ 163,568
Accounts receivable -- oil and gas sales.................. 112,233 203,783
------------ ------------
Total current assets.............................. 238,856 367,351
------------ ------------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 14,568,090 14,548,946
Accumulated depletion....................................... (12,735,835) (12,095,660)
------------ ------------
Net oil and gas properties........................ 1,832,255 2,453,286
------------ ------------
$ 2,071,111 $ 2,820,637
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 18,095 $ 47,106
Partners' capital:
Managing general partner.................................. 19,222 26,428
Limited partners (19,317 interests)....................... 2,033,794 2,747,103
------------ ------------
2,053,016 2,773,531
------------ ------------
$ 2,071,111 $ 2,820,637
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 525
PARKER & PARSLEY 86-C, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Oil and gas............................................ $ 973,632 $1,484,170 $1,750,717
Interest............................................... 9,397 12,346 9,265
Gain on disposition of assets.......................... -- 20,511 58,479
Litigation settlement.................................. -- -- 704,864
---------- ---------- ----------
983,029 1,517,027 2,523,325
---------- ---------- ----------
Costs and expenses:
Oil and gas production................................. 737,587 767,140 815,378
General and administrative............................. 29,209 46,992 52,521
Impairment of oil and gas properties................... 277,277 895,701 132,778
Depletion.............................................. 362,898 371,531 352,216
Abandoned property..................................... -- 12,734 27,923
---------- ---------- ----------
1,406,971 2,094,098 1,380,816
---------- ---------- ----------
Net income (loss)........................................ $ (423,942) $ (577,071) $1,142,509
========== ========== ==========
Allocation of net income (loss):
Managing general partner............................... $ (4,240) $ (5,770) $ 11,425
========== ========== ==========
Limited partners....................................... $ (419,702) $ (571,301) $1,131,084
========== ========== ==========
Net income (loss) per limited partnership interest....... $ (21.73) $ (29.58) $ 58.55
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 526
PARKER & PARSLEY 86-C, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ----------- -----------
<S> <C> <C> <C>
Partners' capital at January 1, 1996.................... $ 41,697 $ 4,258,769 $ 4,300,466
Distributions......................................... (13,541) (1,340,522) (1,354,063)
Net income............................................ 11,425 1,131,084 1,142,509
-------- ----------- -----------
Partners' capital at December 31, 1996.................. 39,581 4,049,331 4,088,912
Distributions......................................... (7,383) (730,927) (738,310)
Net loss.............................................. (5,770) (571,301) (577,071)
-------- ----------- -----------
Partners' capital at December 31, 1997.................. 26,428 2,747,103 2,773,531
Distributions......................................... (2,966) (293,607) (296,573)
Net loss.............................................. (4,240) (419,702) (423,942)
-------- ----------- -----------
Partners' capital at December 31, 1998.................. $ 19,222 $ 2,033,794 $ 2,053,016
======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 527
PARKER & PARSLEY 86-C, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $(423,942) $(577,071) $ 1,142,509
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Impairment of oil and gas properties................ 277,277 895,701 132,778
Depletion........................................... 362,898 371,531 352,216
Gain on disposition of assets....................... -- (20,511) (58,479)
Changes in assets and liabilities:
Accounts receivable................................. 91,550 61,472 (114,204)
Accounts payable.................................... (29,011) (56,014) (10,548)
--------- --------- -----------
Net cash provided by operating activities...... 278,772 675,108 1,444,272
--------- --------- -----------
Cash flows from investing activities:
Additions to oil and gas properties.................... (19,770) -- (19,161)
Proceeds from asset dispositions....................... 626 21,563 60,363
--------- --------- -----------
Net cash provided by (used in) investing
activities................................... (19,144) 21,563 41,202
--------- --------- -----------
Cash flows from financing activities:
Cash distributions to partners......................... (296,573) (738,310) (1,354,063)
--------- --------- -----------
Net increase (decrease) in cash.......................... (36,945) (41,639) 131,411
Cash at beginning of year................................ 163,568 205,207 73,796
--------- --------- -----------
Cash at end of year...................................... $ 126,623 $ 163,568 $ 205,207
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 528
PARKER & PARSLEY 86-C, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 86-C, Ltd. (the "Partnership") is a limited partnership
organized in 1986 under the laws of the State of Texas. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. received shareholder approval to merge
and create Pioneer Natural Resources Company ("Pioneer"). On August 8, 1997,
PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership as PPDLP's successor by merger.
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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties -- The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as determined by the engineering staff of Pioneer
Natural Resources USA, Inc. ("Pioneer USA"), the Partnership's managing general
partner, and reviewed by independent petroleum consultants. The carrying amounts
of properties sold or otherwise disposed of and the related allowances for
depletion are eliminated from the accounts and any gain or loss is included in
operations.
Impairment of long-lived assets -- 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"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -- Preparation
of the accompanying financial statements 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 reporting amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest -- The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes -- A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
16
<PAGE> 529
PARKER & PARSLEY 86-C, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statements of cash flows -- For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses -- General and administrative expenses
are allocated in part to the Partnership by the managing general partner or its
affiliates. Such allocated expenses are determined by the managing general
partner based upon its judgment of the level of activity of the Partnership
relative to the managing general partner's activities and other entities it
manages. The method of allocation has been consistent over the past several
years with certain modifications incorporated to reflect changes in Pioneer
USA's overall business activities.
Reclassifications -- Certain reclassifications may have been made to the
1997 and 1996 financial statements to conform to the 1998 financial statement
presentation.
Environmental -- The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 1998.
Revenue recognition -- The Partnership uses the entitlements method of
accounting for crude oil and natural gas revenues.
Reporting comprehensive income -- Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes
standards for the reporting and display of comprehensive income (loss) and its
components in a full set of general purpose financial statements. Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss).
The Partnership has no items of other comprehensive income (loss), as defined by
SFAS No. 130. Consequently, the provisions of SFAS No. 130 do not apply to the
Partnership.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. Based upon a decline in the Partnership's outlook for future
commodity prices, the Partnership has estimated the expected future cash flows
of its oil and gas properties as of December 31, 1998, 1997 and 1996, and
compared such estimated future cash flows to the respective carrying amount of
the oil and gas properties to determine if the carrying amounts were likely to
be recoverable. For those proved oil and gas properties for which the carrying
amount exceeded the estimated future cash flows, an impairment was determined to
exist; therefore, the Partnership adjusted the carrying amount of those oil and
gas properties to their fair value as determined by discounting their expected
future cash flows at a discount rate commensurate with the risks involved in the
industry. As a result, the Partnership recognized non-cash impairment provisions
of $277,277, $895,701 and $132,778 related to its proved oil and gas properties
during 1998, 1997 and 1996, respectively.
17
<PAGE> 530
PARKER & PARSLEY 86-C, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $197,092 less than the tax basis at December 31, 1998.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ----------
<S> <C> <C> <C>
Net income (loss) per statements of operations.... $(423,942) $(577,071) $1,142,509
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes.................... 348,153 359,055 343,527
Impairment of oil and gas properties for financial
reporting purposes.............................. 277,277 895,701 132,778
Salvage income.................................... 431 46,884 --
Other........................................... 4,014 (24,448) (833)
--------- --------- ----------
Net income per Federal income tax
returns............................... $ 205,933 $ 700,121 $1,617,981
========= ========= ==========
</TABLE>
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- -------
<S> <C> <C> <C>
Development costs...................................... $19,770 $(10,244) $20,343
======= ======== =======
</TABLE>
Capitalized oil and gas properties consist of the following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Proved properties:
Property acquisition costs............................. $ 645,990 $ 645,990
Completed wells and equipment.......................... 13,922,100 13,902,956
------------ ------------
14,568,090 14,548,946
Accumulated depletion.................................... (12,735,835) (12,095,660)
------------ ------------
Net capitalized costs............................... $ 1,832,255 $ 2,453,286
============ ============
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $348,965 $331,252 $332,708
Reimbursement of general and administrative
expenses........................................... $ 21,776 $ 38,761 $ 45,387
</TABLE>
18
<PAGE> 531
PARKER & PARSLEY 86-C, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. In addition,
Pioneer USA and the Partnership are parties to the Program agreement.
The costs and revenues of the Program are allocated to Pioneer USA and the
Partnership as follows:
<TABLE>
<CAPTION>
PIONEER USA(1) PARTNERSHIP
-------------- -----------
<S> <C> <C>
Revenues:
Proceeds from disposition of depreciable properties...... 9.09091% 90.90909%
All other revenues....................................... 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion costs
and all other costs................................... 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative expenses............................... 24.242425% 75.757575%
</TABLE>
- ---------------
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at
the Partnership level and 60 limited partner interests owned by Pioneer USA.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 1998, 1997 and 1996 and
changes in such quantities during the years then ended. Due to a change in the
accounting policy of the managing general partner in 1997, the Partnership began
accounting for processed natural gas production in two components: processed
natural gas liquids ("NGLs") and dry residue gas. NGLs are reflected in "Oil and
NGLs" in the table below. All of the Partnership's reserves are proved developed
and located within the United States. The Partnership's reserves are based on an
evaluation prepared by the engineering staff of Pioneer USA and reviewed by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant,
using criteria established by the Securities and Exchange Commission. Reserve
value information is available to limited partners pursuant to the Partnership
agreement and, therefore, is not presented.
<TABLE>
<CAPTION>
OIL AND NGLS GAS
(BBLS) (MCF)
------------ ----------
<S> <C> <C>
Net proved reserves at January 1, 1996...................... 646,311 3,153,658
Revisions................................................... 124,741 728,870
Sale of reserves............................................ (3,398) (21,832)
Production.................................................. (52,839) (246,386)
-------- ----------
Net proved reserves at December 31, 1996.................... 714,815 3,614,310
Revisions................................................... 177,753 (2,054,703)
Production.................................................. (61,043) (184,965)
-------- ----------
Net proved reserves at December 31, 1997.................... 831,525 1,374,642
Revisions................................................... (383,916) (502,202)
Production.................................................. (74,674) (129,149)
-------- ----------
Net proved reserves at December 31, 1998.................... 372,935 743,291
======== ==========
</TABLE>
As of December 31, 1998, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 1998 prices of $10.61 per
barrel of oil, $5.42 per barrel of NGLs and $1.35 per mcf of gas, discounted at
10% was approximately $554,000 and undiscounted was $771,000.
19
<PAGE> 532
PARKER & PARSLEY 86-C, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Genesis Crude Oil, L.P. .................................... 50% 52% 54%
Western Gas Resources Inc. ................................. 31% 25% 15%
GPM Gas Corporation......................................... 3% 7% 15%
</TABLE>
At December 31, 1998, the amounts receivable from Genesis Crude Oil, L.P.
and Western Gas Resources Inc. were $23,843 and $43,179, respectively, which are
included in the caption "Accounts receivable -- oil and gas sales" in the
accompanying Balance Sheet.
The Partnership's share of oil and gas production is sold to various
purchasers. Pioneer USA is of the opinion that the loss of any one purchaser
would not have an adverse effect on the ability of the Partnership to sell its
oil and gas production.
NOTE 9. ORGANIZATION AND OPERATIONS
The Partnership was organized December 30, 1986 as a limited partnership
under the Texas Uniform Limited Partnership Act for the purpose of acquiring and
developing oil and gas properties. The following is a brief summary of the more
significant provisions of the limited partnership agreement:
Managing general partner -- The general partner of the Partnership is
Pioneer USA. Pioneer USA, the managing general partner, has the power and
authority to manage, control and administer all Partnership affairs. As
managing general partner and operator of the Partnership's properties, all
production expenses are incurred by Pioneer USA and billed to the
Partnership and a portion of revenue is initially received by Pioneer USA
prior to being paid to the Partnership. Under the limited partnership
agreement, the managing general partner pays 1% of the Partnership's
acquisition, drilling and completion costs and 1% of its operating and
general and administrative expenses. In return, it is allocated 1% of the
Partnership's revenues.
Limited partner liability -- The maximum amount of liability of any
limited partner is the total contributions of such partner plus his share
of any undistributed profits.
Initial capital contributions -- The limited partners entered into
subscription agreements for aggregate capital contributions of $19,317,000.
Pioneer USA is required to contribute amounts equal to 1% of initial
Partnership capital less commission and offering expenses allocated to the
limited partners and to contribute amounts necessary to pay costs and
expenses allocated to it under the Partnership agreement to the extent its
share of revenues does not cover such costs.
NOTE 10. DISPOSITION OF ASSETS
Gain on disposition of assets resulted from $20,511 of proceeds received
from the disposal of equipment on two fully depleted wells during 1997.
20
<PAGE> 533
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and
executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve
until the next annual meeting of stockholders or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31,
NAME 1998 POSITION
- ---- ------------ --------
<S> <C> <C>
Scott D. Sheffield........ 46 President and Director
Timothy L. Dove........... 42 Executive Vice President and Director
Dennis E. Fagerstone...... 49 Executive Vice President and Director
Mark L. Withrow........... 51 Executive Vice President, General Counsel and
Director
M. Garrett Smith.......... 37 Executive Vice President, Chief Financial Officer and
Director
Mel Fischer(a)............ 64 Executive Vice President
Lon C. Kile............... 43 Executive Vice President
Rich Dealy................ 32 Vice President and Chief Accounting Officer
</TABLE>
- ---------------
(a) Mr. Fischer was a director and officer until his retirement from Pioneer
and Pioneer USA on February 19, 1999.
Scott D. Sheffield. Mr. Sheffield is a distinguished graduate of The
University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he
has served as President, Chief Executive Officer and a director of Pioneer and
President and a director of Pioneer USA. Mr. Sheffield was the President and a
director of Parker & Parsley from May 1990 until August 1997 and was the
Chairman of the Board and Chief Executive Officer of Parker & Parsley from
October 1990 until August 1997. He was the sole director of Parker & Parsley
from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley
Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum
engineer in 1979. He served as Vice President -- Engineering of PPDC from
September 1981 until April 1985 when he was elected President and a director. In
March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive
Officer of PPDC. Before joining PPDC, Mr. Sheffield was employed as a production
and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President -- Business
Development of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. Mr. Dove joined Parker & Parsley in May
1994 as Vice President -- International and was promoted to Senior Vice
President -- Business Development in October 1996, in which position he served
until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with
Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various
capacities in international exploration and production, marketing, refining and
marketing and planning and development. Mr. Dove earned a B.S. in Mechanical
Engineering from Massachusetts Institute of Technology in 1979 and received his
M.B.A. in 1981 from the University of Chicago.
21
<PAGE> 534
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of Mesa from March 1, 1997 until August 1997. From October
1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief
Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice
President -- Exploration and Production of Mesa. From June 1988 to May 1991, Mr.
Fagerstone served as Vice President -- Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President -- General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President -- General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
M. Garrett Smith. Mr. Smith, a graduate of The University of Texas with a
B.S. in Electrical Engineering and Southern Methodist University with an M.B.A.,
was appointed Executive Vice President and Chief Financial Officer of Pioneer in
December 1997. He served as Senior Vice President -- Finance of Pioneer from
August 1997 until December 1997. Mr. Smith was elected Senior Vice President --
Finance and a director of Pioneer USA in August 1997. He served as Vice
President -- Corporate Acquisitions of Mesa from January 1997 until August 1997.
From October 1996 to December 1996, Mr. Smith served as Vice
President -- Finance of Mesa and from 1994 to 1996 he served as Director of
Financial Planning of Mesa. Mr. Smith was employed by BTC Partners, Inc. (a
former financial advisor to Mesa) from 1989 to 1994.
Mel Fischer. Mr. Fischer, a graduate of the University of California at
Berkeley with a Masters degree in Geology, became Executive Vice
President -- Worldwide Exploration of Pioneer and Pioneer USA in August 1997. He
served as a director of Parker & Parsley from November 1995 until August 1997
and was Executive Vice President -- Worldwide Exploration for Parker & Parsley
from February 1997 to August 1997. Mr. Fischer retired from Pioneer and Pioneer
USA effective February 15, 1999. He worked in the petroleum industry for 32
years, starting as a Petroleum Geologist with Texaco in 1962, and retiring as
President, Occidental International Exploration and Production Company in March
1994. For the 10 years prior to becoming President of Occidental International,
he served as Executive Vice President, World Wide Exploration with Occidental
Oil and Gas Corporation. He is a registered geologist in the State of
California, a member of the American Association of Petroleum Geologists and an
emeritus member of the Board of Advisors for the Earth Sciences Research
Institute at the University of Utah.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a
B.B.A. in Accounting, became Executive Vice President of Pioneer and Pioneer USA
in August 1997. Mr. Kile was Senior Vice President -- Investor Relations from
October 1996 to August 1997. Previously, he served as Vice President and Manager
of the Mid-Continent Division, Vice President -- Equity Finance & Analysis and
Vice President -- Marketing & Program Administration. Prior to joining Parker &
Parsley in 1985, he was employed as Supervisor -- Senior, Audit, in charge of
Parker & Parsley's audit, with Arthur Young.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a
B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became
Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
22
<PAGE> 535
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is vested in Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA pays approximately 10% of the Partnership's acquisition,
drilling and completion costs and approximately 25% of its operating and general
and administrative expenses. In return, Pioneer USA is allocated approximately
25% of the Partnership's revenues. See Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data" for
information regarding fees and reimbursements paid to the managing general
partner or its affiliates by the Partnership.
The Partnership does not directly pay any salaries of the executive
officers of Pioneer USA, but does pay a portion of Pioneer USA's general and
administrative expenses of which these salaries are a part. See Note 6 of Notes
to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more
of the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 60 limited partner interests at January 1, 1999.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing
general partner of the Partnership, Pioneer USA, has the exclusive right and
full authority to manage, control and administer the Partnership's business.
Under the limited partnership agreement, limited partners holding a majority of
the outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner or its affiliates
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $348,965 $331,252 $332,708
Reimbursement of general and administrative
expenses........................................... $ 21,776 $ 38,761 $ 45,387
</TABLE>
Under the limited partnership agreement, the managing general partner pays
1% of the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data"
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
23
<PAGE> 536
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial statements
The following are filed as part of this annual report:
Independent Auditors' Report -- Ernst & Young LLP
Independent Auditors' Report -- KPMG LLP
Balance sheets as of December 31, 1998 and 1997
Statements of operations for the years ended December 31, 1998, 1997
and 1996
Statements of partners' capital for the years ended December 31, 1998,
1997 and 1996
Statements of cash flows for the years ended December 31, 1998, 1997
and 1996
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this annual report.
24
<PAGE> 537
SIGNATURES
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-C, LTD.
By: Pioneer Natural Resources USA,
Inc.
Managing General Partner
By: /s/ SCOTT D. SHEFFIELD
----------------------------------
Scott D. Sheffield,
President
Dated: March 25, 1999
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 date indicated.
<TABLE>
<C> <S> <C>
/s/ SCOTT D. SHEFFIELD President and Director of March 25, 1999
- ----------------------------------------------------- Pioneer USA
Scott D. Sheffield
/s/ TIMOTHY L. DOVE Executive Vice President and March 25, 1999
- ----------------------------------------------------- Director of Pioneer USA
Timothy L. Dove
/s/ DENNIS E. FAGERSTONE Executive Vice President and March 25, 1999
- ----------------------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ MARK L. WITHROW Executive Vice President, March 25, 1999
- ----------------------------------------------------- General Counsel and Director
Mark L. Withrow of Pioneer USA
/s/ M. GARRETT SMITH Executive Vice President, March 25, 1999
- ----------------------------------------------------- Chief Financial Officer and
M. Garrett Smith Director of Pioneer USA
/s/ LON C. KILE Executive Vice President of March 25, 1999
- ----------------------------------------------------- Pioneer USA
Lon C. Kile
/s/ RICH DEALY Vice President and Chief March 25, 1999
- ----------------------------------------------------- Accounting Officer of
Rich Dealy Pioneer USA
</TABLE>
25
<PAGE> 538
PARKER & PARSLEY 86-C, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3(a) -- Amended and Restated Certificate of Limited Partnership
of Parker & Parsley 86-C, Ltd. incorporated by reference
to Exhibit 3a of the Partnership's Registration Statement
on Form S-1 (Registration No. 33-3353) (hereinafter
called the Partnership's Registration Statement)
4(a) -- Form of Agreement of Limited Partnership of Parker &
Parsley 86-C, Ltd. incorporated by reference to Exhibit A
of Amendment No. 1 of the Partnership's Registration
Statement
4(b) -- Form of Subscription Agreement incorporated by reference
to Exhibit C of Amendment No. 1 of the Partnership's
Registration Statement
4(b) -- Power of Attorney incorporated by reference to an Exhibit
of the Partnership's Registration Statement
4(c) -- Specimen Certificate of Limited Partnership Interest
incorporated by reference to Exhibit 4c of the
Partnership's Registration Statement
10(b) -- Development Program Agreement incorporated by reference
to Exhibit B of Amendment No. 1 of the Partnership's
Registration Statement
27.1* -- Financial Data Schedule
99.1 -- Mutual Release and Indemnity Agreement dated May 25, 1993
incorporated by reference to Exhibit 99.1 of the
Partnership's Annual Report on Form 10-K for the year
ended December 31, 1993
</TABLE>
- ---------------
* Filed herewith
<PAGE> 539
PARKER & PARSLEY 86-C, LTD.
(A TEXAS LIMITED PARTNERSHIP)
DECEMBER 31, 1998, 1997 AND 1996
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. Future income taxes are calculated by comparing
discounted future cash flows to the tax basis of oil and gas properties plus
available carryforwards and credits and applying the current tax rates to the
difference.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and gas producing activities:
Future cash inflows................................... $ 4,058 $ 15,832 $ 30,934
Future production costs............................... (3,287) (10,324) (16,596)
Future development costs.............................. -- -- 289
------- -------- --------
771 5,508 14,627
10% annual discount factor............................ (217) (2,277) (7,411)
------- -------- --------
Standardized measure of discounted future net cash
flows.............................................. $ 554 $ 3,231 $ 7,216
======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs............... $ (236) $ (717) $ (935)
Net changes in prices and production costs............... (2,176) (3,564) 3,456
Extensions and discoveries............................... -- -- --
Sales of minerals-in-place............................... -- -- (45)
Purchases of minerals-in-place........................... -- -- --
Revisions of estimated future development costs.......... -- (170) (161)
Revisions of previous quantity estimates and reserves
added by development drilling......................... (425) (422) 1,476
Accretion of discount.................................... 323 722 387
Changes in production rates, timing and other............ (163) 166 (830)
------- ------- ------
Change in present value of future net revenues........... (2,677) (3,985) 3,348
------- ------- ------
Balance, beginning of year............................... 3,231 7,216 3,868
------- ------- ------
Balance, end of year..................................... $ 554 $ 3,231 $7,216
======= ======= ======
</TABLE>
<PAGE> 540
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 87-A, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT DATED , 1999
----------------------
THE DATE OF THIS SUPPLEMENT IS , 1999
----------------------
This document contains important information specific to Parker & Parsley
87-A, Ltd. and supplements the proxy statement dated , 1999, of
Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies
to be voted at a special meeting of limited partners of the partnerships
described in the proxy statement. The purpose of the special meeting is for you
to vote upon the merger of Parker & Parsley 87-A, Ltd. with and into Pioneer USA
that, if completed, will result in your receiving cash for your partnership
interests.
This supplement contains the following information concerning Parker &
Parsley 87-A, Ltd.:
- A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through June
30, 1999
-- the merger value per $1,000 limited partner investment as of June 30,
1999
-- the merger value per $1,000 limited partner investment as a multiple
of distributions for the 12 months ended June 30, 1999
-- the book value per $1,000 limited partner investment as of June 30,
1999 and as of December 31, 1998 and
-- the ordinary tax loss per $1,000 limited partner investment in year
of initial investment
- Quarterly Report on Form 10-Q for the six months ended June 30, 1999
- Annual Report on Form 10-K for the year ended December 31, 1998
- Disclosures about the partnership's oil and gas producing activities
<PAGE> 541
PARKER & PARSLEY 87-A, LTD.
SUPPLEMENTAL INFORMATION TABLE
<TABLE>
<S> <C>
Aggregate Initial Investment by the Limited Partners(a)..... $28,811
Aggregate Historical Limited Partner Distributions through
June 30, 1999(a).......................................... $35,516
Merger Value per $1,000 Limited Partner Investment as of
June 30, 1999(b).......................................... $115.79
Merger Value per $1,000 Limited Partner Investment as a
Multiple of Distributions for the 12 Months ended June 30,
1999(b)................................................... 10.95times
Book Value per $1,000 Limited Partner Investment:
-- as of June 30, 1999(b)................................. $115.06
-- as of December 31, 1998(b)............................. $117.91
Ordinary Tax Loss per $1,000 Limited Partner Investment in
Year of Initial Investment(b), (c)........................ $ 467
</TABLE>
- ---------------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as any
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
<PAGE> 542
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JUNE 30, 1999
COMMISSION FILE NO. 33-12244-01
PARKER & PARSLEY 87-A, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-2185148
(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)
</TABLE>
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> 543
PARKER & PARSLEY 87-A, LTD.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1999 and December 31,
1998.................................................. 3
Statements of Operations for the three and six months
ended June 30, 1999 and 1998.......................... 4
Statement of Partners' Capital for the six months ended
June 30, 1999......................................... 5
Statements of Cash Flows for the six months ended June
30, 1999 and 1998..................................... 6
Notes to Financial Statements.......................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................. 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 11
27.1 Financial Data Schedule
Signatures............................................. 12
</TABLE>
2
<PAGE> 544
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER & PARSLEY 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 298,865 $ 282,299
Accounts receivable -- oil and gas sales.................. 245,370 162,293
------------ ------------
Total current assets.............................. 544,235 444,592
------------ ------------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 20,155,692 20,141,411
Accumulated depletion....................................... (17,288,051) (17,119,544)
------------ ------------
Net oil and gas properties........................ 2,867,641 3,021,867
------------ ------------
$ 3,411,876 $ 3,466,459
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 63,405 $ 34,972
Partners' capital:
Managing general partner.................................. 33,454 34,289
Limited partners (28,811 interests)....................... 3,315,017 3,397,198
------------ ------------
3,348,471 3,431,487
------------ ------------
$ 3,411,876 $ 3,466,459
============ ============
</TABLE>
The financial information included as of June 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
<PAGE> 545
PARKER & PARSLEY 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas...................................... $367,387 $366,885 $671,386 $789,531
Interest......................................... 3,341 5,034 6,290 10,568
Gain on disposition of assets.................... -- -- -- 765
-------- -------- -------- --------
370,728 371,919 677,676 800,864
-------- -------- -------- --------
Costs and expenses:
Oil and gas production........................... 233,876 313,372 455,004 596,233
General and administrative....................... 11,018 10,996 20,141 23,676
Depletion........................................ 53,650 106,567 168,507 205,708
-------- -------- -------- --------
298,544 430,935 643,652 825,617
-------- -------- -------- --------
Net income (loss).................................. $ 72,184 $(59,016) $ 34,024 $(24,753)
======== ======== ======== ========
Allocation of net income (loss):
Managing general partner......................... $ 722 $ (590) $ 340 $ (248)
======== ======== ======== ========
Limited partners................................. $ 71,462 $(58,426) $ 33,684 $(24,505)
======== ======== ======== ========
Net income (loss) per limited partnership
interest......................................... $ 2.48 $ (2.03) $ 1.17 $ (.85)
======== ======== ======== ========
Distributions per limited partnership interest..... $ 2.19 $ 4.19 $ 4.02 $ 13.05
======== ======== ======== ========
</TABLE>
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> 546
PARKER & PARSLEY 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1, 1999................................. $34,289 $3,397,198 $3,431,487
Distributions............................................ (1,175) (115,865) (117,040)
Net income............................................... 340 33,684 34,024
------- ---------- ----------
Balance at June 30, 1999................................... $33,454 $3,315,017 $3,348,471
======= ========== ==========
</TABLE>
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> 547
PARKER & PARSLEY 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 34,024 $(24,753)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depletion.............................................. 168,507 205,708
Gain on disposition of assets.......................... -- (765)
Changes in assets and liabilities:
Accounts receivable.................................... (83,077) 98,608
Accounts payable....................................... 28,433 11,307
--------- --------
Net cash provided by operating activities......... 147,887 290,105
--------- --------
Cash flows from investing activities:
Additions to oil and gas properties....................... (14,488) --
Proceeds from asset dispositions.......................... 207 9,491
--------- --------
Net cash provided by (used in) investing
activities...................................... (14,281) 9,491
--------- --------
Cash flows used in financing activities:
Cash distributions to partners............................ (117,040) (379,756)
--------- --------
Net increase (decrease) in cash............................. 16,566 (80,160)
Cash at beginning of period................................. 282,299 383,854
--------- --------
Cash at end of period....................................... $ 298,865 $303,694
========= ========
</TABLE>
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> 548
PARKER & PARSLEY 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 87-A, Ltd. (the "Partnership") is a limited partnership
organized in 1987 under the laws of the State of Texas.
The Partnership engages primarily in oil and gas development and production
in the Spraberry Trend area of West 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 June 30, 1999 and for the three and six months ended June 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.
7
<PAGE> 549
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
RESULTS OF OPERATIONS
Six months ended June 30, 1999 with six months ended June 30, 1998
Revenues:
The Partnership's oil and gas revenues decreased 15% to $671,386 from
$789,531 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from lower average prices received and a decrease
in production. For the six months ended June 30, 1999, 30,733 barrels of oil,
18,546 barrels of natural gas liquids ("NGLs") and 90,088 mcf of gas were sold,
or 64,294 barrel of oil equivalents ("BOEs"). For the six months ended June 30,
1998, 36,457 barrels of oil, 17,823 barrels of NGLs and 90,366 mcf of gas were
sold, or 69,341 BOEs.
The average price received per barrel of oil decreased 7% from $14.18 for
the six months ended June 30, 1998 to $13.20 for the same period in 1999. The
average price received per barrel of NGLs decreased slightly from $7.33 during
the six months ended June 30, 1998 to $7.26 for the same period in 1999. The
average price received per mcf of gas decreased 7% from $1.57 during the six
months ended June 30, 1998 to $1.46 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 six months ended June 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 $765 was received during the six months
ended June 30, 1998 from the sale of equipment on one saltwater disposal well
plugged and abandoned in a prior year.
Costs and Expenses:
Total costs and expenses decreased to $643,652 for the six months ended
June 30, 1999 as compared to $825,617 for the same period ended June 30, 1998, a
decrease of $181,965, or 22%. This decrease was due to declines in production
costs, depletion and general and administrative expenses ("G&A").
Production costs were $455,004 for the six months ended June 30, 1999 and
$596,233 for the same period in 1998 resulting in a decrease of $141,229, or
24%. The decrease was due to declines in well maintenance costs, workover costs,
production taxes and ad valorem 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, 15% from $23,676 for the six months ended June 30, 1998
to $20,141 for the same period in 1999.
Depletion was $168,507 for the six months ended June 30, 1999 compared to
$205,708 for the same period in 1998. This represented a decrease in depletion
of $37,201, or 18%. This decrease was primarily attributable to a reduction in
oil production of 5,724 barrels for the six months ended June 30, 1999 compared
to the same period in 1998, an increase in proved reserves during the period
ended June 30, 1999 due to higher commodity prices 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.
Three months ended June 30, 1999 compared with three months ended June 30,
1998
Revenues:
The Partnership's oil and gas revenues increased slightly to $367,387 from
$366,885 for the three months ended June 30, 1999 and 1998, respectively. The
increase in revenues resulted from higher average
8
<PAGE> 550
prices received, offset by a decrease in production. For the three months ended
June 30, 1999, 14,427 barrels of oil, 9,753 barrels of NGLs and 42,172 mcf of
gas were sold, or 31,209 BOEs. For the three months ended June 30, 1998, 17,622
barrels of oil, 8,629 barrels of NGLs and 41,827 mcf of gas were sold, or 33,222
BOEs.
The average price received per barrel of oil increased $1.29, or 10%, from
$13.48 for the three months ended June 30, 1998 to $14.77 for the same period in
1999. The average price received per barrel of NGLs increased $1.24, or 17%,
from $7.49 during the three months ended June 30, 1998 to $8.73 for the same
period in 1999. The average price received per mcf of gas increased 6% from
$1.55 during the three months ended June 30, 1998 to $1.64 for the same period
in 1999.
Costs and Expenses:
Total costs and expenses decreased to $298,544 for the three months ended
June 30, 1999 as compared to $430,935 for the same period in 1998, a decrease of
$132,391, or 31%. This decrease was due to declines in production costs and
depletion, offset by an increase in G&A.
Production costs were $233,876 for the three months ended June 30, 1999 and
$313,372 for the same period in 1998 resulting in a $79,496 decrease, or 25%.
The decrease was due to declines in well maintenance costs, workover expenses,
ad valorem taxes and production taxes.
During this period, G&A increased from $10,996 for the three months ended
June 30, 1998 to $11,018 for the same period in 1999.
Depletion was $53,650 for the three months ended June 30, 1999 compared to
$106,567 for the same period in 1998, a decrease of $52,917, or 50%. This
decrease was primarily attributable to an increase in proved reserves during the
period ended June 30, 1999 as a result of higher commodity prices, a reduction
in oil production of 3,195 barrels for the three months ended June 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.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $142,218 during the six
months ended June 30, 1999 from the same period ended June 30, 1998. This
decrease was primarily due to a decline in oil and gas sales receipts, offset by
decreases in production costs and G&A expenses paid.
Net Cash Provided by (Used in) Investing Activities
The Partnership's principal investing activities during the six months
ended June 30, 1999 were for expenditures related to equipment replacement on
various oil and gas properties.
Proceeds from asset dispositions of $207 were received during the six
months ended June 30, 1999 from equipment credits on active properties. Proceeds
of $9,491 received during the same period in 1998 were comprised of $8,726
received from the salvage of equipment on active properties and $765 from
equipment salvage on one saltwater disposal well plugged and abandoned in a
prior year.
Net Cash Used in Financing Activities
Cash was sufficient for the six months ended June 30, 1999 to cover
distributions to the partners of $117,040 of which $1,175 was distributed to the
managing general partner and $115,865 to the limited partners. For the same
period ended June 30, 1998, cash was sufficient for distributions to the
partners of $379,756 of which $3,797 was distributed to the managing general
partner and $375,959 to the limited partners.
9
<PAGE> 551
From the third quarter of 1997 through the first quarter of 1999, there was
a declining trend in oil and gas 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 early indications that the nations have initiated
their planned reductions, have had some stabilizing effect on commodity prices
during the latter part of the first quarter of 1999 and into August 1999.
However, no assurances can be given that the stabilizing effect of these
actions, or the planned reductions in export volumes, will 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.
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 June 30, 1999, the managing general partner estimates that the
assessment phase is approximately 99% complete and has included, but is not
limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- the formulation of contingency plans for mission-critical information
technology systems.
Through June 30, 1999, the managing general partner had 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 varying 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 June 30, 1999, the managing general partner
estimates that the remedial phase is approximately 83% complete, on a worldwide
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 is expected
to be completed by October 1999. The managing general partner's Year 2000
remedial actions have not delayed other information technology projects or
upgrades.
10
<PAGE> 552
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
information technology systems by October 1999. The testing of the
non-information technology remediation is scheduled to be completed by the end
of November 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. As of June 30, 1999, the managing general partner's total costs
incurred on the Year 2000 problem were $2.3 million, of which approximately $200
thousand were incurred to replace non-compliant systems.
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
11
<PAGE> 553
SIGNATURES
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 87-A, LTD.
By: Pioneer Natural Resources USA,
Inc.,
Managing General Partner
By: /s/ RICH DEALY
----------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
Dated: August 5, 1999
12
<PAGE> 554
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 33-12244-01
PARKER & PARSLEY 87-A, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-2185148
(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)
</TABLE>
Registrant's Telephone Number, including area code: (915) 683-4768
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
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]
No market currently exists for the limited partnership interests of the
Registrant. Based on original purchase price the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$28,636,000.
As of March 8, 1999, the number of outstanding limited partnership
interests was 28,811.
The following documents are incorporated by reference into the indicated
parts of this Annual Report on Form 10-K: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 555
Parts I and II of this Report contain 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. See "Item 1.
Business" for a description of various factors that could materially affect the
ability of the Partnership to achieve the anticipated results described in the
forward looking statements.
PART I
ITEM 1. BUSINESS
Parker & Parsley 87-A, Ltd. (the "Partnership") is a limited partnership
organized in 1987 under the laws of the State of Texas. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. ("Mesa") received shareholder approval
to merge and create Pioneer Natural Resources Company ("Pioneer"). On August 8,
1997, PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership as PPDLP's successor by merger. For a more complete description of
the Parker & Parsley and Mesa merger, see Pioneer's Registration Statement on
Form S-4 as filed with the Securities & Exchange Commission.
A Registration Statement, as amended, filed pursuant to the Securities Act
of 1933, registering limited partnership interests aggregating $40,000,000 in a
series of Texas limited partnerships formed under the Parker & Parsley 87
Development Drilling Program, was declared effective by the Securities and
Exchange Commission on April 28, 1987. On August 20, 1987, the offering of
limited partnership interests in the Partnership, the first partnership formed
under such registration statement, was closed, with interests aggregating
$28,811,000 being sold to 2,264 subscribers.
The Partnership engages primarily in oil and gas development and production
and is not involved in any industry segment other than oil and gas. See "Item 6.
Selected Financial Data" and "Item 8. Financial Statements and Supplementary
Data" of this report for a summary of the Partnership's revenue, income and
identifiable assets.
The principal markets during 1998 for the oil produced by the Partnership
were refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. The principal markets for the
Partnership's gas were companies that have pipelines located near the
Partnership's gas producing properties. Of the Partnership's total oil and gas
revenues for 1998, approximately 54% and 29% were attributable to sales made to
Genesis Crude Oil, L.P. and Western Gas Resources, Inc., respectively.
The Partnership's revenues, profitability, cash flow and future rate of
growth are highly dependent on the prevailing prices of oil and gas, which are
affected by numerous factors beyond the Partnership's control. Oil and gas
prices historically have been very volatile. A substantial or extended decline
in the prices of oil or gas could have a material adverse effect on the
Partnership's revenues, profitability and cash flow and could, under certain
circumstances, result in a reduction in the carrying value of the Partnership's
oil and gas properties.
Because of the demand for oil and gas, the Partnership does not believe
that the termination of the sales of its products to any one customer would have
a material adverse impact on its operations. The loss of a particular customer
for gas may have an effect if that particular customer has the only gas pipeline
located in the areas of the Partnership's gas producing properties. The
Partnership believes, however, that the effect would be temporary, until
alternative arrangements could be made.
Federal and state regulation of oil and gas operations generally includes
the fixing of maximum prices for regulated categories of natural gas, the
imposition of maximum allowable production rates, the taxation
1
<PAGE> 556
of income and other items, and the protection of the environment. Although the
Partnership believes that its business operations do not impair environmental
quality and that its costs of complying with any applicable environmental
regulations are not currently significant, the Partnership cannot predict what,
if any, effect these environmental regulations may have on its current or future
operations.
The Partnership does not have any employees of its own. Pioneer USA employs
818 persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this report is filed. Pioneer
USA supplies all management functions.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the
Partnership conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist primarily of leasehold interests in
properties on which oil and gas wells are located. Such property interests are
often subject to landowner royalties, overriding royalties and other oil and gas
leasehold interests.
Fractional working interests in developmental oil and gas prospects located
primarily in the Spraberry Trend area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 96
oil and gas wells. Two wells were dry holes. One uneconomical well was plugged
and abandoned and 15 oil and gas wells have been sold. At December 31, 1998, 78
wells were producing.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 1998, 1997 and 1996, and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been estimated by the engineering staff of Pioneer USA with a review by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
2
<PAGE> 557
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 8, 1999, the Partnership had 28,811 outstanding limited
partnership interests held of record by 2,152 subscribers. There is no
established public trading market for the limited partnership interests. Under
the limited partnership agreement, Pioneer USA has made certain commitments to
purchase partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are
not required to meet the Partnership's obligations are distributed to the
partners at least quarterly in accordance with the limited partnership
agreement. During the years ended December 31, 1998 and 1997, distributions of
$562,970 and $1,225,075, respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Oil and gas sales................. $1,453,492 $2,232,898 $2,627,636 $2,338,478 $2,402,964
========== ========== ========== ========== ==========
Litigation settlement, net........ $ -- $ -- $ 848,304 $ -- $ --
========== ========== ========== ========== ==========
Impairment of oil and gas
properties..................... $ 477,501 $ 732,890 $ 348,546 $ 922,203 $ --
========== ========== ========== ========== ==========
Net income (loss)................. $ (736,103) $ (49,528) $1,803,894 $ (955,234) $ (10,326)
========== ========== ========== ========== ==========
Allocation of net income (loss):
Managing general partner....... $ (7,361) $ (495) $ 18,039 $ (9,553) $ (103)
========== ========== ========== ========== ==========
Limited partners............... $ (728,742) $ (49,033) $1,785,855 $ (945,681) $ (10,223)
========== ========== ========== ========== ==========
Limited partners' net income
(loss) per limited partnership
interest....................... $ (25.29) $ (1.70) $ 61.99 $ (32.82) $ (.35)
========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest........... $ 19.54 $ 42.52 $ 89.89(a) $ 34.93 $ 34.70
========== ========== ========== ========== ==========
AT YEAR END:
Total assets...................... $3,466,459 $4,793,102 $6,171,831 $6,973,611 $8,966,767
========== ========== ========== ========== ==========
</TABLE>
- ---------------
(a) Including litigation settlement per limited partnership interest of $29.15
in 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1998 compared to 1997
The Partnership's 1998 oil and gas revenues decreased 35% to $1,453,492
from $2,232,898 in 1997. The decrease in revenues resulted from lower average
prices received. In 1998, 69,905 barrels of oil, 37,470 barrels of natural gas
liquids ("NGLs") and 179,494 mcf of gas were sold, or 137,291 barrel of oil
equivalents ("BOEs"). In 1997, 73,672 barrels of oil, 16,904 barrels of NGLs and
257,587 mcf of gas were sold, or 133,507 BOEs. Due to the decline
characteristics of the Partnership's oil and gas properties, management expects
a certain amount of decline in production to continue in the future until the
Partnership's economically recoverable reserves are fully depleted.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. Effective September 30, 1997, as a result
3
<PAGE> 558
of the merger with Mesa, the managing general partner accounts for processed
natural gas production in two components: natural gas liquids and dry residue
gas. As a result of the change in the managing general partner's policy, the
Partnership now accounts for processed natural gas production as processed
natural gas liquids and dry residue gas. Consequently, separate product volumes
will not be comparable for 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
year ended December 31, 1998 is the price received for dry residue gas and the
price per mcf for natural gas produced prior to October 1997 was presented as a
price for wet gas (i.e., natural gas liquids combined with dry residue gas).
The average price received per barrel of oil decreased $6.19, or 32%, from
$19.41 in 1997 to $13.22 in 1998. The average price received per barrel of NGLs
decreased $3.99, or 37%, from $10.75 in 1997 to $6.76 in 1998. The average price
received per mcf of gas decreased 36% from $2.41 in 1997 to $1.54 in 1998. The
market price received 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 in 1998.
A gain on disposition of assets of $765 was received during 1998 from the
sale of equipment on one saltwater disposal well plugged and abandoned in a
prior year.
Total costs and expenses decreased in 1998 to $2,210,330 compared to
$2,308,212 in 1997, a decrease of $97,882, or 4%. The decrease resulted from
declines in the impairment of oil and gas properties and general and
administrative expenses ("G&A"), offset by increases in depletion and production
costs.
Production costs were $1,068,450 in 1998 and $1,019,461 in 1997, resulting
in a $48,989 increase, or 5%. This increase was primarily attributable to higher
well maintenance costs and workover expenses incurred in an effort to stimulate
well production, offset by a decrease in production taxes due to reductions in
oil and gas revenues.
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, 40% from $71,283 in 1997 to $42,787 in 1998. The
Partnership paid the managing general partner $33,674 in 1998 and $61,086 in
1997 for G&A incurred on behalf of the Partnership. G&A is allocated, in part,
to the Partnership by the managing general partner. Such allocated expenses are
determined by the managing general partner based upon its judgement of the level
of activity of the Partnership relative to the managing general partner's
activities and other entities it manages. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
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"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. Declining commodity prices prompted
impairment reviews in 1998 and 1997. As a result of the review and evaluation of
its long-lived assets for impairment, the Partnership recognized non-cash
charges of $477,501 and $732,890 related to its oil and gas properties during
1998 and 1997, respectively.
Depletion was $621,592 in 1998 compared to $484,578 in 1997. This
represented an increase of $137,014, or 28%. This increase was the result of a
combination of factors that included a decline in proved reserves during 1998
due to the lower commodity prices, 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 and a reduction in oil production of 3,767 barrels for
the period ended December 31, 1998 compared to the same period in 1997.
4
<PAGE> 559
1997 compared to 1996
The Partnership's 1997 oil and gas revenues decreased 15% to $2,232,898
from $2,627,636 in 1996. The decrease in revenues resulted from declines in
production and a lower average price received per barrel of oil. In 1997, 73,672
barrels of oil, 16,904 barrels of NGLs and 257,587 mcf of gas were sold, or
133,507 BOEs. In 1996, 84,850 barrels of oil and 331,983 mcf of gas were sold,
or 140,181 BOEs.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. As is described above in "Results of
Operations -- 1998 compared to 1997", the Partnership changed its method of
accounting for processed natural gas to a dry gas basis in the fourth quarter of
1997. As a result of this change, the Partnership now accounts for processed
natural gas production as processed natural gas liquids and dry residue gas.
Consequently, 1997 and 1996 separate product volumes are not comparable.
The declines in production volumes were primarily attributable to the
decline characteristics of the Partnership's oil and gas properties.
The average price received per barrel of oil decreased $2.24, or 10%, from
$21.65 in 1996 to $19.41 in 1997. The average price received per barrel of NGLs
during 1997 was $10.75. The average price received per mcf of gas increased
slightly from $2.38 in 1996 to $2.41 in 1997.
Gain on disposition of assets of $377,310 was recognized during 1996 from
the sale of nine oil and gas wells and four saltwater disposal wells, the sale
of equipment on one well abandoned in a prior year and one fully depleted well,
offset by a loss on the abandonment of one saltwater disposal well. Costs
associated with the plugging and abandonment of this well totaled $26,123 during
1996.
On April 29, 1996, Southmark Corporation, Pioneer USA and the Partnership
entered into a final $7.4 million settlement agreement with Jack N. Price
resolving all outstanding litigation between the parties. As a result, all of
the pending lawsuits and judgments have been dismissed, the supersedeas bond
released, and the Reserve released as collateral. On June 28, 1996, a final
distribution was made to the working interest owners of $848,304 which included
$839,821, or $29.15 per limited partnership interest, to the Partnership and its
partners.
Total costs and expenses increased in 1997 to $2,308,212 as compared to
$2,082,535 in 1996, an increase of $225,677, or 11%. The increase resulted from
the impairment of oil and gas properties, offset by decreases in production
cost, abandoned property costs, depletion and G&A.
Production costs were $1,019,461 in 1997 and $1,114,916 in 1996, resulting
in a $95,455 decrease, or 9%. This decrease was primarily attributable to lower
well maintenance cost and a decline in production taxes, offset by an increase
in ad valorem tax.
During this period, G&A decreased, in aggregate, 13% from $82,400 in 1996
to $71,283 in 1997. The Partnership paid the managing general partner $61,086 in
1997 and $70,340 in 1996 for G&A incurred on behalf of the Partnership.
The Partnership recognized non-cash SFAS 121 impairment provisions of
$732,890 and $348,546 related to its proved oil and gas properties during the
fourth quarters of 1997 and 1996, respectively.
Depletion was $484,578 in 1997 compared to $510,550 in 1996. This
represented a decrease of $25,972, or 5%. This decrease was primarily
attributable to a decline in oil production of 11,178 barrels in 1997 as
compared to 1996, offset by a decline in oil reserves during 1997 as a result of
lower commodity prices.
IMPACT OF INFLATION AND CHANGING PRICES ON SALES AND NET INCOME
Inflation impacts the fixed overhead rate charges of the lease operating
expenses for the Partnership. During 1998, the annual change in the index of
average weekly earnings of crude petroleum and gas production workers issued by
the U.S. Department of Labor, Bureau of Labor Statistics increased (effective
April 1, 1998) 10.3%. The 1997 annual change in average weekly earnings
increased by 2%. The
5
<PAGE> 560
1996 index increased 4.1%. The impact of inflation for other lease operating
expenses is small due to the current economic condition of the oil industry.
The oil and gas industry experienced volatility during the past decade
because of the fluctuation of the supply of most fossil fuels relative to the
demand for such products and other uncertainties in the world energy markets
causing significant fluctuations in oil and gas prices. During 1998, the price
per barrel for oil production similar to the Partnership's ranged from
approximately $9.50 to $15.50. During most of 1997 and 1996, 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 March 1999. On March 8, 1999, the market price for West Texas intermediate
crude was $11.00 per barrel. A continuation of the current commodity price
environment will continue to have an adverse effect on the Partnership's
revenues, operating cash flow and distributions and could result in additional
decreases in the carrying value of the Partnership's oil and gas properties.
Prices for natural gas are subject to ordinary seasonal fluctuations, and
this volatility of natural gas prices may result in production being curtailed
and, in some cases, wells being completely shut-in.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $698,444 during the
year ended December 31, 1998 from the year ended December 31, 1997. This
decrease was primarily due to a decrease in oil and gas sales receipts, offset
by a decline in production costs paid.
Net Cash Provided by (Used in) Investing Activities
The Partnership's investing activities during 1998 and 1997 were related to
the replacement of oil and gas equipment on active properties.
Proceeds from asset dispositions of $15,652 received during 1998 consisted
of $14,887 due to equipment credits received on active properties and $765 from
equipment salvage on one saltwater disposal well plugged and abandoned in a
prior year.
Net Cash Used in Financing Activities
Cash was sufficient in 1998 for distributions to the partners of $568,656
of which $5,686 was distributed to the managing general partner and $562,970 to
the limited partners. In 1997, cash was sufficient for distributions to the
partners of $1,237,473 of which $12,398 was distributed to the managing general
partner and $1,225,075 to the limited partners.
The current commodity price environment will continue to impact the
distributions and could result in limited or no distributions to the partners.
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.
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
6
<PAGE> 561
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
at varying stages of completion as it pertains to information technology and
non-information technology applications and systems in the United States, Canada
and Argentina. As of December 31, 1998, the managing general partner estimates
that the assessment phase is approximately 86% complete, on a worldwide basis,
and has included, but is not limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- 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 to
approximately 37% of those inquiries.
The remedial phase of the managing general partner's Year 2000 project is
also at varying 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 December 31, 1998, the
managing general partner estimates that the remedial phase is approximately 54%
complete, on a worldwide basis, subject to the continuing 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 through remedial coding and is currently testing this system for Year
2000 compliance. The remediation of non-information technology is expected to be
completed during July 1999. The managing general partner's Year 2000 remedial
actions have not significantly 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 and non-information technology remediation by the end of the third
quarter of 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. The managing general partner intends to use its working capital to pay
for the costs of the Year 2000 projects. As of December 31, 1998, the managing
general partner's total costs incurred on the Year 2000 problem were $1.8
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 in accordance with the general and
administration allocation. (See Note 2 of Notes to Financial Statements included
in "Item 8. Financial Statements and Supplementary Data".)
7
<PAGE> 562
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 assessment phase of the managing general partner's Year 2000
project, contingency plans are being 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.
8
<PAGE> 563
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Parker & Parsley 87-A, Ltd:
Independent Auditors' Report -- Ernst & Young LLP......... 10
Independent Auditors' Report -- KPMG LLP.................. 11
Balance Sheets as of December 31, 1998 and 1997........... 12
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996.................................... 13
Statements of Partners' Capital for the Years Ended
December 31, 1998, 1997 and 1996....................... 14
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996.................................... 15
Notes to Financial Statements............................. 16
</TABLE>
9
<PAGE> 564
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 87-A, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheet of Parker & Parsley 87-A, Ltd. as of
December 31, 1998, and the related statements of operations, partners' capital
and cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 87-A, Ltd.
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Dallas, Texas
March 15, 1999
10
<PAGE> 565
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 87-A, Ltd.
(A Texas Limited Partnership):
We have audited the financial statements of Parker & Parsley 87-A, Ltd. as
of December 31, 1997, and the related statements of operations, partners'
capital and cash flows for the years ended December 31, 1997 and 1996. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 87-A, Ltd.
as of December 31, 1997, and the results of its operations and its cash flows
for the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
KPMG LLP
Midland, Texas
March 20, 1998
11
<PAGE> 566
PARKER & PARSLEY 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash...................................................... $ 282,299 $ 383,854
Accounts receivable -- oil and gas sales.................. 162,293 290,867
------------ ------------
Total current assets.............................. 444,592 674,721
------------ ------------
Oil and gas properties -- at cost, based on the successful
efforts accounting method.............................. 20,141,411 20,138,832
Accumulated depletion..................................... (17,119,544) (16,020,451)
------------ ------------
Net oil and gas properties........................ 3,021,867 4,118,381
------------ ------------
$ 3,466,459 $ 4,793,102
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 34,972 $ 56,856
Partners' capital:
Managing general partner.................................. 34,289 47,336
Limited partners (28,811 interests)....................... 3,397,198 4,688,910
------------ ------------
3,431,487 4,736,246
------------ ------------
$ 3,466,459 $ 4,793,102
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 567
PARKER & PARSLEY 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Oil and gas............................................ $1,453,492 $2,232,898 $2,627,636
Interest............................................... 19,970 25,770 33,179
Gain on disposition of assets.......................... 765 16 377,310
Litigation settlement.................................. -- -- 848,304
---------- ---------- ----------
1,474,227 2,258,684 3,886,429
---------- ---------- ----------
Costs and expenses:
Oil and gas production................................. 1,068,450 1,019,461 1,114,916
General and administrative............................. 42,787 71,283 82,400
Impairment of oil and gas properties................... 477,501 732,890 348,546
Depletion.............................................. 621,592 484,578 510,550
Abandoned property..................................... -- -- 26,123
---------- ---------- ----------
2,210,330 2,308,212 2,082,535
---------- ---------- ----------
Net income (loss)........................................ $ (736,103) $ (49,528) $1,803,894
========== ========== ==========
Allocation of net income (loss):
Managing general partner............................... $ (7,361) $ (495) $ 18,039
========== ========== ==========
Limited partners....................................... $ (728,742) $ (49,033) $1,785,855
========== ========== ==========
Net income (loss) per limited partnership interest....... $ (25.29) $ (1.70) $ 61.99
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 568
PARKER & PARSLEY 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ----------- -----------
<S> <C> <C> <C>
Partners' capital at January 1, 1996.................... $ 68,348 $ 6,766,910 $ 6,835,258
Distributions......................................... (26,158) (2,589,747) (2,615,905)
Net income............................................ 18,039 1,785,855 1,803,894
-------- ----------- -----------
Partners' capital at December 31, 1996.................. 60,229 5,963,018 6,023,247
Distributions......................................... (12,398) (1,225,075) (1,237,473)
Net loss.............................................. (495) (49,033) (49,528)
-------- ----------- -----------
Partners' capital at December 31, 1997.................. 47,336 4,688,910 4,736,246
Distributions......................................... (5,686) (562,970) (568,656)
Net loss.............................................. (7,361) (728,742) (736,103)
-------- ----------- -----------
Partners' capital at December 31, 1998.................. $ 34,289 $ 3,397,198 $ 3,431,487
======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 569
PARKER & PARSLEY 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $(736,103) $ (49,528) $ 1,803,894
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Impairment of oil and gas properties.............. 477,501 732,890 348,546
Depletion......................................... 621,592 484,578 510,550
Gain on disposition of assets..................... (765) (16) (377,310)
Changes in assets and liabilities:
Accounts receivable............................... 128,574 91,163 (120,875)
Accounts payable.................................. (21,884) (91,728) 14,379
--------- ----------- -----------
Net cash provided by operating activities.... 468,915 1,167,359 2,179,184
--------- ----------- -----------
Cash flows from investing activities:
Additions to oil and gas properties.................. (17,466) (27,705) --
Proceeds from disposition of assets.................. 15,652 16 565,359
--------- ----------- -----------
Net cash provided by (used in) investing
activities................................. (1,814) (27,689) 565,359
--------- ----------- -----------
Cash flows from financing activities:
Cash distributions to partners....................... (568,656) (1,237,473) (2,615,905)
--------- ----------- -----------
Net increase (decrease) in cash........................ (101,555) (97,803) 128,638
Cash at beginning of year.............................. 383,854 481,657 353,019
--------- ----------- -----------
Cash at end of year.................................... $ 282,299 $ 383,854 $ 481,657
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 570
PARKER & PARSLEY 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 87-A, Ltd. (the "Partnership") is a limited partnership
organized in 1987 under the laws of the State of Texas. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. received shareholder approval to merge
and create Pioneer Natural Resources Company ("Pioneer"). On August 8, 1997,
PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership as PPDLP's successor by merger.
The Partnership engages primarily in oil and gas development and production
in the Spraberry Trend area of West Texas and is not involved in any industry
segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties -- The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as determined by the engineering staff of Pioneer
USA, the Partnership's managing general partner, and reviewed by independent
petroleum consultants. The carrying amounts of properties sold or otherwise
disposed of and the related allowances for depletion are eliminated from the
accounts and any gain or loss is included in operations.
Impairment of long-lived assets -- 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"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -- Preparation
of the accompanying financial statements 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 reporting amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest -- The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes -- A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
16
<PAGE> 571
PARKER & PARSLEY 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statements of cash flows -- For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses -- General and administrative expenses
are allocated in part to the Partnership by the managing general partner or its
affiliates. Such allocated expenses are determined by the managing general
partner based upon its judgement of the level of activity of the Partnership
relative to the managing general partner's activities and other entities it
manages. The method of allocation has been consistent over the past several
years with certain modifications incorporated to reflect changes in Pioneer
USA's overall business activities.
Reclassifications -- Certain reclassifications may have been made to the
1997 and 1996 financial statements to conform to the 1998 financial statement
presentation.
Environmental -- The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 1998.
Revenue recognition -- The Partnership uses the entitlements method of
accounting for crude oil and natural gas revenues.
Reporting comprehensive income -- Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes
standards for the reporting and display of comprehensive income (loss) and its
components in a full set of general purpose financial statements. Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss).
The Partnership has no items of other comprehensive income (loss), as defined by
SFAS No. 130. Consequently, the provisions of SFAS No. 130 do not apply to the
Partnership.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. Based upon a decline in the Partnership's outlook for future
commodity prices, the Partnership has estimated the expected future cash flows
of its oil and gas properties as of December 31, 1998, 1997 and 1996, and
compared such estimated future cash flows to the respective carrying amount of
the oil and gas properties to determine if the carrying amounts were likely to
be recoverable. For those proved oil and gas properties for which the carrying
amount exceeded the estimated future cash flows, an impairment was determined to
exist; therefore, the Partnership adjusted the carrying amount of those oil and
gas properties to their fair value as determined by discounting their expected
future cash flows at a discount rate commensurate with the risks involved in the
industry. As a result, the Partnership recognized non-cash impairment provisions
of $477,501, $732,890 and $348,546 related to its proved oil and gas properties
during 1998, 1997 and 1996, respectively.
17
<PAGE> 572
PARKER & PARSLEY 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $182,578 greater than the tax basis at December 31, 1998.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
Net income (loss) per statements of operations... $(736,103) $ (49,528) $1,803,894
Intangible development costs capitalized for
financial reporting purposes and expensed for
tax reporting purposes......................... (6) -- (803)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes................... 584,799 465,211 486,828
Impairment of oil and gas properties for
financial reporting purposes................... 477,501 732,890 348,546
Salvage income................................... 13,408 -- --
Other, net....................................... 6,254 (5,604) 188,007
--------- ---------- ----------
Net income per Federal income tax
returns.............................. $ 345,853 $1,142,969 $2,826,472
========= ========== ==========
</TABLE>
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- --------
<S> <C> <C> <C>
Development costs...................................... $17,466 $27,689 $(28,062)
======= ======= ========
</TABLE>
Capitalized oil and gas properties consist of the following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Proved properties:
Property acquisition costs............................. $ 946,545 $ 946,545
Completed wells and equipment.......................... 19,194,866 19,192,287
------------ ------------
20,141,411 20,138,832
Accumulated depletion.................................... (17,119,544) (16,020,451)
------------ ------------
Net capitalized costs.......................... $ 3,021,867 $ 4,118,381
============ ============
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $442,313 $430,388 $445,088
Reimbursement of general and administrative
expenses........................................... $ 33,674 $ 61,086 $ 70,340
</TABLE>
18
<PAGE> 573
PARKER & PARSLEY 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. In addition,
Pioneer USA, Parker & Parsley 87-A Conv., L.P. and the Partnership (the
"Partnerships") are parties to the Program agreement.
The costs and revenues of the Program are allocated to Pioneer USA and the
Partnerships as follows:
<TABLE>
<CAPTION>
PIONEER
USA(1) PARTNERSHIPS(2)
--------- ---------------
<S> <C> <C>
Revenues:
Proceeds from disposition of depreciable properties...... 9.09091% 90.90909%
All other revenues....................................... 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion costs
and all other costs................................... 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative expenses............................... 24.242425% 75.757575%
</TABLE>
- ---------------
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at
the Partnership level and 175 limited partner interests owned by Pioneer
USA.
(2) The allocation between the Partnership and Parker & Parsley 87-A Conv., L.P.
is 88.19604% and 11.80396%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 1998, 1997 and 1996 and
changes in such quantities during the years then ended. Due to a change in the
accounting policy of the managing general partner in 1997, the Partnership began
accounting for processed natural gas production in two components: processed
natural gas liquids ("NGLs") and dry residue gas. NGLs are reflected in "Oil and
NGLs" in the table below. All of the Partnership's reserves are proved developed
and located within the United States. The Partnership's reserves are based on an
evaluation prepared by the engineering staff of Pioneer USA and reviewed by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant,
using criteria established by the Securities and Exchange Commission. Reserve
value information is available to limited partners pursuant to the Partnership
agreement and, therefore, is not presented.
<TABLE>
<CAPTION>
OIL AND NGLS GAS
(BBLS) (MCF)
------------ ----------
<S> <C> <C>
Net proved reserves at January 1, 1996...................... 1,095,917 3,945,126
Revisions................................................... 200,492 1,343,224
Sale of reserves............................................ (76,574) (126,549)
Production.................................................. (84,850) (331,983)
--------- ----------
Net proved reserves at December 31, 1996.................... 1,134,985 4,829,818
Revisions................................................... 250,502 (2,622,683)
Production.................................................. (90,576) (257,587)
--------- ----------
Net proved reserves at December 31, 1997.................... 1,294,911 1,949,548
Revisions................................................... (525,530) (596,528)
Production.................................................. (107,375) (179,494)
--------- ----------
Net proved reserves at December 31, 1998.................... 662,006 1,173,526
========= ==========
</TABLE>
19
<PAGE> 574
PARKER & PARSLEY 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1998, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 1998 prices of $10.61 per
barrel of oil, $5.44 per barrel of NGLs and $1.35 per mcf of gas, discounted at
10% was approximately $1,116,000 and undiscounted was $1,571,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Genesis Crude Oil, L.P...................................... 54% 53% 57%
Western Gas Resources, Inc. ................................ 29% 26% 18%
</TABLE>
At December 31, 1998, the amounts receivable from Genesis Crude Oil, L.P.
and Western Gas Resources, Inc. were $39,409 and $60,889, respectively, which
are included in the caption "Accounts receivable -- oil and gas sales" in the
accompanying Balance Sheet.
The Partnership's share of oil and gas production is sold to various
purchasers. Pioneer USA is of the opinion that the loss of any one purchaser
would not have an adverse effect on the ability of the Partnership to sell its
oil and gas production.
NOTE 9. ORGANIZATION AND OPERATIONS
The Partnership was organized August 20, 1987 as a limited partnership
under the Texas Uniform Limited Partnership Act for the purpose of acquiring and
developing oil and gas properties. The following is a brief summary of the more
significant provisions of the limited partnership agreement:
Managing general partner -- The general partner of the Partnership is
Pioneer USA. Pioneer USA, the managing general partner, has the power and
authority to manage, control and administer all Program and Partnership
affairs. As managing general partner and operator of the Partnership's
properties, all production expenses are incurred by Pioneer USA and billed
to the Partnership and a portion of revenue is initially received by
Pioneer USA prior to being paid to the Partnership. Under the limited
partnership agreement, the managing general partner pays 1% of the
Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is
allocated 1% of the Partnership's revenues.
Limited partner liability -- The maximum amount of liability of any
limited partner is the total contributions of such partner plus his share
of any undistributed profits.
Initial capital contributions -- The limited partners entered into
subscription agreements for aggregate capital contributions of $28,811,000.
Pioneer USA is required to contribute amounts equal to 1% of initial
Partnership capital less commission and offering expenses allocated to the
limited partners and to contribute amounts necessary to pay costs and
expenses allocated to it under the Partnership agreement to the extent its
share of revenues does not cover such costs.
20
<PAGE> 575
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and
executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve
until the next annual meeting of stockholders or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31,
NAME 1998 POSITION
- ---- ------------ --------
<S> <C> <C>
Scott D. Sheffield................... 46 President and Director
Timothy L. Dove...................... 42 Executive Vice President and Director
Dennis E. Fagerstone................. 49 Executive Vice President and Director
Mark L. Withrow...................... 51 Executive Vice President, General Counsel
and Director
M. Garrett Smith..................... 37 Executive Vice President, Chief Financial
Officer and Director
Mel Fischer(a)....................... 64 Executive Vice President
Lon C. Kile.......................... 43 Executive Vice President
Rich Dealy........................... 32 Vice President and Chief Accounting Officer
</TABLE>
- ---------------
(a) Mr. Fischer was a director and officer until his retirement from Pioneer
and Pioneer USA on February 19, 1999.
Scott D. Sheffield. Mr. Sheffield is a distinguished graduate of The
University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he
has served as President, Chief Executive Officer and a director of Pioneer and
President and a director of Pioneer USA. Mr. Sheffield was the President and a
director of Parker & Parsley from May 1990 until August 1997 and was the
Chairman of the Board and Chief Executive Officer of Parker & Parsley from
October 1990 until August 1997. He was the sole director of Parker & Parsley
from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley
Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum
engineer in 1979. He served as Vice President -- Engineering of PPDC from
September 1981 until April 1985 when he was elected President and a director. In
March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive
Officer of PPDC. Before joining PPDC, Mr. Sheffield was employed as a production
and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President -- Business
Development of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. Mr. Dove joined Parker & Parsley in May
1994 as Vice President -- International and was promoted to Senior Vice
President -- Business Development in October 1996, in which position he served
until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with
Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various
capacities in international exploration and production,
21
<PAGE> 576
marketing, refining and marketing and planning and development. Mr. Dove earned
a B.S. in Mechanical Engineering from Massachusetts Institute of Technology in
1979 and received his M.B.A. in 1981 from the University of Chicago.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of Mesa from March 1, 1997 until August 1997. From October
1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief
Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice
President -- Exploration and Production of Mesa. From June 1988 to May 1991, Mr.
Fagerstone served as Vice President -- Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President -- General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President -- General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
M. Garrett Smith. Mr. Smith, a graduate of The University of Texas with a
B.S. in Electrical Engineering and Southern Methodist University with an M.B.A.,
was appointed Executive Vice President and Chief Financial Officer of Pioneer in
December 1997. He served as Senior Vice President -- Finance of Pioneer from
August 1997 until December 1997. Mr. Smith was elected Senior Vice President --
Finance and a director of Pioneer USA in August 1997. He served as Vice
President -- Corporate Acquisitions of Mesa from January 1997 until August 1997.
From October 1996 to December 1996, Mr. Smith served as Vice
President -- Finance of Mesa and from 1994 to 1996 he served as Director of
Financial Planning of Mesa. Mr. Smith was employed by BTC Partners, Inc. (a
former financial advisor to Mesa) from 1989 to 1994.
Mel Fischer. Mr. Fischer, a graduate of the University of California at
Berkeley with a Masters degree in Geology, became Executive Vice
President -- Worldwide Exploration of Pioneer and Pioneer USA in August 1997. He
served as a director of Parker & Parsley from November 1995 until August 1997
and was Executive Vice President -- Worldwide Exploration for Parker & Parsley
from February 1997 to August 1997. Mr. Fischer retired from Pioneer and Pioneer
USA effective February 15, 1999. He worked in the petroleum industry for 32
years, starting as a Petroleum Geologist with Texaco in 1962, and retiring as
President, Occidental International Exploration and Production Company in March
1994. For the 10 years prior to becoming President of Occidental International,
he served as Executive Vice President, World Wide Exploration with Occidental
Oil and Gas Corporation. He is a registered geologist in the State of
California, a member of the American Association of Petroleum Geologists and an
emeritus member of the Board of Advisors for the Earth Sciences Research
Institute at the University of Utah.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a
B.B.A. in Accounting, became Executive Vice President of Pioneer and Pioneer USA
in August 1997. Mr. Kile was Senior Vice President -- Investor Relations from
October 1996 to August 1997. Previously, he served as Vice President and Manager
of the Mid-Continent Division, Vice President -- Equity Finance & Analysis and
Vice President -- Marketing & Program Administration. Prior to joining Parker &
Parsley in 1985, he was employed as Supervisor -- Senior, Audit, in charge of
Parker & Parsley's audit, with Arthur Young.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a
B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became
Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
22
<PAGE> 577
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is vested in Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA pays approximately 10% of the Partnership's acquisition,
drilling and completion costs and approximately 25% of its operating and general
and administrative expenses. In return, Pioneer USA is allocated approximately
25% of the Partnership's revenues. See Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data" for
information regarding fees and reimbursements paid to the managing general
partner or its affiliates by the Partnership.
The Partnership does not directly pay any salaries of the executive
officers of Pioneer USA, but does pay a portion of Pioneer USA's general and
administrative expenses of which these salaries are a part. See Note 6 of Notes
to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more
of the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 175 limited partner interests at January 1, 1999.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing
general partner of the Partnership, Pioneer USA, has the exclusive right and
full authority to manage, control and administer the Partnership's business.
Under the limited partnership agreement, limited partners holding a majority of
the outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner or its affiliates
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and
supervision charges in accordance
with standard industry operating
agreements......................................... $442,313 $430,388 $445,088
Reimbursement of general and
administrative expenses............................ $ 33,674 $ 61,086 $ 70,340
</TABLE>
Under the limited partnership agreement, the managing general partner pays
1% of the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
23
<PAGE> 578
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial statements
The following are filed as part of this annual report:
Independent Auditors' Report -- Ernst & Young LLP
Independent Auditors' Report -- KPMG LLP
Balance sheets as of December 31, 1998 and 1997
Statements of operations for the years ended December 31, 1998, 1997
and 1996
Statements of partners' capital for the years ended December 31, 1998,
1997 and 1996
Statements of cash flows for the years ended December 31, 1998, 1997
and 1996
Notes to financial statements
2. Financial statement schedules.
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this annual report.
24
<PAGE> 579
SIGNATURES
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 87-A, LTD.
By: Pioneer Natural Resources USA,
Inc.
Managing General Partner
By: /s/ SCOTT D. SHEFFIELD
----------------------------------
Scott D. Sheffield,
President
Dated: March 24, 1999
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 date indicated.
<TABLE>
<C> <S> <C>
/s/ SCOTT D. SHEFFIELD President and Director of March 24, 1999
- ------------------------------------------------ Pioneer USA
Scott D. Sheffield
/s/ TIMOTHY L. DOVE Executive Vice President and March 24, 1999
- ------------------------------------------------ Director of Pioneer USA
Timothy L. Dove
/s/ DENNIS E. FAGERSTONE Executive Vice President and March 24, 1999
- ------------------------------------------------ Director of Pioneer USA
Dennis E. Fagerstone
/s/ MARK L. WITHROW Executive Vice President, General March 24, 1999
- ------------------------------------------------ Counsel and Director of Pioneer
Mark L. Withrow USA
/s/ M. GARRETT SMITH Executive Vice President, Chief March 24, 1999
- ------------------------------------------------ Financial Officer and Director
M. Garrett Smith of Pioneer USA
/s/ LON C. KILE Executive Vice President of March 24, 1999
- ------------------------------------------------ Pioneer USA
Lon C. Kile
/s/ RICH DEALY Vice President and Chief Accounting March 24, 1999
- ------------------------------------------------ Officer of Pioneer USA
Rich Dealy
</TABLE>
25
<PAGE> 580
PARKER & PARSLEY 87-A, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
4(a) -- Agreement of Limited Partnership of Parker & Parsley
87-A, Ltd. incorporated by reference to Exhibit A of the
Partnership's Registration Statement on Form S-1
(Registration No. 33-16910) (hereinafter called the
Partnership's Registration Statement
4(b) -- Form of Subscription Agreement and Power of Attorney
incorporated by reference to Exhibit D of the
Partnership's Registration Statement
4(c) -- Specimen Certificate of Limited Partnership Interest
incorporated by reference to Exhibit D of the
Partnership's Registration Statement
10(b) -- Development Program Agreement incorporated by reference
to Exhibit C of the Partnership's Registration Statement
27.1* -- Financial Data Schedule
99.1 -- Mutual Release and Indemnity Agreement dated May 25, 1993
incorporated by reference to Exhibit 99.1 of the
Partnership's Annual Report on Form 10-K for the year
ended December 31, 1993
</TABLE>
- ---------------
* Filed herewith
<PAGE> 581
PARKER & PARSLEY 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
DECEMBER 31, 1998, 1997 AND 1996
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. Future income taxes are calculated by comparing
discounted future cash flows to the tax basis of oil and gas properties plus
available carryforwards and credits and applying the current tax rates to the
difference.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and gas producing activities:
Future cash inflows....................................... $ 7,206 $ 24,572 $ 45,754
Future production costs................................... (5,635) (15,331) (24,417)
Future development costs.................................. -- -- 414
------- -------- --------
1,571.. 9,241 21,751
10% annual discount factor................................ (455) (3,970) (10,945)
------- -------- --------
Standardized measure of discounted future net cash
flows.................................................. $ 1,116 $ 5,271 $ 10,806
======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs................ $ (385) $(1,213) $(1,513)
Net changes in prices and production costs................ (3,456) (4,854) 5,065
Extensions and discoveries................................ -- -- --
Sales of minerals-in-place................................ -- -- (459)
Purchases of minerals-in-place............................ -- -- --
Revisions of estimated future development costs........... -- (236) (198)
Revisions of previous quantity estimates and reserves
added by development drilling.......................... (652) (529) 2,583
Accretion of discount..................................... 527 1,081 606
Changes in production rates, timing and other............. (189) 216 (1,340)
------- ------- -------
Change in present value of future net revenues............ 4,155 (5,535) 4,744
------- ------- -------
Balance, beginning of year................................ 5,271 10,806 6,062
------- ------- -------
Balance, end of year...................................... $ 1,116 $ 5,271 $10,806
======= ======= =======
</TABLE>
<PAGE> 582
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.,
A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT DATED , 1999
----------------------
THE DATE OF THIS SUPPLEMENT IS , 1999
----------------------
This document contains important information specific to Parker & Parsley
Producing Properties 87-A, Ltd. and supplements the proxy statement dated
, 1999, of Pioneer Natural Resources USA, Inc., by which Pioneer USA is
soliciting proxies to be voted at a special meeting of limited partners of the
partnerships described in the proxy statement. The purpose of the special
meeting is for you to vote upon the merger of Parker & Parsley Producing
Properties 87-A, Ltd. with and into Pioneer USA that, if completed, will result
in your receiving cash for your partnership interests.
This supplement contains the following information concerning Parker &
Parsley Producing Properties 87-A, Ltd.:
- A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through June
30, 1999
-- the merger value per $1,000 limited partner investment as of June 30,
1999
-- the merger value per $1,000 limited partner investment as a multiple
of distributions for the 12 months ended June 30, 1999
-- the book value per $1,000 limited partner investment as of June 30,
1999 and as of December 31, 1998 and
-- the ordinary tax loss per $1,000 limited partner investment in year
of initial investment
- Quarterly Report on Form 10-Q for the six months ended June 30, 1999
- Annual Report on Form 10-K for the year ended December 31, 1998
- Disclosures about the partnership's oil and gas producing activities
<PAGE> 583
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
SUPPLEMENTAL INFORMATION TABLE
<TABLE>
<S> <C>
Aggregate Initial Investment by the Limited Partners(a)..... $12,213
Aggregate Historical Limited Partner Distributions through
June 30, 1999(a).......................................... $10,894
Merger Value per $1,000 Limited Partner Investment as of
June 30, 1999(b).......................................... $144.07
Merger Value per $1,000 Limited Partner Investment as a
Multiple of Distributions for the 12 Months ended June 30,
1999(b)................................................... 13.54times
Book Value per $1,000 Limited Partner Investment:
-- as of June 30, 1999(b)................................. $ 99.20
-- as of December 31, 1998(b)............................. $100.21
Ordinary Tax Loss per $1,000 Limited Partner Investment in
Year of Initial Investment(b), (c)........................ $ 30
</TABLE>
- ---------------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as any
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
<PAGE> 584
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JUNE 30, 1999
COMMISSION FILE NO. 33-11193-1
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-2195512
(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)
</TABLE>
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> 585
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1999 and December 31,
1998.................................................. 3
Statements of Operations for the three and six months
ended June 30, 1999 and 1998.......................... 4
Statement of Partners' Capital for the six months ended
June 30, 1999......................................... 5
Statements of Cash Flows for the six months ended June
30, 1999 and 1998..................................... 6
Notes to Financial Statements.......................... 7
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................. 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 11
27.1 Financial Data Schedule
Signatures............................................. 12
</TABLE>
2
<PAGE> 586
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 183,603 $ 183,223
Accounts receivable -- oil and gas sales.................. 170,335 115,182
----------- -----------
Total current assets.............................. 353,938 298,405
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 5,871,565 5,871,539
Accumulated depletion....................................... (4,959,852) (4,899,498)
----------- -----------
Net oil and gas properties........................ 911,713 972,041
----------- -----------
$ 1,265,651 $ 1,270,446
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable -- affiliate............................. $ 40,644 $ 33,013
Partners' capital:
Managing general partner.................................. 13,491 13,615
Limited partners (24,426 interests)....................... 1,211,516 1,223,818
----------- -----------
1,225,007 1,237,433
----------- -----------
$ 1,265,651 $ 1,270,446
=========== ===========
</TABLE>
The financial information included as of June 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
<PAGE> 587
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas..................................... $198,979 $211,467 $351,757 $ 433,040
Interest........................................ 2,131 3,304 4,084 6,704
Gain (loss) on disposition of assets............ -- (44,930) 5,299 (9,441)
-------- -------- -------- ---------
201,110 169,841 361,140 430,303
-------- -------- -------- ---------
Costs and expenses:
Oil and gas production.......................... 137,049 176,577 271,521 360,313
General and administrative...................... 5,970 15,117 10,553 21,764
Depletion....................................... 20,518 59,005 60,354 99,488
Abandoned property.............................. 189 18,767 1,813 65,758
-------- -------- -------- ---------
163,726 269,466 344,241 547,323
-------- -------- -------- ---------
Net income (loss)................................. $ 37,384 $(99,625) $ 16,899 $(117,020)
======== ======== ======== =========
Allocation of net income (loss):
Managing general partner........................ $ 374 $ (996) $ 169 $ (1,170)
======== ======== ======== =========
Limited partners................................ $ 37,010 $(98,629) $ 16,730 $(115,850)
======== ======== ======== =========
Net income (loss) per limited partnership
interest........................................ $ 1.51 $ (4.03) $ .68 $ (4.74)
======== ======== ======== =========
Distributions per limited partnership interest.... $ .45 $ 1.18 $ 1.19 $ 5.20
======== ======== ======== =========
</TABLE>
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> 588
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1, 1999................................. $13,615 $1,223,818 $1,237,433
Distributions............................................ (293) (29,032) (29,325)
Net income............................................... 169 16,730 16,899
------- ---------- ----------
Balance at June 30, 1999................................... $13,491 $1,211,516 $1,225,007
======= ========== ==========
</TABLE>
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> 589
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 16,899 $(117,020)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depletion.............................................. 60,354 99,488
(Gain) loss on disposition of assets................... (5,299) 9,441
Changes in assets and liabilities:
Accounts receivable.................................... (55,153) 73,141
Accounts payable....................................... 7,631 16,854
-------- ---------
Net cash provided by operating activities......... 24,432 81,904
-------- ---------
Cash flows from investing activities:
Additions to oil and gas properties....................... -- (5,454)
Proceeds from asset dispositions.......................... 5,273 41,810
-------- ---------
Net cash provided by investing activities......... 5,273 36,356
-------- ---------
Cash flows used in financing activities:
Cash distributions to partners............................ (29,325) (128,215)
-------- ---------
Net increase (decrease) in cash............................. 380 (9,955)
Cash at beginning of period................................. 183,223 219,515
-------- ---------
Cash at end of period....................................... $183,603 $ 209,560
======== =========
</TABLE>
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> 590
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley Producing Properties 87-A, Ltd. (the "Partnership") is a
limited partnership organized in 1987 under the laws of the State of Texas.
The Partnership engages primarily in oil and gas 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 June 30, 1999 and for the three and six months ended June 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 reclassifications have been made
to the June 30, 1998 financial statements to conform to the June 30, 1999
financial statement presentation.
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.
7
<PAGE> 591
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
RESULTS OF OPERATIONS
Six months ended June 30, 1999 compared with six months ended June 30, 1998
Revenues:
The Partnership's oil and gas revenues decreased 19% to $351,757 from
$433,040 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from lower average prices received and declines in
production. For the six months ended June 30, 1999, 22,010 barrels of oil, 5,918
barrels of natural gas liquids ("NGLs") and 25,190 mcf of gas were sold, or
32,126 barrel of oil equivalents ("BOEs"). For the six months ended June 30,
1998, 25,655 barrels of oil, 6,204 barrels of NGLs and 29,158 mcf of gas were
sold, or 36,719 BOEs.
The average price received per barrel of oil decreased 6% from $14.01 for
the six months ended June 30, 1998 to $13.18 for the same period in 1999. The
average price received per barrel of NGLs decreased 7% from $6.00 during the six
months ended June 30, 1998 to $5.61 for the same period in 1999. The average
price received per mcf of gas decreased 10% from $1.25 for the six months ended
June 30, 1998 to $1.13 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 six months ended June 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.
Gain on disposition of assets of $5,299 was recognized during the six
months ended June 30, 1999. The gain consisted of $4,004 from equipment credits
of fully depleted wells and $1,295 from equipment credits on a well plugged and
abandoned during 1998. A loss on disposition of assets of $9,441, recognized
during the six months ended June 30, 1998, was due to the abandonment of two
wells. Expenses incurred during the six months ended June 30, 1999 and 1998 to
plug and abandon these wells were $1,813 and $65,758, respectively.
Costs and Expenses:
Total costs and expenses decreased to $344,241 for the six months ended
June 30, 1999 as compared to $547,323 for the same period in 1998, a decrease of
$203,082, or 37%. This decrease was due to reductions in production costs,
abandoned property costs, depletion and general and administrative expenses
("G&A").
Production costs were $271,521 for the six months ended June 30, 1999 and
$360,313 for the same period in 1998, resulting in a $88,792 decrease, or 25%.
The decrease was attributable to declines in well maintenance costs, production
taxes and ad valorem 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, 52% from $21,764 for the six months ended June 30, 1998
to $10,553 for the same period in 1999.
Depletion was $60,354 for the six months ended June 30, 1999 compared to
$99,488 for the same period in 1998, a decrease of $39,134, or 39%. This
decrease was primarily due to an increase in proved reserves during the period
ended June 30, 1999 due to higher commodity prices, a reduction in oil
production of 3,645 barrels for the six months ended June 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> 592
Three months ended June 30, 1999 compared with three months ended June 30,
1998
Revenues:
The Partnership's oil and gas revenues decreased 6% to $198,979 from
$211,467 for the three months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from a decline in production, offset by higher
average prices received. For the three months ended June 30, 1999, 10,807
barrels of oil, 3,090 barrels of NGLs and 12,770 mcf of gas were sold, or 16,025
BOEs. For the three months ended June 30, 1998, 13,131 barrels of oil, 2,945
barrels of NGLs and 14,644 mcf of gas were sold, or 18,517 BOEs.
The average price received per barrel of oil increased $1.78, or 13%, from
$13.37 for the three months ended June 30, 1998 to $15.15 for the same period in
1999. The average price received per barrel of NGLs increased 12% from $5.95
during the three months ended June 30, 1998 to $6.65 for the same period in
1999. The average price received per mcf of gas decreased 9% from $1.26 during
the three months ended June 30, 1998 to $1.15 in 1999.
A loss on disposition of assets of $44,930 was recognized for the three
months ended June 30, 1998 on the abandonment of two oil and gas wells during
1998. Expenses incurred during the three months ended June 30, 1999 and 1998 to
plug and abandon these wells totaled $189 and $18,767, respectively.
Costs and Expenses:
Total costs and expenses decreased to $163,726 for the three months ended
June 30, 1999 as compared to $269,466 for the same period in 1998, a decrease of
$105,740, or 39%. This decrease was due to declines in production costs,
depletion, abandoned property costs and G&A.
Production costs were $137,049 for the three months ended June 30, 1999 and
$176,577 for the same period in 1998, resulting in a $39,528 decrease, or 22%.
The decrease was attributable to lower well maintenance costs, production taxes
and ad valorem taxes.
During this period, G&A decreased, in aggregate, 61% from $15,117 for the
three months ended June 30, 1998 to $5,970 for the same period in 1999.
Depletion was $20,518 for the three months ended June 30, 1999 compared to
$59,005 for the same period in 1998, a decrease of $38,487, or 65%. This
decrease was primarily attributable to an increase in proved reserves during the
period ended June 30, 1999 as a result of higher commodity prices, a reduction
in oil production of 2,324 barrels for the three months ended June 30, 1999 as
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.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $57,472 during the six
months ended June 30, 1999 from the same period in 1998. The decrease was
primarily attributable to a decline in oil and gas sales receipts, offset by
decreases in production costs, abandoned property costs and G&A expenses paid.
Net Cash Provided by Investing Activities
The Partnership's principal investing activities during the six months
ended June 30, 1998 were related to expenditures for oil and gas equipment on
active properties.
Proceeds of $5,273 and $41,810 were received during the six months ended
June 30, 1999 and 1998, respectively. The proceeds recognized during the period
in 1999 were primarily from equipment credits on fully depleted wells. The
proceeds from the period in 1998 were primarily from the sale of oil and gas
equipment on one well abandoned during 1998.
9
<PAGE> 593
Net Cash Used in Financing Activities
Cash was sufficient for the six months ended June 30, 1999 to cover
distributions to the partners of $29,325 of which $293 was distributed to the
managing general partner and $29,032 to the limited partners. For the same
period ended June 30, 1998, cash was sufficient for distributions to the
partners of $128,215 of which $1,282 was distributed to the managing general
partner and $126,933 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 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 early indications that the nations have initiated
their planned reductions, have had some stabilizing effect on commodity prices
during the latter part of the first quarter of 1999 and into August 1999.
However, no assurances can be given that the stabilizing effect of these
actions, or the planned reductions in export volumes, will 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.
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 June 30, 1999, the managing general partner estimates that the
assessment phase is approximately 99% complete and has included, but is not
limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- the formulation of contingency plans for mission-critical information
technology systems.
Through June 30, 1999, the managing general partner had 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 varying 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 June 30, 1999, the managing
10
<PAGE> 594
general partner estimates that the remedial phase is approximately 83% complete,
on a worldwide 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
is expected to be completed by 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 expects to complete the testing of
information technology systems by October 1999. The testing of the
non-information technology remediation is scheduled to be completed by the end
of November 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. As of June 30, 1999, the managing general partner's total costs
incurred on the Year 2000 problem were $2.3 million, of which approximately $200
thousand were incurred to replace non-compliant systems.
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
11
<PAGE> 595
SIGNATURES
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 PRODUCING
PROPERTIES 87-A, LTD.
By: Pioneer Natural Resources USA,
Inc.,
Managing General Partner
By: /s/ RICH DEALY
----------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
Dated: August 5, 1999
12
<PAGE> 596
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 33-11193-1
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-2195512
(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)
</TABLE>
Registrant's Telephone Number, including area code: (915) 683-4768
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($500 PER UNIT)
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]
No market currently exists for the limited partnership interests of the
Registrant. Based on original purchase price the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$12,170,000.
As of March 8, 1999, the number of outstanding limited partnership
interests was 24,426.
The following documents are incorporated by reference into the indicated
parts of this Annual Report on Form 10-K: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 597
Parts I and II of this Report contain 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. See "Item 1.
Business" for a description of various factors that could materially affect the
ability of the Partnership to achieve the anticipated results described in the
forward looking statements.
PART I
ITEM 1. BUSINESS
Parker & Parsley Producing Properties 87-A, Ltd. (the "Partnership") is a
limited partnership organized in 1987 under the laws of the State of Texas. As
of August 8, 1997, Pioneer Natural Resources USA, Inc. ("Pioneer USA") became
the managing general partner of the Partnership. Prior to August 8, 1997, the
Partnership's managing general partner was Parker & Parsley Development L.P.
("PPDLP"), a wholly-owned subsidiary of Parker & Parsley Petroleum Company
("Parker & Parsley"). On August 7, 1997, Parker & Parsley and Mesa Inc. ("Mesa")
received shareholder approval to merge and create Pioneer Natural Resources
Company ("Pioneer"). On August 8, 1997, PPDLP was merged with and into Pioneer
USA, a wholly-owned subsidiary of Pioneer, resulting in Pioneer USA becoming the
managing general partner of the Partnership as PPDLP's successor by merger. For
a more complete description of the Parker & Parsley and Mesa merger, see
Pioneer's Registration Statement on Form S-4 as filed with the Securities &
Exchange Commission.
A Registration statement, as amended, filed pursuant to the Securities Act
of 1933, registering limited partnership interests aggregating $30,000,000 in a
series of Texas limited partnerships formed under the Parker & Parsley Producing
Properties Program-I, was declared effective by the Securities and Exchange
Commission on February 20, 1987. On October 1, 1987, the offering of limited
partnership interests in the Partnership, the first partnership formed under
such statement, was closed, with interests aggregating $12,213,000 being sold to
1,150 subscribers.
The Partnership's primary business plan and objectives are to purchase
producing oil and gas properties and distribute the cash flow from operations to
its partners. The Partnership is not involved in any industry segment other than
oil and gas. See "Item 6. Selected Financial Data" and "Item 8. Financial
Statements and Supplementary Data" of this report for a summary of the
Partnership's revenue, income and identifiable assets.
The principal markets during 1998 for the oil produced by the Partnership
were refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. The principal markets for the
Partnership's gas were companies that have pipelines located near the
Partnership's gas producing properties. Of the Partnership's total oil and gas
revenues for 1998, approximately 66% and 16% were attributable to sales made to
Genesis Crude Oil, L.P. and Phillips Petroleum Company, respectively.
The Partnership's revenues, profitability, cash flow and future rate of
growth are highly dependent on the prevailing prices of oil and gas, which are
affected by numerous factors beyond the Partnership's control. Oil and gas
prices historically have been very volatile. A substantial or extended decline
in the prices of oil or gas could have a material adverse effect on the
Partnership's revenues, profitability and cash flow and could, under certain
circumstances, result in a reduction in the carrying value of the Partnership's
oil and gas properties.
Because of the demand for oil and gas, the Partnership does not believe
that the termination of the sales of its products to any one customer would have
a material adverse impact on its operations. The loss of a particular customer
for gas may have an effect if that particular customer has the only gas pipeline
located in the areas of the Partnership's gas producing properties. The
Partnership believes, however, that the effect would be temporary, until
alternative arrangements could be made.
1
<PAGE> 598
Federal and state regulation of oil and gas operations generally includes
the fixing of maximum prices for regulated categories of natural gas, the
imposition of maximum allowable production rates, the taxation of income and
other items and the protection of the environment. Although the Partnership
believes that its business operations do not impair environmental quality and
that its costs of complying with any applicable environmental regulations are
not currently significant, the Partnership cannot predict what, if any, effect
these environmental regulations may have on its current or future operations.
The Partnership does not have any employees of its own. Pioneer USA employs
818 persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this report is filed. Pioneer
USA supplies all management functions.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the
Partnership conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist primarily of leasehold interests in
properties on which oil and gas wells are located. Such property interests are
often subject to landowner royalties, overriding royalties and other oil and gas
leasehold interests.
The Partnership completed seven purchases of producing properties. These
acquisitions involved the purchase of working interests in 187 properties of
which 93 uneconomical oil and gas wells were plugged and abandoned and seven
wells were sold. The Partnership also participated in the drilling of two oil
and gas wells during 1988 which were completed as producers. During 1997, the
Partnership participated in the recompletion of one well in which Pioneer USA
acquired the deep rights. The Partnership already owned the shallow rights of
the well bore. At December 31, 1998, the Partnership had 90 producing oil and
gas wells.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 1998, 1997 and 1996 and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been estimated by the engineering staff of Pioneer USA and reviewed by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
2
<PAGE> 599
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 8, 1999, the Partnership had 24,426 outstanding limited
partnership interests held of record by 1,111 subscribers. There is no
established public trading market for the limited partnership interests. Under
the limited partnership agreement, Pioneer USA has made certain commitments to
purchase partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are
not required to meet the Partnership's obligations are distributed to the
partners at least quarterly in accordance with the limited partnership
agreement. During the years ended December 31, 1998 and 1997, distributions of
$227,387 and $589,730, respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Oil and gas sales............ $ 807,421 $1,244,727 $1,772,612 $1,533,283 $1,519,879
========== ========== ========== ========== ==========
Litigation settlement, net... $ -- $ -- $ 19,935 $ -- $ --
========== ========== ========== ========== ==========
Impairment of oil and gas
properties................ $ 37,388 $ 420,264 $ 39,087 $ 328,573 $ --
========== ========== ========== ========== ==========
Net income (loss)............ $ (357,482) $ (397,297) $ 984,877 $ (239,782) $ (167,585)
========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general
partner................. $ (3,575) $ (3,973) $ 9,849 $ (2,398) $ (1,676)
========== ========== ========== ========== ==========
Limited partners.......... $ (353,907) $ (393,324) $ 975,028 $ (237,384) $ (165,909)
========== ========== ========== ========== ==========
Limited partners' net income
(loss) per limited
partnership interest...... $ (14.49) $ (16.10) $ 39.92 $ (9.72) $ (6.79)
========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest...... $ 9.31 $ 24.14 $ 36.01(a) $ 18.65 $ 18.10
========== ========== ========== ========== ==========
AT YEAR END:
Total assets................. $1,270,446 $1,871,158 $2,817,583 $2,721,276 $3,421,144
========== ========== ========== ========== ==========
</TABLE>
- ---------------
(a) Including litigation settlement of $.81 per limited partnership interest in
1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1998 compared to 1997
The Partnership's 1998 oil and gas revenues decreased 35% to $807,421 from
$1,244,727 in 1997. The decrease in revenues resulted from lower average prices
received. In 1998, 51,039 barrels of oil, 13,328 barrels of natural gas liquids
("NGLs") and 56,240 mcf of gas were sold, or 73,740 barrel of oil equivalents
("BOEs"). In 1997, 53,651 barrels of oil, 6,067 barrels of NGLs and 88,478 mcf
of gas were sold, or 74,464 BOEs. Due to the decline characteristics of the
Partnership's oil and gas properties, management expects a certain amount of
decline in production in the future until the Partnership's economically
recoverable reserves are fully depleted.
3
<PAGE> 600
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. Effective September 30, 1997, as a result of the
merger with Mesa, the managing general partner accounts for processed natural
gas production in two components: natural gas liquids and dry residue gas. As a
result of the change in the managing general partner's policy, the Partnership
now accounts for processed natural gas production as processed natural gas
liquids and dry residue gas. Consequently, separate product volumes will not be
comparable for 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
year ended December 31, 1998 is the price received for dry residue gas and the
price per mcf for natural gas produced prior to October 1997 was presented as a
price for wet gas (i.e., natural gas liquids combined with dry residue gas).
The average price received per barrel of oil decreased $6.06, or 32%, from
$19.10 in 1997 to $13.04 in 1998. The average price received per barrel of NGLs
decreased $3.20, or 37%, from $8.66 in 1997 to $5.46 in 1998. The average price
received per mcf of gas decreased 35% from $1.90 in 1997 to $1.23 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 in 1998.
The $24,040 gain on disposition of assets for 1998 resulted from $29,099 in
salvage income received during 1998 on properties that were plugged and
abandoned in prior years, offset by a $5,059 loss on the abandonment of two oil
and gas wells and one saltwater disposal well. The $73,308 loss on disposition
of assets for 1997 resulted from $90,257 loss on the abandonment of six oil and
gas wells, offset by $15,512 in salvage income received during 1997 on
properties that were plugged and abandoned in prior years, along with $1,437
proceeds received from the sale of an overriding royalty interest.
Total costs and expenses decreased in 1998 to $1,202,296 as compared to
$1,587,903 in 1997, a decrease of $385,607, or 24%. The decrease was due to
declines in the impairment of oil and gas properties, production costs and
general and administrative expenses ("G&A"), offset by increases in abandoned
property costs and depletion.
Production costs were $682,634 in 1998 and $886,475 in 1997, resulting in a
$203,841 decrease, or 23%. The decrease was due to reductions in workover
expenses, well maintenance costs, and lower production taxes due to declines in
oil and gas revenues.
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, 43%, from $42,687 in 1997 to $24,223 in 1998. The
Partnership paid the managing general partner $10,723 in 1998 and $25,969 in
1997 for G&A incurred on behalf of the Partnership. G&A is allocated, in part,
to the Partnership by the managing general partner. Such allocated expenses are
determined by the managing general partner based upon its judgement of the level
of activity of the Partnership relative to the managing general partner's
activities and other entities it manages. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
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"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. Declining commodity prices prompted
impairment reviews in 1998 and 1997. As a result of the review and evaluation of
its long-lived assets for impairment, the Partnership recognized non-cash
charges of $37,388 and $420,264 related to its oil and gas properties during
1998 and 1997, respectively.
Depletion was $383,398 in 1998 compared to $194,175 in 1997, representing
an increase of $189,223. This increase was the result of a decline in proved
reserves during 1998 due to the lower commodity prices, offset by a reduction in
the Partnership's net depletable basis from charges taken in accordance
4
<PAGE> 601
with SFAS 121 during the fourth quarter of 1997 and a reduction in oil
production of 2,612 barrels for the period ended December 31, 1998 compared to
the same period in 1997.
Abandoned property costs of $74,653 and $44,302 were incurred on the
abandonment of several properties in 1998 and 1997, respectively.
1997 compared to 1996
The Partnership's 1997 oil and gas revenues decreased 30% to $1,244,727
from $1,772,612 in 1996. The decrease in revenues resulted from declines in
production and lower average prices received. In 1997, 53,651 barrels of oil,
6,067 barrels of NGLs and 88,478 mcf of gas were sold, or 74,464 BOEs. In 1996,
68,916 barrels of oil and 139,267 mcf of gas were sold, or 92,127 BOEs.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. As is described above in "Results of
Operations -- 1998 compared to 1997", the Partnership changed its method of
accounting for processed natural gas to a dry gas basis in the fourth quarter of
1997. As a result of this change, the Partnership now accounts for processed
natural gas production as processed natural gas liquids and dry residue gas.
Consequently, 1997 and 1996 separate product volumes are not comparable.
The declines in production volumes were primarily attributable to the
decline characteristics of the Partnership's oil and gas properties.
The average price received per barrel of oil decreased $2.58, or 12%, from
$21.68 in 1996 to $19.10 in 1997. The average price received per barrel of NGLs
was $8.66. The average price received per mcf of gas decreased 5% from $2.00 in
1996 to $1.90 in 1997.
Loss on disposition of assets of $73,308 for 1997 resulted from a loss on
the abandonment of oil and gas wells, offset by salvage income on properties
that were plugged and abandoned in prior years, along with proceeds received
from the sale of an overriding royalty interest. The gain on disposition of
assets of $406,876 for 1996 resulted from a $372,435 gain on the sale of six oil
and gas wells and one saltwater disposal well and $26,126 in salvage income
received during 1996 on properties that were plugged and abandoned in prior
years, along with an $8,315 gain on the abandonment of four oil and gas wells
and two saltwater disposal wells during 1996.
On April 29, 1996, Southmark Corporation, Pioneer USA and the Partnership
entered into a final $7.4 million settlement agreement with Jack N. Price
resolving all outstanding litigation between the parties. As a result, all of
the pending lawsuits and judgments have been dismissed, the supersedeas bond
released, and the Reserve released as collateral. On June 28, 1996, a final
distribution was made to the working interest owners of $19,935 which included
$19,736, or $.81 per limited partnership interest, to the Partnership and its
partners.
Total costs and expenses increased in 1997 to $1,587,903 as compared to
$1,234,335 in 1996, an increase of $353,568, or 29%. The increase was due to the
impairment of oil and gas properties during 1997 and an increase in depletion,
offset by reductions in production costs, G&A and abandoned property costs.
Production costs were $886,475 in 1997 and $900,861 in 1996, resulting in a
$14,386 decrease. The decrease was due to reductions in well maintenance costs
and lower production taxes, offset by an increase in workover expenses.
During this period, G&A decreased, in aggregate, 27%, from $58,525 in 1996
to $42,687 in 1997. The Partnership paid the managing general partner $25,969 in
1997 and $43,261 in 1996 for G&A incurred on behalf of the Partnership.
The Partnership recognized non-cash SFAS 121 impairment provisions of
$420,264 and $39,087 related to its oil and gas properties during the fourth
quarters of 1997 and 1996, respectively.
5
<PAGE> 602
Depletion was $194,175 in 1997 compared to $182,706 in 1996, representing
an increase of $11,469, or 6%. This increase was primarily attributable to the
decrease in oil reserves during 1997 as a result of lower commodity prices,
offset by a decline in oil production of 15,265 barrels for 1997 as compared to
1996.
Abandoned property costs of $44,302 and $53,156 were incurred on the
abandonment of several properties in 1997 and 1996, respectively.
IMPACT OF INFLATION AND CHANGING PRICES ON SALES AND NET INCOME
Inflation impacts the fixed overhead rate charges of the lease operating
expenses for the Partnership. During 1998, the annual change in the index of
average weekly earnings of crude petroleum and gas production workers issued by
the U.S. Department of Labor, Bureau of Labor Statistics increased (effective
April 1, 1998) 10.3%. The 1997 annual change in average weekly earnings
increased by 2%. The 1996 index increased 4.1%. The impact of inflation for
other lease operating expenses is small due to the current economic condition of
the oil industry.
The oil and gas industry experienced volatility during the past decade
because of the fluctuation of the supply of most fossil fuels relative to the
demand for such products and other uncertainties in the world energy markets
causing significant fluctuations in oil and gas prices. During 1998, the price
per barrel for oil production similar to the Partnership's ranged from
approximately $9.50 to $15.50. During most of 1997 and 1996, 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 March 1999. On March 8, 1999, the market price for West Texas intermediate
crude was $11.00 per barrel. A continuation of the current commodity price
environment will continue to have an adverse effect on the Partnership's
revenues, operating cash flow and distributions and could result in additional
decreases in the carrying value of the Partnership's oil and gas properties.
Prices for natural gas are subject to ordinary seasonal fluctuations, and
this volatility of natural gas prices may result in production being curtailed
and, in some cases, wells being completely shut-in.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $303,124 during the
year ended December 31, 1998 from the year ended December 31, 1997. The decrease
was primarily due to declines in oil and gas sales receipts and an increase in
abandonment costs, offset by declines in production costs and G&A expenses paid.
Net Cash Provided by Investing Activities
The Partnership's investing activities during 1998 and 1997 were related to
the addition of oil and gas equipment on active properties.
Proceeds from disposition of assets of $83,839 for 1998 were comprised of
$77,842 from salvage income from the disposal of oil and gas equipment on
abandoned properties and $5,997 from the equipment credits received on active
properties. Proceeds from disposition of assets of $65,165 recognized during
1997 consisted of $63,728 from salvage income from the disposal of oil and gas
equipment on abandoned properties and proceeds of $1,437 from the sale of an
overriding royalty interest.
Net Cash Used in Financing Activities
Cash was sufficient in 1998 for distributions to the partners of $229,684
of which $2,297 was distributed to the managing general partner and $227,387 to
the limited partners. In 1997, cash was sufficient for distributions to the
partners of $595,687 of which $5,957 was distributed to the managing general
partner and $589,730 to the limited partners.
6
<PAGE> 603
The current commodity price environment will continue to impact the
distributions and could result in limited or no distributions to the partners.
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.
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
at varying stages of completion as it pertains to information technology and
non-information technology applications and systems in the United States, Canada
and Argentina. As of December 31, 1998, the managing general partner estimates
that the assessment phase is approximately 86% complete, on a worldwide basis,
and has included, but is not limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- 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 to
approximately 37% of those inquiries.
The remedial phase of the managing general partner's Year 2000 project is
also at varying 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 December 31, 1998, the
managing general partner estimates that the remedial phase is approximately 54%
complete, on a worldwide basis, subject to the continuing 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 through remedial coding and is currently testing this system for Year
2000 compliance. The remediation of non-information technology is expected to be
completed during July 1999. The managing
7
<PAGE> 604
general partner's Year 2000 remedial actions have not significantly 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 and non-information technology remediation by the end of the third
quarter of 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. The managing general partner intends to use its working capital to pay
for the costs of the Year 2000 projects. As of December 31, 1998, the managing
general partner's total costs incurred on the Year 2000 problem were $1.8
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 in accordance with the general and
administration allocation. (See Note 2 of Notes to Financial Statements included
in "Item 8. Financial Statements and Supplementary Data".)
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 assessment phase of the managing general partner's Year 2000
project, contingency plans are being 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.
8
<PAGE> 605
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Parker & Parsley Producing
Properties 87-A, Ltd:
Independent Auditors' Report -- Ernst & Young LLP......... 10
Independent Auditors' Report -- KPMG LLP.................. 11
Balance Sheets as of December 31, 1998 and 1997........... 12
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996.................................... 13
Statements of Partners' Capital for the Years Ended
December 31, 1998, 1997 and 1996....................... 14
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996.................................... 15
Notes to Financial Statements............................. 16
</TABLE>
9
<PAGE> 606
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley Producing Properties 87-A, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheet of Parker & Parsley Producing Properties
87-A, Ltd. as of December 31, 1998, and the related statements of operations,
partners' capital and cash flows for the year then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley Producing
Properties 87-A, Ltd. as of December 31, 1998, and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Dallas, Texas
March 15, 1999
10
<PAGE> 607
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley Producing Properties 87-A, Ltd.
(A Texas Limited Partnership):
We have audited the financial statements of Parker & Parsley Producing
Properties 87-A, Ltd. as of December 31, 1997, and the related statements of
operations, partners' capital and cash flows for the years ended December 31,
1997 and 1996. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley Producing
Properties 87-A, Ltd. as of December 31, 1997, and the results of its operations
and its cash flows for the years ended December 31, 1997 and 1996, in conformity
with generally accepted accounting principles.
KPMG LLP
Midland, Texas
March 20, 1998
11
<PAGE> 608
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 183,223 $ 219,515
Accounts receivable -- oil and gas sales.................. 115,182 210,508
----------- -----------
Total current assets.............................. 298,405 430,023
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method.............................. 5,871,539 6,060,618
Accumulated depletion..................................... (4,899,498) (4,619,483)
----------- -----------
Net oil and gas properties........................ 972,041 1,441,135
----------- -----------
$ 1,270,446 $ 1,871,158
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 33,013 $ 46,559
Partners' capital:
Managing general partner.................................. 13,615 19,487
Limited partners (24,426 interests)....................... 1,223,818 1,805,112
----------- -----------
1,237,433 1,824,599
----------- -----------
$ 1,270,446 $ 1,871,158
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 609
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Oil and gas............................................ $ 807,421 $1,244,727 $1,772,612
Interest............................................... 13,353 19,187 19,789
Litigation settlement.................................. -- -- 19,935
Gain (loss) on disposition of assets................... 24,040 (73,308) 406,876
---------- ---------- ----------
844,814 1,190,606 2,219,212
---------- ---------- ----------
Costs and expenses:
Oil and gas production................................. 682,634 886,475 900,861
General and administrative............................. 24,223 42,687 58,525
Impairment of oil and gas properties................... 37,388 420,264 39,087
Depletion.............................................. 383,398 194,175 182,706
Abandoned property..................................... 74,653 44,302 53,156
---------- ---------- ----------
1,202,296 1,587,903 1,234,335
---------- ---------- ----------
Net income (loss)........................................ $ (357,482) $ (397,297) $ 984,877
========== ========== ==========
Allocation of net income (loss):
Managing general partner............................... $ (3,575) $ (3,973) $ 9,849
========== ========== ==========
Limited partners....................................... $ (353,907) $ (393,324) $ 975,028
========== ========== ==========
Net income (loss) per limited partnership interest....... $ (14.49) $ (16.10) $ 39.92
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 610
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Partners' capital at January 1, 1996....................... $28,454 $2,692,822 $2,721,276
Distributions............................................ (8,886) (879,684) (888,570)
Net income............................................... 9,849 975,028 984,877
------- ---------- ----------
Partners' capital at December 31, 1996..................... 29,417 2,788,166 2,817,583
Distributions............................................ (5,957) (589,730) (595,687)
Net loss................................................. (3,973) (393,324) (397,297)
------- ---------- ----------
Partners' capital at December 31, 1997..................... 19,487 1,805,112 1,824,599
Distributions............................................ (2,297) (227,387) (229,684)
Net loss................................................. (3,575) (353,907) (357,482)
------- ---------- ----------
Partners' capital at December 31, 1998..................... $13,615 $1,223,818 $1,237,433
======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 611
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $(357,482) $(397,297) $ 984,877
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Impairment of oil and gas properties................. 37,388 420,264 39,087
Depletion............................................ 383,398 194,175 182,706
(Gain) loss on disposition of assets................. (24,040) 73,308 (406,876)
Changes in assets and liabilities:
Accounts receivable.................................. 95,326 155,826 (94,936)
Accounts payable..................................... (13,546) (22,108) (144,265)
--------- --------- ---------
Net cash provided by operating activities....... 121,044 424,168 560,593
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas equipment...................... (11,491) (1,574) --
Proceeds from disposition of assets..................... 83,839 65,165 521,840
--------- --------- ---------
Net cash provided by investing activities....... 72,348 63,591 521,840
--------- --------- ---------
Cash flows from financing activities:
Cash distributions to partners.......................... (229,684) (595,687) (888,570)
--------- --------- ---------
Net increase (decrease) in cash........................... (36,292) (107,928) 193,863
Cash at beginning of year................................. 219,515 327,443 133,580
--------- --------- ---------
Cash at end of year....................................... $ 183,223 $ 219,515 $ 327,443
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 612
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley Producing Properties 87-A, Ltd. (the "Partnership") is a
limited partnership organized in 1987 under the laws of the State of Texas. As
of August 8, 1997, Pioneer Natural Resources USA, Inc. ("Pioneer USA") became
the managing general partner of the Partnership. Prior to August 8, 1997, the
Partnership's managing general partner was Parker & Parsley Development L.P.
("PPDLP"), a wholly-owned subsidiary of Parker & Parsley Petroleum Company
("Parker & Parsley"). On August 7, 1997, Parker & Parsley and Mesa Inc. received
shareholder approval to merge and create Pioneer Natural Resources Company
("Pioneer"). On August 8, 1997, PPDLP was merged with and into Pioneer USA, a
wholly-owned subsidiary of Pioneer, resulting in Pioneer USA becoming the
managing general partner of the Partnership as PPDLP's successor by merger.
The Partnership engages primarily in oil and gas production in Texas and is
not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties -- The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as determined by the engineering staff of Pioneer
USA, the Partnership's managing general partner, and reviewed by independent
petroleum consultants. The carrying amounts of properties sold or otherwise
disposed of and the related allowances for depletion are eliminated from the
accounts and any gain or loss is included in operations.
Impairment of long-lived assets -- 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"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -- Preparation
of the accompanying financial statements 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 reporting amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest -- The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes -- A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
16
<PAGE> 613
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statements of cash flows -- For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses -- General and administrative expenses
are allocated in part to the Partnership by the managing general partner or its
affiliates. Such allocated expenses are determined by the managing general
partner based upon its judgement of the level of activity of the Partnership
relative to the managing general partner's activities and other entities it
manages. The method of allocation has been consistent over the past several
years with certain modifications incorporated to reflect changes in Pioneer
USA's overall business activities.
Reclassifications -- Certain reclassifications may have been made to the
1997 and 1996 financial statements to conform to the 1998 financial statement
presentations.
Environmental -- The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of the cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 1998.
Revenue recognition -- The Partnership uses the entitlements method of
accounting for crude oil and natural gas revenues.
Reporting comprehensive income -- Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes
standards for the reporting and display of comprehensive income (loss) and its
components in a full set of general purpose financial statements. Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss).
The Partnership has no items of other comprehensive income (loss), as defined by
SFAS No. 130. Consequently, the provisions of SFAS No. 130 do not apply to the
Partnership.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. Based upon a decline in the Partnership's outlook for future
commodity prices, the Partnership has estimated the expected future cash flows
of its oil and gas properties as of December 31, 1998, 1997 and 1996, and
compared such estimated future cash flows to the respective carrying amount of
the oil and gas properties to determine if the carrying amounts were likely to
be recoverable. For those proved oil and gas properties for which the carrying
amount exceeded the estimated future cash flows, an impairment was determined to
exist; therefore, the Partnership adjusted the carrying amount of those oil and
gas properties to their fair value as determined by discounting their expected
future cash flows at a discount rate commensurate with the risks involved in the
industry. As a result, the Partnership recognized non-cash impairment provisions
of $37,388, $420,264 and $39,087 related to its proved oil and gas properties
during 1998, 1997 and 1996, respectively.
17
<PAGE> 614
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $1,401,783 less than the tax basis at December 31, 1998.
The following is a reconciliation of net income (loss) per statements of
operations with the net income (loss) per Federal income tax returns for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ----------
<S> <C> <C> <C>
Net income (loss) per statements of operations.... $(357,482) $(397,297) $ 984,877
Depletion and depreciation provisions for tax
reporting purposes (greater than) less than
amounts for financial reporting purposes........ (84,454) (884) 52,744
Impairment of oil and gas properties for financial
reporting purposes.............................. 37,388 420,264 39,087
Other, net........................................ 4,922 99,981 (50,161)
--------- --------- ----------
Net income (loss) per Federal income tax
returns............................... $(399,626) $ 122,064 $1,026,547
========= ========= ==========
</TABLE>
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the net costs incurred, whether capitalized
or expensed, related to the Partnership's oil and gas producing activities for
the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- --------
<S> <C> <C> <C>
Property acquisition costs............................ $11,491 $(27,011) $(39,070)
======= ======== ========
Development costs..................................... $ -- $ 9,157 $ 2,494
======= ======== ========
</TABLE>
Capitalized oil and gas properties consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Proved properties:
Property acquisition costs............................... $ 5,194,307 $ 5,383,386
Completed wells and equipment............................ 677,232 677,232
----------- -----------
5,871,539 6,060,618
Accumulated depletion...................................... (4,899,498) (4,619,483)
----------- -----------
Net capitalized costs............................ $ 972,041 $ 1,441,135
=========== ===========
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $292,539 $334,692 $357,101
Reimbursement of general and administrative
expenses........................................... $ 10,723 $ 25,969 $ 43,261
</TABLE>
18
<PAGE> 615
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
P&P Employees Producing Properties 87-A ("EMPL") and the Partnership are parties
to the Program agreement. EMPL is a general partnership organized for the
benefit of certain employees of Pioneer USA.
The costs and revenues of the Program are allocated to Pioneer USA, EMPL
and the Partnership as follows:
<TABLE>
<CAPTION>
PIONEER USA(1)
AND EMPL PARTNERSHIP
-------------- -----------
<S> <C> <C>
Revenues:
Revenues from oil and gas production, proceeds from sales
of producing properties and all other revenues:
Before payout............................................ 4.040405% 95.959595%
After payout............................................. 19.191920% 80.808080%
Costs and expenses:
Property acquisition costs, operating costs, general and
administrative expenses and other costs:
Before payout............................................ 4.040405% 95.959595%
After payout............................................. 19.191920% 80.808080%
</TABLE>
- ---------------
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at
the Partnership level and 86 limited partner interests owned by Pioneer USA.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 1998, 1997 and 1996 and
changes in such quantities during the years then ended. Due to a change in the
accounting policy of the managing general partner in 1997, the Partnership began
accounting for processed natural gas production in two components: processed
natural gas liquids ("NGLs") and dry residue gas. NGLs are reflected in "Oil and
NGLs" in the table below. All of the Partnership's reserves are proved developed
and located within the United States. The Partnership's reserves are based on an
evaluation prepared by the engineering staff of Pioneer USA and reviewed by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant,
using criteria established by
19
<PAGE> 616
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the Securities and Exchange Commission. Reserve value information is available
to limited partners pursuant to the Partnership agreement and, therefore, is not
presented.
<TABLE>
<CAPTION>
OIL AND NGLS GAS
(BBLS) (MCF)
------------ ----------
<S> <C> <C>
Net proved reserves at January 1, 1996...................... 767,049 2,738,573
Revisions................................................... 141,927 456,136
Sale of reserves............................................ (28,078) (145,763)
Production.................................................. (68,916) (139,267)
-------- ----------
Net proved reserves at December 31, 1996.................... 811,982 2,909,679
Revisions................................................... (32,475) (1,824,446)
Production.................................................. (59,718) (88,478)
-------- ----------
Net proved reserves at December 31, 1997.................... 719,789 996,755
Revisions................................................... (302,841) (385,883)
Production.................................................. (64,367) (56,240)
-------- ----------
Net proved reserves at December 31, 1998.................... 352,581 554,632
======== ==========
</TABLE>
As of December 31, 1998, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 1998 prices of $10.61 per
barrel of oil, $5.08 per barrel of NGLs and $1.34 per mcf of gas, discounted at
10% was approximately $639,000 and undiscounted was $962,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Genesis Crude Oil, L.P. .................................... 66% 65% 66%
Phillips Petroleum Company.................................. 16% 17% 17%
</TABLE>
At December 31, 1998, the amounts receivable from Genesis Crude Oil, L.P.
and Phillips Petroleum Company were $43,600 and $15,986, respectively, which are
included in the caption "Accounts receivable -- oil and gas sales" in the
accompanying Balance Sheet.
The Partnership's share of oil and gas production is sold to various
purchasers. Pioneer USA is of the opinion that the loss of any one purchaser
would not have an adverse effect on the ability of the Partnership to sell its
oil and gas production.
20
<PAGE> 617
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. ORGANIZATION AND OPERATIONS
The Partnership was organized October 1, 1987 as a limited partnership
under the Texas Uniform Limited Partnership Act for the purpose of acquiring
producing properties. The following is a brief summary of the more significant
provisions of the limited partnership agreement:
Managing general partner -- The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Partnership affairs. As managing general
partner and operator of the Partnership's properties, all production
expenses are incurred by Pioneer USA and billed to the Partnership and a
portion of revenue is initially received by Pioneer USA prior to being paid
to the Partnership. Under the limited partnership agreement, the managing
general partner pays 1% of the Partnership's acquisition, drilling and
completion costs and 1% of its operating and general and administrative
expenses. In return, it is allocated 1% of the Partnership's revenues.
Limited partner liability -- The maximum amount of liability of any
limited partner is the total contributions of such partner plus his share
of any undistributed profits.
Initial capital contributions -- The limited partners entered into
subscription agreements for aggregate capital contributions of $12,213,000.
Pioneer USA is required to contribute amounts equal to 1% of initial
Partnership capital less commission and organization and offering costs
allocated to the limited partners and to contribute amounts necessary to
pay costs and expenses allocated to it under the Partnership agreement to
the extent its share of revenues does not cover such costs.
NOTE 10. DISPOSITION OF ASSETS
The gain on disposition of assets of $24,040 recognized in 1998 resulted
from $29,099 in salvage income received during 1998 on properties that were
plugged and abandoned in prior years, offset by a $5,059 loss on the abandonment
of two oil and gas wells and one saltwater disposal well. The loss on
disposition of assets of $73,308 recognized during 1997 was primarily due to the
abandonment of six oil and gas wells. During 1996, gain on disposition of assets
primarily resulted from a gain of $372,435 realized from the sale of six oil and
gas wells and one saltwater disposal well. The gain resulted from proceeds
received from the sale of $436,821 less the write-off of remaining capitalized
well costs of $64,386.
21
<PAGE> 618
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and
executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve
until the next annual meeting of stockholders or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31,
NAME 1998 POSITION
- ---- ------------ --------
<S> <C> <C>
Scott D. Sheffield................. 46 President and Director
Timothy L. Dove.................... 42 Executive Vice President and
Director
Dennis E. Fagerstone............... 49 Executive Vice President and
Director
Mark L. Withrow.................... 51 Executive Vice President, General
Counsel and Director
M. Garrett Smith................... 37 Executive Vice President, Chief
Financial Officer and Director
Mel Fischer(a)..................... 64 Executive Vice President
Lon C. Kile........................ 43 Executive Vice President
Rich Dealy......................... 32 Vice President and Chief Accounting
Officer
</TABLE>
- ---------------
(a) Mr. Fischer was a director and officer until his retirement from Pioneer
and Pioneer USA on February 19, 1999.
Scott D. Sheffield. Mr. Sheffield is a distinguished graduate of The
University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he
has served as President, Chief Executive Officer and a director of Pioneer and
President and a director of Pioneer USA. Mr. Sheffield was the President and a
director of Parker & Parsley from May 1990 until August 1997 and was the
Chairman of the Board and Chief Executive Officer of Parker & Parsley from
October 1990 until August 1997. He was the sole director of Parker & Parsley
from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley
Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum
engineer in 1979. He served as Vice President -- Engineering of PPDC from
September 1981 until April 1985 when he was elected President and a director. In
March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive
Officer of PPDC. Before joining PPDC, Mr. Sheffield was employed as a production
and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President -- Business
Development of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. Mr. Dove joined Parker & Parsley in May
1994 as Vice President -- International and was promoted to Senior Vice
President -- Business Development in October 1996, in which position he served
until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with
Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various
capacities in international exploration and production, marketing, refining and
marketing and planning and development. Mr. Dove earned a B.S. in Mechanical
Engineering from Massachusetts Institute of Technology in 1979 and received his
M.B.A. in 1981 from the University of Chicago.
22
<PAGE> 619
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of Mesa from March 1, 1997 until August 1997. From October
1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief
Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice
President -- Exploration and Production of Mesa. From June 1988 to May 1991, Mr.
Fagerstone served as Vice President -- Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B.S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President -- General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President -- General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
M. Garrett Smith. Mr. Smith, a graduate of The University of Texas with a
B.S. in Electrical Engineering and Southern Methodist University with an M.B.A.,
was appointed Executive Vice President and Chief Financial Officer of Pioneer in
December 1997. He served as Senior Vice President -- Finance of Pioneer from
August 1997 until December 1997. Mr. Smith was elected Senior Vice President --
Finance and a director of Pioneer USA in August 1997. He served as Vice
President -- Corporate Acquisitions of Mesa from January 1997 until August 1997.
From October 1996 to December 1996, Mr. Smith served as Vice
President -- Finance of Mesa and from 1994 to 1996 he served as Director of
Financial Planning of Mesa. Mr. Smith was employed by BTC Partners, Inc. (a
former financial advisor to Mesa) from 1989 to 1994.
Mel Fischer. Mr. Fischer, a graduate of the University of California at
Berkeley with a Masters degree in Geology, became Executive Vice
President -- Worldwide Exploration of Pioneer and Pioneer USA in August 1997. He
served as a director of Parker & Parsley from November 1995 until August 1997
and was Executive Vice President -- Worldwide Exploration for Parker & Parsley
from February 1997 to August 1997. Mr. Fischer retired from Pioneer and Pioneer
USA effective February 15, 1999. He worked in the petroleum industry for 32
years, starting as a Petroleum Geologist with Texaco in 1962, and retiring as
President, Occidental International Exploration and Production Company in March
1994. For the 10 years prior to becoming President of Occidental International,
he served as Executive Vice President, World Wide Exploration with Occidental
Oil and Gas Corporation. He is a registered geologist in the State of
California, a member of the American Association of Petroleum Geologists and an
emeritus member of the Board of Advisors for the Earth Sciences Research
Institute at the University of Utah.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a
B.B.A. in Accounting, became Executive Vice President of Pioneer and Pioneer USA
in August 1997. Mr. Kile was Senior Vice President -- Investor Relations from
October 1996 to August 1997. Previously, he served as Vice President and Manager
of the Mid-Continent Division, Vice President -- Equity Finance & Analysis and
Vice President -- Marketing & Program Administration. Prior to joining Parker &
Parsley in 1985, he was employed as Supervisor -- Senior, Audit, in charge of
Parker & Parsley's audit, with Arthur Young.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a
B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became
Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
23
<PAGE> 620
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is vested in Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the limited
partnership agreement, Pioneer USA pays 1% of the Partnership's acquisition,
drilling and completion costs and 1% of its operating and general and
administrative expenses. In return, Pioneer USA is allocated 1% of the
Partnership's revenues. See Notes 6 and 9 of Notes to Financial Statements
included in "Item 8. Financial Statements and Supplementary Data" for
information regarding fees and reimbursements paid to the managing general
partner or its affiliates by the Partnership.
The Partnership does not directly pay any salaries of the executive
officers of Pioneer USA, but does pay a portion of Pioneer USA's general and
administrative expenses of which these salaries are a part. See Note 6 of Notes
to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more
of the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 86 limited partnership interests at January 1, 1999.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing
general partner of the Partnership, Pioneer USA, has the exclusive right and
full authority to manage, control and administer the Partnership's business.
Under the limited partnership agreement, limited partners holding a majority of
the outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer of director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner or its affiliates
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $292,539 $334,692 $357,101
Reimbursement of general and administrative
expenses........................................... $ 10,723 $ 25,969 $ 43,261
</TABLE>
Under the limited partnership agreement, the managing general partner pays
1% of the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
24
<PAGE> 621
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial statements
The following are filed as part of this annual report:
Independent Auditors' Report -- Ernst & Young LLP
Independent Auditors' Report -- KPMG LLP
Balance sheets as of December 31, 1998 and 1997
Statements of operations for the years ended December 31, 1998, 1997
and 1996
Statements of partners' capital for the years ended December 31, 1998,
1997 and 1996
Statements of cash flows for the years ended December 31, 1998, 1997
and 1996
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this annual report.
25
<PAGE> 622
SIGNATURES
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 PRODUCING
PROPERTIES 87-A, LTD.
By: Pioneer Natural Resources USA,
Inc.
Managing General Partner
By: /s/ SCOTT D. SHEFFIELD
----------------------------------
Scott D. Sheffield,
President
Dated: March 29, 1999
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 date indicated.
<TABLE>
<C> <S> <C>
/s/ SCOTT D. SHEFFIELD President and Director of Pioneer March 29, 1999
- ------------------------------------------------ USA
Scott D. Sheffield
/s/ TIMOTHY L. DOVE Executive Vice President and March 29, 1999
- ------------------------------------------------ Director of Pioneer USA
Timothy L. Dove
/s/ DENNIS E. FAGERSTONE Executive Vice President and March 29, 1999
- ------------------------------------------------ Director of Pioneer USA
Dennis E. Fagerstone
/s/ MARK L. WITHROW Executive Vice President, General March 29, 1999
- ------------------------------------------------ Counsel and Director of Pioneer
Mark L. Withrow USA
/s/ M. GARRETT SMITH Executive Vice President, Chief March 29, 1999
- ------------------------------------------------ Financial Officer and Director of
M. Garrett Smith Pioneer USA
/s/ LON C. KILE Executive Vice President of Pioneer March 29, 1999
- ------------------------------------------------ USA
Lon C. Kile
/s/ RICH DEALY Vice President and Chief Accounting March 29, 1999
- ------------------------------------------------ Officer of Pioneer USA
Rich Dealy
</TABLE>
26
<PAGE> 623
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3(a) -- Amended and Restated Certificate of Limited Partnership
of Parker & Parsley Producing Properties 87-A, Ltd.
incorporated by reference to Exhibit 3a of Amendment No.
1 of the Partnership's Registration Statement on Form S-1
(Registration No. 33-11193)
4(a) -- Agreement of Limited Partnership of Parker & Parsley
Producing Properties 87-A, Ltd. incorporated by reference
to Exhibit A of Amendment No. 1 of the Partnership's
Registration Statement on Form S-1 (Registration No.
33-11193)
4(b) -- Subscription Agreement incorporated by reference to
Exhibit C of Amendment No. 1 of the Partnership's
Registration Statement on Form S-1 (Registration No.
33-11193)
4(b) -- Power of Attorney incorporated by reference to Exhibit B
of Amendment No. 1 of the Partnership's Registration
Statement on Form S-1 (Registration No. 33-11193)
4(c) -- Specimen Certificate of Limited Partnership Interest
incorporated by reference to Exhibit 4c of the
Partnership's Registration Statement on Form S-1
(Registration No. 33-11193)
10(b) -- Program Agreement incorporated by reference to Exhibit B
of Amendment No. 1 of the Partnership's Registration
Statement on Form S-1 (Registration No. 33-11193)
27.1* -- Financial Data Schedule
99.1 -- Mutual Release and Indemnity Agreement dated May 25, 1993
incorporated by reference to Exhibit 99.1 of the
Partnership's Annual Report on Form 10-K for the year
ended December 31, 1993
</TABLE>
- ---------------
* Filed herewith
27
<PAGE> 624
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
DECEMBER 31, 1998, 1997 AND 1996
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. Future income taxes are calculated by comparing
discounted future cash flows to the tax basis of oil and gas properties plus
available carryforwards and credits and applying the current tax rates to the
difference.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and gas producing activities:
Future cash inflows....................................... $ 3,739 $13,330 $ 34,655
Future production costs................................... (2,777) (8,525) (19,483)
Future development costs.................................. -- -- 421
------- ------- --------
962 4,805 15,593
10% annual discount factor................................ (323) (2,058) (7,776)
------- ------- --------
Standardized measure of discounted future net cash
flows.................................................. $ 639 $ 2,747 $ 7,817
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1998 1997 1996
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs................ $ (125) $ (358) $ (872)
Net changes in prices and production costs................ (1,687) (3,587) 3,128
Extensions and discoveries................................ -- -- --
Sales of minerals-in-place................................ -- -- (159)
Purchases of minerals-in-place............................ -- -- --
Revisions of estimated future development costs........... -- (240) (247)
Revisions of previous quantity estimates and reserves
added by development drilling.......................... (453) (1,443) 2,259
Accretion of discount..................................... 275 781 406
Changes in production rates, timing and other............. (118) (223) (761)
------- ------- --------
Change in present value of future net revenues............ (2,108) (5,070) 3,754
------- ------- --------
Balance, beginning of year................................ 2,747 7,817 4,063
------- ------- --------
Balance, end of year...................................... $ 639 $ 2,747 $ 7,817
======= ======= ========
</TABLE>
<PAGE> 625
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 87-B, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT DATED , 1999
----------------------
THE DATE OF THIS SUPPLEMENT IS , 1999
----------------------
This document contains important information specific to Parker & Parsley
87-B, Ltd. and supplements the proxy statement dated , 1999, of
Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies
to be voted at a special meeting of limited partners of the partnerships
described in the proxy statement. The purpose of the special meeting is for you
to vote upon the merger of Parker & Parsley 87-B, Ltd. with and into Pioneer USA
that, if completed, will result in your receiving cash for your partnership
interests.
This supplement contains the following information concerning Parker &
Parsley 87-B, Ltd.:
- A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through June
30, 1999
-- the merger value per $1,000 limited partner investment as of June 30,
1999
-- the merger value per $1,000 limited partner investment as a multiple
of distributions for the 12 months ended June 30, 1999
-- the book value per $1,000 limited partner investment as of June 30,
1999 and as of December 31, 1998 and
-- the ordinary tax loss per $1,000 limited partner investment in year
of initial investment
- Quarterly Report on Form 10-Q for the six months ended June 30, 1999
- Annual Report on Form 10-K for the year ended December 31, 1998
- Disclosures about the partnership's oil and gas producing activities
<PAGE> 626
PARKER & PARSLEY 87-B, LTD.
SUPPLEMENTAL INFORMATION TABLE
<TABLE>
<S> <C>
Aggregate Initial Investment by the Limited Partners(a)..... $20,089
Aggregate Historical Limited Partner Distributions through
June 30, 1999(a).......................................... $23,271
Merger Value per $1,000 Limited Partner Investment as of
June 30, 1999(b).......................................... $131.44
Merger Value per $1,000 Limited Partner Investment as a
Multiple of Distributions for the 12 Months ended June 30,
1999(b)................................................... 10.14times
Book Value per $1,000 Limited Partner Investment:
-- as of June 30, 1999(b)................................. $142.92
-- as of December 31, 1998(b)............................. $146.03
Ordinary Tax Loss per $1,000 Limited Partner Investment in
Year of Initial Investment(b), (c)........................ $ 445
</TABLE>
- ---------------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as any
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
<PAGE> 627
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JUNE 30, 1999
COMMISSION FILE NO. 33-12244-02
PARKER & PARSLEY 87-B, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-2185706
(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)
</TABLE>
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> 628
PARKER & PARSLEY 87-B, LTD.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1999 and December 31,
1998.................................................. 3
Statements of Operations for the three and six months
ended June 30, 1999 and 1998.......................... 4
Statement of Partners' Capital for the six months ended
June 30, 1999......................................... 5
Statements of Cash Flows for the six months ended June
30, 1999 and 1998..................................... 6
Notes to Financial Statements.......................... 7
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................. 8
PART II. OTHER INFORMATION
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K..................... 11
27.1 Financial Data Schedule
Signatures............................................. 12
</TABLE>
2
<PAGE> 629
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER & PARSLEY 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 250,978 $ 221,422
Accounts receivable -- oil and gas sales.................. 160,987 116,033
------------ ------------
Total current assets.............................. 411,965 337,455
------------ ------------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 13,378,453 13,370,742
Accumulated depletion....................................... (10,850,497) (10,723,851)
------------ ------------
Net oil and gas properties........................ 2,527,956 2,646,891
------------ ------------
$ 2,939,921 $ 2,984,346
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 39,835 $ 21,253
Partners' capital:
Managing general partner.................................. 28,929 29,559
Limited partners (20,089 interests)....................... 2,871,157 2,933,534
------------ ------------
2,900,086 2,963,093
------------ ------------
$ 2,939,921 $ 2,984,346
============ ============
</TABLE>
The financial information included as of June 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
<PAGE> 630
PARKER & PARSLEY 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas...................................... $267,074 $235,929 $458,623 $511,361
Interest......................................... 2,625 3,673 4,899 7,433
Gain on disposition of assets.................... -- 235 -- 13,728
-------- -------- -------- --------
269,699 239,837 463,522 532,522
-------- -------- -------- --------
Costs and expenses:
Oil and gas production........................... 158,350 154,727 302,253 315,652
General and administrative....................... 8,012 7,078 13,759 15,341
Depletion........................................ 49,069 81,439 126,646 159,264
Abandoned property............................... -- 95 -- 3,943
-------- -------- -------- --------
215,431 243,339 442,658 494,200
-------- -------- -------- --------
Net income (loss).................................. $ 54,268 $ (3,502) $ 20,864 $ 38,322
======== ======== ======== ========
Allocation of net income (loss):
Managing general partner......................... $ 543 $ (35) $ 209 $ 383
======== ======== ======== ========
Limited partners................................. $ 53,725 $ (3,467) $ 20,655 $ 37,939
======== ======== ======== ========
Net income (loss) per limited partnership
interest......................................... $ 2.68 $ (.17) $ 1.03 $ 1.89
======== ======== ======== ========
Distributions per limited partnership interest..... $ 2.28 $ 4.64 $ 4.13 $ 12.44
======== ======== ======== ========
</TABLE>
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> 631
PARKER & PARSLEY 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1, 1999................................. $29,559 $2,933,534 $2,963,093
Distributions............................................ (839) (83,032) (83,871)
Net income............................................... 209 20,655 20,864
------- ---------- ----------
Balance at June 30, 1999................................... $28,929 $2,871,157 $2,900,086
======= ========== ==========
</TABLE>
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> 632
PARKER & PARSLEY 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 20,864 $ 38,322
Adjustments to reconcile net income to net cash provided
by operating activities:
Depletion.............................................. 126,646 159,264
Gain on disposition of assets.......................... -- (13,728)
Changes in assets and liabilities:
Accounts receivable.................................... (44,954) 56,968
Accounts payable....................................... 18,582 5,921
-------- ---------
Net cash provided by operating activities......... 121,138 246,747
-------- ---------
Cash flows from investing activities:
Additions to oil and gas properties....................... (7,711) (15,464)
Proceeds from asset dispositions.......................... -- 13,728
-------- ---------
Net cash used in investing activities............. (7,711) (1,736)
-------- ---------
Cash flows used in financing activities:
Cash distributions to partners............................ (83,871) (252,506)
-------- ---------
Net increase (decrease) in cash............................. 29,556 (7,495)
Cash at beginning of period................................. 221,422 268,802
-------- ---------
Cash at end of period....................................... $250,978 $ 261,307
======== =========
</TABLE>
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> 633
PARKER & PARSLEY 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 87-B, Ltd. (the "Partnership") is a limited partnership
organized in 1987 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 June 30, 1999 and for the three and six months ended June 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.
7
<PAGE> 634
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
RESULTS OF OPERATIONS
Six months ended June 30, 1999 compared with six months ended June 30, 1998
Revenues:
The Partnership's oil and gas revenues decreased 10% to $458,623 from
$511,361 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from lower average prices received and a decrease
in production. For the six months ended June 30, 1999, 23,002 barrels of oil,
11,929 barrels of natural gas liquids ("NGLs") and 51,130 mcf of gas were sold,
or 43,453 barrel of oil equivalents ("BOEs"). For the six months ended June 30,
1998, 25,046 barrels of oil, 10,876 barrels of NGLs and 51,388 mcf of gas were
sold, or 44,487 BOEs.
The average price received per barrel of oil decreased $1.08, or 8%, from
$14.09 for the six months ended June 30, 1998 to $13.01 for the same period in
1999. The average price received per barrel of NGLs decreased slightly from
$7.46 during the six months ended June 30, 1998 to $7.29 for the same period in
1999. The average price received per mcf of gas decreased 6% from $1.51 during
the six months ended June 30, 1998 to $1.42 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 six months ended June 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 $13,728 was received during the six
months ended June 30, 1998 from the sale of oil and gas equipment on one well
abandoned in a prior year. Abandoned property costs of $3,943 were also incurred
during the six months ended June 30, 1998 related to this well.
Costs and Expenses:
Total costs and expenses decreased to $442,658 for the six months ended
June 30, 1999 as compared to $494,200 for the same period in 1998, a decrease of
$51,542, or 10%. This decrease was due to declines in depletion, production
costs, abandoned property costs and general and administrative expenses ("G&A").
Production costs were $302,253 for the six months ended June 30, 1999 and
$315,652 for the same period in 1998 resulting in a $13,399 decrease, or 4%.
This decrease was primarily due to a decline in production taxes and ad valorem
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, 10% from $15,341 for the six months ended June 30, 1998
to $13,759 for the same period in 1999.
Depletion was $126,646 for the six months ended June 30, 1999 compared to
$159,264 for the same period in 1998, a decrease of $32,618, or 20%. This
decrease was primarily attributable to an increase in proved reserves during the
period ended June 30, 1999 as a result of higher commodity prices, a reduction
in oil production of 2,044 barrels for the six months ended June 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> 635
Three months ended June 30, 1999 compared with three months ended June 30,
1998
Revenues:
The Partnership's oil and gas revenues increased 13% to $267,074 from
$235,929 for the three months ended June 30, 1999 and 1998, respectively. The
increase in revenues resulted from higher average prices received and an
increase in production. For the three months ended June 30, 1999, 11,616 barrels
of oil, 6,585 barrels of NGLs and 25,440 mcf of gas were sold, or 22,441 BOEs.
For the three months ended June 30, 1998, 12,145 barrels of oil, 5,147 barrels
of NGLs and 22,520 mcf of gas were sold, or 21,045 BOEs.
The average price received per barrel of oil increased $1.26, or 9%, from
$13.40 during the three months ended June 30, 1998 to $14.66 for the same period
in 1999. The average price received per barrel of NGLs increased $1.06, or 14%,
from $7.70 during the three months ended June 30, 1998 to $8.76 for the same
period in 1999. The average price received per mcf of gas increased 3% from
$1.49 during the three months ended June 30, 1998 to $1.54 for the same period
in 1999.
A gain on disposition of assets of $235 was received during the three
months ended June 30, 1998 from the sale of oil and gas equipment on one well
abandoned in a prior year. Abandoned property costs of $95 were also incurred
during the three months ended June 30, 1998 related to this well.
Costs and Expenses:
Total costs and expenses decreased to $215,431 for the three months ended
June 30, 1999 as compared to $243,339 for the same period in 1998, a decrease of
$27,908, or 11%. This decrease was due to declines in depletion and abandoned
property costs, offset by increases in production costs and G&A.
Production costs were $158,350 for the three months ended June 30, 1999 and
$154,727 for the same period in 1998 resulting in a $3,623 increase. This
increase was due to additional well maintenance costs incurred in an effort to
stimulate well production, offset by a decline in ad valorem taxes.
During this period, G&A increased, in aggregate, 13%, from $7,078 for the
three months ended June 30, 1998 to $8,012 for the same period in 1999.
Depletion was $49,069 for the three months ended June 30, 1999 compared to
$81,439 for the same period in 1998, a decrease of $32,370, or 40%. This
decrease was primarily attributable to an increase in proved reserves during the
period ended June 30, 1999 as a result of higher commodity prices, a reduction
in oil production of 529 barrels for the three months ended June 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.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $125,609 during the six
months ended June 30, 1999 from the same period ended June 30, 1998. This
decrease was due to a decline in oil and gas sales receipts, offset by a
decrease in production costs, G&A expenses and abandoned property costs paid.
Net Cash Used in Investing Activities
The Partnership's investing activities during the six months ended June 30,
1999 and 1998 were related to the addition of oil and gas equipment on active
properties.
Proceeds from asset dispositions of $13,728 were received during the six
months ended June 30, 1998 from the sale of oil and gas equipment on one well
abandoned in a prior year.
9
<PAGE> 636
Net Cash Used in Financing Activities
Cash was sufficient for the six months ended June 30, 1999 to cover
distributions to the partners of $83,871 of which $839 was distributed to the
managing general partner and $83,032 to the limited partners. For the same
period ended June 30, 1998, cash was sufficient for distributions to the
partners of $252,506 of which $2,525 was distributed to the managing general
partner and $249,981 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 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 early indications that the nations have initiated
their planned reductions, have had some stabilizing effect on commodity prices
during the latter part of the first quarter of 1999 and into August 1999.
However, no assurances can be given that the stabilizing effect of these
actions, or the planned reductions in export volumes, will 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.
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 June 30, 1999, the managing general partner estimates that the
assessment phase is approximately 99% complete and has included, but is not
limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- the formulation of contingency plans for mission-critical information
technology systems.
Through June 30, 1999, the managing general partner had 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 varying 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 June 30, 1999, the managing general partner
estimates that the remedial phase is approximately 83% complete, on a worldwide
basis,
10
<PAGE> 637
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 is expected to be
completed by 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 expects to complete the testing of
information technology systems by October 1999. The testing of the
non-information technology remediation is scheduled to be completed by the end
of November 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. As of June 30, 1999, the managing general partner's total costs
incurred on the Year 2000 problem were $2.3 million, of which approximately $200
thousand were incurred to replace non-compliant systems.
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
11
<PAGE> 638
SIGNATURES
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 87-B, LTD.
By: Pioneer Natural Resources USA,
Inc.,
Managing General Partner
By: /s/ RICH DEALY
----------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
Dated: August 5, 1999
12
<PAGE> 639
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 33-12244-02
PARKER & PARSLEY 87-B, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-2185706
(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)
</TABLE>
Registrant's Telephone Number, including area code: (915) 683-4768
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
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. [ ]
No market currently exists for the limited partnership interests of the
Registrant. Based on original purchase price the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$20,044,000.
As of March 8, 1999, the number of outstanding limited partnership
interests was 20,089.
The following documents are incorporated by reference into the indicated
parts of this Annual Report on Form 10-K: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 640
Parts I and II of this Report contain 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. See "Item 1.
Business" for a description of various factors that could materially affect the
ability of the Partnership to achieve the anticipated results described in the
forward looking statements.
PART I
ITEM 1. BUSINESS
Parker & Parsley 87-B, Ltd. (the "Partnership") is a limited partnership
organized in 1987 under the laws of the State of Texas. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. ("Mesa") received shareholder approval
to merge and create Pioneer Natural Resources Company ("Pioneer"). On August 8,
1997, PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership as PPDLP's successor by merger. For a more complete description of
the Parker & Parsley and Mesa merger, see Pioneer's Registration Statement on
Form S-4 as filed with the Securities & Exchange Commission.
A Registration Statement, as amended, filed pursuant to the Securities Act
of 1933, registering limited partnership interests aggregating $40,000,000 in a
series of Texas limited partnerships formed under the Parker & Parsley 87
Development Drilling Program, was declared effective by the Securities and
Exchange Commission on April 28, 1987. On November 25, 1987, the offering of
limited partnership interests in the Partnership, the second partnership formed
under such statement, was closed, with interests aggregating $20,089,000 being
sold to 1,603 subscribers.
The Partnership engages primarily in oil and gas development and production
and is not involved in any industry segment other than oil and gas. See "Item 6.
Selected Financial Data" and "Item 8. Financial Statements and Supplementary
Data" of this report for a summary of the Partnership's revenue, income and
identifiable assets.
The principal markets during 1998 for the oil produced by the Partnership
were refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. The principal markets for the
Partnership's gas were companies that have pipelines located near the
Partnership's gas producing properties. Of the Partnership's total oil and gas
revenues for 1998, approximately 57% and 26% were attributable to sales made to
Genesis Crude Oil, L.P. and Western Gas Resources, Inc., respectively.
The Partnership's revenues, profitability, cash flow and future rate of
growth are highly dependent on the prevailing prices of oil and gas, which are
affected by numerous factors beyond the Partnership's control. Oil and gas
prices historically have been very volatile. A substantial or extended decline
in the prices of oil or gas could have a material adverse effect on the
Partnership's revenues, profitability and cash flow and could, under certain
circumstances, result in a reduction in the carrying value of the Partnership's
oil and gas properties.
Because of the demand for oil and gas, the Partnership does not believe
that the termination of the sales of its products to any one customer would have
a material adverse impact on its operations. The loss of a particular customer
for gas may have an effect if that particular customer has the only gas pipeline
located in the areas of the Partnership's gas producing properties. The
Partnership believes, however, that the effect would be temporary, until
alternative arrangements could be made.
Federal and state regulation of oil and gas operations generally includes
the fixing of maximum prices for regulated categories of natural gas, the
imposition of maximum allowable production rates, the taxation
1
<PAGE> 641
of income and other items, and the protection of the environment. Although the
Partnership believes that its business operations do not impair environmental
quality and that its costs of complying with any applicable environmental
regulations are not currently significant, the Partnership cannot predict what,
if any, effect these environmental regulations may have on its current or future
operations.
The Partnership does not have any employees of its own. Pioneer USA employs
818 persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this report is filed. Pioneer
USA supplies all management functions.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the
Partnership conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist primarily of leasehold interests in
properties on which oil and gas wells are located. Such property interests are
often subject to landowner royalties, overriding royalties and other oil and gas
leasehold interests.
Fractional working interests in developmental oil and gas prospects located
in Texas were acquired by the Partnership, resulting in the Partnership's
participation in the drilling of 64 oil and gas wells. At December 31, 1998, 49
wells were producing; one well was a dry hole from a previous year; five wells
have been plugged and abandoned and nine wells were sold.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 1998, 1997 and 1996 and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been estimated by the engineering staff of Pioneer USA with a review by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
2
<PAGE> 642
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 8, 1999, the Partnership had 20,089 outstanding limited
partnership interests held of record by 1,503 subscribers. There is no
established public trading market for the limited partnership interests. Under
the limited partnership agreement, Pioneer USA has made certain commitments to
purchase partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are
not required to meet the Partnership's obligations are distributed to the
partners at least quarterly in accordance with the limited partnership
agreement. During the years ended December 31, 1998 and 1997, distributions of
$426,706 and $719,729 respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Operating results:
Oil and gas sales................ $ 965,599 $1,412,905 $1,725,580 $ 1,606,406 $1,628,722
========== ========== ========== =========== ==========
Litigation settlement, net....... $ -- $ -- $ 590,715 $ -- $ --
========== ========== ========== =========== ==========
Impairment of oil and gas
properties.................... $ 199,037 $ 768,208 $ -- $ 1,135,838 $ --
========== ========== ========== =========== ==========
Net income (loss)................ $ (331,789) $ (347,350) $1,199,153 $(1,079,723) $ 131,520
========== ========== ========== =========== ==========
Allocation of net income (loss):
Managing general partner...... $ (3,318) $ (3,473) $ 11,992 $ (10,797) $ 1,315
========== ========== ========== =========== ==========
Limited partners.............. $ (328,471) $ (343,877) $1,187,161 $(1,068,926) $ 130,205
========== ========== ========== =========== ==========
Limited partners' net income
(loss) per limited partnership
interest...................... $ (16.35) $ (17.12) $ 59.10 $ (53.21) $ 6.48
========== ========== ========== =========== ==========
Limited partners' cash
distributions per limited
partnership interest.......... $ 21.24 $ 35.83 $ 87.23(a) $ 38.19 $ 34.01
========== ========== ========== =========== ==========
At year end:
Total assets..................... $2,984,346 $3,766,001 $4,914,489 $ 5,453,881 $7,332,796
========== ========== ========== =========== ==========
</TABLE>
- ---------------
(a) Including litigation settlement per limited partnership interest of $29.11
in 1996.
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1998 compared to 1997
The Partnership's 1998 oil and gas revenues decreased 32% to $965,599 from
$1,412,905 in 1997. The decrease in revenues resulted from lower average prices
received. In 1998, 49,182 barrels of oil, 23,854 barrels of natural gas liquids
("NGLs") and 104,072 mcf of gas were sold, or 90,381 barrel of oil equivalents
("BOEs"). In 1997, 49,284 barrels of oil, 10,007 NGLs and 154,120 mcf of gas
were sold, or 84,978 BOEs. Due to the decline characteristics of the
Partnership's oil and gas properties, management expects a certain amount of
decline in production to continue in the future until the Partnership's
economically recoverable reserves are fully depleted.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. Effective September 30, 1997, as a result
3
<PAGE> 643
of the merger with Mesa, the managing general partner accounts for processed
natural gas production in two components: natural gas liquids and dry residue
gas. As a result of the change in the managing general partner's policy, the
Partnership now accounts for processed natural gas production as processed
natural gas liquids and dry residue gas. Consequently, separate product volumes
will not be comparable for 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
year ended December 31, 1998 is the price received for dry residue gas and the
price per mcf for natural gas produced prior to October 1997 was presented as a
price for wet gas (i.e., natural gas liquids combined with dry residue gas).
The average price received per barrel of oil decreased $6.15, or 32%, from
$19.32 in 1997 to $13.17 in 1998. The average price received per barrel of NGLs
decreased $3.66, or 35%, from $10.48 in 1997 to $6.82 in 1998. The average price
received per mcf of gas decreased 35% from $2.31 in 1997 to $1.49 in 1998. The
market price received 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 in 1998.
A gain on disposition of assets of $13,965 was received during 1998 from
the sale of oil and gas equipment on one well abandoned in a prior year. A gain
of $4,459 was recognized during 1997 and was derived from a gain of $1,051 on
one well plugged and abandoned in 1997 and salvage income of $3,408 from
equipment credits received during 1997 on one well plugged and abandoned in a
prior year. Abandoned property costs of $3,943 and $8,021 were incurred in 1998
and 1997, respectively.
Total costs and expenses decreased in 1998 to $1,326,204 as compared to
$1,780,184 in 1997, a decrease of $453,980, or 26%. The decrease was due to a
decrease in the impairment of oil and gas properties and declines in production
costs, general and administrative expenses ("G&A") and abandoned property costs,
offset by an increase in depletion.
Production costs were $600,702 in 1998 and $640,526 in 1997, resulting in a
$39,824 decrease, or 6%. The decrease was due to reductions in production taxes
due to declines in oil and gas revenues and ad valorem 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, 35% from $44,463 in 1997 to $28,968 in 1998. The
Partnership paid the managing general partner $23,688 in 1998 and $37,891 in
1997 for G&A incurred on behalf of the Partnership. G&A is allocated, in part,
to the Partnership by the managing general partner. Such allocated expenses are
determined by the managing general partner based upon its judgement of the level
of activity of the Partnership relative to the managing general partner's
activities and other entities it manages. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
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"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. Declining commodity prices prompted
impairment reviews in 1998 and 1997. As a result of the review and evaluation of
its long-lived assets for impairment, the Partnership recognized non-cash
charges of $199,037 and $768,208 related to its oil and gas properties during
1998 and 1997, respectively.
Depletion was $493,554 in 1998 compared to $318,966 in 1997. This
represented an increase of $174,588, or 55%. The increase was the result of a
combination of factors that included a decline in proved reserves during 1998
due to the lower commodity prices, 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 and a
4
<PAGE> 644
reduction in oil production of 102 barrels for the period ended December 31,
1998 compared to the same period in 1997.
1997 compared to 1996
The Partnership's 1997 oil and gas revenues decreased 18% to $1,412,905
from $1,725,580 in 1996. The decrease in revenues resulted from declines in
production and lower average prices received. In 1997, 49,284 barrels of oil,
10,007 barrels of NGLs and 154,120 mcf of gas were sold, or 84,978 BOEs. In
1996, 58,239 barrels of oil and 192,535 mcf of gas were sold, or 90,328 BOEs.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. As is described above in "Results of
Operations -- 1998 compared to 1997", the Partnership changed its method of
accounting for processed natural gas to a dry gas basis in the fourth quarter of
1997. As a result of this change, the Partnership now accounts for processed
natural gas production as processed natural gas liquids and dry residue gas.
Consequently, 1997 and 1996 separate product volumes are not comparable.
The declines in production volumes were primarily attributable to the
decline characteristics of the Partnership's oil and gas properties.
The average price received per barrel of oil decreased $2.28, or 11%, from
$21.60 in 1996 to $19.32 in 1997. The average price received per barrel of NGLs
during 1997 was $10.48. The average price received per mcf of gas decreased 5%
from $2.43 in 1996 to $2.31 in 1997.
As described in "Results of Operations -- 1998 compared to 1997", gain on
disposition of assets of $4,459 was recognized during 1997 and was derived from
a gain of $1,051 on one well plugged and abandoned in 1997 and salvage income of
$3,408 from equipment credits received during 1997 on one well plugged and
abandoned in a prior year. Abandoned property costs of $8,021 and $6,221 were
incurred in 1997 and 1996, respectively. Loss on disposition of assets of
$38,332 was recognized during 1996 and was comprised of a loss of $51,855 on the
sale of six oil and gas wells and four saltwater wells, offset by salvage income
of $13,523 received from equipment credits on wells abandoned in a prior year.
On April 29, 1996, Southmark Corporation, Pioneer USA and the Partnership
entered into a final $7.4 million settlement agreement with Jack N. Price
resolving all outstanding litigation between the parties. As a result, all of
the pending lawsuits and judgments have been dismissed, the supersedeas bond
released, and the Reserve released as collateral. On June 28, 1996, a final
distribution was made to the working interest owners of $590,715 which included
$584,808, or $29.11 per limited partnership interest, to the Partnership and its
partners.
Total costs and expenses increased in 1997 to $1,780,184 as compared to
$1,099,009 in 1996, an increase of $681,175, or 62%. The increase was due to the
impairment of oil and gas properties and increases in abandoned property costs,
offset by declines in production costs, depletion and G&A.
Production costs were $640,526 in 1997 and $688,228 in 1996, resulting in a
$47,702 decrease, or 7%. The decrease was due to reductions in well maintenance
costs and production taxes, offset by an increase in ad valorem taxes.
During this period, G&A decreased, in aggregate, 18% from $54,124 in 1996
to $44,463 in 1997. The Partnership paid the managing general partner $37,891 in
1997 and $47,950 in 1996 for G&A incurred on behalf of the Partnership.
The Partnership recognized a non-cash SFAS 121 impairment provision of
$768,208 related to its proved oil and gas properties during the fourth quarter
of 1997.
Depletion was $318,966 in 1997 compared to $350,436 in 1996. This
represented a decrease of $31,470, or 9%. The decrease was primarily
attributable to a decline in oil production of 8,955 barrels for 1997 compared
to 1996, offset by a decrease in oil reserves during 1997 as a result of lower
commodity prices.
5
<PAGE> 645
IMPACT OF INFLATION AND CHANGING PRICES ON SALES AND NET INCOME
Inflation impacts the fixed overhead rate charges of the lease operating
expenses for the Partnership. During 1998, the annual change in the index of
average weekly earnings of crude petroleum and gas production workers issued by
the U.S. Department of Labor, Bureau of Labor Statistics increased (effective
April 1, 1998) 10.3%. The 1997 annual change in average weekly earnings
increased by 2%. The 1996 index increased 4.1%. The impact of inflation for
other lease operating expenses is small due to the current economic condition of
the oil industry.
The oil and gas industry experienced volatility during the past decade
because of the fluctuation of the supply of most fossil fuels relative to the
demand for such products and other uncertainties in the world energy markets
causing significant fluctuations in oil and gas prices. During 1998, the price
per barrel for oil production similar to the Partnership's ranged from
approximately $9.50 to $15.50. During most of 1997 and 1996, 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 March 1999. On March 8, 1999, the market price for West Texas intermediate
crude was $11.00 per barrel. A continuation of the current commodity price
environment will continue to have an adverse effect on the Partnership's
revenues, operating cash flow and distributions and could result in additional
decreases in the carrying value of the Partnership's oil and gas properties.
Prices for natural gas are subject to ordinary seasonal fluctuations, and
this volatility of natural gas prices may result in production being curtailed
and, in some cases, wells being completely shut-in.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $322,591 during the
year ended December 31, 1998 from the year ended December 31, 1997. This
decrease was primarily due to a decline in oil and gas sales receipts, offset by
decreases in production costs and G&A expenses paid.
Net Cash Provided by (Used in) Investing Activities
The Partnership's investing activities during 1998 and 1997 were related to
expenditures for oil and gas equipment replacement on active properties.
Proceeds from asset dispositions of $13,965 were received during 1998 from
the sale of oil and gas equipment on one well abandoned in a prior year. During
1997, proceeds of assets of $4,459 were received from the salvage of equipment
on plugged and abandoned properties.
Net Cash Used in Financing Activities
Cash was sufficient in 1998 for distributions to the partners of $431,016
of which $4,310 was distributed to the managing general partner and $426,706 to
the limited partners. In 1997, cash was sufficient for distributions to the
partners of $727,006 of which $7,277 was distributed to the managing general
partner and $719,729 to the limited partners.
The current commodity price environment will continue to impact the
distributions and could result in limited or no distributions to the partners.
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
6
<PAGE> 646
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
at varying stages of completion as it pertains to information technology and
non-information technology applications and systems in the United States, Canada
and Argentina. As of December 31, 1998, the managing general partner estimates
that the assessment phase is approximately 86% complete, on a worldwide basis,
and has included, but is not limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- 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 to
approximately 37% of those inquiries.
The remedial phase of the managing general partner's Year 2000 project is
also at varying 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 December 31, 1998, the
managing general partner estimates that the remedial phase is approximately 54%
complete, on a worldwide basis, subject to the continuing 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 through remedial coding and is currently testing this system for Year
2000 compliance. The remediation of non-information technology is expected to be
completed during July 1999. The managing general partner's Year 2000 remedial
actions have not significantly 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 and non-information technology remediation by the end of the third
quarter of 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. The managing general partner intends to use its working capital to pay
for the costs of the Year 2000 projects. As of December 31, 1998, the managing
general partner's
7
<PAGE> 647
total costs incurred on the Year 2000 problem were $1.8 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 in accordance with the general and administration
allocation. (See Note 2 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data".)
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 assessment phase of the managing general partner's Year 2000
project, contingency plans are being 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.
8
<PAGE> 648
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Parker & Parsley 87-B, Ltd:
Independent Auditors' Report -- Ernst & Young LLP......... 10
Independent Auditors' Report -- KPMG LLP.................. 11
Balance Sheets as of December 31, 1998 and 1997........... 12
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996.................................... 13
Statements of Partners' Capital for the Years Ended
December 31, 1998, 1997 and 1996....................... 14
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996.................................... 15
Notes to Financial Statements............................. 16
</TABLE>
9
<PAGE> 649
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 87-B, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheet of Parker & Parsley 87-B, Ltd. as of
December 31, 1998, and the related statements of operations, partners' capital
and cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 87-B, Ltd.
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Dallas, Texas
March 15, 1999
10
<PAGE> 650
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 87-B, Ltd.
(A Texas Limited Partnership):
We have audited the financial statements of Parker & Parsley 87-B, Ltd. as
of December 31, 1997, and the related statements of operations, partners'
capital and cash flows for the years ended December 31, 1997 and 1996. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 87-B, Ltd.
as of December 31, 1997, and the results of its operations and its cash flows
for the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
KPMG LLP
Midland, Texas
March 20, 1998
11
<PAGE> 651
PARKER & PARSLEY 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash...................................................... $ 221,422 $ 268,802
Accounts receivable -- oil and gas sales.................. 116,033 180,715
------------ ------------
Total current assets.............................. 337,455 449,517
------------ ------------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 13,370,742 13,347,744
Accumulated depletion....................................... (10,723,851) (10,031,260)
------------ ------------
Net oil and gas properties........................ 2,646,891 3,316,484
------------ ------------
$ 2,984,346 $ 3,766,001
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 21,253 $ 40,103
Partners' capital:
Managing general partner.................................. 29,559 37,187
Limited partners (20,089 interests)....................... 2,933,534 3,688,711
------------ ------------
2,963,093 3,725,898
------------ ------------
$ 2,984,346 $ 3,766,001
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 652
PARKER & PARSLEY 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Oil and gas............................................ $ 965,599 $1,412,905 $1,725,580
Interest............................................... 14,851 15,470 20,199
Gain (loss) on disposition of assets................... 13,965 4,459 (38,332)
Litigation settlement.................................. -- -- 590,715
---------- ---------- ----------
994,415 1,432,834 2,298,162
---------- ---------- ----------
Costs and expenses:
Oil and gas production................................. 600,702 640,526 688,228
General and administrative............................. 28,968 44,463 54,124
Impairment of oil and gas properties................... 199,037 768,208 --
Depletion.............................................. 493,554 318,966 350,436
Abandoned property..................................... 3,943 8,021 6,221
---------- ---------- ----------
1,326,204 1,780,184 1,099,009
---------- ---------- ----------
Net income (loss)........................................ $ (331,789) $ (347,350) $1,199,153
========== ========== ==========
Allocation of net income (loss):
Managing general partner............................... $ (3,318) $ (3,473) $ 11,992
========== ========== ==========
Limited partners....................................... $ (328,471) $ (343,877) $1,187,161
========== ========== ==========
Net income (loss) per limited partnership interest....... $ (16.35) $ (17.12) $ 59.10
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 653
PARKER & PARSLEY 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ----------- -----------
<S> <C> <C> <C>
Partners' capital at January 1, 1996.................... $ 53,646 $ 5,317,608 $ 5,371,254
Distributions......................................... (17,701) (1,752,452) (1,770,153)
Net income............................................ 11,992 1,187,161 1,199,153
-------- ----------- -----------
Partners' capital at December 31, 1996.................. 47,937 4,752,317 4,800,254
Distributions......................................... (7,277) (719,729) (727,006)
Net loss.............................................. (3,473) (343,877) (347,350)
-------- ----------- -----------
Partners' capital at December 31, 1997.................. 37,187 3,688,711 3,725,898
Distributions......................................... (4,310) (426,706) (431,016)
Net loss.............................................. (3,318) (328,471) (331,789)
-------- ----------- -----------
Partners' capital at December 31, 1998.................. $ 29,559 $ 2,933,534 $ 2,963,093
======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 654
PARKER & PARSLEY 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $(331,789) $(347,350) $ 1,199,153
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Impairment of oil and gas properties................ 199,037 768,208 --
Depletion........................................... 493,554 318,966 350,436
(Gain) loss on disposition of assets................ (13,965) (4,459) 38,332
Changes in assets and liabilities:
Accounts receivable................................. 64,682 53,772 (70,268)
Accounts payable.................................... (18,850) (73,877) 40,795
--------- --------- -----------
Net cash provided by operating activities...... 392,669 715,260 1,558,448
--------- --------- -----------
Cash flows from investing activities:
Additions to oil and gas properties.................... (22,998) (108) (34,982)
Proceeds from disposition of assets.................... 13,965 4,459 336,241
--------- --------- -----------
Net cash provided by (used in) investing
activities................................... (9,033) 4,351 301,259
--------- --------- -----------
Cash flows from financing activities:
Cash distributions to partners......................... (431,016) (727,006) (1,770,153)
--------- --------- -----------
Net increase (decrease) in cash.......................... (47,380) (7,395) 89,554
Cash at beginning of year................................ 268,802 276,197 186,643
--------- --------- -----------
Cash at end of year...................................... $ 221,422 $ 268,802 $ 276,197
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 655
PARKER & PARSLEY 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 87-B, Ltd. (the "Partnership") is a limited partnership
organized in 1987 under the laws of the State of Texas. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. received shareholder approval to merge
and create Pioneer Natural Resources Company ("Pioneer"). On August 8, 1997,
PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership as PPDLP's successor by merger.
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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties -- The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as determined by the engineering staff of Pioneer
USA, the Partnership's managing general partner, and reviewed by independent
petroleum consultants. The carrying amounts of properties sold or otherwise
disposed of and the related allowances for depletion are eliminated from the
accounts and any gain or loss is included in operations.
Impairment of long-lived assets -- 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"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -- Preparation
of the accompanying financial statements 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 reporting amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest -- The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes -- A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
16
<PAGE> 656
PARKER & PARSLEY 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statements of cash flows -- For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses -- General and administrative expenses
are allocated in part to the Partnership by the managing general partner or its
affiliates. Such allocated expenses are determined by the managing general
partner based upon its judgement of the level of activity of the Partnership
relative to the managing general partner's activities and other entities it
manages. The method of allocation has been consistent over the past several
years with certain modifications incorporated to reflect changes in Pioneer
USA's overall business activities.
Reclassifications -- Certain reclassifications may have been made to the
1997 and 1996 financial statements to conform to the 1998 financial statement
presentation.
Environmental -- The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 1998.
Revenue recognition -- The Partnership uses the entitlements method of
accounting for crude oil and natural gas revenues.
Reporting comprehensive income -- Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes
standards for the reporting and display of comprehensive income (loss) and its
components in a full set of general purpose financial statements. Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss).
The Partnership has no items of other comprehensive income (loss), as defined by
SFAS No. 130. Consequently, the provisions of SFAS No. 130 do not apply to the
Partnership.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. Based upon a decline in the Partnership's outlook for future
commodity prices, the Partnership has estimated the expected future cash flows
of its oil and gas properties as of December 31, 1998, 1997 and 1996, and
compared such estimated future cash flows to the respective carrying amount of
the oil and gas properties to determine if the carrying amounts were likely to
be recoverable. For those proved oil and gas properties for which the carrying
amount exceeded the estimated future cash flows, an impairment was determined to
exist; therefore, the Partnership adjusted the carrying amount of those oil and
gas properties to their fair value as determined by discounting their expected
future cash flows at a discount rate commensurate with the risks involved in the
industry. As a result, the Partnership recognized non-cash impairment provisions
of $199,037 and $768,208 related to its proved oil and gas properties during
1998 and 1997, respectively.
17
<PAGE> 657
PARKER & PARSLEY 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $652,044 greater than the tax basis at December 31, 1998.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ----------
<S> <C> <C> <C>
Net income (loss) per statements of operations.... $(331,789) $(347,350) $1,199,153
Intangible development costs capitalized for
financial reporting purposes and expensed for
tax reporting purposes.......................... (5) -- (18,951)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes.................... 477,912 310,078 335,441
Impairment of oil and gas properties for financial
reporting purposes.............................. 199,037 768,208 --
Gain on sale of assets for tax reporting purposes
greater than amounts for financial reporting
purposes........................................ -- -- 392,884
Other, net........................................ (4,671) 2,483 (8,919)
--------- --------- ----------
Net income per Federal income tax
returns............................... $ 340,484 $ 733,419 $1,899,608
========= ========= ==========
</TABLE>
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ -------
<S> <C> <C> <C>
Development costs........................................ $22,998 $3,414 $18,433
======= ====== =======
</TABLE>
Capitalized oil and gas properties consist of the following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Proved properties:
Property acquisition costs............................... $ 552,956 $ 552,956
Completed wells and equipment............................ 12,817,786 12,794,788
------------ ------------
13,370,742 13,347,744
Accumulated depletion.................................... (10,723,851) (10,031,260)
------------ ------------
Net capitalized costs.......................... $ 2,646,891 $ 3,316,484
============ ============
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $292,411 $285,534 $303,727
Reimbursement of general and administrative
expenses........................................... $ 23,688 $ 37,891 $ 47,950
</TABLE>
18
<PAGE> 658
PARKER & PARSLEY 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. In addition,
Pioneer USA, Parker & Parsley 87-B Conv., Ltd. and the Partnership (the
"Partnerships") are parties to the Program agreement.
The costs and revenues of the Program are allocated to Pioneer USA and the
Partnerships as follows:
<TABLE>
<CAPTION>
PIONEER
USA(1) PARTNERSHIPS(2)
--------- ---------------
<S> <C> <C>
Revenues:
Proceeds from disposition of depreciable properties...... 9.09091% 90.90909%
All other revenues....................................... 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion costs
and all other costs................................... 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative expenses............................... 24.242425% 75.757575%
</TABLE>
- ---------------
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at
the Partnership level and 45 limited partner interests owned by Pioneer USA.
(2) The allocation between the Partnership and Parker & Parsley 87-B Conv., Ltd.
is 80.33029% and 19.66971%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 1998, 1997 and 1996 and
changes in such quantities during the years then ended. Due to a change in the
accounting policy of the managing general partner in 1997, the Partnership began
accounting for processed natural gas production in two components: processed
natural gas liquids ("NGLs") and dry residue gas. NGLs are reflected in "Oil and
NGLs" in the table below. All of the Partnership's reserves are proved developed
and located within the United States. The Partnership's reserves are based on an
evaluation prepared by the engineering staff of Pioneer USA and reviewed by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant,
using criteria established by the Securities and Exchange Commission. Reserve
value information is available to limited partners pursuant to the Partnership
agreement and, therefore, is not presented.
<TABLE>
<CAPTION>
OIL AND NGLS GAS
(BBLS) (MCF)
------------ ----------
<S> <C> <C>
Net proved reserves at January 1, 1996...................... 851,051 3,180,853
Revisions................................................... 156,620 488,818
Sale of reserves............................................ (60,838) (142,419)
Production.................................................. (58,239) (192,535)
-------- ----------
Net proved reserves at December 31, 1996.................... 888,594 3,334,717
Revisions................................................... 112,252 (1,889,324)
Production.................................................. (59,291) (154,120)
-------- ----------
Net proved reserves at December 31, 1997.................... 941,555 1,291,273
Revisions................................................... (314,311) (287,194)
Production.................................................. (73,036) (104,072)
-------- ----------
Net proved reserves at December 31, 1998.................... 554,208 900,007
======== ==========
</TABLE>
19
<PAGE> 659
PARKER & PARSLEY 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1998, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 1998 prices of $10.61 per
barrel of oil, $5.42 per barrel of NGLs and $1.37 per mcf of gas, discounted at
10% was approximately $980,000 and undiscounted was $1,429,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Genesis Crude Oil, L.P. .................................... 57% 57% 59%
Western Gas Resources, Inc. ................................ 26% 26% 21%
</TABLE>
At December 31, 1998, the amounts receivable from Genesis Crude Oil, L.P.
and Western Gas Resources, Inc. were $34,437 and $38,757, respectively, which
are included in the caption "Accounts receivable -- oil and gas sales" in the
accompanying Balance Sheet.
The Partnership's share of oil and gas production is sold to various
purchasers. Pioneer USA is of the opinion that the loss of any one purchaser
would not have an adverse effect on the ability of the Partnership to sell its
oil and gas production.
NOTE 9. ORGANIZATION AND OPERATIONS
The Partnership was organized November 25, 1987 as a limited partnership
under the Texas Uniform Limited Partnership Act for the purpose of acquiring and
developing oil and gas properties. The following is a brief summary of the more
significant provisions of the limited partnership agreement:
Managing general partner -- The managing general partner of the Partnership
is Pioneer USA. Pioneer USA has the power and authority to manage, control and
administer all Program and Partnership affairs. As managing general partner and
operator of the Partnership's properties, all production expenses are incurred
by Pioneer USA and billed to the Partnership and a portion of revenue is
initially received by Pioneer USA prior to being paid to the Partnership. Under
the limited partnership agreement, the managing general partner pays 1% of the
Partnership's acquisition, drilling and completion costs and 1% of its operating
and general and administrative expenses. In return, it is allocated 1% of the
Partnership's revenues.
Limited partner liability -- The maximum amount of liability of any limited
partner is the total contributions of such partner plus his share of any
undistributed profits.
Initial capital contributions -- The limited partners entered into
subscription agreements for aggregate capital contributions of $20,089,000.
Pioneer USA is required to contribute amounts equal to 1% of initial Partnership
capital less commission and offering expenses allocated to the limited partners
and to contribute amounts necessary to pay costs and expenses allocated to it
under the Partnership agreement to the extent its share of revenues does not
cover such costs.
20
<PAGE> 660
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and
executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve
until the next annual meeting of stockholders or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31,
NAME 1998 POSITION
- ---- ------------ --------
<S> <C> <C>
Scott D. Sheffield................ 46 President and Director
Timothy L. Dove................... 42 Executive Vice President and Director
Dennis E. Fagerstone.............. 49 Executive Vice President and Director
Mark L. Withrow................... 51 Executive Vice President, General Counsel and
Director
M. Garrett Smith.................. 37 Executive Vice President, Chief Financial
Officer and Director
Mel Fischer(a).................... 64 Executive Vice President
Lon C. Kile....................... 43 Executive Vice President
Rich Dealy........................ 32 Vice President and Chief Accounting Officer
</TABLE>
- ---------------
(a) Mr. Fischer was a director and officer until his retirement from Pioneer
and Pioneer USA on February 19, 1999.
Scott D. Sheffield. Mr. Sheffield is a distinguished graduate of The
University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he
has served as President, Chief Executive Officer and a director of Pioneer and
President and a director of Pioneer USA. Mr. Sheffield was the President and a
director of Parker & Parsley from May 1990 until August 1997 and was the
Chairman of the Board and Chief Executive Officer of Parker & Parsley from
October 1990 until August 1997. He was the sole director of Parker & Parsley
from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley
Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum
engineer in 1979. He served as Vice President -- Engineering of PPDC from
September 1981 until April 1985 when he was elected President and a director. In
March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive
Officer of PPDC. Before joining PPDC, Mr. Sheffield was employed as a production
and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President -- Business
Development of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. Mr. Dove joined Parker & Parsley in May
1994 as Vice President -- International and was promoted to Senior Vice
President -- Business Development in October 1996, in which position he served
until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with
Diamond Shamrock Corp., and its successor, Maxus Energy corp., in various
capacities in international exploration and production, marketing, refining and
marketing and planning and development. Mr. Dove earned a B.S. in Mechanical
Engineering from Massachusetts Institute of Technology in 1979 and received his
M.B.A. in 1981 from the University of Chicago.
21
<PAGE> 661
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of Mesa from March 1, 1997 until August 1997. From October
1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief
Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice
President -- Exploration and Production of Mesa. From June 1988 to May 1991, Mr.
Fagerstone served as Vice President -- Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President -- General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President -- General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
M. Garrett Smith. Mr. Smith, a graduate of The University of Texas with a
B.S. in Electrical Engineering and Southern Methodist University with an M.B.A.,
was appointed Executive Vice President and Chief Financial Officer of Pioneer in
December 1997. He served as Senior Vice President -- Finance of Pioneer from
August 1997 until December 1997. Mr. Smith was elected Senior Vice President --
Finance and a director of Pioneer USA in August 1997. He served as Vice
President -- Corporate Acquisitions of Mesa from January 1997 until August 1997.
From October 1996 to December 1996, Mr. Smith served as Vice
President -- Finance of Mesa and from 1994 to 1996 he served as Director of
Financial Planning of Mesa. Mr. Smith was employed by BTC Partners, Inc. (a
former financial advisor to Mesa) from 1989 to 1994.
Mel Fischer. Mr. Fischer, a graduate of the University of California at
Berkeley with a Masters degree in Geology, became Executive Vice
President -- Worldwide Exploration of Pioneer and Pioneer USA in August 1997. He
served as a director of Parker & Parsley from November 1995 until August 1997
and was Executive Vice President -- Worldwide Exploration for Parker & Parsley
from February 1997 to August 1997. Mr. Fischer retired from Pioneer and Pioneer
USA effective February 15, 1999. He worked in the petroleum industry for 32
years, starting as a Petroleum Geologist with Texaco in 1962, and retiring as
President, Occidental International Exploration and Production Company in March
1994. For the 10 years prior to becoming President of Occidental International,
he served as Executive Vice President, World Wide Exploration with Occidental
Oil and Gas Corporation. He is a registered geologist in the State of
California, a member of the American Association of Petroleum Geologists and an
emeritus member of the Board of Advisors for the Earth Sciences Research
Institute at the University of Utah.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a
B.B.A. in Accounting, became Executive Vice President of Pioneer and Pioneer USA
in August 1997. Mr. Kile was Senior Vice President -- Investor Relations from
October 1996 to August 1997. Previously, he served as Vice President and Manager
of the Mid-Continent Division, Vice President -- Equity Finance & Analysis and
Vice President -- Marketing & Program Administration. Prior to joining Parker &
Parsley in 1985, he was employed as Supervisor -- Senior, Audit, in charge of
Parker & Parsley's audit, with Arthur Young.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a
B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became
Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
22
<PAGE> 662
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is vested in Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA pays approximately 10% of the Partnership's acquisition,
drilling and completion costs and approximately 25% of its operating and general
and administrative expenses. In return, Pioneer USA is allocated approximately
25% of the Partnership's revenues. See Notes 6 and 10 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data" for
information regarding fees and reimbursements paid to the managing general
partner or its affiliates by the Partnership.
The Partnership does not directly pay any salaries of the executive
officers of Pioneer USA, but does pay a portion of Pioneer USA's general and
administrative expenses of which these salaries are a part. See Note 6 of Notes
to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more
of the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 45 limited partner interests at January 1, 1999.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing
general partner of the Partnership, Pioneer USA, has the exclusive right and
full authority to manage, control and administer the Partnership's business.
Under the limited partnership agreement, limited partners holding a majority of
the outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner or its affiliates
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $292,411 $285,534 $303,727
Reimbursement of general and administrative
expenses........................................... $ 23,688 $ 37,891 $ 47,950
</TABLE>
Under the limited partnership agreement, the managing general partner pays
1% of the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data"
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
23
<PAGE> 663
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial statements
The following are filed as part of this annual report:
Independent Auditors' Report -- Ernst & Young LLP
Independent Auditors' Report -- KPMG LLP
Balance sheets as of December 31, 1998 and 1997
Statements of operations for the years ended December 31, 1998, 1997
and 1996
Statements of partners' capital for the years ended December 31, 1998,
1997 and 1996
Statements of cash flows for the years ended December 31, 1998, 1997
and 1996
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this annual report.
24
<PAGE> 664
SIGNATURES
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 87-B, LTD.
By: Pioneer Natural Resources USA,
Inc.
Managing General Partner
By: /s/ SCOTT D. SHEFFIELD
----------------------------------
Scott D. Sheffield,
President
Dated: March 24, 1999
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 date indicated.
<TABLE>
<C> <S> <C>
/s/ SCOTT D. SHEFFIELD President and Director of Pioneer March 24, 1999
- ------------------------------------------------ USA
Scott D. Sheffield
/s/ TIMOTHY L. DOVE Executive Vice President and March 24, 1999
- ------------------------------------------------ Director of Pioneer USA
Timothy L. Dove
/s/ DENNIS E. FAGERSTONE Executive Vice President and March 24, 1999
- ------------------------------------------------ Director of Pioneer USA
Dennis E. Fagerstone
/s/ MARK L. WITHROW Executive Vice President, General March 24, 1999
- ------------------------------------------------ Counsel and Director of Pioneer
Mark L. Withrow USA
/s/ M. GARRETT SMITH Executive Vice President, Chief March 24, 1999
- ------------------------------------------------ Financial Officer and Director of
M. Garrett Smith Pioneer USA
/s/ LON C. KILE Executive Vice President of Pioneer March 24, 1999
- ------------------------------------------------ USA
Lon C. Kile
/s/ RICH DEALY Vice President and Chief Accounting March 24, 1999
- ------------------------------------------------ Officer of Pioneer USA
Rich Dealy
</TABLE>
25
<PAGE> 665
PARKER & PARSLEY 87-B, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
4(a) -- Agreement of Limited Partnership of Parker & Parsley
87-B, Ltd. incorporated by reference to Exhibit A of the
Partnership's Registration Statement on Form S-1
(Registration No. 33-16910) (hereinafter called the
Partnership's Registration Statement
4(b) -- Form of Subscription Agreement and Power of Attorney
incorporated by reference to Exhibit D of the
Partnership's Registration Statement
4(c) -- Specimen Certificate of Limited Partnership Interest
incorporated by reference to Exhibit D of the
Partnership's Registration Statement
10(b) -- Development Program Agreement incorporated by reference
to Exhibit C of the Partnership's Registration Statement
27.1* -- Financial Data Schedule
99.1 -- Mutual Release and Indemnity Agreement dated May 25, 1993
incorporated by reference to Exhibit 99.1 of the
Partnership's Annual Report on Form 10-K for the year
ended December 31, 1993
</TABLE>
- ---------------
* Filed herewith
<PAGE> 666
PARKER & PARSLEY 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
DECEMBER 31, 1998, 1997 AND 1996
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. Future income taxes are calculated by comparing
discounted future cash flows to the tax basis of oil and gas properties plus
available carryforwards and credits and applying the current tax rates to the
difference.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and gas producing activities:
Future cash inflows....................................... $ 6,049 $ 17,619 $ 34,713
Future production costs................................... (4,620) (10,726) (17,225)
Future development costs.................................. -- -- 253
------- -------- --------
1,429 6,893 17,741
10% annual discount factor................................ (449) (3,045) (9,369)
------- -------- --------
Standardized measure of discounted future net cash
flows.................................................. $ 980 $ 3,848 $ 8,372
======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs................ $ (365) $ (772) $(1,037)
Net changes in prices and production costs................ (2,391) (4,045) 3,792
Extensions and discoveries................................ -- -- --
Sales of minerals-in-place................................ -- -- (274)
Purchases of minerals-in-place............................ -- -- --
Revisions of estimated future development costs........... -- (141) (121)
Revisions of previous quantity estimates and reserves
added by development drilling.......................... (410) (570) 1,463
Accretion of discount..................................... 385 837 495
Changes in production rates, timing and other............. (87) 167 (898)
------- ------- -------
Change in present value of future net revenues............ (2,868) (4,524) 3,420
------- ------- -------
Balance, beginning of year................................ 3,848 8,372 4,952
------- ------- -------
Balance, end of year...................................... $ 980 $ 3,848 $ 8,372
======= ======= =======
</TABLE>
<PAGE> 667
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.,
A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT DATED , 1999
----------------------
THE DATE OF THIS SUPPLEMENT IS , 1999
----------------------
This document contains important information specific to Parker & Parsley
Producing Properties 87-B, Ltd. and supplements the proxy statement dated
, 1999, of Pioneer Natural Resources USA, Inc., by which
Pioneer USA is soliciting proxies to be voted at a special meeting of limited
partners of the partnerships described in the proxy statement. The purpose of
the special meeting is for you to vote upon the merger of Parker & Parsley
Producing Properties 87-B, Ltd. with and into Pioneer USA that, if completed,
will result in your receiving cash for your partnership interests.
This supplement contains the following information concerning Parker &
Parsley Producing Properties 87-B, Ltd.:
- A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through June
30, 1999
-- the merger value per $1,000 limited partner investment as of June 30,
1999
-- the merger value per $1,000 limited partner investment as a multiple
of distributions for the 12 months ended June 30, 1999
-- the book value per $1,000 limited partner investment as of June 30,
1999 and as of December 31, 1998 and
-- the ordinary tax loss per $1,000 limited partner investment in year
of initial investment
- Quarterly Report on Form 10-Q for the six months ended June 30, 1999
- Annual Report on Form 10-K for the year ended December 31, 1998
- Disclosures about the partnership's oil and gas producing activities
<PAGE> 668
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
SUPPLEMENTAL INFORMATION TABLE
<TABLE>
<S> <C>
Aggregate Initial Investment by the Limited Partners(a)..... $ 6,096
Aggregate Historical Limited Partner Distributions through
June 30, 1999(a).......................................... $ 5,858
Merger Value per $1,000 Limited Partner Investment as of
June 30, 1999(b).......................................... $208.84
Merger Value per $1,000 Limited Partner Investment as a
Multiple of Distributions for the 12 Months ended June 30,
1999(b)................................................... 15.45times
Book Value per $1,000 Limited Partner Investment:
-- as of June 30, 1999(b)................................. $139.13
-- as of December 31, 1998(b)............................. $142.63
Ordinary Tax Loss per $1,000 Limited Partner Investment in
Year of Initial Investment(b), (c)........................ $ 45
</TABLE>
- ---------------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as any
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
<PAGE> 669
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JUNE 30, 1999
COMMISSION FILE NO. 33-11193-2
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-2205943
(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)
</TABLE>
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> 670
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1999 and December 31,
1998.................................................. 3
Statements of Operations for the three and six months
ended June 30, 1999 and 1998.......................... 4
Statement of Partners' Capital for the six months ended
June 30, 1999......................................... 5
Statements of Cash Flows for the six months ended June
30, 1999 and 1998..................................... 6
Notes to Financial Statements.......................... 7
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................. 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 11
27.1 Financial Data Schedule
Signatures............................................. 12
</TABLE>
2
<PAGE> 671
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 45,680 $ 9,859
Accounts receivable:
Oil and gas sales...................................... 118,796 89,569
Affiliate.............................................. -- 3,287
----------- ------------
Total current assets.............................. 164,476 102,715
----------- ------------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 4,835,489 4,835,768
Accumulated depletion....................................... (4,114,953) (4,060,082)
----------- ------------
Net oil and gas properties........................ 720,536 775,686
----------- ------------
$ 885,012 $ 878,401
=========== ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 28,318 $ --
Partners' capital:
Managing general partner.................................. 8,618 8,983
Limited partners (12,191 interests)....................... 848,076 869,418
----------- ------------
856,694 878,401
----------- ------------
$ 885,012 $ 878,401
=========== ============
</TABLE>
The financial information included as of June 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
<PAGE> 672
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas...................................... $144,544 $149,730 $243,058 $286,777
Interest......................................... 557 1,068 966 2,283
Gain (loss) on disposition of assets............. (61) -- 14,551 2,161
-------- -------- -------- --------
145,040 150,798 258,575 291,221
-------- -------- -------- --------
Costs and expenses:
Oil and gas production........................... 86,306 115,069 172,633 207,645
General and administrative....................... 4,337 4,492 7,292 8,603
Depletion........................................ 15,267 24,952 54,871 51,767
Abandoned property............................... 2,974 1,781 14,613 2,023
-------- -------- -------- --------
108,884 146,294 249,409 270,038
-------- -------- -------- --------
Net income......................................... $ 36,156 $ 4,504 $ 9,166 $ 21,183
======== ======== ======== ========
Allocation of net income:
Managing general partner......................... $ 362 $ 45 $ 92 $ 212
======== ======== ======== ========
Limited partners................................. $ 35,794 $ 4,459 $ 9,074 $ 20,971
======== ======== ======== ========
Net income per limited partnership interest........ $ 2.93 $ .37 $ .74 $ 1.72
======== ======== ======== ========
Distributions per limited partnership interest..... $ .51 $ 4.50 $ 2.49 $ 12.25
======== ======== ======== ========
</TABLE>
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> 673
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1, 1999.................................. $8,983 $869,418 $878,401
Distributions............................................. (457) (30,416) (30,873)
Net income................................................ 92 9,074 9,166
------ -------- --------
Balance at June 30, 1999.................................... $8,618 $848,076 $856,694
====== ======== ========
</TABLE>
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> 674
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 9,166 $ 21,183
Adjustments to reconcile net income to net cash provided
by operating activities:
Depletion.............................................. 54,871 51,767
Gain on disposition of assets.......................... (14,551) (2,161)
Changes in assets and liabilities:
Accounts receivable.................................... (25,940) 57,934
Accounts payable....................................... 28,318 (7,243)
-------- ---------
Net cash provided by operating activities......... 51,864 121,480
-------- ---------
Cash flows from investing activities:
Additions to oil and gas equipment........................ (1,349) (5,997)
Proceeds from asset dispositions.......................... 16,179 2,161
-------- ---------
Net cash provided by (used in) investing
activities...................................... 14,830 (3,836)
-------- ---------
Cash flows used in financing activities:
Cash distributions to partners............................ (30,873) (150,613)
-------- ---------
Net increase (decrease) in cash............................. 35,821 (32,969)
Cash at beginning of period................................. 9,859 74,883
-------- ---------
Cash at end of period....................................... $ 45,680 $ 41,914
======== =========
</TABLE>
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> 675
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley Producing Properties 87-B, Ltd. (the "Partnership") is a
limited partnership organized in 1987 under the laws of the State of Texas.
The Partnership engages primarily in oil and gas 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 June 30, 1999 and for the three and six months ended June 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 reclassifications have been made
to the June 30, 1998 financial statements to conform to the June 30, 1999
financial statement presentations.
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.
7
<PAGE> 676
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
RESULTS OF OPERATIONS
Six months ended June 30, 1999 compared with six months ended June 30, 1998
Revenues:
The Partnership's oil and gas revenues decreased 15% to $243,058 from
$286,777 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from lower average prices received and declines in
production. For the six months ended June 30, 1999, 12,583 barrels of oil, 5,365
barrels of natural gas liquids ("NGLs") and 24,988 mcf of gas were sold, or
22,113 barrel of oil equivalents ("BOEs"). For the six months ended June 30,
1998, 15,550 barrels of oil, 5,243 barrels of NGLs and 23,042 mcf of gas were
sold, or 24,633 BOEs.
The average price received per barrel of oil decreased 5% from $13.98 for
the six months ended June 30, 1998 to $13.27 for the same period in 1999. The
average price received per barrel of NGLs increased 13% from $6.83 during the
six months ended June 30, 1998 to $7.72 for the same period in 1999. The average
price received per mcf of gas decreased 5% to $1.39 for the six months ended
June 30, 1999 compared to $1.46 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 six months ended June 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.
Gain on disposition of assets of $14,551 and $2,161 was recognized during
the six months ended June 30, 1999 and 1998, respectively. The gain recognized
during the period in 1999 was due to equipment credits received on fully
depleted wells. The gain recognized during the period in 1998 resulted from
equipment credits on wells plugged and abandoned in the prior year.
Costs and Expenses:
Total costs and expenses decreased to $249,409 for the six months ended
June 30, 1999 as compared to $270,038 for the same period in 1998, a decrease of
$20,629, or 8%. This decrease was due to reductions in production costs and
general and administrative expenses ("G&A"), offset by increases in abandoned
property costs and depletion.
Production costs were $172,633 for the six months ended June 30, 1999 and
$207,645 for the same period in 1998, resulting in a $35,012 decrease, or 17%.
The decrease was primarily attributable to declines in well maintenance costs,
production taxes and ad valorem 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, 15% from $8,603 for the six months ended June 30, 1998,
to $7,292 for the same period in 1999.
Depletion was $54,871 for the six months ended June 30, 1999 compared to
$51,767 for the same period in 1998, an increase of $3,104, or 6%. This increase
was primarily due to reserve revisions on a significant well, offset by a
reduction in oil production of 2,967 barrels for the six months ended June 30,
1999 compared to the same period in 1998.
Abandoned property costs of $14,613 and $2,023 incurred during the six
months ended June 30, 1999 and 1998, respectively, were related to wells plugged
and abandoned during 1998.
8
<PAGE> 677
Three months ended June 30, 1999 compared with three months ended June 30,
1998
Revenues:
The Partnership's oil and gas revenues decreased 3% to $144,544 from
$149,730 for the three months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from a decrease in production, offset by higher
average prices received. For the three months ended June 30, 1999, 6,442 barrels
of oil, 3,296 barrels of NGLs and 13,609 mcf of gas were sold, or 12,006 BOEs.
For the three months ended June 30, 1998, 7,555 barrels of oil, 3,585 barrels of
NGLs and 14,053 mcf of gas were sold, or 13,482 BOEs.
The average price received per barrel of oil increased $1.18, or 9%, from
$13.31 for the three months ended June 30, 1998 to $14.49 for the same period in
1999. The average price received per barrel of NGLs increased $1.38, or 18%,
from $7.68 during the three months ended June 30, 1998 to $9.06 for the same
period in 1999. The average price received per mcf of gas increased slightly
from $1.54 during the three months ended June 30, 1998 to $1.57 in 1999.
Costs and Expenses:
Total costs and expenses decreased to $108,884 for the three months ended
June 30, 1999 as compared to $146,294 for the same period in 1998, a decrease of
$37,410, or 26%. This decrease was due to declines in production costs,
depletion and G&A, offset by an increase in abandoned property costs.
Production costs were $86,306 for the three months ended June 30, 1999 and
$115,069 for the same period in 1998, resulting in a $28,763 decrease, or 25%.
The decrease was the result of lower well maintenance costs, ad valorem taxes
and production taxes.
During this period, G&A decreased, in aggregate, 3% from $4,492 for the
three months ended June 30, 1998 to $4,337 for the same period in 1999.
Depletion was $15,267 for the three months ended June 30, 1999 compared to
$24,952 for the same period in 1998, a decrease of $9,685, or 39%. This decrease
was primarily attributable to an increase in proved reserves during the period
ended June 30, 1999 as a result of higher commodity prices, a decrease in oil
production of 1,113 barrels for the three months ended June 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.
Abandoned property costs of $2,974 and $1,781 incurred during the three
months ended June 30, 1999 and 1998, respectively, were related to wells plugged
and abandoned during 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $69,616 during the six
months ended June 30, 1999 from the same period in 1998. This decrease was
primarily the result of a decline in oil and gas sales receipts and an increase
in abandoned property costs paid, offset by decreases in production costs and
G&A expenses paid.
Net Cash Provided by (Used in) Investing Activities
The Partnership's principal investing activities during the six months
ended June 30, 1999 and 1998 were related to expenditures for replacement of oil
and gas equipment on active properties.
Proceeds from asset dispositions of $16,179 and $2,161 were received for
the six months ending June 30, 1999 and 1998, respectively. The proceeds
recognized during the period in 1999 were primarily from equipment credits on
fully depleted wells. The proceeds recognized during the period in 1998 were
primarily due to equipment credits received on previously abandoned properties.
9
<PAGE> 678
Net Cash Used in Financing Activities
Cash was sufficient for the six months ended June 30, 1999 to cover
distributions to the partners of $30,873 of which $457 was distributed to the
managing general partner and $30,416 to the limited partners. For the same
period ended June 30, 1998, cash was sufficient for distributions to the
partners of $150,613 of which $1,240 was distributed to the managing general
partner and $149,373 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 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 early indications that the nations have initiated
their planned reductions, have had some stabilizing effect on commodity prices
during the latter part of the first quarter of 1999 and into August 1999.
However, no assurances can be given that the stabilizing effect of these
actions, or the planned reductions in export volumes, will 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.
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 June 30, 1999, the managing general partner estimates that the
assessment phase is approximately 99% complete and has included, but is not
limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- the formulation of contingency plans for mission-critical information
technology systems.
Through June 30, 1999, the managing general partner had 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 varying 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 June 30, 1999, the managing
10
<PAGE> 679
general partner estimates that the remedial phase is approximately 83% complete,
on a worldwide 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
is expected to be completed by 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 expects to complete the testing of
information technology systems by October 1999. The testing of the
non-information technology remediation is scheduled to be completed by the end
of November 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. As of June 30, 1999, the managing general partner's total costs
incurred on the Year 2000 problem were $2.3 million, of which approximately $200
thousand were incurred to replace non-compliant systems.
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
11
<PAGE> 680
SIGNATURES
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 PRODUCING
PROPERTIES 87-B, LTD.
By: Pioneer Natural Resources USA,
Inc.,
Managing General Partner
By: /s/ RICH DEALY
----------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
Dated: August 11, 1999
12
<PAGE> 681
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 33-11193-2
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-2205943
(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)
</TABLE>
Registrant's Telephone Number, including area code: (915) 683-4768
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($500 PER UNIT)
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]
No market currently exists for the limited partnership interests of the
Registrant. Based on original purchase price the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$5,997,500.
As of March 8, 1999, the number of outstanding limited partnership
interests was 12,191.
The following documents are incorporated by reference into the indicated
parts of this Annual Report on Form 10-K: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 682
Parts I and II of this Report contain 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. See "Item 1.
Business" for a description of various factors that could materially affect the
ability of the Partnership to achieve the anticipated results described in the
forward looking statements.
PART I
ITEM 1. BUSINESS
Parker & Parsley Producing Properties 87-B, Ltd. (the "Partnership") is a
limited partnership organized in 1987 under the laws of the state of Texas. As
of August 8, 1997, Pioneer Natural Resources USA, Inc. ("Pioneer USA") became
the managing general partner of the Partnership. Prior to August 8, 1997, the
Partnership's managing general partner was Parker & Parsley Development L.P.
("PPDLP"), a wholly-owned subsidiary of Parker & Parsley Petroleum Company
("Parker & Parsley"). On August 7, 1997, Parker & Parsley and Mesa Inc. ("Mesa")
received shareholder approval to merge and create Pioneer Natural Resources
Company ("Pioneer"). On August 8, 1997, PPDLP was merged with and into Pioneer
USA, a wholly-owned subsidiary of Pioneer, resulting in Pioneer USA becoming the
managing general partner of the Partnership as PPDLP's successor by merger. For
a more complete description of the Parker & Parsley and Mesa merger, see
Pioneer's Registration Statement on Form S-4 as filed with the Securities &
Exchange Commission.
A Registration Statement, as amended, filed pursuant to the Securities Act
of 1933, registering limited partnership interests aggregating $30,000,000 in a
series of Texas limited partnerships formed under the Parker & Parsley Producing
Properties Program-I, was declared effective by the Securities and Exchange
Commission on February 20, 1987. On December 28, 1987, the offering of limited
partnership interests in the Partnership, the second partnership formed under
such statement, was closed, with interests aggregating $6,095,500 being sold to
573 subscribers.
The Partnership's primary business plan and objectives are to purchase
producing oil and gas properties and distribute the cash flow from operations to
its partners. The Partnership is not involved in any industry segment other than
oil and gas. See "Item 6. Selected Financial Data" and "Item 8. Financial
Statements and Supplementary Data" of this report for a summary of the
Partnership's revenue, income and identifiable assets.
The principal markets during 1998 for the oil produced by the Partnership
were refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. The principal markets for the
Partnership's gas were companies that have pipelines located near the
Partnership's gas producing properties. Of the Partnership's total oil and gas
revenues for 1998, approximately 58% and 23% were attributable to sales made to
Genesis Crude Oil, L.P. and Western Gas Resources, Inc., respectively.
The Partnership's revenues, profitability, cash flow and future rate of
growth are highly dependent on the prevailing prices of oil and gas, which are
affected by numerous factors beyond the Partnership's control. Oil and gas
prices historically have been very volatile. A substantial or extended decline
in the prices of oil or gas could have a material adverse effect on the
Partnership's revenues, profitability and cash flow and could, under certain
circumstances, result in a reduction in the carrying value of the Partnership's
oil and gas properties.
Because of the demand for oil and gas, the Partnership does not believe
that the termination of the sales of its products to any one customer would have
a material adverse impact on its operations. The loss of a particular customer
for gas may have an effect if that particular customer has the only gas pipeline
located in the areas of the Partnership's gas producing properties. The
Partnership believes, however, that the effect would be temporary, until
alternative arrangements could be made.
1
<PAGE> 683
Federal and state regulation of oil and gas operations generally includes
the fixing of maximum prices for regulated categories of natural gas, the
imposition of maximum allowable production rates, the taxation of income and
other items and the protection of the environment. Although the Partnership
believes that its business operations do not impair environmental quality and
that its costs of complying with any applicable environmental regulations are
not currently significant, the Partnership cannot predict what, if any, effect
these environmental regulations may have on its current or future operations.
The Partnership does not have any employees of its own. Pioneer USA employs
818 persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this report is filed. Pioneer
USA supplies all management functions.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the
Partnership conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist primarily of leasehold interests in
properties on which oil and gas wells are located. Such property interests are
often subject to landowner royalties, overriding royalties and other oil and gas
leasehold interests.
The Partnership completed seven purchases of producing properties. These
acquisitions involved the purchase of working interests in 54 properties of
which all are operated by the managing general partner. The Partnership also
participated in the drilling of two oil and gas wells during 1988 which were
completed as producers. Additionally, the Partnership purchased 15 overriding
royalty interests effective January 1, 1990 and two additional overriding
royalty interests during 1991. Twenty-one uneconomical wells have been
abandoned. At December 31, 1998, the Partnership had 35 producing oil and gas
wells.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 1998, 1997 and 1996 and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been estimated by the engineering staff of Pioneer USA with a review by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
2
<PAGE> 684
PART II
ITEM 5.MARKET FOR PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 8, 1999, the Partnership had 12,191 outstanding limited
partnership interests held of record by 560 subscribers. There is no established
public trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are
not required to meet the Partnership's obligations are distributed to the
partners at least quarterly in accordance with the limited partnership
agreement. During the years ended December 31, 1998 and 1997, $200,016 and
$477,903, respectively, of such revenue-related distributions were made to the
limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Oil and gas sales...... $ 532,606 $ 846,163 $ 980,232 $ 921,034 $ 907,637
========= ========== ========== ========== ==========
Impairment of oil and
gas properties...... $ 35,017 $ 317,255 $ 42,277 $ 104,960 $ --
========= ========== ========== ========== ==========
Net income (loss)...... $(118,738) $ (142,439) $ 303,380 $ 157,736 $ (166,914)
========= ========== ========== ========== ==========
Allocation of net
income (loss):
Managing general
partner........... $ (1,187) $ (1,424) $ 3,034 $ 1,578 $ (1,669)
========= ========== ========== ========== ==========
Limited partners.... $(117,551) $ (141,015) $ 300,346 $ 156,158 $ (165,245)
========= ========== ========== ========== ==========
Limited partners' net
income (loss) per
limited partnership
interest............ $ (9.64) $ (11.57) $ 24.64 $ 12.81 $ (13.55)
========= ========== ========== ========== ==========
Limited partners' cash
distributions per
limited partnership
interest............ $ 16.41 $ 39.20 $ 35.59 $ 29.01 $ 21.87
========= ========== ========== ========== ==========
AT YEAR END:
Total assets........... $ 878,401 $1,241,161 $1,823,614 $1,958,507 $2,158,522
========= ========== ========== ========== ==========
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1998 compared to 1997
The Partnership's 1998 oil and gas revenues decreased 37% to $532,606 from
$846,163 in 1997. The decrease in revenues resulted from lower average prices
received. In 1998, 29,481 barrels of oil, 11,315 barrels of natural gas liquids
("NGLs") and 50,220 mcf of gas were sold, or 49,166 barrel of oil equivalents
("BOEs"). In 1997, 28,091 barrels of oil, 7,221 barrels of NGLs and 90,629 mcf
of gas were sold, or 50,417 BOEs. Due to the decline characteristics of the
Partnership's oil and gas properties, management expects a certain amount of
decline in production in the future until the Partnership's economically
recoverable reserves are fully depleted.
3
<PAGE> 685
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. Effective September 30, 1997, as a result of the
merger with Mesa, the managing general partner accounts for processed natural
gas production in two components: natural gas liquids and dry residue gas. As a
result of the change in the managing general partner's policy, the Partnership
now accounts for processed natural gas production as processed natural gas
liquids and dry residue gas. Consequently, separate product volumes will not be
comparable for 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
year ended December 31, 1998 is the price received for dry residue gas and the
price per mcf for natural gas produced prior to October 1997 was presented as a
price for wet gas (i.e., natural gas liquids combined with dry residue gas).
The average price received per barrel of oil decreased $6.07, or 32%, from
$19.12 in 1997 to $13.05 in 1998. The average price received per barrel of NGLs
decreased $4.07, or 38%, from $10.65 in 1997 to $6.58 in 1998. The average price
received per mcf of gas decreased 43% from $2.56 in 1997 to $1.46 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 in 1998.
In 1998, $4,248 gain on disposition of assets was recognized from proceeds
received from equipment salvage on wells plugged in prior years. In 1997, a
$13,626 gain on disposition of assets was recognized from proceeds of $43,532
received from equipment salvage, offset by the write-off of remaining
capitalized well costs of $29,906 on one plugged and abandoned well.
Total costs and expenses decreased in 1998 to $659,670 as compared to
$1,008,245 in 1997, a decrease of $348,575, or 35%. The decrease was primarily
attributable to declines in the impairment of oil and gas properties, depletion,
general and administrative expenses ("G&A"), production costs and abandoned
property costs.
Production costs were $385,648 in 1998 and $407,313 in 1997, resulting in a
$21,665 decrease, or 5%. The decrease was the result of reductions in production
taxes and ad valorem taxes, offset by increases in well maintenance costs and
workover expenses incurred in an effort to stimulate well production.
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, 43%, from $27,969 in 1997 to $15,978 in 1998. The
Partnership paid the managing general partner $9,662 in 1998 and $19,944 in 1997
for G&A incurred on behalf of the Partnership. G&A is allocated, in part, to the
Partnership by the managing general partner. Such allocated expenses are
determined by the managing general partner based upon its judgement of the level
of activity of the Partnership relative to the managing general partner's
activities and other entities it manages. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
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"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. Declining commodity prices prompted
impairment reviews in 1998 and 1997. As a result of the review and evaluation of
its long-lived assets for impairment, the Partnership recognized non-cash
charges of $35,017 and $317,255 related to its oil and gas properties during
1998 and 1997, respectively.
Depletion was $206,289 in 1998 compared to $230,739 in 1997, a decrease of
$24,450, or 11%. This decrease was the result of a reduction in the
Partnership's net depletable basis from charges taken in accordance with SFAS
121 during the fourth quarter of 1997, offset by a combination of factors that
included a decline in proved reserves during 1998 due to the lower commodity
prices and an increase in oil production of 1,390 barrels for the period ended
December 31, 1998 compared to the same period in 1997.
4
<PAGE> 686
Abandoned property costs of $16,738 were incurred in 1998 to plug and
abandon one oil and gas well which was temporarily abandoned in a prior year.
Expenses of $24,969 were incurred during 1997 to plug and abandon one oil and
gas well.
1997 compared to 1996
The Partnership's 1997 oil and gas revenues decreased 14% to $846,163 from
$980,232 in 1996. The decrease in revenues resulted from a lower average price
received per barrel of oil. In 1997, 28,091 barrels of oil, 7,221 barrels of
NGLs and 90,629 mcf of gas were sold, or 50,417 BOEs. In 1996, 35,151 barrels of
oil and 90,750 mcf of gas were sold, or 50,276 BOEs.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. As is described above in "Results of
Operations -- 1998 compared to 1997", the Partnership changed its method of
accounting for processed natural gas to a dry gas basis in the fourth quarter of
1997. As a result of this change, the Partnership now accounts for processed
natural gas production as processed natural gas liquids and dry residue gas.
Consequently, 1997 and 1996 separate product volumes are not comparable.
The average price received per barrel of oil decreased $2.53, or 12%, from
$21.65 in 1996 to $19.12 in 1997. The average price received per barrel of NGLs
during 1997 was $10.65. The average price received per mcf of gas increased 6%
from $2.42 in 1996 to $2.56 in 1997.
In 1997, a gain of $13,626 on disposition of assets was recognized from
proceeds received from equipment salvage, offset by the write-off of remaining
capitalized well costs on one plugged and abandoned oil and gas well. Loss on
disposition of assets of $1,162 was recognized during 1996, resulting from the
write-off of remaining capitalized well costs of $2,473 on one oil and gas well
and one saltwater disposal well, offset by proceeds of $1,311 received from
equipment salvage.
Total costs and expenses increased in 1997 to $1,008,245 as compared to
$680,099 in 1996, an increase of $328,146, or 48%. The increase was primarily
attributable to increases in the impairment of oil and gas properties, depletion
and abandoned property costs, offset by declines in production costs and G&A.
Production costs were $407,313 in 1997 and $457,850 in 1996, resulting in a
$50,537 decrease, or 11%. The decrease was the net result of a reduction in
workover costs, well maintenance costs and production taxes, offset by an
increase in ad valorem taxes.
During this period, G&A decreased, in aggregate, 13%, from $31,991 in 1996
to $27,969 in 1997. The Partnership paid the managing general partner $19,944 in
1997 and $24,530 in 1996 for G&A incurred on behalf of the Partnership.
The Partnership recognized non-cash SFAS 121 impairment provisions of
$317,255 and $42,277 related to its proved oil and gas properties during the
fourth quarters of 1997 and 1996, respectively.
Depletion was $230,739 in 1997 compared to $146,246 in 1996, an increase of
$84,493, or 58%. This increase was primarily attributable to a decrease in oil
reserves during 1997 as a result of lower commodity prices, offset by a decline
in oil production of 7,060 barrels in 1997 as compared to 1996.
Abandoned property costs of $24,969 and $1,735 were incurred during 1997
and 1996, respectively, to plug and abandon one oil and gas well in 1997 and one
oil and gas well and one saltwater disposal well in 1996.
IMPACT OF INFLATION AND CHANGING PRICES ON SALES AND NET INCOME
Inflation impacts the fixed overhead rate charges of the lease operating
expenses for the Partnership. During 1998, the annual change in the index of
average weekly earnings of crude petroleum and gas production workers issued by
the U.S. Department of Labor, Bureau of Labor Statistics increased (effective
April 1, 1998) 10.3%. The 1997 annual change in average weekly earnings
increased by 2%. The
5
<PAGE> 687
1996 index increased 4.1%. The impact of inflation for other lease operating
expenses is small due to the current economic condition of the oil industry.
The oil and gas industry experienced volatility during the past decade
because of the fluctuation of the supply of most fossil fuels relative to the
demand for such products and other uncertainties in the world energy markets
causing significant fluctuations in oil and gas prices. During 1998, the price
per barrel for oil production similar to the Partnership's ranged from
approximately $9.50 to $15.50. During most of 1997 and 1996, 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 March 1999. On March 8, 1999, the market price for West Texas intermediate
crude was $11.00 per barrel. A continuation of the current commodity price
environment will continue to have an adverse effect on the Partnership's
revenues, operating cash flow and distributions and could result in additional
decreases in the carrying value of the Partnership's oil and gas properties.
Prices for natural gas are subject to ordinary seasonal fluctuations, and
this volatility of natural gas prices may result in production being curtailed
and, in some cases, wells being completely shut-in.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $295,036 during the
year ended December 31, 1998 from the year ended December 31, 1997. The decrease
was primarily due to a decline in oil and gas sales receipts and an increase in
production costs paid, offset by reductions in abandoned property costs and G&A
expenses paid.
Net Cash Provided by (Used in) Investing Activities
The Partnership's investing activities during 1998 were primarily for
expenditures related to the addition of equipment on various oil and gas
properties.
Proceeds of $4,248 and $57,144 from salvage income from the disposal of oil
and gas equipment on abandoned properties were received during 1998 and 1997,
respectively.
Net Cash Used in Financing Activities
Cash was sufficient in 1998 for distributions to the partners of $201,780
of which $1,764 was distributed to the managing general partner and $200,016 to
the limited partners. In 1997, cash was sufficient for distributions to the
partners of $482,256 of which $4,353 was distributed to the managing general
partner and $477,903 to the limited partners.
The current commodity price environment will continue to impact the
distributions and could result in limited or no distributions to the partners.
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.
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
6
<PAGE> 688
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
at varying stages of completion as it pertains to information technology and
non-information technology applications and systems in the United States, Canada
and Argentina. As of December 31, 1998, the managing general partner estimates
that the assessment phase is approximately 86% complete, on a worldwide basis,
and has included, but is not limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- 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 to
approximately 37% of those inquiries.
The remedial phase of the managing general partner's Year 2000 project is
also at varying 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 December 31, 1998, the
managing general partner estimates that the remedial phase is approximately 54%
complete, on a worldwide basis, subject to the continuing 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 through remedial coding and is currently testing this system for Year
2000 compliance. The remediation of non-information technology is expected to be
completed during July 1999. The managing general partner's Year 2000 remedial
actions have not significantly 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 and non-information technology remediation by the end of the third
quarter of 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. The managing general partner intends to use its working capital to pay
for the costs of the Year 2000 projects. As of December 31, 1998, the managing
general partner's total costs incurred on the Year 2000 problem were $1.8
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 in accordance with the general and
administration allocation. (See Note 2 of Notes to Financial Statements included
in "Item 8. Financial Statements and Supplementary Data".)
7
<PAGE> 689
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 assessment phase of the managing general partner's Year 2000
project, contingency plans are being 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.
8
<PAGE> 690
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Parker & Parsley Producing
Properties 87-B, Ltd.:
Independent Auditors' Report -- Ernst & Young LLP......... 10
Independent Auditors' Report -- KPMG LLP.................. 11
Balance Sheets as of December 31, 1998 and 1997........... 12
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996.................................... 13
Statements of Partners' Capital for the Years Ended
December 31, 1998, 1997 and 1996....................... 14
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996.................................... 15
Notes to Financial Statements............................. 16
</TABLE>
9
<PAGE> 691
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley Producing Properties 87-B, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheet of Parker & Parsley Producing Properties
87-B, Ltd. as of December 31, 1998, and the related statements of operations,
partners' capital and cash flows for the year then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley Producing
Properties 87-B, Ltd. as of December 31, 1998, and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Dallas, Texas
March 15, 1999
10
<PAGE> 692
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley Producing Properties 87-B, Ltd.
(A Texas Limited Partnership):
We have audited the financial statements of Parker & Parsley Producing
Properties 87-B, Ltd. as of December 31, 1997, and the related statements of
operations, partners' capital and cash flows for the years ended December 31,
1997 and 1996. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley Producing
Properties 87-B, Ltd. as of December 31, 1997, and the results of its operations
and its cash flows for the years ended December 31, 1997 and 1996, in conformity
with generally accepted accounting principles.
KPMG LLP
Midland, Texas
March 20, 1998
11
<PAGE> 693
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 9,859 $ 74,883
Accounts receivable -- oil and gas sales.................. 89,569 157,903
Accounts receivable -- affiliate.......................... 3,287 --
----------- -----------
Total current assets.............................. 102,715 232,786
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 4,835,768 4,827,151
Accumulated depletion....................................... (4,060,082) (3,818,776)
----------- -----------
Net oil and gas properties........................ 775,686 1,008,375
----------- -----------
$ 878,401 $ 1,241,161
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ -- $ 42,242
Partners' capital:
Managing general partner.................................. 8,983 11,934
Limited partners (12,191 interests)....................... 869,418 1,186,985
----------- -----------
878,401 1,198,919
----------- -----------
$ 878,401 $ 1,241,161
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 694
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- --------
<S> <C> <C> <C>
Revenues:
Oil and gas.............................................. $ 532,606 $ 846,163 $980,232
Interest................................................. 4,078 6,017 4,409
Gain (loss) on disposition of assets..................... 4,248 13,626 (1,162)
--------- ---------- --------
540,932 865,806 983,479
--------- ---------- --------
Costs and expenses:
Oil and gas production................................... 385,648 407,313 457,850
General and administrative............................... 15,978 27,969 31,991
Impairment of oil and gas properties..................... 35,017 317,255 42,277
Depletion................................................ 206,289 230,739 146,246
Abandoned property....................................... 16,738 24,969 1,735
--------- ---------- --------
659,670 1,008,245 680,099
--------- ---------- --------
Net income (loss).......................................... $(118,738) $ (142,439) $303,380
========= ========== ========
Allocation of net income (loss):
Managing general partner................................. $ (1,187) $ (1,424) $ 3,034
========= ========== ========
Limited partners......................................... $(117,551) $ (141,015) $300,346
========= ========== ========
Net income (loss) per limited partnership interest......... $ (9.64) $ (11.57) $ 24.64
========= ========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 695
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Partners' capital at January 1, 1996....................... $19,125 $1,939,382 $1,958,507
Distributions............................................ (4,448) (433,825) (438,273)
Net income............................................... 3,034 300,346 303,380
------- ---------- ----------
Partners' capital at December 31, 1996..................... 17,711 1,805,903 1,823,614
Distributions............................................ (4,353) (477,903) (482,256)
Net loss................................................. (1,424) (141,015) (142,439)
------- ---------- ----------
Partners' capital at December 31, 1997..................... 11,934 1,186,985 1,198,919
Distributions............................................ (1,764) (200,016) (201,780)
Net loss................................................. (1,187) (117,551) (118,738)
------- ---------- ----------
Partners' capital at December 31, 1998..................... $ 8,983 $ 869,418 $ 878,401
======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 696
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $(118,738) $(142,439) $ 303,380
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
(Gain) loss on disposition of assets................. (4,248) (13,626) 1,162
Impairment of oil and gas properties................. 35,017 317,255 42,277
Depletion............................................ 206,289 230,739 146,246
Changes in assets and liabilities
Accounts receivable.................................. 65,047 31,537 (18,570)
Accounts payable..................................... (42,242) 12,695 (95,721)
--------- --------- ---------
Net cash provided by operating activities....... 141,125 436,161 378,774
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas equipment...................... (8,617) -- (15,058)
Proceeds from disposition of assets..................... 4,248 57,144 2,410
--------- --------- ---------
Net cash provided by (used in) investing
activities.................................... (4,369) 57,144 (12,648)
--------- --------- ---------
Cash flows from financing activities:
Cash distributions to partners.......................... (201,780) (482,256) (438,273)
--------- --------- ---------
Net increase (decrease) in cash........................... (65,024) 11,049 (72,147)
Cash at beginning of year................................. 74,883 63,834 135,981
--------- --------- ---------
Cash at end of year....................................... $ 9,859 $ 74,883 $ 63,834
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 697
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley Producing Properties 87-B, Ltd. (the "Partnership") is a
limited partnership organized in 1987 under the laws of the State of Texas. As
of August 8, 1997, Pioneer Natural Resources USA, Inc. ("Pioneer USA") became
the managing general partner of the Partnership. Prior to August 8, 1997, the
Partnership's managing general partner was Parker & Parsley Development L.P.
("PPDLP"), a wholly-owned subsidiary of Parker & Parsley Petroleum Company
("Parker & Parsley"). On August 7, 1997, Parker & Parsley and Mesa Inc. received
shareholder approval to merge and create Pioneer Natural Resources Company
("Pioneer"). On August 8, 1997, PPDLP was merged with and into Pioneer USA, a
wholly-owned subsidiary of Pioneer, resulting in Pioneer USA becoming the
managing general partner of the Partnership as PPDLP's successor by merger.
The Partnership engages primarily in oil and gas production in Texas and is
not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties -- The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as determined by the engineering staff of Pioneer
USA, the Partnership's managing general partner, and reviewed by independent
petroleum consultants. The carrying amounts of properties sold or otherwise
disposed of and the related allowances for depletion are eliminated from the
accounts and any gain or loss is included in operations.
Impairment of long-lived assets -- 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"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -- Preparation
of the accompanying financial statements 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 reporting amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest -- The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes -- A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
16
<PAGE> 698
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statements of cash flows -- For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses -- General and administrative expenses
are allocated in part to the Partnership by the managing general partner or its
affiliates. Such allocated expenses are determined by the managing general
partner based upon its judgement of the level of activity of the Partnership
relative to the managing general partner's activities and other entities it
manages. The method of allocation has been consistent over the past several
years with certain modifications incorporated to reflect changes in Pioneer
USA's overall business activities.
Reclassifications -- Certain reclassifications may have been made to the
1997 and 1996 financial statements to conform to the 1998 financial statement
presentations.
Environmental -- The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 1998.
Revenue recognition -- The Partnership uses the entitlements method of
accounting for crude oil and natural gas revenues.
Reporting comprehensive income -- Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes
standards for the reporting and display of comprehensive income (loss) and its
components in a full set of general purpose financial statements. Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss).
The Partnership has no items of other comprehensive income (loss), as defined by
SFAS No. 130. Consequently, the provisions of SFAS No. 130 do not apply to the
Partnership.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. Based upon a decline in the Partnership's outlook for future
commodity prices, the Partnership has estimated the expected future cash flows
of its oil and gas properties as of December 31, 1998, 1997 and 1996, and
compared such estimated future cash flows to the respective carrying amount of
the oil and gas properties to determine if the carrying amounts were likely to
be recoverable. For those proved oil and gas properties for which the carrying
amount exceeded the estimated future cash flows, an impairment was determined to
exist; therefore, the Partnership adjusted the carrying amount of those oil and
gas properties to their fair value as determined by discounting their expected
future cash flows at a discount rate commensurate with the risks involved in the
industry. As a result, the Partnership recognized non-cash impairment provisions
of $35,017, $317,255 and $42,277 related to its proved oil and gas properties
during 1998, 1997 and 1996, respectively.
17
<PAGE> 699
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $873,611 less than the tax basis at December 31, 1998.
The following is a reconciliation of net income (loss) per statements of
operations with the net income (loss) per Federal income tax returns for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Net income (loss) per statements of operations..... $(118,738) $(142,439) $303,380
Depletion and depreciation provisions for tax
reporting purposes (greater than) less than
amounts for financial reporting purposes......... (59,976) 122,566 8,961
Impairment of oil and gas properties for financial
reporting purposes............................... 35,017 317,255 42,277
Abandoned property dispositions for tax reporting
greater than (less than) amounts for financial
reporting purposes............................... (218,079) 22,895 (144)
Other, net......................................... 3,376 (4,454) 4,269
--------- --------- --------
Net income (loss) per Federal income tax
returns................................ $(358,400) $ 315,823 $358,743
========= ========= ========
</TABLE>
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------- -------
<S> <C> <C> <C>
Property acquisition costs............................... $6,754 $32,175 $12,738
====== ======= =======
Development costs........................................ $1,863 $ -- $ (589)
====== ======= =======
</TABLE>
Capitalized oil and gas properties consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Proved properties:
Property acquisition costs............................... $ 3,291,483 $ 3,284,729
Completed wells and equipment............................ 1,544,285 1,542,422
----------- -----------
4,835,768 4,827,151
Accumulated depletion...................................... (4,060,082) (3,818,776)
----------- -----------
Net capitalized costs............................ $ 775,686 $ 1,008,375
=========== ===========
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $144,149 $166,265 $169,025
Reimbursement of general and administrative
expenses........................................... $ 9,662 $ 19,944 $ 24,530
</TABLE>
18
<PAGE> 700
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
P&P Producing Properties 87-B Employees ("EMPL") and the Partnership are parties
to the Program agreement. EMPL is a general partnership organized for the
benefit of certain employees of Pioneer USA.
The costs and revenues of the Program are allocated to Pioneer USA, EMPL
and the Partnership as follows:
<TABLE>
<CAPTION>
PIONEER USA(1)
AND EMPL PARTNERSHIP
-------------- -----------
<S> <C> <C>
Revenues:
Revenues from oil and gas production, proceeds from sales
of producing properties and all other revenues:
Before payout......................................... 4.040405% 95.959595%
After payout.......................................... 19.191920% 80.808080%
Costs and expenses:
Property acquisition costs, operating costs, general and
administrative expenses and other costs:
Before payout......................................... 4.040405% 95.959595%
After payout.......................................... 19.191920% 80.808080%
</TABLE>
- ---------------
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at
the Partnership level and 196 limited partner interests owned by Pioneer
USA.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 1998, 1997 and 1996 and
changes in such quantities during the years then ended. Due to a change in the
accounting policy of the managing general partner in 1997, the Partnership began
accounting for processed natural gas production in two components: processed
natural gas liquids ("NGLs") and dry residue gas. NGLs are reflected in "Oil and
NGLs" in the table below. All of the Partnership's reserves are proved developed
and located within the United States. The Partnership's reserves are based on an
evaluation prepared by the engineering staff of Pioneer USA and reviewed by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant,
using criteria established by the Securities and Exchange Commission. Reserve
value information is available to limited partners pursuant to the Partnership
agreement and, therefore, is not presented.
<TABLE>
<CAPTION>
OIL AND NGLS GAS
(BBLS) (MCF)
------------ ---------
<S> <C> <C>
Net proved reserves at January 1, 1996...................... 479,032 1,806,343
Revisions................................................... (35,780) (140,224)
Production.................................................. (35,151) (90,750)
------- ---------
Net proved reserves at December 31, 1996.................... 408,101 1,575,369
Revisions................................................... 46,800 (820,651)
Production.................................................. (35,312) (90,629)
------- ---------
Net proved reserves at December 31, 1997.................... 419,589 664,089
Revisions................................................... (95,538) (99,794)
Production.................................................. (40,796) (50,220)
------- ---------
Net proved reserves at December 31, 1998.................... 283,255 514,075
======= =========
</TABLE>
19
<PAGE> 701
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1998, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 1998 prices of $10.61 per
barrel of oil, $5.45 per barrel of NGLs and $1.37 per mcf of gas, discounted at
10% was approximately $559,000 and undiscounted was $894,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Genesis Crude Oil, L.P...................................... 58% 49% 61%
Western Gas Resources, Inc. ................................ 23% 35% 10%
Phillips Petroleum Company.................................. 9% 9% 11%
GPM Gas Corporation......................................... 4% 1% 10%
</TABLE>
At December 31, 1998, the amounts receivable from Genesis Crude Oil, L.P.
and Western Gas Resources, Inc. were $20,592 and $20,912, respectively, which
are included in the caption "Accounts receivable -- oil and gas sales" in the
accompanying Balance Sheet.
The Partnership's share of oil and gas production is sold to various
purchasers. Pioneer USA is of the opinion that the loss of any one purchaser
would not have an adverse effect on the ability of the Partnership to sell its
oil and gas production.
NOTE 9. ORGANIZATION AND OPERATIONS
The Partnership was organized December 28, 1987 as a limited partnership
under the Texas Uniform Limited Partnership Act for the purpose of acquiring
producing properties. The following is a brief summary of the more significant
provisions of the limited partnership agreement:
Managing general partner -- The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Partnership affairs. As managing general
partner and operator of the Partnership's properties, all production
expenses are incurred by Pioneer USA and billed to the Partnership and a
portion of revenue is initially received by Pioneer USA prior to being paid
to the Partnership. Under the limited partnership agreement, the managing
general partner pays 1% of the Partnership's acquisition, drilling and
completion costs and 1% of its operating and general and administrative
expenses. In return, it is allocated 1% of the Partnership's revenues.
Limited partner liability -- The maximum amount of liability of any
limited partner is the total contributions of such partner plus his share
of any undistributed profits.
Initial capital contributions -- The limited partners entered into
subscription agreements for aggregate capital contributions of $6,095,500.
Pioneer USA is required to contribute amounts equal to 1% of initial
Partnership capital less commission and offering expenses allocated to the
limited partners and to contribute amounts necessary to pay costs and
expenses allocated to it under the Partnership agreement to the extent its
share of revenues does not cover such costs.
20
<PAGE> 702
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and
executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve
until the next annual meeting of stockholders or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31,
NAME 1998 POSITION
- ---- ------------ --------
<S> <C> <C>
Scott D. Sheffield................... 46 President and Director
Timothy L. Dove...................... 42 Executive Vice President and Director
Dennis E. Fagerstone................. 49 Executive Vice President and Director
Mark L. Withrow...................... 51 Executive Vice President, General Counsel
and Director
M. Garrett Smith..................... 37 Executive Vice President, Chief Financial
Officer and Director
Mel Fischer(a)....................... 64 Executive Vice President
Lon C. Kile.......................... 43 Executive Vice President
Rich Dealy........................... 32 Vice President and Chief Accounting
Officer
</TABLE>
- ---------------
(a) Mr. Fischer was a director and officer until his retirement from Pioneer
and Pioneer USA on February 19, 1999.
Scott D. Sheffield. Mr. Sheffield is a distinguished graduate of The
University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he
has served as President, Chief Executive Officer and a director of Pioneer and
President and a director of Pioneer USA. Mr. Sheffield was the President and a
director of Parker & Parsley from May 1990 until August 1997 and was the
Chairman of the Board and Chief Executive Officer of Parker & Parsley from
October 1990 until August 1997. He was the sole director of Parker & Parsley
from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley
Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum
engineer in 1979. He served as Vice President -- Engineering of PPDC from
September 1981 until April 1985 when he was elected President and a director. In
March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive
Officer of PPDC. Before joining PPDC, Mr. Sheffield was employed as a production
and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President -- Business
Development of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. Mr. Dove joined Parker & Parsley in May
1994 as Vice President -- International and was promoted to Senior Vice
President -- Business Development in October 1996, in which position he served
until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with
Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various
capacities in international exploration and production, marketing, refining and
marketing and planning and development. Mr. Dove earned a B.S. in Mechanical
Engineering from Massachusetts Institute of Technology in 1979 and received his
M.B.A. in 1981 from the University of Chicago.
21
<PAGE> 703
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of Mesa from March 1, 1997 until August 1997. From October
1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief
Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice
President -- Exploration and Production of Mesa. From June 1988 to May 1991, Mr.
Fagerstone served as Vice President -- Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President -- General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President -- General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
M. Garrett Smith. Mr. Smith, a graduate of The University of Texas with a
B.S. in Electrical Engineering and Southern Methodist University with an M.B.A.,
was appointed Executive Vice President and Chief Financial Officer of Pioneer in
December 1997. He served as Senior Vice President -- Finance of Pioneer from
August 1997 until December 1997. Mr. Smith was elected Senior Vice President --
Finance and a director of Pioneer USA in August 1997. He served as Vice
President -- Corporate Acquisitions of Mesa from January 1997 until August 1997.
From October 1996 to December 1996, Mr. Smith served as Vice
President -- Finance of Mesa and from 1994 to 1996 he served as Director of
Financial Planning of Mesa. Mr. Smith was employed by BTC Partners, Inc. (a
former financial advisor to Mesa) from 1989 to 1994.
Mel Fischer. Mr. Fischer, a graduate of the University of California at
Berkeley with a Masters degree in Geology, became Executive Vice
President -- Worldwide Exploration of Pioneer and Pioneer USA in August 1997. He
served as a director of Parker & Parsley from November 1995 until August 1997
and was Executive Vice President -- Worldwide Exploration for Parker & Parsley
from February 1997 to August 1997. Mr. Fischer retired from Pioneer and Pioneer
USA effective February 15, 1999. He worked in the petroleum industry for 32
years, starting as a Petroleum Geologist with Texaco in 1962, and retiring as
President, Occidental International Exploration and Production Company in March
1994. For the 10 years prior to becoming President of Occidental International,
he served as Executive Vice President, World Wide Exploration with Occidental
Oil and Gas Corporation. He is a registered geologist in the State of
California, a member of the American Association of Petroleum Geologists and an
emeritus member of the Board of Advisors for the Earth Sciences Research
Institute at the University of Utah.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a
B.B.A. in Accounting, became Executive Vice President of Pioneer and Pioneer USA
in August 1997. Mr. Kile was Senior Vice President -- Investor Relations from
October 1996 to August 1997. Previously, he served as Vice President and Manager
of the Mid-Continent Division, Vice President -- Equity Finance & Analysis and
Vice President -- Marketing & Program Administration. Prior to joining Parker &
Parsley in 1985, he was employed as Supervisor -- Senior, Audit, in charge of
Parker & Parsley's audit, with Arthur Young.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a
B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became
Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
22
<PAGE> 704
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is vested in Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the limited
partnership agreement, Pioneer USA pays 1% of the Partnership's acquisition,
drilling and completion costs and 1% of its operating and general and
administrative expenses. In return, Pioneer USA is allocated 1% of the
Partnership's revenues. See Notes 6 and 9 of Notes to Financial Statements
included in "Item 8. Financial Statements and Supplementary Data" for
information regarding fees and reimbursements paid to the managing general
partner or its affiliates by the Partnership.
The Partnership does not directly pay any salaries of the executive
officers of Pioneer USA, but does pay a portion of Pioneer USA's general and
administrative expenses of which these salaries are a part. See Note 6 of Notes
to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more
of the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 196 limited partner interests at January 1, 1999.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing
general partner of the Partnership, Pioneer USA, has the exclusive right and
full authority to manage, control and administer the Partnership's business.
Under the limited partnership agreement, limited partners holding a majority of
the outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner or its affiliates
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $144,149 $166,265 $169,025
Reimbursement of general and administrative
expenses........................................... $ 9,662 $ 19,944 $ 24,530
</TABLE>
Under the limited partnership agreement, the managing general partner pays
1% of the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data"
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
23
<PAGE> 705
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial statements
The following are filed as part of this annual report:
Independent Auditors' Report -- Ernst & Young LLP
Independent Auditors' Report -- KPMG LLP
Balance sheets as of December 31, 1998 and 1997
Statements of operations for the years ended December 31, 1998, 1997
and 1996
Statements of partners' capital for the years ended December 31, 1998,
1997 and 1996
Statements of cash flows for the years ended December 31, 1998, 1997
and 1996
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this annual report.
24
<PAGE> 706
SIGNATURES
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 PRODUCING
PROPERTIES 87-B, LTD.
By: Pioneer Natural Resources USA,
Inc.
Managing General Partner
By: /s/ SCOTT D. SHEFFIELD
----------------------------------
Scott D. Sheffield,
President
Dated: March 29, 1999
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 date indicated.
<TABLE>
<C> <S> <C>
/s/ SCOTT D. SHEFFIELD President and Director of March 29, 1999
- ----------------------------------------------------- Pioneer USA
Scott D. Sheffield
/s/ TIMOTHY L. DOVE Executive Vice President and March 29, 1999
- ----------------------------------------------------- Director of Pioneer USA
Timothy L. Dove
/s/ DENNIS E. FAGERSTONE Executive Vice President and March 29, 1999
- ----------------------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ MARK L. WITHROW Executive Vice President, March 29, 1999
- ----------------------------------------------------- General Counsel and Director
Mark L. Withrow of Pioneer USA
/s/ M. GARRETT SMITH Executive Vice President, Chief March 29, 1999
- ----------------------------------------------------- Financial Officer and
M. Garrett Smith Director of Pioneer USA
/s/ LON C. KILE Executive Vice President of March 29, 1999
- ----------------------------------------------------- Pioneer USA
Lon C. Kile
/s/ RICH DEALY Vice President and Chief March 29, 1999
- ----------------------------------------------------- Accounting Officer of Pioneer
Rich Dealy USA
</TABLE>
25
<PAGE> 707
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3(a) -- Amended and Restated Certificate of Limited Partnership
of Parker & Parsley Producing Properties 87-B, Ltd.
incorporated by reference to Exhibit 3a of Amendment No.
1 of the Partnership's Registration Statement on Form S-1
(Registration No. 33-11193)
4(a) -- Agreement of Limited Partnership of Parker & Parsley
Producing Properties 87-B, Ltd. incorporated by reference
to Exhibit A of Amendment No. 1 of the Partnership's
Registration Statement on Form S-1 (Registration No.
33-11193)
4(b) -- Subscription Agreement incorporated by reference to
Exhibit C of Amendment No. 1 of the Partnership's
Registration Statement on Form S-1 (Registration No.
33-11193)
4(b) -- Power of Attorney incorporated by reference to Exhibit B
of Amendment No. 1 of the Partnership's Registration
Statement on Form S-1 (Registration No. 33-11193)
4(c) -- Specimen Certificate of Limited Partnership Interest
incorporated by reference to Exhibit 4c of the
Partnership's Registration Statement on Form S-1
(Registration No. 33-11193)
10(b) -- Program Agreement incorporated by reference to Exhibit B
of Amendment No. 1 of the Partnership's Registration
Statement on Form S-1 (Registration No. 33-11193)
27.1* -- Financial Data Schedule
99.1 -- Mutual Release and Indemnity Agreement dated May 25, 1993
incorporated by reference to Exhibit 99.1 of the
Partnership's Annual Report on Form 10-K for the year
ended December 31, 1993
</TABLE>
- ---------------
* Filed herewith
<PAGE> 708
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
(A TEXAS LIMITED PARTNERSHIP)
DECEMBER 31, 1998, 1997 AND 1996
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. Future income taxes are calculated by comparing
discounted future cash flows to the tax basis of oil and gas properties plus
available carryforwards and credits and applying the current tax rates to the
difference.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and gas producing activities:
Future cash inflows....................................... $ 3,115 $ 7,921 $18,579
Future production costs................................... (2,221) (4,423) (9,715)
Future development costs.................................. -- -- 180
------- ------- -------
894 3,498 9,044
10% annual discount factor................................ (335) (1,650) (4,632)
------- ------- -------
Standardized measure of discounted future net cash
flows.................................................. $ 559 $ 1,848 $ 4,412
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs................ $ (147) $ (439) $ (522)
Net changes in prices and production costs................ (1,151) (1,750) 1,932
Extensions and discoveries................................ -- -- --
Sales of minerals-in-place................................ -- -- --
Purchases of minerals-in-place............................ -- -- --
Revisions of estimated future development costs........... -- (95) (85)
Revisions of previous quantity estimates and reserves
added by development drilling.......................... (144) (636) 285
Accretion of discount..................................... 185 441 282
Changes in production rates, timing and other............. (32) (85) (296)
------- ------- ------
Change in present value of future net revenues............ (1,289) (2,564) 1,596
------- ------- ------
Balance, beginning of year................................ 1,848 4,412 2,816
------- ------- ------
Balance, end of year...................................... $ 559 $ 1,848 $4,412
======= ======= ======
</TABLE>
<PAGE> 709
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 88-A, L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT DATED , 1999
----------------------
THE DATE OF THIS SUPPLEMENT IS , 1999
----------------------
This document contains important information specific to Parker & Parsley
88-A, L.P. and supplements the proxy statement dated , 1999, of
Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies
to be voted at a special meeting of limited partners of the partnerships
described in the proxy statement. The purpose of the special meeting is for you
to vote upon the merger of Parker & Parsley 88-A, L.P. with and into Pioneer USA
that, if completed, will result in your receiving cash for your partnership
interests.
This supplement contains the following information concerning Parker &
Parsley 88-A, L.P.:
- A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through June
30, 1999
-- the merger value per $1,000 limited partner investment as of June 30,
1999
-- the merger value per $1,000 limited partner investment as a multiple
of distributions for the 12 months ended June 30, 1999
-- the book value per $1,000 limited partner investment as of June 30,
1999 and as of December 31, 1998 and
-- the ordinary tax loss per $1,000 limited partner investment in year
of initial investment
- Quarterly Report on Form 10-Q for the six months ended June 30, 1999
- Annual Report on Form 10-K for the year ended December 31, 1998
- Disclosures about the partnership's oil and gas producing activities
<PAGE> 710
PARKER & PARSLEY 88-A, L.P.
SUPPLEMENTAL INFORMATION TABLE
<TABLE>
<S> <C>
Aggregate Initial Investment by the Limited Partners(a)..... $12,935
Aggregate Historical Limited Partner Distributions through
June 30, 1999(a).......................................... $12,907
Merger Value per $1,000 Limited Partner Investment as of
June 30, 1999(b).......................................... $170.39
Merger Value per $1,000 Limited Partner Investment as a
Multiple of Distributions for the 12 Months ended June 30,
1999(b)................................................... 10.69times
Book Value per $1,000 Limited Partner Investment:
-- as of June 30, 1999(b)................................. $152.72
-- as of December 31, 1998(b)............................. $156.26
Ordinary Tax Loss per $1,000 Limited Partner Investment in
Year of Initial Investment(b), (c)........................ $ 444
</TABLE>
- ---------------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as any
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
<PAGE> 711
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JUNE 30, 1999
COMMISSION FILE NO. 33-19659-01
PARKER & PARSLEY 88-A, L.P.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2225738
(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)
</TABLE>
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> 712
PARKER & PARSLEY 90-A, L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1999 and December 31,
1998.................................................. 3
Statements of Operations for the three and six months
ended June 30, 1999 and 1998.......................... 4
Statement of Partners' Capital for the six months ended
June 30, 1999......................................... 5
Statements of Cash Flows for the six months ended June
30, 1999 and 1998..................................... 6
Notes to Financial Statements.......................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................. 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 11
27.1 Financial Reporting Schedule
Signatures............................................. 12
</TABLE>
2
<PAGE> 713
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER & PARSLEY 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 173,966 $ 157,782
Accounts receivable -- oil and gas sales.................. 130,673 75,374
----------- -----------
Total current assets.............................. 304,639.... 233,156
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 10,097,975 10,090,461
Accumulated depletion....................................... (8,372,445) (8,264,115)
----------- -----------
Net oil and gas properties........................ 1,725,530 1,826,346
----------- -----------
$ 2,030,169 $ 2,059,502
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable -- affiliate............................. $ 34,552 $ 17,656
Partners' capital:
Managing general partner.................................. 20,198 20,660
Limited partners (12,935 interests)....................... 1,975,419 2,021,186
----------- -----------
1,995,617 2,041,846
----------- -----------
$ 2,030,169 $ 2,059,502
=========== ===========
</TABLE>
The financial information included as of June 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
<PAGE> 714
PARKER & PARSLEY 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas...................................... $209,933 $203,910 $374,957 $434,947
Interest......................................... 1,893 2,447 3,533 5,435
-------- -------- -------- --------
211,826 206,357 378,490 440,382
-------- -------- -------- --------
Costs and expenses:
Oil and gas production........................... 122,011 133,653 223,897 272,903
General and administrative....................... 6,298 6,989 11,249 13,920
Depletion........................................ 31,272 59,792 108,330 115,895
-------- -------- -------- --------
159,581 200,434 343,476 402,718
-------- -------- -------- --------
Net income......................................... $ 52,245 $ 5,923 $ 35,014 $ 37,664
======== ======== ======== ========
Allocation of net income:
Managing general partner......................... $ 522 $ 60 $ 350 $ 377
======== ======== ======== ========
Limited partners................................. $ 51,723 $ 5,863 $ 34,664 $ 37,287
======== ======== ======== ========
Net income per limited partnership interest........ $ 4.00 $ .45 $ 2.68 $ 2.88
======== ======== ======== ========
Distributions per limited partnership interest..... $ 3.06 $ 6.14 $ 6.22 $ 18.39
======== ======== ======== ========
</TABLE>
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> 715
PARKER & PARSLEY 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1, 1999................................. $20,660 $2,021,186 $2,041,846
Distributions............................................ (812) (80,431) (81,243)
Net income............................................... 350 34,664 35,014
------- ---------- ----------
Balance at June 30, 1999................................... $20,198 $1,975,419 $1,995,617
======= ========== ==========
</TABLE>
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> 716
PARKER & PARSLEY 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 35,014 $ 37,664
Adjustments to reconcile net income to net cash provided
by operating activities:
Depletion.............................................. 108,330 115,895
Changes in assets and liabilities:
Accounts receivable.................................... (55,299) 56,133
Accounts payable....................................... 16,896 4,298
-------- ---------
Net cash provided by operating activities......... 104,941 213,990
-------- ---------
Cash flows from investing activities:
Additions to oil and gas properties....................... (7,514) (5,851)
Cash flows used in financing activities:
Cash distributions to partners............................ (81,243) (240,306)
-------- ---------
Net increase (decrease) in cash............................. 16,184 (32,167)
Cash at beginning of period................................. 157,782 206,923
-------- ---------
Cash at end of period....................................... $173,966 $ 174,756
======== =========
</TABLE>
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> 717
PARKER & PARSLEY 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 88-A, L.P. (the "Partnership") is a limited partnership
organized in 1988 under the laws of the State of Delaware.
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 June 30, 1999 and for the three and six months ended June 30,
1999 and 1998 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.
7
<PAGE> 718
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
RESULTS OF OPERATIONS
Six months ended June 30, 1999 compared with six months ended June 30, 1998
Revenues:
The Partnership's oil and gas revenues decreased 14% to $374,957 from
$434,947 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from lower average prices received and a decrease
in production. For the six months ended June 30, 1999, 17,589 barrels of oil,
11,663 barrels of natural gas liquids ("NGLs") and 45,216 mcf of gas were sold,
or 36,788 barrel of oil equivalents ("BOEs"). For the six months ended June 30,
1998, 19,552 barrels of oil, 10,141 barrels of NGLs and 46,285 mcf of gas were
sold, or 37,407 BOEs.
The average price received per barrel of oil decreased $1.65, or 11%, from
$14.65 for the six months ended June 30, 1998 to $13.00 for the same period in
1999. The average price received per barrel of NGLs decreased 7% from $7.39
during the six months ended June 30, 1998 to $6.86 for the same period in 1999.
The average price received per mcf of gas decreased 8% from $1.59 during the six
months ended June 30, 1998 to $1.47 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 six months ended June 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.
Costs and Expenses:
Total costs and expenses decreased to $343,476 for the six months ended
June 30, 1999 as compared to $402,718 for the same period in 1998, a decrease of
$59,242, or 15%. This decrease was due to declines in production costs,
depletion and general and administrative expenses ("G&A").
Production costs were $223,897 for the six months ended June 30, 1999 and
$272,903 for the same period in 1998 resulting in a $49,006 decrease, or 18%.
The decrease was due to declines in well maintenance costs 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, 19% from $13,920 for the six months ended June 30, 1998
to $11,249 for the same period in 1999.
Depletion was $108,330 for the six months ended June 30, 1999 compared to
$115,895 for the same period in 1998, a decrease of $7,565, or 7%. This decrease
was due to a reduction in oil production of 1,963 barrels for the six months
ended June 30, 1999 compared to the same period in 1998, an increase in proved
reserves during the period ended June 30, 1999 due to the higher commodity
prices 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.
Three months ended June 30, 1999 compared with three months ended June 30, 1998
Revenues:
The Partnership's oil and gas revenues increased 3% to $209,933 from
$203,910 for the three months ended June 30, 1999 and 1998, respectively. The
increase in revenues resulted from higher average prices received and an
increase in production. For the three months ended June 30, 1999, 7,934 barrels
of oil, 6,797 barrels of NGLs and 24,720 mcf of gas were sold, or 18,851 BOEs.
For the three months ended June 30, 1998, 9,573 barrels of oil, 4,934 barrels of
NGLs and 21,016 mcf of gas were sold, or 18,010 BOEs.
8
<PAGE> 719
The average price received per barrel of oil increased 4% from $13.87 for
the three months ended June 30, 1998 to $14.48 for the same period in 1999. The
average price received per barrel of NGLs increased 8% from $7.62 during the
three months ended June 30, 1998 to $8.21 for the same period in 1999. The
average price received per mcf of gas decreased slightly from $1.60 during the
three months ended June 30, 1998 to $1.59 in 1999.
Costs and Expenses:
Total costs and expenses decreased to $159,581 for the three months ended
June 30, 1999 as compared to $200,434 for the same period in 1998, a decrease of
$40,853, or 20%. This decrease was due to declines in depletion, production
costs and G&A.
Production costs were $122,011 for the three months ended June 30, 1999 and
$133,653 for the same period in 1998 resulting in an $11,642 decrease, or 9%.
The decrease was due to declines in well maintenance costs, ad valorem taxes and
production taxes.
During this period, G&A decreased, in aggregate, 10% from $6,989 for the
three months ended June 30, 1998 to $6,298 for the same period in 1999.
Depletion was $31,272 for the three months ended June 30, 1999 compared to
$59,792 for the same period in 1998, a decrease of $28,520, or 48%. This
decrease was primarily attributable to an increase in proved reserves during the
period ended June 30, 1999 due to higher commodity prices, a reduction in oil
production of 1,639 barrels for the three months ended June 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.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $109,049 during the six
months ended June 30, 1999 from the same period ended June 30, 1998. This
decrease was primarily due to declines in oil and gas sales receipts, offset by
declines in production costs and G&A expenses paid.
Net Cash Used in Investing Activities
The Partnership's principal investing activities during the six months
ended June 30, 1999 and 1998 included expenditures for equipment replacement on
various oil and gas properties.
Net Cash Used in Financing Activities
Cash was sufficient for the six months ended June 30, 1999 to cover
distributions to the partners of $81,243 of which $812 was distributed to the
managing general partner and $80,431 to the limited partners. For the same
period ended June 30, 1998, cash was sufficient for distributions to the
partners of $240,306 of which $2,403 was distributed to the managing general
partner and $237,903 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 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 early indications that the nations have initiated
their planned reductions, have had some stabilizing effect on commodity prices
during the latter part of the first quarter of 1999 and into August 1999.
However, no assurances can be given that the stabilizing effect of these
actions, or the planned reductions in export volumes, will be sustained for an
extended period of time.
9
<PAGE> 720
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.
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 June 30, 1999, the managing general partner estimates that the
assessment phase is approximately 99% complete and has included, but is not
limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- the formulation of contingency plans for mission-critical information
technology systems.
Through June 30, 1999, the managing general partner had 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 varying 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 June 30, 1999, the managing general partner
estimates that the remedial phase is approximately 83% complete, on a worldwide
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 is expected
to be completed by 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 expects to complete the testing of
information technology systems by October 1999. The testing of the
non-information technology remediation is scheduled to be completed by the end
of November 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. As of June 30, 1999, the managing general partner's total costs
10
<PAGE> 721
incurred on the Year 2000 problem were $2.3 million, of which approximately $200
thousand were incurred to replace non-compliant systems.
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
11
<PAGE> 722
SIGNATURES
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 88-A, L.P.
By: Pioneer Natural Resources USA,
Inc.
Managing General Partner
By: /s/ RICH DEALY
----------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
Dated: August 10, 1999
12
<PAGE> 723
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 33-19659-01
PARKER & PARSLEY 88-A, L.P.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2225738
(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)
</TABLE>
Registrant's Telephone Number, including area code: (915) 683-4768
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
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]
No market currently exists for the limited partnership interests of the
Registrant. Based on original purchase price the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$12,762,000.
As of March 8, 1999, the number of outstanding limited partnership
interests was 12,935.
The following documents are incorporated by reference into the indicated
parts of this Annual Report on Form 10-K: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 724
Parts I and II of this Report contain 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. See "Item 1.
Business" for a description of various factors that could materially affect the
ability of the Partnership to achieve the anticipated results described in the
forward looking statements.
PART I
ITEM 1. BUSINESS
Parker & Parsley 88-A, L.P. (the "Partnership") is a limited partnership
organized in 1988 under the laws of the State of Delaware. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. ("Mesa") received shareholder approval
to merge and create Pioneer Natural Resources Company ("Pioneer"). On August 8,
1997, PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership as PPDLP's successor by merger. For a more complete description of
the Parker & Parsley and Mesa merger, see Pioneer's Registration Statement on
Form S-4 as filed with the Securities & Exchange Commission.
A Registration Statement, as amended, filed pursuant to the Securities Act
of 1933, registering limited partnership interests aggregating $70,000,000 in a
series of Delaware limited partnerships formed under the Parker & Parsley 88
Development Drilling Program, was declared effective by the Securities and
Exchange Commission on March 4, 1988. On June 30, 1988, the offering of limited
partnership interests in the Partnership, the first partnership formed under
such statement, was closed, with interests aggregating $12,935,000 being sold to
999 subscribers.
The Partnership engages primarily in oil and gas development and production
and is not involved in any industry segments other than oil and gas. See "Item
6. Selected Financial Data" and "Item 8. Financial Statements and Supplementary
Data" of this report for a summary of the Partnership's revenue, income and
identifiable assets.
The principal markets during 1998 for the oil produced by the Partnership
were refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. The principal markets for the
Partnership's gas were companies that have pipelines located near the
Partnership's gas producing properties. Of the Partnership's total oil and gas
revenues for 1998, approximately 55% and 22% were attributable to sales made to
Genesis Crude Oil, L.P. and Western Gas Resources, Inc., respectively.
The Partnership's revenues, profitability, cash flow and future rate of
growth are highly dependent on the prevailing prices of oil and gas, which are
affected by numerous factors beyond the Partnership's control. Oil and gas
prices historically have been very volatile. A substantial or extended decline
in the prices of oil or gas could have a material adverse effect on the
Partnership's revenues, profitability and cash flow and could, under certain
circumstances, result in a reduction in the carrying value of the Partnership's
oil and gas properties.
Because of the demand for oil and gas, the Partnership does not believe
that the termination of the sales of its products to any one customer would have
a material adverse impact on its operations. The loss of a particular customer
for gas may have an effect if that particular customer has the only gas pipeline
located in the areas of the Partnership's gas producing properties. The
Partnership believes, however, that the effect would be temporary, until
alternative arrangements could be made.
1
<PAGE> 725
Federal and state regulation of oil and gas operations generally includes
the fixing of maximum prices for regulated categories of natural gas, the
imposition of maximum allowable production rates, the taxation of income and
other items, and the protection of the environment. Although the Partnership
believes that its business operations do not impair environmental quality and
that its costs of complying with any applicable environmental regulations are
not currently significant, the Partnership cannot predict what, if any, effect
these environmental regulations may have on its current or future operations.
The Partnership does not have any employees of its own. Pioneer USA employs
818 persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this report is filed. Pioneer
USA is responsible for all management functions.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the
Partnership conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist primarily of leasehold interests in
properties on which oil and gas wells are located. Such property interests are
often subject to landowner royalties, overriding royalties and other oil and gas
leasehold interests.
Fractional working interests in developmental oil and gas prospects located
in the Spraberry Trend area of West Texas were acquired by the Partnership,
resulting in the Partnership's participation in the drilling of 40 oil and gas
wells. At December 31, 1998, 39 wells were producing with one well plugged and
abandoned.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 1998, 1997 and 1996, and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been estimated by the engineering staff of Pioneer USA with a review by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
2
<PAGE> 726
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 8, 1999, the Partnership had 12,935 outstanding limited
partnership interests held of record by 977 subscribers. There is no established
public trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are
not required to meet the Partnership's obligations, are distributed to the
partners at least quarterly in accordance with the limited partnership
agreement. During the years ended December 31, 1998 and 1997, $360,933 and
$655,601, respectively, of such revenue-related distributions were made to the
limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Oil and gas sales.............. $ 774,533 $1,157,862 $1,411,568 $1,195,876 $1,183,360
========== ========== ========== ========== ==========
Impairment of oil and gas
properties.................. $ 405,308 $ 699,976 $ -- $ 591,925 $ --
========== ========== ========== ========== ==========
Net income (loss).............. $ (514,812) $ (331,171) $ 600,634 $ (334,438) $ 178,831
========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general partner.... $ (5,148) $ (3,312) $ 6,006 $ (3,344) $ 1,788
========== ========== ========== ========== ==========
Limited partners............ $ (509,664) $ (327,859) $ 594,628 $ (331,094) $ 177,043
========== ========== ========== ========== ==========
Limited partners' net income
(loss) per limited
partnership interest........ $ (39.40) $ (25.35) $ 45.97 $ (25.60) $ 13.69
========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest........ $ 27.90 $ 50.68 $ 57.12 $ 44.53 $ 43.56
========== ========== ========== ========== ==========
AT YEAR END:
Total assets................... $2,059,502 $2,953,618 $3,940,216 $4,121,722 $5,006,561
========== ========== ========== ========== ==========
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1998 compared to 1997
The Partnership's 1998 oil and gas revenues decreased 33% to $774,533 from
$1,157,862 in 1997. The decrease in revenues resulted from lower average prices
received. In 1998, 37,135 barrels of oil, 20,500 barrels of natural gas liquids
("NGLs") and 86,501 mcf of gas were sold, or 72,052 barrel of oil equivalents
("BOEs"). In 1997, 38,859 barrels of oil, 9,410 barrels of NGLs and 134,311 mcf
of gas were sold, or 70,654 BOEs. Due to the decline characteristics of the
Partnership's oil and gas properties, management expects a certain amount of
decline in production in the future until the Partnership's economically
recoverable reserves are fully depleted.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. Effective September 30, 1997, as a result of the
merger with Mesa, the managing general partner accounts for processed natural
gas production in two components: natural gas liquids and dry residue gas. As a
result of the change in the managing general
3
<PAGE> 727
partner's policy, the Partnership now accounts for processed natural gas
production as processed natural gas liquids and dry residue gas. Consequently,
separate product volumes will not be comparable for 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 year ended December 31, 1998 is the price received
for dry residue gas and the price per mcf for natural gas produced prior to
October 1997 was presented as a price for wet gas (i.e., natural gas liquids
combined with dry residue gas).
The average price received per barrel of oil decreased $5.77, or 30%, from
$19.36 in 1997 to $13.59 in 1998. The average price received per barrel of NGLs
decreased $3.94, or 37%, from $10.51 in 1997 to $6.57 in 1998. The average price
received per mcf of gas decreased 32% from $2.28 in 1997 to $1.56 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 in 1998.
A gain on disposition of assets of $6,393 was recognized in 1998 for
credits received from the disposal of oil and gas equipment on a fully depleted
well.
Total costs and expenses decreased in 1998 to $1,306,368 as compared to
$1,501,465 in 1997, a decrease of $195,097, or 13%. The decrease was primarily
due to declines in the impairment of oil and gas properties, production costs
and general and administrative expenses ("G&A"), offset by an increase in
depletion.
Production costs were $508,919 in 1998 and $513,147 in 1997, resulting in a
$4,228 decrease. The decrease was due to reductions in workover expenses, ad
valorem taxes and production taxes, offset by an increase in well maintenance
costs incurred in an effort to stimulate well production.
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, 33% from $35,452 in 1997 to $23,611 in 1998. The
Partnership paid the managing general partner $19,297 in 1998 and $30,932 in
1997 for G&A incurred on behalf of the Partnership. G&A is allocated, in part,
to the Partnership by the managing general partner. Such allocated expenses are
determined by the managing general partner based upon its judgement of the level
of activity of the Partnership relative to the managing general partner's
activities and other entities it manages. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
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"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. Declining commodity prices prompted
impairment reviews in 1998 and 1997. As a result of the review and evaluation of
its long-lived assets for impairment, the Partnership recognized non-cash
charges of $405,308 and $699,976 related to its oil and gas properties during
1998 and 1997, respectively.
Depletion was $368,530 in 1998 compared to $252,890 for the same period in
1997, representing an increase of $115,640, or 46%. This increase was the result
of a decline in proved reserves during 1998 due to the lower commodity prices,
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 and a
reduction in oil production of 1,724 barrels for the period ended December 31,
1998 compared to the same period in 1997.
1997 compared to 1996
The Partnership's 1997 oil and gas revenues decreased 18% to $1,157,862
from $1,411,568 in 1996. The decrease in revenues resulted from declines in
production and lower average prices received. In 1997, 38,859 barrels of oil,
9,410 barrels of NGLs and 134,311 mcf of gas were sold, or 70,654 BOEs. In 1996,
44,670 barrels of oil and 170,774 mcf of gas were sold, or 73,132 BOEs.
4
<PAGE> 728
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. As is described above in "Results of
Operations -- 1998 compared to 1997", the Partnership changed its method of
accounting for processed natural gas to a dry gas basis in the fourth quarter of
1997. As a result of this change, the Partnership now accounts for processed
natural gas production as processed natural gas liquids and dry residue gas.
Consequently, 1997 and 1996 separate product volumes are not comparable.
The declines in production volumes were primarily attributable to the
decline characteristics of the Partnership's oil and gas properties.
The average price received per barrel of oil decreased $2.45, or 11%, from
$21.81 in 1996 to $19.36 in 1997. The average price received per barrel of NGLs
during 1997 was $10.51. The average price received per mcf of gas decreased 11%
from $2.56 in 1996 to $2.28 in 1997.
Total costs and expenses increased in 1997 to $1,501,465 as compared to
$823,988 in 1996, an increase of $677,477. The increase was primarily due to the
impairment of oil and gas properties and an increase in depletion, offset by
decreases in production costs and G&A.
Production costs were $513,147 in 1997 and $531,610 in 1996, resulting in a
$18,463 decrease, or 3%. The decrease was due to reductions in well maintenance
costs and production taxes, offset by an increase in workover expenses incurred
in an effort to stimulate well production.
During this period, G&A decreased, in aggregate, 16% from $42,275 in 1996
to $35,452 in 1997. The Partnership paid the managing general partner $30,932 in
1997 and $38,245 in 1996 for G&A incurred on behalf of the Partnership.
The Partnership recognized a non-cash SFAS 121 impairment provision of
$699,976 related to its oil and gas properties during the fourth quarter of
1997.
Depletion was $252,890 in 1997 compared to $250,103 for the same period in
1996, representing an increase of $2,787. This increase was the result of a
decline in oil reserves during 1997 due to the lower commodity prices, offset by
the decline in oil production of 5,811 barrels for 1997 as compared to 1996.
IMPACT OF INFLATION AND CHANGING PRICES ON SALES AND NET INCOME
Inflation impacts the fixed overhead rate charges of the lease operating
expenses for the Partnership. During 1998, the annual change in the index of
average weekly earnings of crude petroleum and gas production workers issued by
the U.S. Department of Labor, Bureau of Labor Statistics increased (effective
April 1, 1998) 10.3%. The 1997 annual change in average weekly earnings
increased by 2%. The 1996 index increased 4.1%. The impact of inflation for
other lease operating expenses is small due to the current economic condition of
the oil industry.
The oil and gas industry experienced volatility during the past decade
because of the fluctuation of the supply of most fossil fuels relative to the
demand for such products and other uncertainties in the world energy markets
causing significant fluctuations in oil and gas prices. During 1998 the price
per barrel for oil production similar to the Partnership's ranged from
approximately $9.50 to $15.50. During most of 1997 and 1996, 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 March 1999. On March 8, 1999, the market price for West Texas intermediate
crude was $11.00 per barrel. A continuation of the current commodity price
environment will continue to have an adverse effect on the Partnership's
revenues, operating cash flow and distributions and could result in additional
decreases in the carrying value of the Partnership's oil and gas properties.
Prices for natural gas are subject to ordinary seasonal fluctuations, and
this volatility of natural gas prices may result in production being curtailed
and, in some cases, wells being completely shut-in.
5
<PAGE> 729
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $386,887 during the
year ended December 31, 1998 from the year ended December 31, 1997. The decrease
was 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 Used in Investing Activities
The Partnership's investing activities during 1998 and 1997 were related to
the addition of oil and gas equipment on active properties.
Proceeds from asset dispositions of $16,559 were received during 1998
consisting of $10,166 from equipment credits received on active properties and
$6,393 was due to equipment credits received on one fully depleted well.
Net Cash Used in Financing Activities
Cash was sufficient in 1998 for distributions to the partners of $364,579
of which $3,646 was distributed to the managing general partner and $360,933 to
the limited partners. In 1997, cash was sufficient for distributions to the
partners of $662,223 of which $6,622 was distributed to the managing general
partner and $655,601 to the limited partners.
The current commodity price environment will continue to impact the
distributions and could result in limited or no distributions to the partners.
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.
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
at varying stages of completion as it pertains to information technology and
non-information technology applications and systems in the United States, Canada
and Argentina. As of December 31, 1998, the managing general partner estimates
that the assessment phase is approximately 86% complete, on a worldwide basis,
and has included, but is not limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
6
<PAGE> 730
- 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;
- 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,
- 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 to
approximately 37% of those inquiries.
The remedial phase of the managing general partner's Year 2000 project is
also at varying 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 December 31, 1998, the
managing general partner estimates that the remedial phase is approximately 54%
complete, on a worldwide basis, subject to the continuing 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 through remedial coding and is currently testing this system for Year
2000 compliance. The remediation of non-information technology is expected to be
completed during July 1999. The managing general partner's Year 2000 remedial
actions have not significantly 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 and non-information technology remediation by the end of the third
quarter of 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. The managing general partner intends to use its working capital to pay
for the costs of the Year 2000 projects. As of December 31, 1998, the managing
general partner's total costs incurred on the Year 2000 problem were $1.8
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 in accordance with the general and
administration allocation. (See Note 2 of Notes to Financial Statements included
in "Item 8. Financial Statements and Supplementary Data".)
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 assessment phase of the managing general partner's Year 2000
project, contingency plans are being 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.
7
<PAGE> 731
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Parker & Parsley 88-A, L.P.:
Independent Auditors' Report -- Ernst & Young LLP......... 9
Independent Auditors' Report -- KPMG LLP.................. 10
Balance Sheets as of December 31, 1998 and 1997........... 11
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996.................................... 12
Statements of Partners' Capital for the Years Ended
December 31, 1998, 1997 and 1996....................... 13
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996.................................... 14
Notes to Financial Statements............................. 15
</TABLE>
8
<PAGE> 732
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 88-A, L.P.
(A Delaware Limited Partnership):
We have audited the balance sheet of Parker & Parsley 88-A, L.P. as of
December 31, 1998, and the related statements of operations, partners' capital
and cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 88-A, L.P.
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Dallas, Texas
March 15, 1999
9
<PAGE> 733
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 88-A, L.P.
(A Delaware Limited Partnership):
We have audited the financial statements of Parker & Parsley 88-A, L.P. as
of December 31, 1997, and the related statements of operations, partners'
capital and cash flows for the years ended December 31, 1997 and 1996. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 88-A, L.P.
as of December 31, 1997, and the results of its operations and its cash flows
for the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
KPMG LLP
Midland, Texas
March 20, 1998
10
<PAGE> 734
PARKER & PARSLEY 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 157,782 $ 206,923
Accounts receivable -- oil and gas sales.................. 75,374 153,707
----------- -----------
Total current assets.............................. 233,156 360,630
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 10,090,461 10,083,265
Accumulated depletion....................................... (8,264,115) (7,490,277)
----------- -----------
Net oil and gas properties................................ 1,826,346 2,592,988
----------- -----------
$ 2,059,502 $ 2,953,618
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 17,656 $ 32,381
Partners' capital:
Managing general partner.................................. 20,660 29,454
Limited partners (12,935 interests)....................... 2,021,186 2,891,783
----------- -----------
2,041,846 2,921,237
----------- -----------
$ 2,059,502 $ 2,953,618
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 735
PARKER & PARSLEY 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Oil and gas............................................ $ 774,533 $1,157,862 $1,411,568
Interest............................................... 10,531 12,432 13,054
Gain on disposition of assets.......................... 6,393 -- --
Other.................................................. 99 -- --
---------- ---------- ----------
791,556 1,170,294 1,424,622
---------- ---------- ----------
Costs and expenses:
Oil and gas production................................. 508,919 513,147 531,610
General and administrative............................. 23,611 35,452 42,275
Impairment of oil and gas properties................... 405,308 699,976 --
Depletion.............................................. 368,530 252,890 250,103
---------- ---------- ----------
1,306,368 1,501,465 823,988
---------- ---------- ----------
Net income (loss)........................................ $ (514,812) $ (331,171) $ 600,634
========== ========== ==========
Allocation of net income (loss):
Managing general partner............................... $ (5,148) $ (3,312) $ 6,006
========== ========== ==========
Limited partners....................................... $ (509,664) $ (327,859) $ 594,628
========== ========== ==========
Net income (loss) per limited partnership interest....... $ (39.40) $ (25.35) $ 45.97
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 736
PARKER & PARSLEY 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Partners' capital at January 1, 1996....................... $40,845 $4,019,470 $4,060,315
Distributions............................................ (7,463) (738,855) (746,318)
Net income............................................... 6,006 594,628 600,634
------- ---------- ----------
Partners' capital at December 31, 1996..................... 39,388 3,875,243 3,914,631
Distributions............................................ (6,622) (655,601) (662,223)
Net loss................................................. (3,312) (327,859) (331,171)
------- ---------- ----------
Partners' capital at December 31, 1997..................... 29,454 2,891,783 2,921,237
Distributions............................................ (3,646) (360,933) (364,579)
Net loss................................................. (5,148) (509,664) (514,812)
------- ---------- ----------
Partners' capital at December 31, 1998..................... $20,660 $2,021,186 $2,041,846
======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 737
PARKER & PARSLEY 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $(514,812) $(331,171) $ 600,634
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Impairment of oil and gas properties................. 405,308 699,976 --
Depletion............................................ 368,530 252,890 250,103
Gain on disposition of assets........................ (6,393) -- --
Changes in assets and liabilities:
Accounts receivable.................................. 78,333 74,637 (91,920)
Accounts payable..................................... (14,725) 6,796 (35,822)
--------- --------- ---------
Net cash provided by operating activities....... 316,241 703,128 722,995
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties..................... (17,362) (13,184) (10,521)
Proceeds from asset dispositions........................ 16,559 -- --
--------- --------- ---------
Net cash used in investing activities........... (803) (13,184) (10,521)
--------- --------- ---------
Cash flows from financing activities:
Cash distributions to partners.......................... (364,579) (662,223) (746,318)
--------- --------- ---------
Net increase (decrease) in cash........................... (49,141) 27,721 (33,844)
Cash at beginning of year................................. 206,923 179,202 213,046
--------- --------- ---------
Cash at end of year....................................... $ 157,782 $ 206,923 $ 179,202
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 738
PARKER & PARSLEY 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 88-A, L.P. (the "Partnership") is a limited partnership
organized in 1988 under the laws of the State of Delaware. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. ("Mesa") received shareholder approval
to merge and create Pioneer Natural Resources Company ("Pioneer"). On August 8,
1997, PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership as PPDLP's successor by merger.
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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties -- The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as determined by the engineering staff of Pioneer
USA, the Partnership's managing general partner, and reviewed by independent
petroleum consultants. The carrying amounts of properties sold or otherwise
disposed of and the related allowances for depletion are eliminated from the
accounts and any gain or loss is included in operations.
Impairment of long-lived assets -- 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"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -- Preparation
of the accompanying financial statements 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 reporting amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest -- The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes -- A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
15
<PAGE> 739
PARKER & PARSLEY 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statements of cash flows -- For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses -- General and administrative expenses
are allocated in part to the Partnership by the managing general partner or its
affiliates. Such allocated expenses are determined by the managing general
partner based upon its judgement of the level of activity of the Partnership
relative to the managing general partner's activities and other entities it
manages. The method of allocation has been consistent over the past several
years with certain modifications incorporated to reflect changes in Pioneer
USA's overall business activities.
Reclassifications -- Certain reclassifications may have been made to the
1997 and 1996 financial statements to conform to the 1998 financial statement
presentations.
Environmental -- The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 1998.
Revenue recognition -- The Partnership uses the entitlements method of
accounting for crude oil and natural gas revenues.
Reporting comprehensive income -- Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes
standards for the reporting and display of comprehensive income (loss) and its
components in a full set of general purpose financial statements. Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss).
The Partnership has no items of other comprehensive income (loss), as defined by
SFAS No. 130. Consequently, the provisions of SFAS No. 130 do not apply to the
Partnership.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. Based upon a decline in the Partnership's outlook for future
commodity prices, the Partnership has estimated the expected future cash flows
of its oil and gas properties as of December 31, 1998, 1997 and 1996, and
compared such estimated future cash flows to the respective carrying amount of
the oil and gas properties to determine if the carrying amounts were likely to
be recoverable. For those proved oil and gas properties for which the carrying
amount exceeded the estimated future cash flows, an impairment was determined to
exist; therefore, the Partnership adjusted the carrying amount of those oil and
gas properties to their fair value as determined by discounting their expected
future cash flows at a discount rate commensurate with the risks involved in the
industry. As a result, the Partnership recognized non-cash impairment provisions
of $405,308 and $699,976 related to its proved oil and gas properties during
1998 and 1997, respectively.
16
<PAGE> 740
PARKER & PARSLEY 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $510,170 greater than the tax basis at December 31, 1998.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Net income (loss) per statements of operations..... $(514,812) $(331,171) $600,634
Depletion and depreciation for tax reporting
purposes less than provisions for financial
reporting purposes............................... 357,942 243,863 230,991
Impairment of oil and gas properties for financial
reporting purposes............................... 405,308 699,976 --
Salvage income..................................... -- 115 --
Other.............................................. 13,320 (3,119) 2,881
--------- --------- --------
Net income per Federal income tax
returns................................ $ 261,758 $ 609,664 $834,506
========= ========= ========
</TABLE>
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Development costs....................................... $17,362 $13,184 $10,521
======= ======= =======
</TABLE>
Capitalized oil and gas properties consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Proved properties:
Property acquisition costs................................ $ 490,279 $ 490,279
Completed wells and equipment............................. 9,600,182 9,592,986
----------- -----------
10,090,461 10,083,265
Accumulated depletion....................................... (8,264,115) (7,490,277)
----------- -----------
Net capitalized costs..................................... $ 1,826,346 $ 2,592,988
=========== ===========
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $215,684 $223,426 $211,234
Reimbursement of general and administrative
expenses........................................... $ 19,297 $ 30,932 $ 38,245
</TABLE>
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
Parker & Parsley 88-A Conv., L.P. and the Partnership (the "Partnerships") are
parties to the Program agreement.
17
<PAGE> 741
PARKER & PARSLEY 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The costs and revenues of the Program are allocated to Pioneer USA and the
Partnerships as follows:
<TABLE>
<CAPTION>
PIONEER USA(1) PARTNERSHIPS(2)
-------------- ---------------
<S> <C> <C>
Revenues:
Proceeds from disposition of depreciable properties... 9.09091% 90.90909%
All other revenues.................................... 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion costs
and all other costs................................ 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative expenses............................ 24.242425% 75.757575%
</TABLE>
- ---------------
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at
the Partnership level and 173 limited partner interests owned by Pioneer
USA.
(2) The allocation between the Partnership and Parker & Parsley 88-A Conv., L.P.
is 77.325442% and 22.674558%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 1998, 1997 and 1996 and
changes in such quantities during the years then ended. Due to a change in the
accounting policy of the managing general partner in 1997, the Partnership began
accounting for processed natural gas production in two components: processed
natural gas liquids ("NGLs") and dry residue gas. NGLs are reflected in "Oil and
NGLs" in the table below. All of the Partnership's reserves are proved developed
and located within the United States. The Partnership's reserves are based on an
evaluation prepared by the engineering staff of Pioneer USA and reviewed by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant,
using criteria established by the Securities and Exchange Commission. Reserve
value information is available to limited partners pursuant to the Partnership
agreement and, therefore, is not presented.
<TABLE>
<CAPTION>
OIL AND NGLS GAS
(BBLS) (MCF)
------------ ----------
<S> <C> <C>
Net proved reserves at January 1, 1996...................... 659,108 2,318,253
Revisions................................................... 84,526 591,597
Production.................................................. (44,670) (170,774)
-------- ----------
Net proved reserves at December 31, 1996.................... 698,964 2,739,076
Revisions................................................... 185,699 (1,359,163)
Production.................................................. (48,269) (134,311)
-------- ----------
Net proved reserves at December 31, 1997.................... 836,394 1,245,602
Revisions................................................... (307,084) (307,863)
Production.................................................. (57,635) (86,501)
-------- ----------
Net proved reserves at December 31, 1998.................... 471,675 851,238
======== ==========
</TABLE>
As of December 31, 1998, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 1998 prices of $10.61 per
barrel of oil, $5.47 per barrel of NGLs and $1.39 per mcf of gas, discounted at
10% was approximately $896,000 and undiscounted was $1,446,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are
18
<PAGE> 742
PARKER & PARSLEY 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
based on various assumptions, which may ultimately prove to be inaccurate.
Therefore, such estimates should not be construed as estimates of the current
market value of the Partnership's proved reserves. The Partnership emphasizes
that reserve estimates are inherently imprecise and, accordingly, the estimates
are expected to change as future information becomes available.
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Genesis Crude Oil, L.P. .................................... 55% 55% 59%
Western Gas Resources, Inc. ................................ 22% 22% 19%
</TABLE>
At December 31, 1998, the amounts receivable from Genesis Crude Oil, L.P.
and Western Gas Resources, Inc. were $21,404 and $22,658, respectively, which
are included in the caption "Accounts receivable -- oil and gas sales" in the
accompanying Balance Sheet.
The Partnership's share of oil and gas production is sold to various
purchasers. Pioneer USA is of the opinion that the loss of any one purchaser
would not have an adverse effect on the ability of the Partnership to sell its
oil and gas production.
NOTE 9. ORGANIZATION AND OPERATIONS
The Partnership was organized June 30, 1988 as a limited partnership under
the Delaware Act for the purpose of acquiring and developing oil and gas
properties. The following is a brief summary of the more significant provisions
of the limited partnership agreement:
Managing general partner -- The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Program and Partnership affairs. As
managing general partner and operator of the Partnership's properties, all
production expenses are incurred by Pioneer USA and billed to the
Partnership and a portion of revenue is initially received by Pioneer USA
prior to being paid to the Partnership. Under the limited partnership
agreement, the managing general partner pays 1% of the Partnership's
acquisition, drilling and completion costs and 1% of its operating and
general and administrative expenses. In return, it is allocated 1% of the
Partnership's revenues.
Limited partner liability -- The maximum amount of liability of any
limited partner is the total contributions of such partner plus his share
of any undistributed profits.
Initial capital contributions -- The limited partners entered into
subscription agreements for aggregate capital contributions of $12,935,000.
Pioneer USA is required to contribute amounts equal to 1% of initial
Partnership capital less commission and offering expenses allocated to the
limited partners and to contribute amounts necessary to pay costs and
expenses allocated to it under the Partnership agreement to the extent its
share of revenues does not cover such costs.
19
<PAGE> 743
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and
executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve
until the next annual meeting of stockholders or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31,
NAME 1998 POSITION
- ---- ------------ --------
<S> <C> <C>
Scott D. Sheffield................. 46 President and Director
Timothy L. Dove.................... 42 Executive Vice President and
Director
Dennis E. Fagerstone............... 49 Executive Vice President and
Director
Mark L. Withrow.................... 51 Executive Vice President, General
Counsel and Director
M. Garrett Smith................... 37 Executive Vice President, Chief
Financial Officer and Director
Mel Fischer(a)..................... 64 Executive Vice President
Lon C. Kile........................ 43 Executive Vice President
Rich Dealy......................... 32 Vice President and Chief Accounting
Officer
</TABLE>
- ---------------
(a) Mr. Fischer was a director and officer until his retirement from Pioneer
and Pioneer USA on February 19, 1999.
Scott D. Sheffield. Mr. Sheffield is a distinguished graduate of The
University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he
has served as President, Chief Executive Officer and a director of Pioneer and
President and a director of Pioneer USA. Mr. Sheffield was the President and a
director of Parker & Parsley from May 1990 until August 1997 and was the
Chairman of the Board and Chief Executive Officer of Parker & Parsley from
October 1990 until August 1997. He was the sole director of Parker & Parsley
from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley
Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum
engineer in 1979. He served as Vice President -- Engineering of PPDC from
September 1981 until April 1985 when he was elected President and a director. In
March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive
Officer of PPDC. Before joining PPDC, Mr. Sheffield was employed as a production
and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President -- Business
Development of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. Mr. Dove joined Parker & Parsley in May
1994 as Vice President -- International and was promoted to Senior Vice
President -- Business Development in October 1996, in which position he served
until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with
Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various
capacities in international exploration and production, marketing, refining and
marketing and planning and development. Mr. Dove earned a B.S. in Mechanical
Engineering from Massachusetts Institute of Technology in 1979 and received his
M.B.A. in 1981 from the University of Chicago.
20
<PAGE> 744
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of Mesa from March 1, 1997 until August 1997. From October
1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief
Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice
President -- Exploration and Production of Mesa. From June 1988 to May 1991, Mr.
Fagerstone served as Vice President -- Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President -- General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President -- General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
M. Garrett Smith. Mr. Smith, a graduate of The University of Texas with a
B.S. in Electrical Engineering and Southern Methodist University with an M.B.A.,
was appointed Executive Vice President and Chief Financial Officer of Pioneer in
December 1997. He served as Senior Vice President -- Finance of Pioneer from
August 1997 until December 1997. Mr. Smith was elected Senior Vice President --
Finance and a director of Pioneer USA in August 1997. He served as Vice
President -- Corporate Acquisitions of Mesa from January 1997 until August 1997.
From October 1996 to December 1996, Mr. Smith served as Vice
President -- Finance of Mesa and from 1994 to 1996 he served as Director of
Financial Planning of Mesa. Mr. Smith was employed by BTC Partners, Inc. (a
former financial advisor to Mesa) from 1989 to 1994.
Mel Fischer. Mr. Fischer, a graduate of the University of California at
Berkeley with a Masters degree in Geology, became Executive Vice
President -- Worldwide Exploration of Pioneer and Pioneer USA in August 1997. He
served as a director of Parker & Parsley from November 1995 until August 1997
and was Executive Vice President -- Worldwide Exploration for Parker & Parsley
from February 1997 to August 1997. Mr. Fischer retired from Pioneer and Pioneer
USA effective February 15, 1999. He worked in the petroleum industry for 32
years, starting as a Petroleum Geologist with Texaco in 1962, and retiring as
President, Occidental International Exploration and Production Company in March
1994. For the 10 years prior to becoming President of Occidental International,
he served as Executive Vice President, World Wide Exploration with Occidental
Oil and Gas Corporation. He is a registered geologist in the State of
California, a member of the American Association of Petroleum Geologists and an
emeritus member of the Board of Advisors for the Earth Sciences Research
Institute at the University of Utah.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a
B.B.A. in Accounting, became Executive Vice President of Pioneer and Pioneer USA
in August 1997. Mr. Kile was Senior Vice President -- Investor Relations from
October 1996 to August 1997. Previously, he served as Vice President and Manager
of the Mid-Continent Division, Vice President -- Equity Finance & Analysis and
Vice President -- Marketing & Program Administration. Prior to joining Parker &
Parsley in 1985, he was employed as Supervisor -- Senior, Audit, in charge of
Parker & Parsley's audit, with Arthur Young.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a
B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became
Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
21
<PAGE> 745
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is vested in Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA pays approximately 10% of the Partnership's acquisition,
drilling and completion costs and approximately 25% of its operating and general
and administrative expenses. In return, Pioneer USA is allocated approximately
25% of the Partnership's revenues. See Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data" for
information regarding fees and reimbursements paid to the managing general
partner or its affiliates by the Partnership.
The Partnership does not directly pay any salaries of the executive
officers of Pioneer USA, but does pay a portion of Pioneer USA's general and
administrative expenses of which these salaries are a part. See Note 6 of Notes
to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more
of the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 173 limited partner interests at January 1, 1999.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing
general partner of the Partnership, Pioneer USA, has the exclusive right and
full authority to manage, control and administer the Partnership's business.
Under the limited partnership agreement, limited partners holding a majority of
the outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner or its affiliates
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $215,684 $223,426 $211,234
Reimbursement of general and administrative
expenses........................................... $ 19,297 $ 30,932 $ 38,245
</TABLE>
Under the limited partnership agreement, the managing general partner pays
1% of the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
22
<PAGE> 746
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial statements
The following are filed as part of this annual report:
Independent Auditors' Report -- Ernst & Young LLP
Independent Auditors' Report -- KPMG LLP
Balance sheets as of December 31, 1998 and 1997
Statements of operations for the years ended December 31, 1998, 1997
and 1996
Statements of partners' capital for the years ended December 31, 1998,
1997 and 1996
Statements of cash flows for the years ended December 31, 1998, 1997
and 1996
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this annual report.
23
<PAGE> 747
SIGNATURES
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 88-A, L.P.
By: Pioneer Natural Resources USA,
Inc.
Managing General Partner
By: /s/ SCOTT D. SHEFFIELD
----------------------------------
Scott D. Sheffield,
President
Dated: March 24, 1999
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 date indicated.
<TABLE>
<CAPTION>
<C> <S> <C>
/s/ SCOTT D. SHEFFIELD President and Director of March 24, 1999
- ----------------------------------------------------- Pioneer USA
Scott D. Sheffield
/s/ TIMOTHY L. DOVE Executive Vice President and March 24, 1999
- ----------------------------------------------------- Director of Pioneer USA
Timothy L. Dove
/s/ DENNIS E. FAGERSTONE Executive Vice President and March 24, 1999
- ----------------------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ MARK L. WITHROW Executive Vice President, March 24, 1999
- ----------------------------------------------------- General Counsel and Director
Mark L. Withrow of Pioneer USA
/s/ M. GARRETT SMITH Executive Vice President, March 24, 1999
- ----------------------------------------------------- Chief Financial Officer and
M. Garrett Smith Director of Pioneer USA
/s/ LON C. KILE Executive Vice President of March 24, 1999
- ----------------------------------------------------- Pioneer USA
Lon C. Kile
/s/ RICH DEALY Vice President and Chief March 24, 1999
- ----------------------------------------------------- Accounting Officer of
Rich Dealy Pioneer USA
</TABLE>
24
<PAGE> 748
PARKER & PARSLEY 88-A, L.P.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3(a) -- Amended and Restated Certificate and Agreement of Limited
Partnership of Parker & Parsley 88-A, L.P. incorporated
by reference to Exhibit A of Amendment No. 1 of the
Partnership's Registration Statement on Form S-1
(Registration No. 33-19659)
4(b) -- Form of Subscription Agreement and Power of Attorney
incorporated by reference to Exhibit D of the
Partnership's Registration Statement on Form S-1
(Registration No. 33-19659) (hereinafter called the
Partnership's Registration Statement)
4(c) -- Specimen Certificate of Limited Partnership Interest
incorporated by reference to Exhibit D of the
Partnership's Registration Statement
10(b) -- Exploration and Development Program Agreement
incorporated by reference to Exhibit C of the
Partnership's Registration Statement
27.1* -- Financial Data Schedule
</TABLE>
- ---------------
* filed herewith
<PAGE> 749
PARKER & PARSLEY 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
DECEMBER 31, 1998, 1997 AND 1996
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. Future income taxes are calculated by comparing
discounted future cash flows to the tax basis of oil and gas properties plus
available carryforwards and credits and applying the current tax rates to the
difference.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and gas producing activities:
Future cash inflows....................................... $ 5,153 $15,588 $ 27,392
Future production costs................................... (3,707) (8,897) (13,600)
Future development costs.................................. -- -- (197)
------- ------- --------
1,446 6,691 13,595
10% annual discount factor................................ (550) (3,146) (6,929)
------- ------- --------
Standardized measure of discounted future net cash
flows.................................................. $ 896 $ 3,545 $ 6,666
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1998 1997 1996
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs................ $ (266) $ (645) $ (880)
Net changes in prices and production costs................ (2,296) (3,034) 2,594
Extensions and discoveries................................ -- -- --
Sales of minerals-in-place................................ -- -- --
Purchases of minerals-in-place............................ -- -- --
Revisions of estimated future development costs........... (237) 104 (275)
Revisions of previous quantity estimates and reserves
added by development drilling.......................... (474) (128) 1,104
Accretion of discount..................................... 355 667 390
Changes in production rates, timing and other............. 269 (85) (168)
------- ------- --------
Change in present value of future net revenues............ (2,649) (3,121) 2,765
------- ------- --------
Balance, beginning of year................................ 3,545 6,666 3,901
------- ------- --------
Balance, end of year...................................... $ 896 $ 3,545 $ 6,666
======= ======= ========
</TABLE>
<PAGE> 750
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.,
A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT DATED , 1999
----------------------
THE DATE OF THIS SUPPLEMENT IS , 1999
----------------------
This document contains important information specific to Parker & Parsley
Producing Properties 88-A, L.P. and supplements the proxy statement dated
, 1999, of Pioneer Natural Resources USA, Inc., by which Pioneer USA is
soliciting proxies to be voted at a special meeting of limited partners of the
partnerships described in the proxy statement. The purpose of the special
meeting is for you to vote upon the merger of Parker & Parsley Producing
Properties 88-A, L.P. with and into Pioneer USA that, if completed, will result
in your receiving cash for your partnership interests.
This supplement contains the following information concerning Parker &
Parsley Producing Properties 88-A, L.P.:
- A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through June
30, 1999
-- the merger value per $1,000 limited partner investment as of June 30,
1999
-- the merger value per $1,000 limited partner investment as a multiple
of distributions for the 12 months ended June 30, 1999
-- the book value per $1,000 limited partner investment as of June 30,
1999 and as of December 31, 1998 and
-- the ordinary tax loss per $1,000 limited partner investment in year
of initial investment
- Quarterly Report on Form 10-Q for the six months ended June 30, 1999
- Annual Report on Form 10-K for the year ended December 31, 1998
- Disclosures about the partnership's oil and gas producing activities
<PAGE> 751
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
SUPPLEMENTAL INFORMATION TABLE
<TABLE>
<S> <C>
Aggregate Initial Investment by the Limited Partners(a)..... $ 5,611
Aggregate Historical Limited Partner Distributions through
June 30, 1999(a).......................................... $ 6,095
Merger Value per $1,000 Limited Partner Investment as of
June 30, 1999(b).......................................... $336.28
Merger Value per $1,000 Limited Partner Investment as a
Multiple of Distributions for the 12 Months ended June 30,
1999(b)................................................... 12.34times
Book Value per $1,000 Limited Partner Investment:
-- as of June 30, 1999(b)................................. $324.79
-- as of December 31, 1998(b)............................. $331.42
Ordinary Tax Loss per $1,000 Limited Partner Investment in
Year of Initial Investment(b), (c)........................ $ 23
</TABLE>
- ---------------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as any
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
<PAGE> 752
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JUNE 30, 1999
COMMISSION FILE NO. 33-19133-A
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2225758
(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)
</TABLE>
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> 753
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1999 and December 31,
1998.................................................. 3
Statements of Operations for the three and six months
ended June 30, 1999 and 1998.......................... 4
Statement of Partners' Capital for the six months ended
June 30, 1999......................................... 5
Statements of Cash Flows for the six months ended June
30, 1999 and 1998..................................... 6
Notes to Financial Statements.......................... 7
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................. 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 11
27.1 Financial Data Schedule
Signatures............................................. 12
</TABLE>
2
<PAGE> 754
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 291,041 $ 278,229
Accounts receivable -- oil and gas sales.................. 61,784 49,455
----------- -----------
Total current assets.............................. 352,825 327,684
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method.............................. 4,842,700 4,842,700
Accumulated depletion..................................... (3,335,476) (3,285,467)
----------- -----------
Net oil and gas properties........................ 1,507,224 1,557,233
----------- -----------
$ 1,860,049 $ 1,884,917
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable -- affiliate............................. $ 19,304 $ 6,661
Partners' capital:
Managing general partner.................................. 18,329 18,638
Limited partners (11,222 interests)....................... 1,822,416 1,859,618
----------- -----------
1,840,745 1,878,256
----------- -----------
$ 1,860,049 $ 1,884,917
=========== ===========
</TABLE>
The financial information included as of June 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
<PAGE> 755
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas.................................... $111,050 $117,387 $194,872 $246,176
Interest....................................... 2,763 3,791 5,175 7,419
-------- -------- -------- --------
113,813 121,178 200,047 253,595
-------- -------- -------- --------
Costs and expenses:
Oil and gas production......................... 62,301 61,343 122,130 130,525
General and administrative..................... 3,331 3,521 5,846 7,385
Depletion...................................... 20,466 31,162 50,009 63,909
-------- -------- -------- --------
86,098 96,026 177,985 201,819
-------- -------- -------- --------
Net income....................................... $ 27,715 $ 25,152 $ 22,062 $ 51,776
======== ======== ======== ========
Allocation of net income:
Managing general partner....................... $ 278 $ 251 $ 221 $ 517
======== ======== ======== ========
Limited partners............................... $ 27,437 $ 24,901 $ 21,841 $ 51,259
======== ======== ======== ========
Net income per limited partnership interest...... $ 2.45 $ 2.22 $ 1.95 $ 4.57
======== ======== ======== ========
Distributions per limited partnership interest... $ 2.01 $ 7.73 $ 5.26 $ 16.72
======== ======== ======== ========
</TABLE>
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> 756
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1, 1999................................. $18,638 $1,859,618 $1,878,256
Distributions............................................ (530) (59,043) (59,573)
Net income............................................... 221 21,841 22,062
------- ---------- ----------
Balance at June 30, 1999................................... $18,329 $1,822,416 $1,840,745
======= ========== ==========
</TABLE>
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> 757
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 22,062 $ 51,776
Adjustments to reconcile net income to net cash provided
by operating activities:
Depletion.............................................. 50,009 63,909
Changes in assets and liabilities:
Accounts receivable.................................... (12,329) 42,012
Accounts payable....................................... 12,643 (12,742)
-------- ---------
Net cash provided by operating activities......... 72,385 144,955
-------- ---------
Cash flows used in financing activities:
Cash distributions to partners............................ (59,573) (189,578)
-------- ---------
Net increase (decrease) in cash............................. 12,812 (44,623)
Cash at beginning of period................................. 278,229 332,031
-------- ---------
Cash at end of period....................................... $291,041 $ 287,408
======== =========
</TABLE>
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> 758
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley Producing Properties 88-A, L.P. (the "Partnership") is a
limited partnership organized in 1988 under the laws of the State of Delaware.
The Partnership engages primarily in oil and gas 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 June 30, 1999 and for the three and six months ended June 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 reclassifications have been made
to the June 30, 1998 financial statements to conform to the June 30, 1999
financial statement presentation.
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.
7
<PAGE> 759
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
RESULTS OF OPERATIONS
Six months ended June 30, 1999 compared with six months ended June 30, 1998
Revenues:
The Partnership's oil and gas revenues decreased 21% to $194,872 from
$246,176 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from lower average prices received and declines in
production. For the six months ended June 30, 1999, 10,144 barrels of oil, 5,069
barrels of natural gas liquids ("NGLs") and 22,550 mcf of gas were sold, or
18,971 barrel of oil equivalents ("BOEs"). For the six months ended June 30,
1998, 12,102 barrels of oil, 5,715 barrels of NGLs and 25,765 mcf of gas were
sold, or 22,111 BOEs.
The average price received per barrel of oil decreased $1.15, or 8%, from
$14.08 for the six months ended June 30, 1998 to $12.93 for the same period in
1999. The average price received per barrel of NGLs increased slightly from
$6.70 during the six months ended June 30, 1998 to $6.84 for the same period in
1999. The average price received per mcf of gas decreased 11% from $1.45 during
the six months ended June 30, 1998 to $1.29 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 six months ended June 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.
Costs and Expenses:
Total costs and expenses decreased to $177,985 for the six months ended
June 30, 1999 as compared to $201,819 for the same period in 1998, a decrease of
$23,834, or 12%. This decrease was the result of reductions in depletion,
production costs and general and administrative expenses ("G&A").
Production costs were $122,130 for the six months ended June 30, 1999 and
$130,525 for the same period in 1998, resulting in a decrease of $8,395, or 6%,
attributable to declines in workover costs 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, 21% from $7,385 for the six months ended June 30, 1998
to $5,846 for the same period in 1999.
Depletion was $50,009 for the six months ended June 30, 1999 compared to
$63,909 for the same period in 1998, a decrease of $13,900, or 22%. This
decrease was primarily attributable to a reduction in oil production of 1,958
barrels for the six months ended June 30, 1999 compared to the same period in
1998 and an increase in proved reserves during the period ended June 30, 1999
due to higher commodity prices.
Three months ended June 30, 1999 compared with three months ended June 30,
1998
Revenues:
The Partnership's oil and gas revenues decreased 5% to $111,050 from
$117,387 for the three months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from a decline in production, offset by higher
average prices received. For the three months ended June 30, 1999, 4,974 barrels
of oil, 2,728 barrels of NGLs and 11,075 mcf of gas were sold, or 9,548 BOEs.
For the three months ended June 30, 1998, 5,743 barrels of oil, 3,134 barrels of
NGLs and 13,299 mcf of gas were sold, or 11,094 BOEs.
8
<PAGE> 760
The average price received per barrel of oil increased $1.16, or 9%, from
$13.33 for the three months ended June 30, 1998 to $14.49 for the same period in
1999. The average price received per barrel of NGLs increased $1.31, or 19%,
from $6.94 during the three months ended June 30, 1998 to $8.25 for the same
period in 1999. The average price received per mcf of gas increased 3% from
$1.44 during the three months ended June 30, 1998 to $1.49 for the same period
in 1999.
Costs and Expenses:
Total costs and expenses decreased to $86,098 for the three months ended
June 30, 1999 as compared to $96,026 for the same period in 1998, a decrease of
$9,928, or 10%. This decrease was the result of reductions in depletion and G&A,
offset by an increase in production costs.
Production costs were $62,301 for the three months ended June 30, 1999 and
$61,343 for the same period in 1998 resulting in a $958 increase, attributable
to an increase in well maintenance costs incurred in an effort to stimulate well
production, offset by a decrease in production taxes.
During this period, G&A decreased, in aggregate, 5% from $3,521 for the
three months ended June 30, 1998 to $3,331 for the same period in 1999.
Depletion was $20,466 for the three months ended June 30, 1999 compared to
$31,162 for the same period in 1998, a decrease of $10,696, or 34%. This
decrease was primarily attributable to an increase in proved reserves during the
period ended June 30, 1999 as a result of higher commodity prices and a
reduction in oil production of 769 barrels for the three months ended June 30,
1999 compared to the same period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $72,570 during the six
months ended June 30, 1999 from the same period ended June 30, 1998. This
decrease was primarily due to a decline in oil and gas sales receipts, offset by
declines in production costs and G&A expenses paid.
Net Cash Used in Financing Activities
Cash was sufficient for the six months ended June 30, 1999 to cover
distributions to the partners of $59,573 of which $530 was distributed to the
managing general partner and $59,043 to the limited partners. For the same
period ended June 30, 1998, cash was sufficient for distributions to the
partners of $189,578 of which $1,947 was distributed to the managing general
partner and $187,631 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 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 early indications that the nations have initiated
their planned reductions, have had some stabilizing effect on commodity prices
during the latter part of the first quarter of 1999 and into August 1999.
However, no assurances can be given that the stabilizing effect of these
actions, or the planned reductions in export volumes, will 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
9
<PAGE> 761
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.
As of June 30, 1999, the managing general partner estimates that the
assessment phase is approximately 99% complete and has included, but is not
limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- the formulation of contingency plans for mission-critical information
technology systems.
Through June 30, 1999, the managing general partner had 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 varying 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 June 30, 1999, the managing general partner
estimates that the remedial phase is approximately 83% complete, on a worldwide
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 is expected
to be completed by 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 expects to complete the testing of
information technology systems by October 1999. The testing of the
non-information technology remediation is scheduled to be completed by the end
of November 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. As of June 30, 1999, the managing general partner's total costs
incurred on the Year 2000 problem were $2.3 million, of which approximately $200
thousand were incurred to replace non-compliant systems.
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
10
<PAGE> 762
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
11
<PAGE> 763
SIGNATURES
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 PRODUCING
PROPERTIES 88-A, L.P.
By: Pioneer Natural Resources USA,
Inc.,
Managing General Partner
By: /s/ RICH DEALY
----------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
Dated: August 6, 1999
12
<PAGE> 764
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 33-19133-A
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2225758
(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)
</TABLE>
Registrant's Telephone Number, including area code: (915) 683-4768
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($500 PER UNIT)
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]
No market currently exists for the limited partnership interests of the
Registrant. Based on original purchase price the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$5,572,000.
As of March 8, 1999, the number of outstanding limited partnership
interests was 11,222.
The following documents are incorporated by reference into the indicated
parts of this Annual Report on Form 10-K: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 765
Parts I and II of this Report contain 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. See "Item 1.
Business" for a description of various factors that could materially affect the
ability of the Partnership to achieve the anticipated results described in the
forward looking statements.
PART I
ITEM 1. BUSINESS
Parker & Parsley Producing Properties 88-A, L.P. (the "Partnership") is a
limited partnership organized in 1988 under the laws of the State of Delaware.
As of August 8, 1997, Pioneer Natural Resources USA, Inc. ("Pioneer USA") became
the managing general partner of the Partnership. Prior to August 8, 1997, the
Partnership's managing general partner was Parker & Parsley Development L.P.
("PPDLP"), a wholly-owned subsidiary of Parker & Parsley Petroleum Company
("Parker & Parsley"). On August 7, 1997, Parker & Parsley and Mesa Inc. ("Mesa")
received shareholder approval to merge and create Pioneer Natural Resources
Company ("Pioneer"). On August 8, 1997, PPDLP was merged with and into Pioneer
USA, a wholly-owned subsidiary of Pioneer, resulting in Pioneer USA becoming the
managing general partner of the Partnership as PPDLP's successor by merger. For
a more complete description of the Parker & Parsley and Mesa merger, see
Pioneer's Registration Statement on Form S-4 as filed with the Securities &
Exchange Commission.
A Registration Statement, as amended, filed pursuant to the Securities Act
of 1933, registering limited partnership interests aggregating $60,000,000 in a
series of Delaware limited partnerships formed under the Parker & Parsley
Producing Properties Program-II, was declared effective by the Securities and
Exchange Commission on February 11, 1988. On August 31, 1988, the offering of
limited partnership interests in the Partnership, the first partnership formed
under such statement, was closed, with interests aggregating $5,611,000 being
sold to 525 subscribers.
The Partnership's primary business plan and objectives are to purchase
producing oil and gas properties and distribute the cash flow from operations to
its partners. The Partnership is not involved in any industry segment other than
oil and gas. See "Item 6. Selected Financial Data" and "Item 8. Financial
Statements and Supplementary Data" of this report for a summary of the
Partnership's revenue, income and identifiable assets.
The principal markets during 1998 for the oil produced by the Partnership
were refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. The principal markets for the
Partnership's gas were companies that have pipelines located near the
Partnership's gas producing properties. Of the Partnership's total oil and gas
revenues for 1998, approximately 57% and 28% were attributable to sales made to
Genesis Crude Oil, L.P. and Western Gas Resources, Inc., respectively.
The Partnership's revenues, profitability, cash flow and future rate of
growth are highly dependent on the prevailing prices of oil and gas, which are
affected by numerous factors beyond the Partnership's control. Oil and gas
prices historically have been very volatile. A substantial or extended decline
in the prices of oil or gas could have a material adverse effect on the
Partnership's revenues, profitability and cash flow and could, under certain
circumstances, result in a reduction in the carrying value of the Partnership's
oil and gas properties.
Because of the demand for oil and gas, the Partnership does not believe
that the termination of the sales of its products to any one customer would have
a material adverse impact on its operations. The loss of a particular customer
for gas may have an effect if that particular customer has the only gas pipeline
located in the areas of the Partnership's gas producing properties. The
Partnership believes, however, that the effect would be temporary, until
alternative arrangements could be made.
1
<PAGE> 766
Federal and state regulation of oil and gas operations generally includes
the fixing of maximum prices for regulated categories of natural gas, the
imposition of maximum allowable production rates, the taxation of income and
other items, and the protection of the environment. Although the Partnership
believes that its business operations do not impair environmental quality and
that its costs of complying with any applicable environmental regulations are
not currently significant, the Partnership cannot predict what, if any, effect
these environmental regulations may have on its current or future operations.
The Partnership does not have any employees of its own. Pioneer USA employs
818 persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this report is filed. Pioneer
USA supplies all management functions.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the
Partnership conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist primarily of working interests in
properties on which oil and gas wells are located. Such property interests are
often subject to landowner royalties, overriding royalties and other oil and gas
leasehold interests.
The Partnership completed one purchase of producing properties. This
acquisition involved the purchase of working interests in 21 properties, all of
which are operated by the managing general partner. In subsequent years, the
Partnership participated in the drilling of three additional wells and one well
was plugged and abandoned. At December 31, 1998 the Partnership had 23 producing
oil and gas properties.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 1998, 1997 and 1996, and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been estimated by the engineering staff of Pioneer USA with a review by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
2
<PAGE> 767
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 8, 1999, the Partnership had 11,222 outstanding limited
partnership interests held of record by 516 subscribers. There is no established
public trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are
not required to meet the Partnership's obligations are distributed to the
partners at least quarterly in accordance with the limited partnership
agreement. During the years ended December 31, 1998 and 1997, $280,435 and
$566,895, respectively, of such revenue-related distributions were made to the
limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Oil and gas sales.............. $ 443,496 $ 753,775 $ 938,418 $ 754,343 $ 787,939
========== ========== ========== ========== ==========
Impairment of oil and gas
properties.................. $ -- $ 6,231 $ -- $ 369,426 $ --
========== ========== ========== ========== ==========
Net income (loss).............. $ (13,621) $ 255,412 $ 424,569 $ (225,390) $ 37,254
========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general partner.... $ (136) $ 2,554 $ 4,246 $ (2,253) $ 373
========== ========== ========== ========== ==========
Limited partners............ $ (13,485) $ 252,858 $ 420,323 $ (223,137) $ 36,881
========== ========== ========== ========== ==========
Limited partners' net income
(loss) per limited
partnership interest........ $ (1.20) $ 22.53 $ 37.46 $ (19.88) $ 3.29
========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest........ $ 24.99 $ 50.52 $ 45.09 $ 39.64 $ 37.38
========== ========== ========== ========== ==========
AT YEAR END:
Total assets................... $1,884,917 $2,212,937 $2,491,855 $2,578,655 $3,253,374
========== ========== ========== ========== ==========
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1998 compared to 1997
The Partnership's 1998 oil and gas revenues decreased 41% to $443,496 from
$753,775 in 1997. The decrease in revenues resulted from lower average prices
received. In 1998, 22,482 barrels of oil, 12,009 barrels of natural gas liquids
("NGLs") and 51,099 mcf of gas were sold, or 43,008 barrel of oil equivalents
("BOEs"). In 1997, 26,656 barrels of oil, 5,264 barrels of NGLs and 80,212 mcf
of gas were sold, or 45,289 BOEs. Due to the decline characteristics of the
Partnership's oil and gas properties, management expects a certain amount of
decline in production in the future until the Partnership's economically
recoverable reserves are fully depleted.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. Effective September 30, 1997, as a result of the
merger with Mesa, the managing general partner accounts for processed natural
gas production in two components: natural gas liquids and dry residue gas. As a
result of the change in the managing general
3
<PAGE> 768
partner's policy, the Partnership now accounts for processed natural gas
production as processed natural gas liquids and dry residue gas. Consequently,
separate product volumes will not be comparable for 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 year ended December 31, 1998 is the price received
for dry residue gas and the price per mcf for natural gas produced prior to
October 1997 was presented as a price for wet gas (i.e., natural gas liquids
combined with dry residue gas).
The average price received per barrel of oil decreased $6.14, or 32%, from
$19.28 for 1997 to $13.14 in 1998. The average price received per barrel of NGLs
decreased $3.74, or 37%, from $10.05 for 1997 to $6.31 in 1998. The average
price received per mcf of gas decreased 39%, from $2.33 for 1997 to $1.41 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 in 1998.
Total costs and expenses decreased in 1998 to $471,884 as compared to
$518,372 in 1997, a decrease of $46,488, or 9%. This decrease was primarily the
result of declines in production costs, general and administrative expenses
("G&A") and impairment of oil and gas properties, offset by an increase in
depletion.
Production costs were $252,339 in 1998 and $346,849 in 1997, resulting in a
$94,510, or 27%, decrease. The decrease was due to less well maintenance costs,
workover costs, ad valorem taxes and a decline in production taxes due to the
decline in oil and gas revenues.
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, 43% from $23,377 in 1997 to $13,305 in 1998. The
Partnership paid the managing general partner $9,891 in 1998 and $20,129 in 1997
for G&A incurred on behalf of the Partnership. G&A is allocated, in part, to the
Partnership by the managing general partner. Such allocated expenses are
determined by the managing general partner based upon its judgement of the level
of activity of the Partnership relative to the managing general partner's
activities and other entities it manages. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
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"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. Declining commodity prices prompted
impairment reviews in 1998 and 1997. As a result of the review and evaluation of
its long-lived assets for impairment, the Partnership recognized a non-cash
charge of $6,231 related to its oil and gas properties during 1997.
Depletion was $206,240 in 1998 compared to $141,915 in 1997. This
represented an increase of $64,325, or 45%. This increase was the result of a
decline in proved reserves during 1998 due to the lower commodity prices, offset
by a reduction in oil production of 4,174 barrels for the period ended December
31, 1998 compared to the same period in 1997.
1997 compared to 1996
The Partnership's 1997 oil and gas revenues decreased 20% to $753,775 from
$938,418 in 1996. The decrease in revenues resulted from declines in production
and lower average prices received. In 1997, 26,656 barrels of oil, 5,264 barrels
of NGLs and 80,212 mcf of gas were sold, or 45,289 BOEs. In 1996, 31,721 barrels
of oil and 102,163 mcf of gas were sold, or 48,748 BOEs.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. As is described above in "Results of
Operations -- 1998 compared to 1997", the Partnership changed its method of
accounting for processed natural gas to a dry gas basis in the fourth quarter of
1997. As a result of this change, the Partnership now
4
<PAGE> 769
accounts for processed natural gas production as processed natural gas liquids
and dry residue gas. Consequently, 1997 and 1996 separate product volumes are
not comparable.
The declines in production volumes were primarily attributable to the
decline characteristics of the Partnership's oil and gas properties.
The average price received per barrel of oil decreased $2.45, or 11%, from
$21.73 for 1996 to $19.28 in 1997. The average price received per barrel of NGLs
during 1997 was $10.05. The average price received per mcf of gas decreased 5%,
from $2.44 for 1996 to $2.33 in 1997.
Total costs and expenses decreased in 1997 to $518,372 as compared to
$534,021 in 1996, a decrease of $15,649, or 3%. This decrease was primarily the
result of declines in depletion, G&A and production costs, offset by the
impairment of oil and gas properties.
Production costs were $346,849 in 1997 and $348,125 in 1996, resulting in a
$1,276 decrease. The decrease was due to less well maintenance costs and a
decline in production taxes, offset by increases in ad valorem taxes and
workover costs incurred in an effort to stimulate well production.
During this period, G&A decreased, in aggregate, 19% from $28,916 in 1996
to $23,377 in 1997. The Partnership paid the managing general partner $20,129 in
1997 and $26,304 in 1996 for G&A incurred on behalf of the Partnership.
The Partnership recognized a non-cash SFAS 121 impairment provision of
$6,231 related to its proved oil and gas properties during the fourth quarter of
1997.
Depletion was $141,915 in 1997 compared to $156,980 in 1996. This
represented a decrease of $15,065, or 10%. This decrease was primarily
attributable to a decline in oil production of 5,065 barrels for 1997 as
compared to 1996, offset by a decrease in oil reserves during 1997 as a result
of lower commodity prices.
Impact of inflation and changing prices on sales and net income
Inflation impacts the fixed overhead rate charges of the lease operating
expenses for the Partnership. During 1998, the annual change in the index of
average weekly earnings of crude petroleum and gas production workers issued by
the U.S. Department of Labor, Bureau of Labor Statistics increased (effective
April 1, 1998) 10.3%. The 1997 annual change in average weekly earnings
increased by 2%. The 1996 index increased 4.1%. The impact of inflation for
other lease operating expenses is small due to the current economic condition of
the oil industry.
The oil and gas industry experienced volatility during the past decade
because of the fluctuation of the supply of most fossil fuels relative to the
demand for such products and other uncertainties in the world energy markets
causing significant fluctuations in oil and gas prices. During 1998, the price
per barrel for oil production similar to the Partnership's ranged from
approximately $9.50 to $15.50. During most of 1997 and 1996, 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 March 1999. On March 8, 1999, the market price for West Texas intermediate
crude was $11.00 per barrel. A continuation of the current commodity price
environment will continue to have an adverse effect on the Partnership's
revenues, operating cash flow and distributions and could result in additional
decreases in the carrying value of the Partnership's oil and gas properties.
Prices for natural gas are subject to ordinary seasonal fluctuations, and
this volatility of natural gas prices may result in production being curtailed
and, in some cases, wells being completely shut-in.
5
<PAGE> 770
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $242,268 during the
year ended December 31, 1998 from the year ended December 31, 1997. The decrease
resulted from declines in oil and gas sales receipts, offset by decreases in
production costs and G&A expenses paid.
Net Cash Provided by (Used in) Investing Activities
The Partnership's principal investing activities during 1998 were related
to expenditures of oil and gas equipment on active properties.
Proceeds from asset dispositions of $824 recognized in 1997 was due to
equipment credits received on active properties.
Net Cash Used in Financing Activities
Cash was sufficient in 1998 for distributions to the partners of $283,225
of which $2,790 was distributed to the managing general partner and $280,435 to
the limited partners. In 1997, cash was sufficient for distributions to the
partners of $572,165 of which $5,270 was distributed to the managing general
partner and $566,895 to the limited partners.
The current commodity price environment will continue to impact the
distributions and could result in limited or no distributions to the partners.
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.
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
at varying stages of completion as it pertains to information technology and
non-information technology applications and systems in the United States, Canada
and Argentina. As of December 31, 1998, the managing general partner estimates
that the assessment phase is approximately 86% complete, on a worldwide basis,
and has included, but is not limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
6
<PAGE> 771
- 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,
- 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 to
approximately 37% of those inquiries.
The remedial phase of the managing general partner's Year 2000 project is
also at varying 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 December 31, 1998, the
managing general partner estimates that the remedial phase is approximately 54%
complete, on a worldwide basis, subject to the continuing 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 through remedial coding and is currently testing this system for Year
2000 compliance. The remediation of non-information technology is expected to be
completed during July 1999. The managing general partner's Year 2000 remedial
actions have not significantly 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 and non-information technology remediation by the end of the third
quarter of 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. The managing general partner intends to use its working capital to pay
for the costs of the Year 2000 projects. As of December 31, 1998, the managing
general partner's total costs incurred on the Year 2000 problem were $1.8
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 in accordance with the general and
administration allocation. (See Note 2 of Notes to Financial Statements included
in "Item 8. Financial Statements and Supplementary Data".)
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 assessment phase of the managing general partner's Year 2000
project, contingency plans are being 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.
7
<PAGE> 772
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Parker & Parsley Producing
Properties 88-A, L.P.:
Independent Auditors' Report -- Ernst & Young LLP......... 9
Independent Auditors' Report -- KPMG LLP.................. 10
Balance Sheets as of December 31, 1998 and 1997........... 11
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996.................................... 12
Statements of Partners' Capital for the Years Ended
December 31, 1998, 1997 and 1996....................... 13
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996.................................... 14
Notes to Financial Statements............................. 15
</TABLE>
8
<PAGE> 773
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley Producing Properties 88-A, L.P.
(A Delaware Limited Partnership):
We have audited the balance sheet of Parker & Parsley Producing Properties
88-A, L.P. as of December 31, 1998, and the related statements of operations,
partners' capital and cash flows for the year then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley Producing
Properties 88-A, L.P. as of December 31, 1998, and the results of its operations
and its cash flows for the year then ended in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Dallas, Texas
March 15, 1999
9
<PAGE> 774
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley Producing Properties 88-A, L.P.
(A Delaware Limited Partnership):
We have audited the financial statements of Parker & Parsley Producing
Properties 88-A, L.P. as of December 31, 1997, and the related statements of
operations, partners' capital and cash flows for the years ended December 31,
1997 and 1996. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley Producing
Properties 88-A, L.P. as of December 31, 1997, and the results of its operations
and its cash flows for the years ended December 31, 1997 and 1996, in conformity
with generally accepted accounting principles.
KPMG LLP
Midland, Texas
March 20, 1998
10
<PAGE> 775
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 278,229 $ 332,031
Accounts receivable -- oil and gas sales.................. 49,455 118,614
----------- -----------
Total current assets.............................. 327,684 450,645
----------- -----------
Oil and gas properties -- at cost, based on the
successful efforts accounting method...................... 4,842,700 4,841,519
Accumulated depletion....................................... (3,285,467) (3,079,227)
----------- -----------
Net oil and gas properties........................ 1,557,233 1,762,292
----------- -----------
$ 1,884,917 $ 2,212,937
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 6,661 $ 37,835
Partners' capital:
Managing general partner.................................. 18,638 21,564
Limited partners (11,222 interests)....................... 1,859,618 2,153,538
----------- -----------
1,878,256 2,175,102
----------- -----------
$ 1,884,917 $ 2,212,937
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 776
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Oil and gas............................................... $443,496 $753,775 $938,418
Interest.................................................. 14,767 20,009 20,172
-------- -------- --------
458,263 773,784 958,590
-------- -------- --------
Costs and expenses:
Oil and gas production.................................... 252,339 346,849 348,125
General and administrative................................ 13,305 23,377 28,916
Impairment of oil and gas properties...................... -- 6,231 --
Depletion................................................. 206,240 141,915 156,980
-------- -------- --------
471,884 518,372 534,021
-------- -------- --------
Net income (loss)........................................... $(13,621) $255,412 $424,569
======== ======== ========
Allocation of net income (loss):
Managing general partner.................................. $ (136) $ 2,554 $ 4,246
======== ======== ========
Limited partners.......................................... $(13,485) $252,858 $420,323
======== ======== ========
Net income (loss) per limited partnership interest.......... $ (1.20) $ 22.53 $ 37.46
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 777
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Partners' capital at January 1, 1996....................... $25,435 $2,553,220 $2,578,655
Distributions............................................ (5,401) (505,968) (511,369)
Net income............................................... 4,246 420,323 424,569
------- ---------- ----------
Partners' capital at December 31, 1996..................... 24,280 2,467,575 2,491,855
Distributions............................................ (5,270) (566,895) (572,165)
Net income............................................... 2,554 252,858 255,412
------- ---------- ----------
Partners' capital at December 31, 1997..................... 21,564 2,153,538 2,175,102
Distributions............................................ (2,790) (280,435) (283,225)
Net loss................................................. (136) (13,485) (13,621)
------- ---------- ----------
Partners' capital at December 31, 1998..................... $18,638 $1,859,618 $1,878,256
======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 778
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $ (13,621) $ 255,412 $ 424,569
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Impairment of oil and gas properties................. -- 6,231 --
Depletion............................................ 206,240 141,915 156,980
Changes in assets and liabilities:
Accounts receivable.................................. 69,159 51,098 (35,092)
Accounts payable..................................... (31,174) 18,216 (40,896)
--------- --------- ---------
Net cash provided by operating activities....... 230,604 472,872 505,561
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas equipment...................... (1,181) -- (7,758)
Proceeds from asset dispositions........................ -- 824 --
--------- --------- ---------
Net cash provided by (used in) investing
activities.................................... (1,181) 824 (7,758)
--------- --------- ---------
Cash flows from financing activities:
Cash distributions to partners.......................... (283,225) (572,165) (511,369)
--------- --------- ---------
Net decrease in cash...................................... (53,802) (98,469) (13,566)
Cash at beginning of year................................. 332,031 430,500 444,066
--------- --------- ---------
Cash at end of year....................................... $ 278,229 $ 332,031 $ 430,500
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 779
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley Producing Properties 88-A, L.P. (the "Partnership") is a
limited partnership organized in 1988 under the laws of the State of Delaware.
As of August 8, 1997, Pioneer Natural Resources USA, Inc. ("Pioneer USA") became
the managing general partner of the Partnership. Prior to August 8, 1997, the
Partnership's managing general partner was Parker & Parsley Development L.P.
("PPDLP"), a wholly-owned subsidiary of Parker & Parsley Petroleum Company
("Parker & Parsley"). On August 7, 1997, Parker & Parsley and Mesa Inc. received
shareholder approval to merge and create Pioneer Natural Resources Company
("Pioneer"). On August 8, 1997, PPDLP was merged with and into Pioneer USA, a
wholly-owned subsidiary of Pioneer, resulting in Pioneer USA becoming the
managing general partner of the Partnership as PPDLP's successor by merger.
The Partnership engages primarily in oil and gas production in Texas and is
not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties -- The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as determined by the engineering staff of Pioneer
USA, the Partnership's managing general partner, and reviewed by independent
petroleum consultants. The carrying amounts of properties sold or otherwise
disposed of and the related allowances for depletion are eliminated from the
accounts and any gain or loss is included in operations.
Impairment of long-lived assets -- 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"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -- Preparation
of the accompanying financial statements 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 reporting amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest -- The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes -- A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
15
<PAGE> 780
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statements of cash flows -- For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses -- General and administrative expenses
are allocated in part to the Partnership by the managing general partner or its
affiliates. Such allocated expenses are determined by the managing general
partner based upon its judgement of the level of activity of the Partnership
relative to the managing general partner's activities and other entities it
manages. The method of allocation has been consistent over the past several
years with certain modifications incorporated to reflect changes in Pioneer
USA's overall business activities.
Reclassifications -- Certain reclassifications may have been made to the
1997 and 1996 financial statements to conform to the 1998 financial statement
presentations.
Environmental -- The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 1998.
Revenue recognition -- The Partnership uses the entitlements method of
accounting for crude oil and natural gas revenues.
Reporting comprehensive income -- Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes
standards for the reporting and display of comprehensive income (loss) and its
components in a full set of general purpose financial statements. Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss).
The Partnership has no items of other comprehensive income (loss), as defined by
SFAS No. 130. Consequently, the provisions of SFAS No. 130 do not apply to the
Partnership.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. Based upon a decline in the Partnership's outlook for future
commodity prices, the Partnership has estimated the expected future cash flows
of its oil and gas properties as of December 31, 1998, 1997 and 1996, and
compared such estimated future cash flows to the respective carrying amount of
the oil and gas properties to determine if the carrying amounts were likely to
be recoverable. For those proved oil and gas properties for which the carrying
amount exceeded the estimated future cash flows, an impairment was determined to
exist; therefore, the Partnership adjusted the carrying amount of those oil and
gas properties to their fair value as determined by discounting their expected
future cash flows at a discount rate commensurate with the risks involved in the
industry. As a result, the Partnership recognized a non-cash impairment
provision of $6,231 related to its proved oil and gas properties during 1997.
16
<PAGE> 781
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $700,144 less than the tax basis at December 31, 1998.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net income (loss) per statements of operations....... $(13,621) $255,412 $424,569
Intangible development costs capitalized for
financial reporting purposes and expensed for
tax reporting purposes.......................... -- -- 24
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes.................... 26,047 23,899 12,926
Impairment of oil and gas properties for financial
reporting purposes.............................. -- 6,231 --
Other.............................................. 441 727 1,636
-------- -------- --------
Net income per Federal income tax returns.......... $ 12,867 $286,269 $439,155
======== ======== ========
</TABLE>
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------ ----- ------
<S> <C> <C> <C>
Property acquisition costs.................................. $1,181 $(824) $7,758
====== ===== ======
</TABLE>
Capitalized oil and gas properties consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Proved properties:
Property acquisition costs............................... $ 4,096,660 $ 4,095,479
Completed wells and equipment............................ 746,040 746,040
----------- -----------
4,842,700 4,841,519
Accumulated depletion...................................... (3,285,467) (3,079,227)
----------- -----------
Net capitalized costs.................................... $ 1,557,233 $ 1,762,292
=========== ===========
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements.......................................... $99,719 $132,408 $136,168
Reimbursement of general and administrative
expenses............................................ $ 9,891 $ 20,129 $ 26,304
</TABLE>
17
<PAGE> 782
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
P&P Employees Producing Properties 88-A ("EMPL") and the Partnership are parties
to the Program agreement. EMPL is a general partnership organized for the
benefit of certain employees of Pioneer USA.
The costs and revenues of the Program are allocated to Pioneer USA, EMPL
and the Partnership as follows:
<TABLE>
<CAPTION>
PIONEER USA(1)
AND EMPL PARTNERSHIP
-------------- -----------
<S> <C> <C>
Revenues:
Revenues from oil and gas production, proceeds from
sales of producing properties and all other
revenues:
Before payout....................................... 4.040405% 95.959595%
After payout........................................ 19.191920% 80.808080%
Costs and expenses:
Property acquisition costs, operating costs, general
and administrative expenses and other costs:
Before payout....................................... 4.040405% 95.959595%
After payout........................................ 19.191920% 80.808080%
</TABLE>
- ---------------
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at
the Partnership level and 78 limited partner interests owned by Pioneer USA.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 1998, 1997 and 1996 and
changes in such quantities during the years then ended. Due to a change in the
accounting policy of the managing general partner in 1997, the Partnership began
accounting for processed natural gas production in two components: processed
natural gas liquids ("NGLs") and dry residue gas. NGLs are reflected in "Oil and
NGLs" in the table below. All of the Partnership's reserves are proved developed
and located within the United States. The Partnership's reserves are based on an
evaluation prepared by the engineering staff of Pioneer USA and reviewed by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant,
using criteria established by the Securities and Exchange Commission. Reserve
value information is available to limited partners pursuant to the Partnership
agreement and, therefore, is not presented.
<TABLE>
<CAPTION>
OIL AND NGLS GAS
(BBLS) (MCF)
------------ ---------
<S> <C> <C>
Net proved reserves at January 1, 1996...................... 420,036 1,810,317
Revisions................................................... 27,465 114,969
Production.................................................. (31,721) (102,163)
-------- ---------
Net proved reserves at December 31, 1996.................... 415,780 1,823,123
Revisions................................................... 179,824 (934,036)
Production.................................................. (31,920) (80,212)
-------- ---------
Net proved reserves at December 31, 1997.................... 563,684 808,875
Revisions................................................... (105,464) (18,612)
Production.................................................. (34,491) (51,099)
-------- ---------
Net proved reserves at December 31, 1998.................... 423,729 739,164
======== =========
</TABLE>
18
<PAGE> 783
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1998, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 1998 prices of $10.61 per
barrel of oil, $5.42 per barrel of NGLs and $1.35 per mcf of gas, discounted at
10% was approximately $915,000 and undiscounted was $1,524,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Genesis Crude Oil, L.P...................................... 57% 60% 64%
Western Gas Resources, Inc. ................................ 28% 28% 14%
GPM Gas Corporation......................................... 3% 1% 10%
</TABLE>
At December 31, 1998, the amounts receivable from Genesis Crude Oil, L.P.
and Western Gas Resources, Inc. were $15,740 and $18,561, respectively, which
are included in the caption "Accounts receivable -- oil and gas sales" in the
accompanying Balance Sheet.
The Partnership's share of oil and gas production is sold to various
purchasers. Pioneer USA is of the opinion that the loss of any one purchaser
would not have an adverse effect on the ability of the Partnership to sell its
oil and gas production.
NOTE 9. ORGANIZATION AND OPERATIONS
The Partnership was organized August 31, 1988 as a limited partnership
under the Delaware Act for the purpose of acquiring and developing oil and gas
properties. The following is a brief summary of the more significant provisions
of the limited partnership agreement:
Managing general partner -- The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Partnership affairs. As managing general
partner and operator of the Partnership's properties, all production
expenses are incurred by Pioneer USA and billed to the Partnership and a
portion of revenue is initially received by Pioneer USA prior to being paid
to the Partnership. Under the limited partnership agreement, the managing
general partner pays 1% of the Partnership's acquisition, drilling and
completion costs and 1% of its operating and general and administrative
expenses. In return, it is allocated 1% of the Partnership's revenues.
Limited partner liability -- The maximum amount of liability of any
limited partner is the total contributions of such partner plus his share
of any undistributed profits.
Initial capital contributions -- The limited partners entered into
subscription agreements for aggregate capital contributions of $5,611,000.
Pioneer USA is required to contribute amounts equal to 1% of initial
Partnership capital less commission and offering expenses allocated to the
limited partners and to contribute amounts necessary to pay costs and
expenses allocated to it under the Partnership agreement to the extent its
share of revenues does not cover such costs.
19
<PAGE> 784
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and
executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve
until the next annual meeting of stockholders or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31,
NAME 1998 POSITION
- ---- ------------ --------
<S> <C> <C>
Scott D. Sheffield................... 46 President and Director
Timothy L. Dove...................... 43 Executive Vice President and Director
Dennis E. Fagerstone................. 49 Executive Vice President and Director
Mark L. Withrow...................... 51 Executive Vice President, General Counsel
and Director
M. Garrett Smith..................... 37 Executive Vice President, Chief Financial
Officer and Director
Mel Fischer(a)....................... 64 Executive Vice President
Lon C. Kile.......................... 43 Executive Vice President
Rich Dealy........................... 32 Vice President and Chief Accounting
Officer
</TABLE>
- ---------------
(a) Mr. Fischer was a director and officer until his retirement from Pioneer
and Pioneer USA on February 19, 1999.
Scott D. Sheffield. Mr. Sheffield is a distinguished graduate of The
University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he
has served as President, Chief Executive Officer and a director of Pioneer and
President and a director of Pioneer USA. Mr. Sheffield was the President and a
director of Parker & Parsley from May 1990 until August 1997 and was the
Chairman of the Board and Chief Executive Officer of Parker & Parsley from
October 1990 until August 1997. He was the sole director of Parker & Parsley
from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley
Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum
engineer in 1979. He served as Vice President -- Engineering of PPDC from
September 1981 until April 1985 when he was elected President and a director. In
March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive
Officer of PPDC. Before joining PPDC, Mr. Sheffield was employed as a production
and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President -- Business
Development of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. Mr. Dove joined Parker & Parsley in May
1994 as Vice President -- International and was promoted to Senior Vice
President -- Business Development in October 1996, in which position he served
until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with
Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various
capacities in international exploration and production, marketing, refining and
marketing and planning and development. Mr. Dove earned a B.S. in Mechanical
20
<PAGE> 785
Engineering from Massachusetts Institute of Technology in 1979 and received his
M.B.A. in 1981 from the University of Chicago.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of Mesa from March 1, 1997 until August 1997. From October
1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief
Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice
President -- Exploration and Production of Mesa. From June 1988 to May 1991, Mr.
Fagerstone served as Vice President -- Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President -- General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President -- General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
M. Garrett Smith. Mr. Smith, a graduate of The University of Texas with a
B.S. in Electrical Engineering and Southern Methodist University with an M.B.A.,
was appointed Executive Vice President and Chief Financial Officer of Pioneer in
December 1997. He served as Senior Vice President -- Finance of Pioneer from
August 1997 until December 1997. Mr. Smith was elected Senior Vice President --
Finance and a director of Pioneer USA in August 1997. He served as Vice
President -- Corporate Acquisitions of Mesa from January 1997 until August 1997.
From October 1996 to December 1996, Mr. Smith served as Vice
President -- Finance of Mesa and from 1994 to 1996 he served as Director of
Financial Planning of Mesa. Mr. Smith was employed by BTC Partners, Inc. (a
former financial advisor to Mesa) from 1989 to 1994.
Mel Fischer. Mr. Fischer, a graduate of the University of California at
Berkeley with a Masters degree in Geology, became Executive Vice
President -- Worldwide Exploration of Pioneer and Pioneer USA in August 1997. He
served as a director of Parker & Parsley from November 1995 until August 1997
and was Executive Vice President -- Worldwide Exploration for Parker & Parsley
from February 1997 to August 1997. Mr. Fischer retired from Pioneer and Pioneer
USA effective February 15, 1998. He worked in the petroleum industry for 32
years, starting as a Petroleum Geologist with Texaco in 1962, and retiring as
President, Occidental International Exploration and Production Company in March
1994. For the 10 years prior to becoming President of Occidental International,
he served as Executive Vice President, World Wide Exploration with Occidental
Oil and Gas Corporation. He is a registered geologist in the State of
California, a member of the American Association of Petroleum Geologists and an
emeritus member of the Board of Advisors for the Earth Sciences Research
Institute at the University of Utah.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a
B.B.A. in Accounting, became Executive Vice President of Pioneer and Pioneer USA
in August 1997. Mr. Kile was Senior Vice President -- Investor Relations from
October 1996 to August 1997. Previously, he served as Vice President and Manager
of the Mid-Continent Division, Vice President -- Equity Finance & Analysis and
Vice President -- Marketing & Program Administration. Prior to joining Parker &
Parsley in 1985, he was employed as Supervisor -- Senior, Audit, in charge of
Parker & Parsley's audit, with Arthur Young.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a
B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became
Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
21
<PAGE> 786
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is vested in Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the limited
partnership agreement, Pioneer USA pays 1% of the Partnership's acquisition,
drilling and completion costs and 1% of its operating, general and
administrative expenses. In return, Pioneer USA is allocated 1% of the
Partnership's revenues. See Notes 6 and 9 of Notes to Financial Statements
included in "Item 8. Financial Statements and Supplementary Data" for
information regarding fees and reimbursements paid to the managing general
partner or its affiliates by the Partnership.
The Partnership does not directly pay any salaries of the executive
officers of Pioneer USA, but does pay a portion of Pioneer USA's general and
administrative expenses of which these salaries are a part. See Note 6 of Notes
to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more
of the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 78 limited partner interests at January 1, 1999.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing
general partner of the Partnership, Pioneer USA, has the exclusive right and
full authority to manage, control and administer the Partnership's business.
Under the limited partnership agreement, limited partners holding a majority of
the outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner or its affiliates
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements.......................................... $99,719 $132,408 $136,168
Reimbursement of general and administrative
expenses............................................ $ 9,891 $ 20,129 $ 26,304
</TABLE>
Under the limited partnership agreement, the managing general partner pays
1% of the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data"
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
22
<PAGE> 787
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial statements
The following are filed as part of this annual report:
Independent Auditors' Report -- Ernst & Young LLP
Independent Auditors' Report -- KPMG LLP
Balance sheets as of December 31, 1998 and 1997
Statements of operations for the years ended December 31, 1998, 1997
and 1996
Statements of partners' capital for the years ended December 31, 1998,
1997 and 1996
Statements of cash flows for the years ended December 31, 1998, 1997
and 1996
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this annual report.
23
<PAGE> 788
SIGNATURES
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 PRODUCING
PROPERTIES 88-A, L.P.
By: Pioneer Natural Resources USA,
Inc.
Managing General Partner
By: /s/ SCOTT D. SHEFFIELD
----------------------------------
Scott D. Sheffield,
President
Dated: March 29, 1999
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 date indicated.
<TABLE>
<C> <S> <C>
/s/ SCOTT D. SHEFFIELD President and Director of March 29, 1999
- ------------------------------------- Pioneer USA
Scott D. Sheffield
/s/ TIMOTHY L. DOVE Executive Vice President and March 29, 1999
- ------------------------------------- Director of Pioneer USA
Timothy L. Dove
/s/ DENNIS E. FAGERSTONE Executive Vice President and March 29, 1999
- ------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ MARK L. WITHROW Executive Vice President, General March 29, 1999
- ------------------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ M. GARRETT SMITH Executive Vice President, Chief March 29, 1999
- ------------------------------------- Financial Officer and Director
M. Garrett Smith of Pioneer USA
/s/ LON C. KILE Executive Vice President of March 29, 1999
- ------------------------------------- Pioneer USA
Lon C. Kile
/s/ RICH DEALY Vice President and Chief Accounting March 29, 1999
- ------------------------------------- Officer of Pioneer USA
Rich Dealy
</TABLE>
24
<PAGE> 789
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3(a) -- Agreement of Limited Partnership of Parker & Parsley
Producing Properties 88-A, L.P. incorporated by reference
to Exhibit A of Amendment No. 1 of the Partnership's
Registration Statement on Form S-1 (Registration No.
33-19133) (hereinafter referred to as the Partnership's
Registration Statement)
4(b) -- Subscription Agreement and Power of Attorney incorporated
by reference to Exhibit C of the Partnership's
Registration Statement
4(d) -- Form of Certificate of Limited Partnership Interest
incorporated by reference to Exhibit 4d of the
Partnership's Registration Statement
10(b) -- Program Agreement incorporated by reference to Exhibit B
of the Partnership's Registration Statement
27.1* -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith
<PAGE> 790
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
DECEMBER 31, 1998, 1997 AND 1996
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. Future income taxes are calculated by comparing
discounted future cash flows to the tax basis of oil and gas properties plus
available carryforwards and credits and applying the current tax rates to the
difference.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and gas producing activities:
Future cash inflows....................................... $ 4,629 $10,527 $19,910
Future production costs................................... (3,105) (5,659) (9,514)
Future development costs.................................. -- -- 160
------- ------- -------
1,524 4,868 10,556
10% annual discount factor................................ (609) (2,424) (5,701)
------- ------- -------
Standardized measure of discounted future net cash
flows.................................................. $ 915 $ 2,444 $ 4,855
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs................ $ (191) $ (407) $ (590)
Net changes in prices and production costs................ (1,425) (2,023) 2,090
Extensions and discoveries................................ -- -- --
Sales of minerals-in-place................................ -- -- --
Purchases of minerals-in-place............................ -- -- --
Revisions of estimated future development costs........... -- (80) (69)
Revisions of previous quantity estimates and reserves
added by development drilling.......................... (152) (326) 1,089
Accretion of discount..................................... 244 485 262
Changes in production rates, timing and other............. (5) (60) (550)
------- ------- ------
Change in present value of future net revenues............ (1,529) (2,411) 2,232
------- ------- ------
Balance, beginning of year................................ 2,444 4,855 2,623
------- ------- ------
Balance, end of year...................................... $ 915 $ 2,444 $4,855
======= ======= ======
</TABLE>
<PAGE> 791
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 88-B, L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT DATED , 1999
----------------------
THE DATE OF THIS SUPPLEMENT IS , 1999
----------------------
This document contains important information specific to Parker & Parsley
88-B, L.P. and supplements the proxy statement dated , 1999, of
Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies
to be voted at a special meeting of limited partners of the partnerships
described in the proxy statement. The purpose of the special meeting is for you
to vote upon the merger of Parker & Parsley 88-B, L.P. with and into Pioneer USA
that, if completed, will result in your receiving cash for your partnership
interests.
This supplement contains the following information concerning Parker &
Parsley 88-B, L.P.:
- A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through June
30, 1999
-- the merger value per $1,000 limited partner investment as of June 30,
1999
-- the merger value per $1,000 limited partner investment as a multiple
of distributions for the 12 months ended June 30, 1999
-- the book value per $1,000 limited partner investment as of June 30,
1999 and as of December 31, 1998 and
-- the ordinary tax loss per $1,000 limited partner investment in year
of initial investment
- Quarterly Report on Form 10-Q for the six months ended June 30, 1999
- Annual Report on Form 10-K for the year ended December 31, 1998
- Disclosures about the partnership's oil and gas producing activities
<PAGE> 792
PARKER & PARSLEY 88-B, L.P.
SUPPLEMENTAL INFORMATION TABLE
<TABLE>
<S> <C>
Aggregate Initial Investment by the Limited Partners(a)..... $ 8,954
Aggregate Historical Limited Partner Distributions through
June 30, 1999(a).......................................... $ 8,709
Merger Value per $1,000 Limited Partner Investment as of
June 30, 1999(b).......................................... $155.54
Merger Value per $1,000 Limited Partner Investment as a
Multiple of Distributions for the 12 Months ended June 30,
1999(b)................................................... 9.46times
Book Value per $1,000 Limited Partner Investment:
-- as of June 30, 1999(b)................................. $142.66
-- as of December 31, 1998(b)............................. $145.60
Ordinary Tax Loss per $1,000 Limited Partner Investment in
Year of Initial Investment(b), (c)........................ $ 445
</TABLE>
- ---------------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as any
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
<PAGE> 793
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JUNE 30, 1999
COMMISSION FILE NO. 33-19659-02
PARKER & PARSLEY 88-B, L.P.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2240121
(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)
</TABLE>
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> 794
PARKER & PARSLEY 88-B, L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1999 and December 31,
1998.................................................. 3
Statements of Operations for the three and six months
ended June 30, 1999 and 1998.......................... 4
Statement of Partners' Capital for the six months ended
June 30, 1999......................................... 5
Statements of Cash Flows for the six months ended June
30, 1999 and 1998..................................... 6
Notes to Financial Statements.......................... 7
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................. 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 11
27.1 Financial Data Schedule
Signatures............................................. 12
</TABLE>
2
<PAGE> 795
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER & PARSLEY 88-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 132,191 $ 110,641
Accounts receivable -- oil and gas sales.................. 105,172 71,128
----------- -----------
Total current assets.............................. 237,363 181,769
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method.............................. 7,123,321 7,131,466
Accumulated depletion..................................... (6,045,396) (5,978,933)
----------- -----------
Net oil and gas properties........................ 1,077,925 1,152,533
----------- -----------
$ 1,315,288 $ 1,334,302
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable -- affiliate............................. $ 25,004 $ 17,477
Partners' capital:
Managing general partner.................................. 12,871 13,137
Limited partners (8,954 interests)........................ 1,277,413 1,303,688
----------- -----------
1,290,284 1,316,825
----------- -----------
$ 1,315,288 $ 1,334,302
=========== ===========
</TABLE>
The financial information included as of June 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
<PAGE> 796
PARKER & PARSLEY 88-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas...................................... $163,695 $157,385 $271,361 $315,946
Interest......................................... 1,334 1,878 2,531 3,916
Gain on disposition of assets.................... -- -- -- 156
-------- -------- -------- --------
165,029 159,263 273,892 320,018
-------- -------- -------- --------
Costs and expenses:
Oil and gas production........................... 86,811 95,719 168,666 208,136
General and administrative....................... 4,911 4,574 8,141 9,332
Depletion........................................ 22,195 45,898 66,463 87,898
-------- -------- -------- --------
113,917 146,191 243,270 305,366
-------- -------- -------- --------
Net income....................................... $ 51,112 $ 13,072 $ 30,622 $ 14,652
======== ======== ======== ========
Allocation of net income:
Managing general partner......................... $ 511 $ 130 $ 306 $ 146
======== ======== ======== ========
Limited partners................................. $ 50,601 $ 12,942 $ 30,316 $ 14,506
======== ======== ======== ========
Net income per limited partnership interest...... $ 5.66 $ 1.45 $ 3.39 $ 1.62
======== ======== ======== ========
Distributions per limited partnership interest... $ 2.88 $ 6.31 $ 6.32 $ 14.08
======== ======== ======== ========
</TABLE>
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> 797
PARKER & PARSLEY 88-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1, 1999................................. $13,137 $1,303,688 $1,316,825
Distributions............................................ (572) (56,591) (57,163)
Net income............................................... 306 30,316 30,622
------- ---------- ----------
Balance at June 30, 1999................................... $12,871 $1,277,413 $1,290,284
======= ========== ==========
</TABLE>
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> 798
PARKER & PARSLEY 88-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 30,622 $ 14,652
Adjustments to reconcile net income to net cash provided
by operating activities:
Depletion.............................................. 66,463 87,898
Gain on disposition of assets.......................... -- (156)
Changes in assets and liabilities:
Accounts receivable.................................... (34,044) 22,697
Accounts payable....................................... 7,527 1,979
-------- ---------
Net cash provided by operating activities......... 70,568 127,070
-------- ---------
Cash flows from investing activities:
Additions to oil and gas properties....................... (3,237) (7,951)
Proceeds from asset dispositions.......................... 11,382 156
-------- ---------
Net cash provided by (used in) investing
activities...................................... 8,145 (7,795)
-------- ---------
Cash flows used in financing activities:
Cash distributions to partners............................ (57,163) (127,316)
-------- ---------
Net increase (decrease) in cash............................. 21,550 (8,041)
Cash at beginning of period................................. 110,641 149,266
-------- ---------
Cash at end of period....................................... $132,191 $ 141,225
======== =========
</TABLE>
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> 799
PARKER & PARSLEY 88-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 88-B, L.P. (the "Partnership") is a limited partnership
organized in 1988 under the laws of the State of Delaware.
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 June 30, 1999 and for the three and six months ended June 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.
7
<PAGE> 800
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
RESULTS OF OPERATIONS
Six months ended June 30, 1999 compared with six months ended June 30, 1998
Revenues:
The Partnership's oil and gas revenues decreased 14% to $271,361 from
$315,946 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from lower average prices received and a decrease
in production. For the six months ended June 30, 1999, 13,613 barrels of oil,
6,704 barrels of natural gas liquids ("NGLs") and 27,934 mcf of gas were sold,
or 24,973 barrel of oil equivalents ("BOEs"). For the six months ended June 30,
1998, 15,952 barrels of oil, 5,861 barrels of NGLs and 26,363 mcf of gas were
sold, or 26,207 BOEs.
The average price received per barrel of oil decreased $1.17, or 8%, from
$14.32 for the six months ended June 30, 1998 to $13.15 for the same period in
1999. The average price received per barrel of NGLs decreased 3%, from $7.77
during the six months ended June 30, 1998 to $7.55 for the same period in 1999.
The average price received per mcf of gas decreased 6% from $1.59 during the six
months ended June 30, 1998 to $1.49 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 six months ended June 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 $156 was received during the six months
ended June 30, 1998 from the sale of equipment on one saltwater disposal well
plugged and abandoned in a prior year.
Costs and Expenses:
Total costs and expenses decreased to $243,270 for the six months ended
June 30, 1999 as compared to $305,366 for the same period in 1998, a decrease of
$62,096, or 20%. This decrease was due to declines in production costs,
depletion and general and administrative expenses ("G&A").
Production costs were $168,666 for the six months ended June 30, 1999 and
$208,136 for the same period in 1998 resulting in a $39,470 decrease, or 19%.
This decrease was due to declines in well maintenance costs, workover expenses,
production taxes and ad valorem 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, 13% from $9,332 for the six months ended June 30, 1998
to $8,141 for the same period in 1999.
Depletion was $66,463 for the six months ended June 30, 1999 compared to
$87,898 for the same period in 1998, a decrease of $21,435, or 24%. This
decrease was primarily due to a reduction in oil production of 2,339 barrels for
the six months ended June 30, 1999 compared to the same period in 1998, an
increase in proved reserves during the period ended June 30, 1999 due to the
higher commodity prices 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.
Three months ended June 30, 1999 compared with three months ended June 30, 1998
Revenues:
The Partnership's oil and gas revenues increased 4% to $163,695 from
$157,385 for the three months ended June 30, 1999 and 1998, respectively. The
increase in revenues resulted from higher average prices received and a slight
increase in production. For the three months ended June 30, 1999, 6,781 barrels
of
8
<PAGE> 801
oil, 4,124 barrels of NGLs and 16,108 mcf of gas were sold, or 13,590 BOEs. For
the three months ended June 30, 1998, 7,920 barrels of oil, 3,248 barrels of
NGLs and 13,033 mcf of gas were sold, or 13,340 BOEs.
The average price received per barrel of oil increased 7% from $13.96 for
the three months ended June 30, 1998 to $14.90 for the same period in 1999. The
average price received per barrel of NGLs increased 10% from $8.01 during the
three months ended June 30,1998 to $8.82 for the same period in 1999. The
average price received per mcf increased 3% from $1.59 during the three months
ended June 30, 1998 to $1.63 for the same period in 1999.
Costs and Expenses:
Total costs and expenses decreased to $113,917 for the three months ended
June 30, 1999 as compared to $146,191 for the same period in 1998, a decrease of
$32,274, or 22%. This decrease was due to declines in depletion and production
costs, offset by an increase in G&A.
Production costs were $86,811 for the three months ended June 30, 1999 and
$95,719 for the same period in 1998 resulting in an $8,908 decrease, or 9%. The
decrease was due to declines in well maintenance costs, ad valorem taxes and
production taxes.
During this period, G&A increased, in aggregate, 7% from $4,574 for the
three months ended June 30, 1998 to $4,911 for the same period in 1999.
Depletion was $22,195 for the three months ended June 30, 1999 compared to
$45,898 for the same period in 1998, a decrease of $23,703, or 52%. This
decrease was primarily attributable to an increase in proved reserves during the
period ended June 30, 1999 due to higher commodity prices, a reduction in oil
production of 1,139 barrels for the three months ended June 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.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $56,502 during the six
months ended June 30, 1999 from the same period ended June 30, 1998. This
decrease was primarily due to a decline in oil and gas sales receipts, offset by
declines in production costs and G&A expenses paid.
Net Cash Provided by (Used in) Investing Activities
The Partnership's principal investing activities during the six months
ended June 30, 1999 and 1998 were for equipment replacement on various oil and
gas properties.
Proceeds of $11,382 recognized during the six months ended June 30, 1999
were from equipment credits on active properties. During the six months ended
June 30, 1998 proceeds of $156 were derived from salvage on one saltwater
disposal well that was plugged and abandoned in a prior year.
Net Cash Used in Financing Activities
Cash was sufficient for the six months ended June 30, 1999 to cover
distributions to the partners of $57,163 of which $572 was distributed to the
managing general partner and $56,591 to the limited partners. For the same
period ended June 30, 1998, cash was sufficient for distributions to the
partners of $127,316 of which $1,273 was distributed to the managing general
partner and $126,043 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 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
9
<PAGE> 802
announcements, together with early indications that the nations have initiated
their planned reductions, have had some stabilizing effect on commodity prices
during the latter part of the first quarter of 1999 and into August 1999.
However, no assurances can be given that the stabilizing effect of these
actions, or the planned reductions in export volumes, will 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.
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 June 30, 1999, the managing general partner estimates that the
assessment phase is approximately 99% complete and has included, but is not
limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- the formulation of contingency plans for mission-critical information
technology systems.
Through June 30, 1999, the managing general partner had 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 varying 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 June 30, 1999, the managing general partner
estimates that the remedial phase is approximately 83% complete, on a worldwide
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 is expected
to be completed by 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 expects to complete the testing of
information technology systems by October 1999. The
10
<PAGE> 803
testing of the non-information technology remediation is scheduled to be
completed by the end of November 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. As of June 30, 1999, the managing general partner's total costs
incurred on the Year 2000 problem were $2.3 million, of which approximately $200
thousand were incurred to replace non-compliant systems.
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
11
<PAGE> 804
SIGNATURES
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 88-B, L.P.
By: Pioneer Natural Resources USA,
Inc.,
Managing General Partner
By: /s/ RICH DEALY
----------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
Dated: August 9, 1999
12
<PAGE> 805
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 33-19659-02
PARKER & PARSLEY 88-B, L.P.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2240121
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
<TABLE>
<S> <C>
303 WEST WALL, SUITE 101, MIDLAND, TEXAS 79701
(Address of principal executive offices) (Zip code)
</TABLE>
Registrant's Telephone Number, including area code: (915) 683-4768
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
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]
No market currently exists for the limited partnership interests of the
Registrant. Based on original purchase price the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$8,860,000.
As of March 8, 1999, the number of outstanding limited partnership
interests was 8,954.
The following documents are incorporated by reference into the indicated
parts of this Annual Report on Form 10-K: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 806
Parts I and II of this Report contain 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. See "Item 1.
Business" for a description of various factors that could materially affect the
ability of the Partnership to achieve the anticipated results described in the
forward looking statements.
PART I
ITEM 1. BUSINESS
Parker & Parsley 88-B, L.P. (the "Partnership") is a limited partnership
organized in 1988 under the laws of the State of Delaware. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. ("Mesa") received shareholder approval
to merge and create Pioneer Natural Resources Company ("Pioneer"). On August 8,
1997, PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership as PPDLP's successor by merger. For a more complete description of
the Parker & Parsley and Mesa merger, see Pioneer's Registration Statement on
Form S-4 as filed with the Securities & Exchange Commission.
A Registration Statement, as amended, filed pursuant to the Securities Act
of 1933, registering limited partnership interests aggregating $70,000,000 in a
series of Delaware limited partnerships formed under the Parker & Parsley 88
Development Drilling Programs, was declared effective by the Securities and
Exchange Commission on March 4, 1988. On November 18, 1988, the offering of
limited partnership interests in the Partnership, the second partnership formed
under such statement was closed, with interests aggregating $8,954,000 being
sold to 715 subscribers.
The Partnership engages primarily in oil and gas development and production
and is not involved in any industry segment other than oil and gas. See "Item 6.
Selected Financial Data" and "Item 8. Financial Statements and Supplementary
Data" of this report for a summary of the Partnership's revenue, income and
identifiable assets.
The principal markets during 1998 for the oil produced by the Partnership
were refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. The principal markets for the
Partnership's gas were companies that have pipelines located near the
Partnership's gas producing properties. Of the Partnership's total oil and gas
revenues for 1998, approximately 49% and 17% were attributable to sales made to
Genesis Crude Oil, L.P. and Western Gas Resources, Inc.
The Partnership's revenues, profitability, cash flow and future rate of
growth are highly dependent on the prevailing prices of oil and gas, which are
affected by numerous factors beyond the Partnership's control. Oil and gas
prices historically have been very volatile. A substantial or extended decline
in the prices of oil or gas could have a material adverse effect on the
Partnership's revenues, profitability and cash flow and could, under certain
circumstances, result in a reduction in the carrying value of the Partnership's
oil and gas properties.
Because of the demand for oil and gas, the Partnership does not believe
that the termination of the sales of its products to any one customer would have
a material adverse impact on its operations. The loss of a particular customer
for gas may have an effect if that particular customer has the only gas pipeline
located in the areas of the Partnership's gas producing properties. The
Partnership believes, however, that the effect would be temporary, until
alternative arrangements could be made.
Federal and state regulation of oil and gas operations generally includes
the fixing of maximum prices for regulated categories of natural gas, the
imposition of maximum allowable production rates, the taxation
1
<PAGE> 807
of income and other items and the protection of the environment. Although the
Partnership believes that its business operations do not impair environmental
quality and that its costs of complying with any applicable environmental
regulations are not currently significant, the Partnership cannot predict what,
if any, effect these environmental regulations may have on its current or future
operations.
The Partnership does not have any employees of its own. Pioneer USA employs
818 persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this report is filed. Pioneer
USA is responsible for all management functions.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the
Partnership conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist primarily of leasehold interests in
properties on which oil and gas wells are located. Such property interests are
often subject to landowner royalties, overriding royalties and other oil and gas
leasehold interests.
Fractional working interests in developmental oil and gas prospects located
in the Spraberry Trend area of West Texas were acquired by the Partnership,
resulting in the Partnership's participation in the drilling of 43 oil and gas
wells. One well has been plugged and abandoned. At December 31, 1998, 42 wells
were producing.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 1998, 1997 and 1996 and changes in such quantities for
the years then ended see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been estimated by the engineering staff of Pioneer USA with a review by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
2
<PAGE> 808
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 9, 1999, the Partnership had 8,954 outstanding limited partnership
interests held of record by 690 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are
not required to meet the Partnership's obligations are distributed to the
partners at least quarterly in accordance with the limited partnership
agreement. During the years ended December 31, 1998 and 1997, $215,057 and
$453,703, respectively, of such revenue-related distributions were made to the
limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Oil and gas sales.............. $ 578,573 $ 810,500 $1,052,408 $ 889,592 $ 946,401
========== ========== ========== ========== ==========
Impairment of oil and gas
properties.................. $ 383,951 $ 547,793 $ -- $ 479,522 $ --
========== ========== ========== ========== ==========
Net income (loss).............. $ (488,631) $ (344,997) $ 397,674 $ (391,752) $ 5,033
========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general partner.... $ (4,887) $ (3,450) $ 3,977 $ (3,918) $ 50
========== ========== ========== ========== ==========
Limited partners............ $ (483,744) $ (341,547) $ 393,697 $ (387,834) $ 4,983
========== ========== ========== ========== ==========
Limited partners' net income
(loss) per limited
partnership interest........ $ (54.03) $ (38.14) $ 43.97 $ (43.31) $ .56
========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest........ $ 24.02 $ 50.67 $ 54.14 $ 49.35 $ 52.50
========== ========== ========== ========== ==========
AT YEAR END:
Total assets................... $1,334,302 $2,051,284 $2,848,468 $2,970,489 $3,781,914
========== ========== ========== ========== ==========
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1998 compared to 1997
The Partnership's 1998 oil and gas revenues decreased 29% to $578,573 from
$810,500 in 1997. The decrease in revenues resulted from lower average prices
received. In 1998, 31,155 barrels of oil, 12,210 barrels of natural gas liquids
("NGLs") and 52,254 mcf of gas were sold, or 52,074 barrel of oil equivalents
("BOEs"). In 1997, 31,020 barrels of oil, 4,628 NGLs and 70,802 mcf of gas were
sold, or 47,448 BOEs. Due to the decline characteristics of the Partnership's
oil and gas properties, management expects a certain amount of decline in
production in the future until the Partnership's economically recoverable
reserves are fully depleted.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. Effective September 30, 1997, as a result of the
merger with Mesa, the managing general partner accounts for processed natural
gas production in two components: natural gas liquids and dry residue gas. As a
result of the change in the managing general
3
<PAGE> 809
partner's policy, the Partnership now accounts for processed natural gas
production as processed natural gas liquids and dry residue gas. Consequently,
separate product volumes will not be comparable for 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 year ended December 31, 1998 is the price received
for dry residue gas and the price per mcf for natural gas produced prior to
October 1997 was presented as a price for wet gas (i.e., natural gas liquids
combined with dry residue gas).
The average price received per barrel of oil decreased $6.09, or 32%, from
$19.33 in 1997 to $13.24 in 1998. The average price received per barrel of NGLs
decreased $3.90, or 36%, from $10.81 in 1997 to $6.91 in 1998. The average price
received per mcf of gas decreased 31% from $2.27 in 1997 to $1.56 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 in 1998.
Total costs and expenses decreased in 1998 to $1,075,163 as compared to
$1,164,844 in 1997, a decrease of $89,681, or 8%. The decrease was primarily due
to declines in the impairment of oil and gas properties, production costs and
general and administrative expenses ("G&A"), offset by an increase in depletion.
Production costs were $390,835 in 1998 and $403,509 in 1997, resulting in a
$12,674 decrease, or 3%. The decrease was primarily due to a decline in
production taxes due to decreased oil and gas revenues, offset by an increase in
workover costs incurred in an effort to stimulate well production.
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, 33% from $25,944 in 1997 to $17,315 in 1998. The
Partnership paid the managing general partner $13,810 in 1998 and $20,876 in
1997 for G&A incurred on behalf of the Partnership. G&A is allocated, in part,
to the Partnership by the managing general partner. Such allocated expenses are
determined by the managing general partner based upon its judgement of the level
of activity to the Partnership relative to the managing general partner's
activities and other entities it manages. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
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"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. Declining commodity prices prompted
impairment reviews in 1998 and 1997. As a result of the review and evaluation of
its long-lived assets for impairment, the Partnership recognized non-cash
charges of $383,951 and $547,793 related to its oil and gas properties during
1998 and 1997, respectively.
Depletion was $283,062 in 1998 compared to $187,598 in 1997. This
represented an increase of $95,464, or 51%. This increase was the result of a
decline in proved reserves during 1998 due to the lower commodity prices, 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.
1997 compared to 1996
The Partnership's 1997 oil and gas revenues decreased 23% to $810,500 from
$1,052,408 in 1996. The decrease in revenues resulted from declines in
production and lower average prices received. In 1997, 31,020 barrels of oil,
4,628 barrels of NGLs and 70,802 mcf of gas were sold, or 47,448 BOEs. In 1996,
37,186 barrels of oil and 96,878 mcf of gas were sold, or 53,332 BOEs.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. As is described above in "Results of
Operations -- 1998 compared to 1997", the Partnership changed its method of
accounting for processed
4
<PAGE> 810
natural gas to a dry gas basis in the fourth quarter of 1997. As a result of
this change, the Partnership now accounts for processed natural gas production
as processed natural gas liquids and dry residue gas. Consequently, 1997 and
1996 separate product volumes are not comparable.
The declines in production volumes were primarily attributable to the
decline characteristics of the Partnership's oil and gas properties.
The average price received per barrel of oil decreased $2.23, or 10%, from
$21.56 in 1996 to $19.33 in 1997. The average price received per barrel of NGLs
during 1997 was $10.81. The average price received per mcf of gas decreased 12%
from $2.59 in 1996 to $2.27 in 1997.
Total costs and expenses increased in 1997 to $1,164,844 as compared to
$663,069 in 1996, an increase of $501,775, or 76%. The increase was primarily
due to the impairment of oil and gas properties, offset by decreases in
production costs, depletion, G&A, loss on disposition of assets and abandoned
property costs.
Production costs were $403,509 in 1997 and $428,490 in 1996, resulting in a
$24,981 decrease, or 6%. The decrease was due to declines in well maintenance
costs and production taxes, offset by an increase in workover costs incurred in
an effort to stimulate well production.
During this period, G&A decreased, in aggregate, 18% from $31,516 in 1996
to $25,944 in 1997. The Partnership paid the managing general partner $20,876 in
1997 and $26,489 in 1996 for G&A incurred on behalf of the Partnership.
The Partnership recognized a non-cash SFAS 122 impairment provision of
$547,793 related to its oil and gas properties during the fourth quarter of
1997.
Depletion was $187,598 in 1997 compared to $201,693 in 1996. This
represented a decrease of $14,095, or 7%. This decrease was primarily
attributable to a decrease in oil production of 6,166 barrels during 1997 as
compared to 1996, offset by a decline in oil reserves in 1997 as a result of
lower commodity prices.
A loss on disposition of assets of $1,032 was recognized during 1996. This
loss resulted from the abandonment of a saltwater disposal well and the
write-off of associated capitalized well costs of $1,074, less proceeds from
salvage of equipment of $42. Abandoned property expense associated with this
abandonment totaled $338 during 1996.
IMPACT OF INFLATION AND CHANGING PRICES ON SALES AND NET INCOME
Inflation impacts the fixed overhead rate charges of the lease operating
expenses for the Partnership. During 1998, the annual change in the index of
average weekly earnings of crude petroleum and gas production workers issued by
the U.S. Department of Labor, Bureau of Labor Statistics increased (effective
April 1, 1998) 10.3%. The 1997 annual change in average weekly earnings
increased by 2%. The 1996 index increased 4.1%. The impact of inflation for
other lease operating expenses is small due to the current economic condition of
the oil industry.
The oil and gas industry experienced volatility during the past decade
because of the fluctuation of the supply of most fossil fuels relative to the
demand for such products and other uncertainties in the world energy markets
causing significant fluctuations in oil and gas prices. During 1998, the price
per barrel for oil production similar to the Partnership's ranged from
approximately $9.50 to $15.50. During most of 1997 and 1996, 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 March 1999. On March 8, 1999, the market price for West Texas intermediate
crude was $11.00 per barrel. A continuation of the current commodity price
environment will continue to have an adverse effect on the Partnership's
revenues, operating cash flow and distributions and could result in additional
decreases in the carrying value of the Partnership's oil and gas properties.
5
<PAGE> 811
Prices for natural gas are subject to ordinary seasonal fluctuations, and
this volatility of natural gas prices may result in production being curtailed
and, in some cases, wells being completely shut-in.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $316,196 during the
year ended December 31, 1998 from the year ended December 31, 1997. The decrease
was primarily due to declines in oil and gas sales receipts and G&A expenses
paid, offset by an increase in production costs paid.
Net Cash Provided by (Used in) Investing Activities
The Partnership's investing activities during 1998 and 1997 were related to
the replacement of oil and gas equipment on active properties.
Net Cash Used in Financing Activities
Cash was sufficient in 1998 for distributions to the partners of $217,229
of which $2,172 was distributed to the managing general partner and $215,057 to
the limited partners. In 1997, cash was sufficient for distributions to the
partners of $458,286 of which $4,583 was distributed to the managing general
partner and $453,703 to the limited partners.
The current commodity price environment will continue to impact the
distributions and could result in limited or no distributions to the partners.
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.
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
at varying stages of completion as it pertains to information technology and
non-information technology applications and systems in the United States, Canada
and Argentina. As of December 31, 1998, the managing general partner estimates
that the assessment phase is approximately 86% complete, on a worldwide basis,
and has included, but is not limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
6
<PAGE> 812
- 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;
- 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,
- 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 to
approximately 37% of those inquiries.
The remedial phase of the managing general partner's Year 2000 project is
also at varying 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 December 31, 1998, the
managing general partner estimates that the remedial phase is approximately 54%
complete, on a worldwide basis, subject to the continuing 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 through remedial coding and is currently testing this system for Year
2000 compliance. The remediation of non-information technology is expected to be
completed during July 1999. The managing general partner's Year 2000 remedial
actions have not significantly 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 and non-information technology remediation by the end of the third
quarter of 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. The managing general partner intends to use its working capital to pay
for the costs of the Year 2000 projects. As of December 31, 1998, the managing
general partner's total costs incurred on the Year 2000 problem were $1.8
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 in accordance with the general and
administration allocation. (See Note 2 of Notes to Financial Statements included
in "Item 8. Financial Statements and Supplementary Data".)
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 assessment phase of the managing general partner's Year 2000
project, contingency plans are being 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.
7
<PAGE> 813
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Parker & Parsley 88-B, L.P.:
Independent Auditors' Report -- Ernst & Young LLP......... 9
Independent Auditors' Report -- KPMG LLP.................. 10
Balance Sheets as of December 31, 1998 and 1997........... 11
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996......................................... 12
Statements of Partners' Capital for the Years Ended
December 31, 1998, 1997 and 1996............................ 13
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996......................................... 14
Notes to Financial Statements............................. 15
</TABLE>
8
<PAGE> 814
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 88-B, L.P.
(A Delaware Limited Partnership):
We have audited the balance sheet of Parker & Parsley 88-B, L.P. as of
December 31, 1998, and the related statements of operations, partners' capital
and cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 88-B, L.P.
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Dallas, Texas
March 15, 1999
9
<PAGE> 815
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 88-B, L.P.
(A Delaware Limited Partnership):
We have audited the financial statements of Parker & Parsley 88-B, L.P. as
of December 31, 1997, and the related statements of operations, partners'
capital and cash flows for the years ended December 31, 1997 and 1996. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 88-B, L.P.
as of December 31, 1997, and the results of its operations and its cash flows
for the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
KPMG LLP
Midland, Texas
March 20, 1998
10
<PAGE> 816
PARKER & PARSLEY 88-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 110,641 $ 149,266
Accounts receivable -- oil and gas sales.................. 71,128 97,539
----------- -----------
Total current assets.............................. 181,769 246,805
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 7,131,466 7,116,399
Accumulated depletion....................................... (5,978,933) (5,311,920)
----------- -----------
Net oil and gas properties........................ 1,152,533 1,804,479
----------- -----------
$ 1,334,302 $ 2,051,284
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable -- affiliate............................. $ 17,477 $ 28,599
Partners' capital:
Managing general partner.................................. 13,137 20,196
Limited partners (8,954 interests)........................ 1,303,688 2,002,489
----------- -----------
1,316,825 2,022,685
----------- -----------
$ 1,334,302 $ 2,051,284
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 817
PARKER & PARSLEY 88-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Oil and gas............................................ $ 578,573 $ 810,500 $1,052,408
Interest............................................... 7,803 9,347 8,335
Other.................................................. 156 -- --
---------- ---------- ----------
586,532 819,847 1,060,743
---------- ---------- ----------
Costs and expenses:
Oil and gas production................................. 390,835 403,509 428,490
General and administrative............................. 17,315 25,944 31,516
Impairment of oil and gas properties................... 383,951 547,793 --
Depletion.............................................. 283,062 187,598 201,693
Loss on disposition of assets.......................... -- -- 1,032
Abandoned property..................................... -- -- 338
---------- ---------- ----------
1,075,163 1,164,844 663,069
---------- ---------- ----------
Net income (loss)........................................ $ (488,631) $ (344,997) $ 397,674
========== ========== ==========
Allocation of net income (loss):
Managing general partner............................... $ (4,887) $ (3,450) $ 3,977
========== ========== ==========
Limited partners....................................... $ (483,744) $ (341,547) $ 393,697
========== ========== ==========
Net income (loss) per limited partnership interest....... $ (54.03) $ (38.14) $ 43.97
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 818
PARKER & PARSLEY 88-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Partners' capital at January 1, 1996....................... $29,148 $2,888,779 $2,917,927
Distributions............................................ (4,896) (484,737) (489,633)
Net income............................................... 3,977 393,697 397,674
------- ---------- ----------
Partners' capital at December 31, 1996..................... 28,229 2,797,739 2,825,968
Distributions............................................ (4,583) (453,703) (458,286)
Net loss................................................. (3,450) (341,547) (344,997)
------- ---------- ----------
Partners' capital at December 31, 1997..................... 20,196 2,002,489 2,022,685
Distributions............................................ (2,172) (215,057) (217,229)
Net loss................................................. (4,887) (483,744) (488,631)
------- ---------- ----------
Partners' capital at December 31, 1998..................... $13,137 $1,303,688 $1,316,825
======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 819
PARKER & PARSLEY 88-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $(488,631) $(344,997) $ 397,674
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Impairment of oil and gas properties................. 383,951 547,793 --
Depletion............................................ 283,062 187,598 201,693
Loss on disposition of assets........................ -- -- 1,032
Other................................................ (156) -- --
Changes in assets and liabilities:
Accounts receivable.................................. 26,411 113,218 (105,819)
Accounts payable..................................... (11,122) 6,099 (29,301)
--------- --------- ---------
Net cash provided by operating activities....... 193,515 509,711 465,279
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties..................... (15,067) (9,015) --
Proceeds from asset dispositions........................ 156 -- 4,880
--------- --------- ---------
Net cash provided by (used in) investing
activities.................................... (14,911) (9,015) 4,880
--------- --------- ---------
Cash flows from financing activities:
Cash distributions to partners.......................... (217,229) (458,286) (489,633)
--------- --------- ---------
Net increase (decrease) in cash........................... (38,625) 42,410 (19,474)
Cash at beginning of year................................. 149,266 106,856 126,330
--------- --------- ---------
Cash at end of year....................................... $ 110,641 $ 149,266 $ 106,856
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 820
PARKER & PARSLEY 88-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 88-B, L.P. (the "Partnership") is a limited partnership
organized in 1988 under the laws of the State of Delaware. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. received shareholder approval to merge
and create Pioneer Natural Resources Company ("Pioneer"). On August 8, 1997,
PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership as PPDLP's successor by merger.
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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties -- The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as determined by the engineering staff of Pioneer
Natural Resources USA, Inc. ("Pioneer USA") the Partnership's managing general
partner, and reviewed by independent petroleum consultants. The carrying amounts
of properties sold or otherwise disposed of and the related allowances for
depletion are eliminated from the accounts and any gain or loss is included in
operations.
Impairment of long-lived assets -- 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"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -- Preparation
of the accompanying financial statements 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 reporting amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest -- The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes -- A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
15
<PAGE> 821
PARKER & PARSLEY 88-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statements of cash flows -- For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses -- General and administrative expenses
are allocated in part to the Partnership by the managing general partner or its
affiliates. Such allocated expenses are determined by the managing general
partner based upon its judgement of the level of activity of the Partnership
relative to the managing general partner's activities and other entities it
manages. The method of allocation been consistent over the past several years
with certain modifications incorporated to reflect changes in Pioneer USA's
overall business activities.
Reclassifications -- Certain reclassifications may have been made to the
1997 and 1996 financial statements to conform to the 1998 financial statement
presentations.
Environmental -- The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 1998.
Revenue recognition -- The Partnership uses the entitlements method of
accounting for crude oil and natural gas revenues.
Reporting comprehensive income -- Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes
standards for the reporting and display of comprehensive income (loss) and its
components in a full set of general purpose financial statements. Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss).
The Partnership has no items of other comprehensive income (loss), as defined by
SFAS No. 130. Consequently, the provisions of SFAS No. 130 do not apply to the
Partnership.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. Based upon a decline in the Partnership's outlook for future
commodity prices, the Partnership has estimated the expected future cash flows
of its oil and gas properties as of December 31, 1998, 1997 and 1996, and
compared such estimated future cash flows to the respective carrying amount of
the oil and gas properties to determine if the carrying amounts were likely to
be recoverable. For those proved oil and gas properties for which the carrying
amount exceeded the estimated future cash flows, an impairment was determined to
exist; therefore, the Partnership adjusted the carrying amount of those oil and
gas properties to their fair value as determined by discounting their expected
future cash flows at a discount rate commensurate with the risks involved in the
industry. As a result, the Partnership recognized non-cash impairment provisions
of $383,951 and $547,793 related to its proved oil and gas properties during
1998 and 1997, respectively.
16
<PAGE> 822
PARKER & PARSLEY 88-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $236,456 greater than the tax basis at December 31, 1998.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Net income (loss) per statements of operations..... $(488,631) $(344,997) $397,674
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes..................... 274,063 178,889 62,991
Impairment of oil and gas properties for financial
reporting purposes............................... 383,951 547,793 --
Salvage income..................................... -- -- 8,245
Other.............................................. 1,161 (1,076) 1,965
--------- --------- --------
Net income per Federal income tax
returns................................ $ 170,544 $ 380,609 $470,875
========= ========= ========
</TABLE>
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Development costs......................................... $15,067 $9,015 $5,978
======= ====== ======
</TABLE>
Capitalized oil and gas properties consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Proved properties:
Property acquisition costs................................. $ 439,249 $ 439,249
Completed wells and equipment.............................. 6,692,217 6,677,150
----------- -----------
7,131,466 7,116,399
Accumulated depletion...................................... (5,978,933) (5,311,920)
----------- -----------
Net capitalized costs.................................... $ 1,152,533 $ 1,804,479
=========== ===========
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $150,985 $169,328 $166,963
Reimbursement of general and administrative
expenses........................................... $ 13,810 $ 20,876 $ 26,489
</TABLE>
17
<PAGE> 823
PARKER & PARSLEY 88-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
Parker & Parsley 88-B Conv., L.P. and the Partnership (the "Partnerships") are
parties to the Program agreement.
The costs and revenues of the Program are allocated to Pioneer USA and the
Partnerships as follows:
<TABLE>
<CAPTION>
PIONEER USA(1) PARTNERSHIPS(2)
--------------- ----------------
<S> <C> <C>
Revenues:
Proceeds from disposition of depreciable
properties........................................ 9.09091% 90.90909%
All other revenues................................... 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion
costs and all other costs......................... 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative expenses........................... 24.242425% 75.757575%
</TABLE>
- ---------------
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at
the Partnership level and 94 limited partner interests owned by Pioneer USA.
(2) The allocation between the Partnership and Parker & Parsley 88-B Conv., L.P.
is 71.119936% and 28.880064%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 1998, 1997 and 1996 and
changes in such quantities during the years then ended. Due to a change in the
accounting policy of the managing general partner in 1997, the Partnership began
accounting for processed natural gas production in two components: processed
natural gas liquids ("NGLs") and dry residue gas. NGLs are reflected in "Oil and
NGLs" in the table below. All of the Partnership's reserves are proved developed
and located within the United States. The Partnership's reserves are based on an
evaluation prepared by the engineering staff of Pioneer USA and reviewed by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant,
using criteria established by the Securities and Exchange Commission. Reserve
value information is available to limited partners pursuant to the Partnership
agreement and, therefore, is not presented.
<TABLE>
<CAPTION>
OIL AND NGLS GAS
(BBLS) (MCF)
------------ ----------
<S> <C> <C>
Net proved reserves at January 1, 1996...................... 492,426 1,565,005
Revisions................................................... 115,251 275,646
Production.................................................. (37,186) (96,878)
-------- ----------
Net proved reserves at December 31, 1996.................... 570,491 1,743,773
Revisions................................................... (5,887) (1,060,648)
Production.................................................. (35,648) (70,802)
-------- ----------
Net proved reserves at December 31, 1997.................... 528,956 612,323
Revisions................................................... (215,651) (183,598)
Production.................................................. (43,365) (52,254)
-------- ----------
Net proved reserves at December 31, 1998.................... 269,940 376,471
======== ==========
</TABLE>
18
<PAGE> 824
PARKER & PARSLEY 88-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1998, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 1998 prices of $10.61 per
barrel of oil, $5.50 per barrel of NGLs and $1.40 per mcf of gas, discounted at
10% was approximately $458,000 and undiscounted was $668,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Genesis Crude Oil, L.P...................................... 49% 52% 52%
Western Gas Resources, Inc. ................................ 17% 13% 11%
</TABLE>
At December 31, 1998, the amounts receivable from Genesis Crude Oil, L.P.
and Western Gas Resources, Inc. were $19,489 and $14,440, respectively, which
are included in the caption "Accounts receivable -- oil and gas sales" in the
accompanying Balance Sheet.
The Partnership's share of oil and gas production is sold to various
purchasers. Pioneer USA is of the opinion that the loss of any one purchaser
would not have an adverse effect on the ability of the Partnership to sell its
oil and gas production.
NOTE 9. ORGANIZATION AND OPERATIONS
The Partnership was organized November 18, 1988 as a limited partnership
under the Delaware Act for the purpose of acquiring and developing oil and gas
properties. The following is a brief summary of the more significant provisions
of the limited partnership agreement:
Managing general partner -- The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Program and Partnership affairs. As
managing general partner and operator of the Partnership's properties, all
production expenses are incurred by Pioneer USA and billed to the
Partnership and a portion of revenue is initially received by Pioneer USA
prior to being paid to the Partnership. Under the limited partnership
agreement, the managing general partner pays 1% of the Partnership's
acquisition, drilling and completion costs and 1% of its operating and
general and administrative expenses. In return, it is allocated 1% of the
Partnership's revenues.
Limited partner liability -- The maximum amount of liability of any
limited partner is the total contributions of such partner plus his share
of any undistributed profits.
Initial capital contributions -- The limited partners entered into
subscription agreements for aggregate capital contributions of $8,954,000.
Pioneer USA is required to contribute amounts equal to 1% of initial
Partnership capital less commission and offering expenses allocated to the
limited partners and to contribute amounts necessary to pay costs and
expenses allocated to it under the Partnership agreement to the extent its
share of revenues does not cover such costs.
19
<PAGE> 825
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and
executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve
until the next annual meeting of stockholders or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31,
NAME 1998 POSITION
- ---- ------------ --------
<S> <C> <C>
Scott D. Sheffield................. 46 President and Director
Timothy L. Dove.................... 42 Executive Vice President and
Director
Dennis E. Fagerstone............... 49 Executive Vice President and
Director
Mark L. Withrow.................... 51 Executive Vice President, General
Counsel and Director
M. Garrett Smith................... 37 Executive Vice President, Chief
Financial Officer and Director
Mel Fischer(a)..................... 64 Executive Vice President
Lon C. Kile........................ 43 Executive Vice President
Rich Dealy......................... 32 Vice President and Chief Accounting
Officer
</TABLE>
- ---------------
(a) Mr. Fischer was a director and officer until his retirement from Pioneer
and Pioneer USA on February 19, 1999.
Scott D. Sheffield. Mr. Sheffield is a distinguished graduate of The
University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he
has served as President, Chief Executive Officer and a director of Pioneer and
President and a director of Pioneer USA. Mr. Sheffield was the President and a
director of Parker & Parsley from May 1990 until August 1997 and was the
Chairman of the Board and Chief Executive Officer of Parker & Parsley from
October 1990 until August 1997. He was the sole director of Parker & Parsley
from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley
Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum
engineer in 1979. He served as Vice President -- Engineering of PPDC from
September 1981 until April 1985 when he was elected President and a director. In
March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive
Officer of PPDC. Before joining PPDC, Mr. Sheffield was employed as a production
and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President -- Business
Development of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. Mr. Dove joined Parker & Parsley in May
1994 as Vice President -- International and was promoted to Senior Vice
President -- Business Development in October 1996, in which position he served
until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with
Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various
capacities in international exploration and production, marketing, refining and
marketing and planning and development. Mr. Dove earned a B.S. in Mechanical
Engineering from Massachusetts Institute of Technology in 1979 and received his
M.B.A. in 1981 from the University of Chicago.
20
<PAGE> 826
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of Mesa from March 1, 1997 until August 1997. From October
1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief
Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice
President -- Exploration and Production of Mesa. From June 1988 to May 1991, Mr.
Fagerstone served as Vice President -- Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B.S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President -- General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President -- General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
M. Garrett Smith. Mr. Smith, a graduate of The University of Texas with a
B.S. in Electrical Engineering and Southern Methodist University with an M.B.A.,
was appointed Executive Vice President and Chief Financial Officer of Pioneer in
December 1997. He served as Senior Vice President -- Finance of Pioneer from
August 1997 until December 1997. Mr. Smith was elected Senior Vice President --
Finance and a director of Pioneer USA in August 1997. He served as Vice
President -- Corporate Acquisitions of Mesa from January 1997 until August 1997.
From October 1996 to December 1996, Mr. Smith served as Vice
President -- Finance of Mesa and from 1994 to 1996 he served as Director of
Financial Planning of Mesa. Mr. Smith was employed by BTC Partners, Inc. (a
former financial advisor to Mesa) from 1989 to 1994.
Mel Fischer. Mr. Fischer, a graduate of the University of California at
Berkeley with a Masters degree in Geology, became Executive Vice
President -- Worldwide Exploration of Pioneer and Pioneer USA in August 1997. He
served as a director of Parker & Parsley from November 1995 until August 1997
and was Executive Vice President -- Worldwide Exploration for Parker & Parsley
from February 1997 to August 1997. Mr. Fischer retired from Pioneer and Pioneer
USA effective February 15, 1999. He worked in the petroleum industry for 32
years, starting as a Petroleum Geologist with Texaco in 1962, and retiring as
President, Occidental International Exploration and Production Company in March
1994. For the 10 years prior to becoming President of Occidental International,
he served as Executive Vice President, World Wide Exploration with Occidental
Oil and Gas Corporation. He is a registered geologist in the State of
California, a member of the American Association of Petroleum Geologists and an
emeritus member of the Board of Advisors for the Earth Sciences Research
Institute at the University of Utah.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a
B.B.A. in Accounting, became Executive Vice President of Pioneer and Pioneer USA
in August 1997. Mr. Kile was Senior Vice President -- Investor Relations from
October 1996 to August 1997. Previously, he served as Vice President and Manager
of the Mid-Continent Division, Vice President -- Equity Finance & Analysis and
Vice President -- Marketing & Program Administration. Prior to joining Parker &
Parsley in 1985, he was employed as Supervisor -- Senior, Audit, in charge of
Parker & Parsley's audit, with Arthur Young.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a
B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became
Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
21
<PAGE> 827
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is vested in Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA pays approximately 10% of the Partnership's acquisition,
drilling and completion costs and approximately 25% of its operating and general
and administrative expenses. In return, Pioneer USA is allocated approximately
25% of the Partnership's revenues. See Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data" for
information regarding fees and reimbursements paid to the managing general
partner or its affiliates by the Partnership.
The Partnership does not directly pay any salaries of the executive
officers of Pioneer USA, but does pay a portion of Pioneer USA's general and
administrative expenses of which these salaries are a part. See Note 6 of Notes
to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more
of the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 94 limited partner interests at January 1, 1999.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing
general partner of the Partnership, Pioneer USA, has the exclusive right and
full authority to manage, control and administer the Partnership's business.
Under the limited partnership agreement, limited partners holding a majority of
the outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner or its affiliates
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreement.......................................... $150,985 $169,328 $166,963
Reimbursement of general and administrative
expenses........................................... $ 13,810 $ 20,876 $ 26,489
</TABLE>
Under the limited partnership agreement, the managing general partner pays
1% of the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data"
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
22
<PAGE> 828
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial statements
The following are filed as part of this annual report:
Independent Auditors' Report -- Ernst & Young LLP
Independent Auditors' Report -- KPMG LLP
Balance sheets as of December 31, 1998 and 1997
Statements of operations for the years ended December 31, 1998, 1997
and 1996
Statements of partners' capital for the years ended December 31, 1998,
1997 and 1996
Statements of cash flows for the years ended December 31, 1998, 1997
and 1996
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this annual report.
23
<PAGE> 829
SIGNATURES
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 88-B, L.P.
By: Pioneer Natural Resources USA,
Inc.
Managing General Partner
By: /s/ SCOTT D. SHEFFIELD
----------------------------------
Scott D. Sheffield,
President
Dated: March 25, 1999
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 date indicated.
<TABLE>
<C> <S> <C>
/s/ SCOTT D. SHEFFIELD President and Director of March 25, 1999
- ----------------------------------------------------- Pioneer USA
Scott D. Sheffield
/s/ TIMOTHY L. DOVE Executive Vice President and March 25, 1999
- ----------------------------------------------------- Director of Pioneer USA
Timothy L. Dove
/s/ DENNIS E. FAGERSTONE Executive Vice President and March 25, 1999
- ----------------------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ MARK L. WITHROW Executive Vice President, March 25, 1999
- ----------------------------------------------------- General Counsel and Director
Mark L. Withrow of Pioneer USA
/s/ M. GARRETT SMITH Executive Vice President, March 25, 1999
- ----------------------------------------------------- Chief Financial Officer and
M. Garrett Smith Director of Pioneer USA
/s/ LON C. KILE Executive Vice President of March 25, 1999
- ----------------------------------------------------- Pioneer USA
Lon C. Kile
/s/ RICH DEALY Vice President and Chief March 25, 1999
- ----------------------------------------------------- Accounting Officer of
Rich Dealy Pioneer USA
</TABLE>
24
<PAGE> 830
PARKER & PARSLEY 88-B, L.P.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3(a) -- Amended and Restated Certificate and Agreement of Limited
Partnership of Parker & Parsley 88-B, L.P. incorporated
by reference to Exhibit A of Amendment No. 1 of the
Partnership's Registration Statement on Form S-1
(Registration No. 33-19659)
4(b) -- Form of Subscription Agreement and Power of Attorney
incorporated by reference to Exhibit D of the
Partnership's Registration Statement on Form S-1
(Registration No. 33-19659) (hereinafter called the
Partnership's Registration Statement)
4(c) -- Specimen Certificate of Limited Partnership Interest
incorporated by reference to Exhibit D of the
Partnership's Registration Statement
10(b) -- Exploration and Development Program Agreement
incorporated by reference to Exhibit C of the
Partnership's Registration Statement
27.1* -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith
<PAGE> 831
PARKER & PARSLEY 88-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
DECEMBER 31, 1998, 1997 AND 1996
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. Future income taxes are calculated by comparing
discounted future cash flows to the tax basis of oil and gas properties plus
available carryforwards and credits and applying the current tax rates to the
difference.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and gas producing activities:
Future cash inflows....................................... $ 2,957 $ 9,689 $ 20,920
Future production costs................................... (2,289) (6,035) (10,677)
Future development costs.................................. -- -- 141
------- ------- --------
668 3,654 10,384
10% annual discount factor................................ (210) (1,582) (5,391)
------- ------- --------
Standardized measure of discounted future net cash
flows.................................................. $ 458 $ 2,072 $ 4,993
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1998 1997 1996
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs................ $ (188) $ (407) $ (624)
Net changes in prices and production costs................ (1,276) (2,447) 1,859
Extensions and discoveries................................ -- -- --
Sales of minerals-in-place................................ -- -- --
Purchases of minerals-in-place............................ -- -- --
Revisions of estimated future development costs........... -- (80) (69)
Revisions of previous quantity estimates and reserves
added by development drilling.......................... (280) (508) 980
Accretion of discount..................................... 207 499 286
Changes in production rates, timing and other............. (77) 22 (302)
------- ------- --------
Change in present value of future net revenues............ (1,614) (2,921) 2,130
------- ------- --------
Balance, beginning of year................................ 2,072 4,993 2,863
------- ------- --------
Balance, end of year...................................... $ 458 $ 2,072 $ 4,993
======= ======= ========
</TABLE>
<PAGE> 832
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 89-A, L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT DATED , 1999
----------------------
THE DATE OF THIS SUPPLEMENT IS , 1999
----------------------
This document contains important information specific to Parker & Parsley
89-A, L.P. and supplements the proxy statement dated , 1999, of Pioneer
Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be
voted at a special meeting of limited partners of the partnerships described in
the proxy statement. The purpose of the special meeting is for you to vote upon
the merger of Parker & Parsley 89-A, L.P. with and into Pioneer USA that, if
completed, will result in your receiving cash for your partnership interests.
This supplement contains the following information concerning Parker &
Parsley 89-A, L.P.:
- A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through June
30, 1999
-- the merger value per $1,000 limited partner investment as of June 30,
1999
-- the merger value per $1,000 limited partner investment as a multiple
of distributions for the 12 months ended June 30, 1999
-- the book value per $1,000 limited partner investment as of June 30,
1999 and as of December 31, 1998 and
-- the ordinary tax loss per $1,000 limited partner investment in year
of initial investment
- Quarterly Report on Form 10-Q for the six months ended June 30, 1999
- Annual Report on Form 10-K for the year ended December 31, 1998
- Disclosures about the partnership's oil and gas producing activities
<PAGE> 833
PARKER & PARSLEY 89-A, L.P.
SUPPLEMENTAL INFORMATION TABLE
<TABLE>
<S> <C>
Aggregate Initial Investment by the Limited Partners(a)..... $ 8,317
Aggregate Historical Limited Partner Distributions through
June 30, 1999(a).......................................... $ 7,624
Merger Value per $1,000 Limited Partner Investment as of
June 30, 1999(b).......................................... $176.51
Merger Value per $1,000 Limited Partner Investment as a
Multiple of Distributions for the 12 Months ended June 30,
1999(b)................................................... 12.96times
Book Value per $1,000 Limited Partner Investment:
-- as of June 30, 1999(b)................................. $159.78
-- as of December 31, 1998(b)............................. $165.22
Ordinary Tax Loss per $1,000 Limited Partner Investment in
Year of Initial Investment(b), (c)........................ $ 461
</TABLE>
- ---------------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as any
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
<PAGE> 834
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JUNE 30, 1999
COMMISSION FILE NO. 33-26097-01
PARKER & PARSLEY 89-A, L.P.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2297058
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
303 WEST WALL, SUITE 101, MIDLAND, TEXAS (ZIP CODE)
(Address of principal executive offices) 79701
</TABLE>
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> 835
PARKER & PARSLEY 89-A, L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1999 and December 31,
1998.................................................. 3
Statements of Operations for the three and six months
ended June 30, 1999 and 1998.......................... 4
Statement of Partners' Capital for the six months ended
June 30, 1999......................................... 5
Statements of Cash Flows for the six months ended June
30, 1999 and 1998..................................... 6
Notes to Financial Statements.......................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................. 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 11
27.1 Financial Data Schedule
Signatures............................................. 12
</TABLE>
2
<PAGE> 836
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER & PARSLEY 89-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 133,578 $ 117,381
Accounts receivable -- oil and gas sales.................. 96,213 65,380
----------- -----------
Total current assets.............................. 229,791 182,761
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method.............................. 6,546,663 6,540,053
Accumulated depletion..................................... (5,406,303) (5,330,375)
----------- -----------
Net oil and gas properties........................ 1,140,360 1,209,678
----------- -----------
$ 1,370,151 $ 1,392,439
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable -- affiliate............................. $ 27,656 $ 4,246
Partners' capital:
Managing general partner.................................. 13,618 14,075
Limited partners (8,317 interests)........................ 1,328,877 1,374,118
----------- -----------
1,342,495 1,388,193
----------- -----------
$ 1,370,151 $ 1,392,439
=========== ===========
</TABLE>
The financial information included as of June 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
<PAGE> 837
PARKER & PARSLEY 89-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas...................................... $144,764 $156,809 $265,684 $321,759
Interest......................................... 1,463 1,909 2,688 4,175
Gain on disposition of assets.................... 1,166 -- 4,410 1,926
-------- -------- -------- --------
147,393 158,718 272,782 327,860
-------- -------- -------- --------
Costs and expenses:
Oil and gas production........................... 88,188 84,248 187,238 180,873
General and administrative....................... 4,882 5,191 9,680 10,825
Depletion........................................ 20,943 45,311 75,928 87,380
-------- -------- -------- --------
114,013 134,750 272,846 279,078
-------- -------- -------- --------
Net income (loss).................................. $ 33,380 $ 23,968 $ (64) $ 48,782
======== ======== ======== ========
Allocation of net income (loss):
Managing general partner......................... $ 333 $ 240 $ (1) $ 488
======== ======== ======== ========
Limited partners................................. $ 33,047 $ 23,728 $ (63) $ 48,294
======== ======== ======== ========
Net income (loss) per limited partnership
interest......................................... $ 3.97 $ 2.86 $ (.01) $ 5.81
======== ======== ======== ========
Distributions per limited partnership interest..... $ 2.77 $ 6.62 $ 5.43 $ 20.56
======== ======== ======== ========
</TABLE>
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> 838
PARKER & PARSLEY 89-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1, 1999................................. $14,075 $1,374,118 $1,388,193
Distributions............................................ (456) (45,178) (45,634)
Net loss................................................. (1) (63) (64)
------- ---------- ----------
Balance at June 30, 1999................................... $13,618 $1,328,877 $1,342,495
======= ========== ==========
</TABLE>
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> 839
PARKER & PARSLEY 89-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (64) $ 48,782
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depletion.............................................. 75,928 87,380
Gain on disposition of assets.......................... (4,410) (1,926)
Changes in assets and liabilities:
Accounts receivable.................................... (30,833) 22,545
Accounts payable....................................... 10,613 4,282
-------- ---------
Net cash provided by operating activities......... 51,234 161,063
-------- ---------
Cash flows from investing activities:
(Additions) deletions to oil and gas properties........... 6,187 (16,059)
Proceeds from disposition of assets....................... 4,410 1,926
-------- ---------
Net cash provided by (used in) investing
activities...................................... 10,597 (14,133)
-------- ---------
Cash flows from financing activities:
Cash distributions to partners............................ (45,634) (172,718)
-------- ---------
Net increase (decrease) in cash............................. 16,197 (25,788)
Cash at beginning of period................................. 117,381 167,674
-------- ---------
Cash at end of period....................................... $133,578 $ 141,886
======== =========
</TABLE>
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> 840
PARKER & PARSLEY 89-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 89-A, L.P. (the "Partnership") is a limited partnership
organized in 1989 under the laws of the State of Delaware.
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 June 30, 1999 and for the three and six months ended June 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.
7
<PAGE> 841
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
RESULTS OF OPERATIONS
Six months ended June 30, 1999 compared with six months ended June 30, 1998
Revenues:
The Partnership's oil and gas revenues decreased 17% to $265,684 from
$321,759 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from lower average prices received and a decrease
in production. For the six months ended June 30, 1999, 13,544 barrels of oil,
6,707 barrels of natural gas liquids ("NGLs") and 26,888 mcf of gas were sold,
or 24,732 barrel of oil equivalents ("BOEs"). For the six months ended June 30,
1998, 14,852 barrels of oil, 6,001 barrels of NGLs and 35,642 mcf of gas were
sold, or 26,793 BOEs.
The average price received per barrel of oil decreased $1.03, or 7%, from
$14.26 for the six months ended June 30, 1998 to $13.23 for the same period in
1999. The average price received per barrel of NGLs decreased $1.21, or 15%,
from $7.96 during the six months ended June 30, 1998 to $6.75 for the same
period in 1999. The average price received per mcf of gas decreased 12% from
$1.74 during the six months ended June 30, 1998 to $1.53 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 six months ended
June 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 $4,410 was attributable to credits
received from the disposal of oil and gas equipment on one fully depleted well
for the six months ended June 30, 1999. During the six months ended June 30,
1998, a gain on disposition of assets of $1,926 was recognized from equipment
credits on one well plugged and abandoned in a prior year.
Costs and Expenses:
Total costs and expenses decreased to $272,846 for the six months ended
June 30, 1999 as compared to $279,078 for the same period in 1998, resulting in
a decrease of $6,232. This decrease was due to declines in depletion and general
and administrative expenses ("G&A"), offset by an increase in production costs.
Production costs were $187,238 for the six months ended June 30, 1999 and
$180,873 for the same period in 1998 resulting in a $6,365 increase, or 4%. The
increase was the result of higher well maintenance costs incurred in an effort
to stimulate well production, offset by a decrease in 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, 11% from $10,825 for the six months ended June 30, 1998
to $9,680 for the same period in 1999.
Depletion was $75,928 for the six months ended June 30, 1999 compared to
$87,380 for the same period in 1998, a decrease in depletion of $11,452, or 13%.
This decrease was primarily the result of a reduction in oil production of 1,308
barrels for the six months ended June 30, 1999 compared to the same period in
1998, an increase in proved reserves during the period ended June 30, 1999 due
to the higher commodity prices 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> 842
Three months ended June 30, 1999 compared with three months ended June 30,
1998
Revenues:
The Partnership's oil and gas revenues decreased 8% to $144,764 from
$156,809 for the three months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from a decrease in production, offset by higher
average prices received. For the three months ended June 30, 1999, 6,136 barrels
of oil, 3,776 barrels of NGLs and 14,034 mcf of gas were sold, or 12,251 BOEs.
For the three months ended June 30, 1998, 7,262 barrels of oil, 3,445 barrels of
NGLs and 15,503 mcf of gas were sold, or 13,291 BOEs.
The average price received per barrel of oil increased $1.07, or 8%, from
$13.59 for the three months ended June 30, 1998 to $14.66 for the same period in
1999. The average price received per barrel of NGLs decreased 5% from $8.67
during the three months ended June 30, 1998 to $8.21 for the same period in
1999. The average price received per mcf of gas decreased 7% from $1.82 during
the three months ended June 30, 1998 to $1.70 in 1999.
Costs and Expenses:
Total costs and expenses decreased to $114,013 for the three months ended
June 30, 1999 as compared to $134,750 for the same period in 1998, a decrease of
$20,737, or 15%. This decrease was due to declines in depletion and G&A, offset
by an increase in production costs.
Production costs were $88,188 for the three months ended June 30, 1999 and
$84,248 for the same period in 1998 resulting in a $3,940 increase, or 5%. This
increase was the result of higher well maintenance costs incurred in an effort
to stimulate well production and an increase in production taxes.
During this period, G&A decreased, in aggregate, 6% from $5,191 for the
three months ended June 30, 1998 to $4,882 for the same period in 1999.
Depletion was $20,943 for the three months ended June 30, 1999 compared to
$45,311 for the same period in 1998, a decrease of $24,368, or 54%. This
decrease was primarily the result of an increase in proved reserves during the
period ended June 30, 1999 due to the higher commodity prices, a reduction in
oil production of 1,126 barrels for the three months ended June 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.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $109,829 during the six
months ended June 30, 1999 from the same period ended June 30, 1998. This
decrease was primarily due to a decline in oil and gas sales receipts and an
increase in G&A expenses paid, offset by a decline in production costs paid.
Net Cash Provided by (Used in) Investing Activities
The Partnership's investing activities during the six months ended June 30,
1999 were related to refunds received on oil and gas equipment on active
properties which were incurred during the six months ended June 30, 1998.
Proceeds from salvage income of $4,410 were recognized during the six
months ended June 30, 1999 on one fully depleted well. During the six months
ended June 30, 1998, proceeds of $1,926 were derived from salvage income on one
well plugged and abandoned in a prior year.
Net Cash Used in Financing Activities
Cash was sufficient for the six months ended June 30, 1999 to cover
distributions to the partners of $45,634 of which $456 was distributed to the
managing general partner and $45,178 to the limited
9
<PAGE> 843
partners. For the same period ended June 30, 1998, cash was sufficient for
distributions to the partners of $172,718 of which $1,727 was distributed to the
managing general partner and $170,991 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 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 early indications that the nations have initiated
their planned reductions, have had some stabilizing effect on commodity prices
during the latter part of the first quarter of 1999 and into August 1999.
However, no assurances can be given that the stabilizing effect of these
actions, or the planned reductions in export volumes, will 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.
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 June 30, 1999, the managing general partner estimates that the
assessment phase is approximately 99% complete and has included, but is not
limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- the formulation of contingency plans for mission-critical information
technology systems.
Through June 30, 1999, the managing general partner had 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 varying 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 June 30, 1999, the managing general partner
estimates that the remedial phase is approximately 83% complete, on a worldwide
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
10
<PAGE> 844
remedial coding and has completed the testing of the system for Year 2000
compliance. The remediation of non-information technology is expected to be
completed by 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 expects to complete the testing of
information technology systems by October 1999. The testing of the
non-information technology remediation is scheduled to be completed by the end
of November 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. As of June 30, 1999, the managing general partner's total costs
incurred on the Year 2000 problem were $2.3 million, of which approximately $200
thousand were incurred to replace non-compliant systems.
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
11
<PAGE> 845
PARKER & PARSLEY 89-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
SIGNATURES
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 89-A, L.P.
By: Pioneer Natural Resources USA,
Inc., Managing General Partner
By: /s/ RICH DEALY
----------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
Dated: August 9, 1999
12
<PAGE> 846
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 33-26097-01
PARKER & PARSLEY 89-A, L.P.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2297058
(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)
</TABLE>
Registrant's Telephone Number, including area code: (915) 683-4768
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
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]
No market currently exists for the limited partnership interests of the
Registrant. Based on original purchase price the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$8,212,000.
As of March 8, 1999, the number of outstanding limited partnership
interests was 8,317.
The following documents are incorporated by reference into the indicated
parts of this Annual Report on Form 10-K: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 847
Parts I and II of this Report contain 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. See "Item 1.
Business" for a description of various factors that could materially affect the
ability of the Partnership to achieve the anticipated results described in the
forward looking statements.
PART I
ITEM 1. BUSINESS
Parker & Parsley 89-A, L.P. (the "Partnership") is a limited partnership
organized in 1989 under the laws of the State of Delaware. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. ("Mesa") received shareholder approval
to merge and create Pioneer Natural Resources Company ("Pioneer"). On August 8,
1997, PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership as PPDLP's successor by merger. For a more complete description of
the Parker & Parsley and Mesa merger, see Pioneer's Registration Statement on
Form S-4 as filed with the Securities & Exchange Commission.
A Registration Statement, as amended, filed pursuant to the Securities Act
of 1933, registering limited partnership interests aggregating $70,000,000 in a
series of Delaware limited partnerships formed under the Parker & Parsley 89
Development Drilling Program, was declared effective by the Securities and
Exchange Commission on August 1, 1989. On October 30, 1989, the offering of
limited partnership interests in the Partnership, the first partnership formed
under such registration statement, was closed, with interests aggregating
$8,317,000 being sold to 616 subscribers.
The Partnership engages primarily in oil and gas development and production
and is not involved in any industry segment other than oil and gas. See "Item 6.
Selected Financial Data" and "Item 8. Financial Statements and Supplementary
Data" of this report for a summary of the Partnership's revenue, income and
identifiable assets.
The principal markets during 1998 for the oil produced by the Partnership
were refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. The principal markets for the
Partnership's gas were companies that have pipelines located near the
Partnership's gas producing properties. Of the Partnership's total oil and gas
revenues for 1998, approximately 59% and 12% were attributable to sales made to
Genesis Crude Oil, L.P. and Western Gas Resources, Inc., respectively.
The Partnership's revenues, profitability, cash flow and future rate of
growth are highly dependent on the prevailing prices of oil and gas, which are
affected by numerous factors beyond the Partnership's control. Oil and gas
prices historically have been very volatile. A substantial or extended decline
in the prices of oil or gas could have a material adverse effect on the
Partnership's revenues, profitability and cash flow and could, under certain
circumstances, result in a reduction in the carrying value of the Partnership's
oil and gas properties.
Because of the demand for oil and gas, the Partnership does not believe
that the termination of the sales of its products to any one customer would have
a material adverse impact on its operations. The loss of a particular customer
for gas may have an effect if that particular customer has the only gas pipeline
located in the areas of the Partnership's gas producing properties. The
Partnership believes, however, that the effect would be temporary, until
alternative arrangements could be made.
Federal and state regulation of oil and gas operations generally includes
the fixing of maximum prices for regulated categories of natural gas, the
imposition of maximum allowable production rates, the taxation
1
<PAGE> 848
of income and other items and the protection of the environment. Although the
Partnership believes that its business operations do not impair environmental
quality and that its costs of complying with any applicable environmental
regulations are not currently significant, the Partnership cannot predict what,
if any, effect these environmental regulations may have on its current or future
operations.
The Partnership does not have any employees of its own. Pioneer USA employs
818 persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this report is filed. Pioneer
USA supplies all management functions.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the
Partnership conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist primarily of leasehold interests in
properties on which oil and gas wells are located. Such property interests are
often subject to landowner royalties, overriding royalties and other oil and gas
leasehold interests.
Fractional working interests in developmental oil and gas prospects located
in the Spraberry Trend area of West Texas were acquired by the Partnership,
resulting in the Partnership's participation in the drilling of 33 oil and gas
wells. One well has been plugged and abandoned. At December 31, 1998, 32 wells
were producing.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 1998, 1997 and 1996 and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been estimated by the engineering staff of Pioneer USA with a review by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
2
<PAGE> 849
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 8, 1999, the Partnership had 8,317 outstanding limited partnership
interests held of record by 607 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are
not required to meet the Partnership's obligations are distributed to the
partners at least quarterly in accordance with the limited partnership
agreement. During the years ended December 31, 1998 and 1997, $237,642 and
$520,560, respectively, of such revenue-related distributions were made to the
limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Oil and gas sales.............. $ 583,396 $ 856,926 $1,132,944 $ 932,815 $ 982,923
========== ========== ========== ========== ==========
Impairment of oil and gas
properties.................. $ 306,826 $ 531,929 $ -- $ 692,515 $ --
========== ========== ========== ========== ==========
Net income (loss).............. $ (444,718) $ (269,363) $ 488,019 $ (589,248) $ 119,039
========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general partner.... $ (4,447) $ (2,693) $ 4,880 $ (5,893) $ 1,304
========== ========== ========== ========== ==========
Limited partners............ $ (440,271) $ (266,670) $ 483,139 $ (583,355) $ 117,735
========== ========== ========== ========== ==========
Limited partners' net income
(loss) per limited
partnership interest........ $ (52.94) $ (32.06) $ 58.09 $ (70.14) $ 14.16
========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest........ $ 28.57 $ 62.59 $ 68.92 $ 56.70 $ 63.80
========== ========== ========== ========== ==========
AT YEAR END:
Total assets................... $1,392,439 $2,099,131 $2,890,740 $3,021,200 $4,042,199
========== ========== ========== ========== ==========
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1998 compared to 1997
The Partnership's 1998 oil and gas revenues decreased 32% to $583,396 from
$856,926 in 1997. The decrease in revenues resulted from lower average prices
received. In 1998, 29,084 barrels of oil, 12,847 barrels of natural gas liquids
("NGLs") and 62,751 mcf of gas were sold, or 52,390 barrel of oil equivalents
("BOEs"). In 1997, 30,029 barrels of oil, 6,032 barrels of NGLs and 92,294 mcf
of gas were sold, or 51,443 BOEs. Due to the decline characteristics of the
Partnership's oil and gas properties, management expects a certain amount of
decline in production in the future until the Partnership's economically
recoverable reserves are fully depleted.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. Effective September 30, 1997, as a result of the
merger with Mesa, the managing general partner accounts for processed natural
gas production in two components: natural gas liquids and dry residue gas. As a
result of the change in the managing general
3
<PAGE> 850
partner's policy, the Partnership now accounts for processed natural gas
production as processed natural gas liquids and dry residue gas. Consequently,
separate product volumes will not be comparable for 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 year ended December 31, 1998 is the price received
for dry residue gas and the price per mcf for natural gas produced prior to
October 1997 was presented as a price for wet gas (i.e., natural gas liquids
combined with dry residue gas).
The average price received per barrel of oil decreased $6.25, or 32%, from
$19.48 in 1997 to $13.23 in 1998. The average price received per barrel of NGLs
decreased $4.13, or 37%, from $11.08 in 1997 to $6.95 in 1998. The average price
received per mcf of gas decreased 22% from $2.22 in 1997 to $1.74 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 in 1998.
Gain on disposition of assets of $1,926 was attributable to credits
received in 1998 from the disposal of oil and gas equipment on a well that was
plugged and abandoned in a prior year. A gain on disposition of assets of
$22,957 was comprised of equipment credits on a well plugged and abandoned in
1997 less the write-off of remaining capitalized costs.
Total costs and expenses decreased in 1998 to $1,038,152 as compared to
$1,159,545 in 1997, a decrease of $121,393, or 10%. The decrease was primarily
due to declines in the impairment of oil and gas properties, production costs,
abandonments and general and administrative expenses ("G&A"), offset by an
increase in depletion.
Production costs were $362,377 in 1998 and $405,273 in 1997, resulting in a
$42,896 decrease, or 11%. The decrease was due to declines in well maintenance
costs, production taxes and workover costs.
G&A components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A
decreased, in aggregate, 30% from $29,451 in 1997 to $20,635 in 1998. The
Partnership paid the managing general partner $17,270 in 1998 and $25,384 in
1997 for G&A incurred on behalf of the Partnership. G&A is allocated, in part,
to the Partnership by the managing general partner. Such allocated expenses are
determined by the managing general partner based upon its judgement of the level
of activity of the Partnership relative to the managing general partners'
activities and other entities it manages. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
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"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. Declining commodity prices prompted
impairment reviews in 1998 and 1997. As a result of the review and evaluation of
its long-lived assets for impairment, the Partnership recognized non-cash
charges of $306,826 and $531,929 related to its oil and gas properties during
1998 and 1997, respectively.
Depletion was $348,314 in 1998 compared to $182,263 in 1997. This
represented an increase of $166,051. This increase was the result of a
combination of factors that included a decline in proved reserves during 1998
due to the lower commodity prices, 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 and a reduction in oil production of 945 barrels for the
period ended December 31, 1998 compared to the same period in 1997.
1997 compared to 1996
The Partnership's 1997 oil and gas revenues decreased 24% to $856,926 from
$1,132,944 in 1996. The decrease in revenues resulted from declines in
production and lower average prices received. In 1997,
4
<PAGE> 851
30,029 barrels of oil, 6,032 barrels of NGLs and 92,294 mcf of gas were sold, or
51,443 BOEs. In 1996, 36,531 barrels of oil and 131,428 mcf of gas were sold, or
58,436 BOEs.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. As is described above in "Results of
Operations -- 1998 compared to 1997", the Partnership changed its method of
accounting for processed natural gas to a dry gas basis in the fourth quarter of
1997. As a result of this change, the Partnership now accounts for processed
natural gas production as processed natural gas liquids and dry residue gas.
Consequently, 1997 and 1996 separate product volumes are not comparable.
The declines in production volumes were primarily attributable to the
decline characteristics of the Partnership's oil and gas properties.
The average price received per barrel of oil decreased $2.24, or 10%, from
$21.72 in 1996 to $19.48 in 1997. The average price received per barrel of NGLs
during 1997 was $11.08. The average price received per mcf of gas decreased 14%
from $2.58 in 1996 to $2.22 in 1997.
A gain on disposition of assets of $22,957 was comprised of equipment
credits received on one well plugged and abandoned in 1997 less the write-off of
remaining capitalized costs.
Total costs and expenses increased in 1997 to $1,159,545 as compared to
$654,712 in 1996, an increase of $504,833, or 77%. The increase was primarily
due to the impairment of oil and gas properties in 1997 and abandonments, offset
by decreases in production costs, depletion and G&A.
Production costs were $405,273 in 1997 and $423,914 in 1996, resulting in a
$18,641 decrease. The decrease was due to a decline in workover costs and
production taxes, offset by an increase in well maintenance costs.
During this period, G&A decreased, in aggregate, 18% from $36,092 in 1996
to $29,451 in 1997. The Partnership paid the managing general partner $25,384 in
1997 and $32,317 in 1996 for G&A incurred on behalf of the Partnership.
The Partnership recognized a non-cash SFAS 121 impairment provision of
$531,929 related to its oil and gas properties during the fourth quarter of
1997.
Depletion was $182,263 in 1997 compared to $194,706 in 1996. This
represented a decrease of $12,443, or 6%. This decrease was primarily
attributable to a reduction in oil production of 6,502 barrels in 1997 from
1996, offset by a decrease in oil and gas reserves during 1997 as a result of
lower commodity prices.
IMPACT OF INFLATION AND CHANGING PRICES ON SALES AND NET INCOME
Inflation impacts the fixed overhead rate charges of the lease operating
expenses for the Partnership. During 1998, the annual change in the index of
average weekly earnings of crude petroleum and gas production workers issued by
the U.S. Department of Labor, Bureau of Labor Statistics increased (effective
April 1, 1998) 10.3%. The 1997 annual change in average weekly earnings
increased by 2%. The 1996 index increased 4.1%. The impact of inflation for
other lease operating expenses is small due to the current economic condition of
the oil industry.
The oil and gas industry experienced volatility during the past decade
because of the fluctuation of the supply of most fossil fuels relative to the
demand for such products and other uncertainties in the world energy markets
causing significant fluctuations in oil and gas prices. During 1998, the price
per barrel for oil production similar to the Partnership's ranged from
approximately $9.50 to $15.50. During most of 1997 and 1996, 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 March 1999. On March 8, 1999, the market price for West Texas intermediate
crude was $11.00 per barrel. A continuation of the current commodity price
environment will continue to have an adverse effect on the
5
<PAGE> 852
Partnership's revenues, operating cash flow and distributions and could result
in additional decreases in the carrying value of the Partnership's oil and gas
properties.
Prices for natural gas are subject to ordinary seasonal fluctuations, and
this volatility of natural gas prices may result in production being curtailed
and, in some cases, wells being completely shut-in.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $294,651 during the
year ended December 31, 1998 from the year ended December 31, 1997. This
decrease was primarily attributable to declines in oil and gas sales receipts,
offset by decreases in production costs and G&A expenses paid.
Net Cash Provided by (Used in) Investing Activities
The Partnership's investing activities during 1998 and 1997 were related to
the addition of oil and gas equipment on active properties.
Proceeds from disposition of assets of $1,926 from the salvage of equipment
on one well plugged and abandoned in a prior year were received during 1998.
Proceeds from disposition of assets of $32,539 were the result of equipment
credits received from the abandonment of one oil and gas well during 1997.
Net Cash Used in Financing Activities
Cash was sufficient in 1998 for distributions to the partners of $240,042
of which $2,400 was distributed to the managing general partner and $237,642 to
the limited partners. Cash was sufficient in 1997 for distributions to the
partners of $525,818 of which $5,258 was distributed to the managing general
partner and $520,560 to the limited partners.
The current commodity price environment will continue to impact the
distributions and could result in limited or no distributions to the partners.
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.
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
at varying stages of completion as it pertains to information technology and
non-information technology applications and systems in the United States, Canada
and Argentina. As of December 31, 1998, the managing general
6
<PAGE> 853
partner estimates that the assessment phase is approximately 86% complete, on a
worldwide basis, and has included, but is not limited to, the following
procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- 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 to
approximately 37% of those inquiries.
The remedial phase of the managing general partner's Year 2000 project is
also at varying 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 December 31, 1998, the
managing general partner estimates that the remedial phase is approximately 54%
complete, on a worldwide basis, subject to the continuing 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 through remedial coding and is currently testing this system for Year
2000 compliance. The remediation of non-information technology is expected to be
completed during July 1999. The managing general partner's Year 2000 remedial
actions have not significantly 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 and non-information technology remediation by the end of the third
quarter of 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. The managing general partner intends to use its working capital to pay
for the costs of the Year 2000 projects. As of December 31, 1998, the managing
general partner's total costs incurred on the Year 2000 problem were $1.8
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 in accordance with the general and
administration allocation. (See Note 2 of Notes to Financial Statements included
in "Item 8. Financial Statements and Supplementary Data".)
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.
7
<PAGE> 854
In the assessment phase of the managing general partner's Year 2000
project, contingency plans are being 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.
8
<PAGE> 855
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Parker & Parsley 89-A, L.P.:
Independent Auditors' Report -- Ernst & Young LLP......... 10
Independent Auditors' Report -- KPMG LLP.................. 11
Balance Sheets as of December 31, 1998 and 1997........... 12
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996.................................... 13
Statements of Partners' Capital for the Years Ended
December 31, 1998, 1997 and 1996....................... 14
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996.................................... 15
Notes to Financial Statements............................. 16
</TABLE>
9
<PAGE> 856
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 89-A, L.P.
(A Delaware Limited Partnership):
We have audited the balance sheet of Parker & Parsley 89-A, L.P. as of
December 31, 1998, and the related statements of operations, partners' capital
and cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 89-A, L.P.
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Dallas, Texas
March 15, 1999
10
<PAGE> 857
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 89-A, L.P.
(A Delaware Limited Partnership):
We have audited the financial statements of Parker & Parsley 89-A, L.P. as
of December 31, 1997, and the related statements of operations, partners'
capital and cash flows for the years ended December 31, 1997 and 1996. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 89-A, L.P.
as of December 31, 1997, and the results of its operations and its cash flows
for the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
KPMG LLP
Midland, Texas
March 20, 1998
11
<PAGE> 858
PARKER & PARSLEY 89-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 117,381 $ 167,674
Accounts receivable -- oil and gas sales.................. 65,380 83,558
----------- -----------
Total current assets.............................. 182,761 251,232
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 6,540,053 6,523,134
Accumulated depletion....................................... (5,330,375) (4,675,235)
----------- -----------
Net oil and gas properties........................ 1,209,678 1,847,899
----------- -----------
$ 1,392,439 $ 2,099,131
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 4,246 $ 26,178
Partners' capital:
Managing general partner.................................. 14,075 20,922
Limited partners (8,317 interests)........................ 1,374,118 2,052,031
----------- -----------
1,388,193 2,072,953
----------- -----------
$ 1,392,439 $ 2,099,131
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 859
PARKER & PARSLEY 89-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Oil and gas............................................ $ 583,396 $ 856,926 $1,132,944
Interest............................................... 8,112 10,299 9,787
Gain on disposition of assets.......................... 1,926 22,957 --
---------- ---------- ----------
593,434 890,182 1,142,731
---------- ---------- ----------
Costs and expenses:
Oil and gas production................................. 362,377 405,273 423,914
General and administrative............................. 20,635 29,451 36,092
Impairment of oil and gas properties................... 306,826 531,929 --
Depletion.............................................. 348,314 182,263 194,706
Abandonments........................................... -- 10,629 --
---------- ---------- ----------
1,038,152 1,159,545 654,712
---------- ---------- ----------
Net income (loss)........................................ $ (444,718) $ (269,363) $ 488,019
========== ========== ==========
Allocation of net income (loss):
Managing general partner............................... $ (4,447) $ (2,693) $ 4,880
========== ========== ==========
Limited partners....................................... $ (440,271) $ (266,670) $ 483,139
========== ========== ==========
Net income (loss) per limited partnership interest....... $ (52.94) $ (32.06) $ 58.09
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 860
PARKER & PARSLEY 89-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Partners' capital at January 1, 1996....................... $29,786 $2,929,323 $2,959,109
Distributions............................................ (5,793) (573,201) (578,994)
Net income............................................... 4,880 483,139 488,019
------- ---------- ----------
Partners' capital at December 31, 1996..................... 28,873 2,839,261 2,868,134
Distributions............................................ (5,258) (520,560) (525,818)
Net loss................................................. (2,693) (266,670) (269,363)
------- ---------- ----------
Partners' capital at December 31, 1997..................... 20,922 2,052,031 2,072,953
Distributions............................................ (2,400) (237,642) (240,042)
Net loss................................................. (4,447) (440,271) (444,718)
------- ---------- ----------
Partners' capital at December 31, 1998..................... $14,075 $1,374,118 $1,388,193
======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
14
<PAGE> 861
PARKER & PARSLEY 89-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $(444,718) $(269,363) $ 488,019
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Impairment of oil and gas properties................. 306,826 531,929 --
Depletion............................................ 348,314 182,263 194,706
Gain on disposition of assets........................ (1,926) (22,957) --
Changes in assets and liabilities:
Accounts receivable.................................. 18,178 86,746 (74,358)
Accounts payable..................................... (9,135) 3,572 (39,485)
--------- --------- ---------
Net cash provided by operating activities....... 217,539 512,190 568,882
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties..................... (29,716) (14,108) --
Proceeds from disposition of assets..................... 1,926 32,539 2,842
--------- --------- ---------
Net cash provided by (used in) investing
activities.................................... (27,790) 18,431 2,842
--------- --------- ---------
Cash flows from financing activities:
Cash distributions to partners.......................... (240,042) (525,818) (578,994)
--------- --------- ---------
Net increase (decrease) in cash........................... (50,293) 4,803 (7,270)
Cash at beginning of year................................. 167,674 162,871 170,141
--------- --------- ---------
Cash at end of year....................................... $ 117,381 $ 167,674 $ 162,871
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 862
PARKER & PARSLEY 89-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 89-A, L.P. (the "Partnership") is a limited partnership
organized in 1989 under the laws of the State of Delaware. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. received shareholder approval to merge
and create Pioneer Natural Resources Company ("Pioneer"). On August 8, 1997,
PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership as PPDLP's successor by merger.
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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties -- The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as determined by the engineering staff of Pioneer
USA, the Partnership's managing general partner, and reviewed by independent
petroleum consultants. The carrying amounts of properties sold or otherwise
disposed of and the related allowances for depletion are eliminated from the
accounts and any gain or loss is included in operations.
Impairment of long-lived assets -- 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"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -- Preparation
of the accompanying financial statements 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 reporting amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest -- The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes -- A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
16
<PAGE> 863
PARKER & PARSLEY 89-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statements of cash flows -- For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses -- General and administrative expenses
are allocated in part to the Partnership by the managing general partner or its
affiliates. Such allocated expenses are determined by the managing general
partner based upon its judgement of the level of activity of the Partnership
relative to the managing general partner's activities and other entities it
manages. The method of allocation has been consistent over the past several
years with certain modifications incorporated to reflect changes in Pioneer
USA's overall business activities.
Reclassifications -- Certain reclassifications may have been made to the
1997 and 1996 financial statements to conform to the 1998 financial statement
presentations.
Environmental -- The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 1998.
Revenue recognition -- The Partnership uses the entitlements method of
accounting for crude oil and natural gas revenues.
Reporting comprehensive income -- Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes
standards for the reporting and display of comprehensive income (loss) and its
components in a full set of general purpose financial statements. Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss).
The Partnership has no items of other comprehensive income (loss), as defined by
SFAS No. 130. Consequently, the provisions of SFAS No. 130 do not apply to the
Partnership.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. Based upon a decline in the Partnership's outlook for future
commodity prices, the Partnership has estimated the expected future cash flows
of its oil and gas properties as of December 31, 1998, 1997 and 1996, and
compared such estimated future cash flows to the respective carrying amount of
the oil and gas properties to determine if the carrying amounts were likely to
be recoverable. For those proved oil and gas properties for which the carrying
amount exceeded the estimated future cash flows, an impairment was determined to
exist; therefore, the Partnership adjusted the carrying amount of those oil and
gas properties to their fair value as determined by discounting their expected
future cash flows at a discount rate commensurate with the risks involved in the
industry. As a result, the Partnership recognized non-cash impairment provisions
of $306,826 and $531,929 related to its proved oil and gas properties during
1998 and 1997, respectively.
17
<PAGE> 864
PARKER & PARSLEY 89-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $328,429 greater than the tax basis at December 31, 1998.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Net income (loss) per statements of operations..... $(444,718) $(269,363) $488,019
Depletion and depreciation provisions for tax
reporting purposes (greater than) less than
amounts for financial reporting purposes......... 336,801 142,231 (42,769)
Impairment of oil and gas properties for financial
reporting purposes............................... 306,826 531,929 --
Salvage income..................................... -- 31,751 4,992
Other.............................................. 3,948 (28,358) 3,761
--------- --------- --------
Net income per Federal income tax
returns................................ $ 202,857 $ 408,190 $454,003
========= ========= ========
</TABLE>
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the net costs incurred, whether capitalized
or expensed, related to the Partnership's oil and gas producing activities for
the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- ----- -------
<S> <C> <C> <C>
Development costs......................................... $16,919 $(406) $(2,842)
======= ===== =======
</TABLE>
Capitalized oil and gas properties consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Proved properties:
Property acquisition costs............................... $ 279,410 $ 279,410
Completed wells and equipment............................ 6,260,643 6,243,724
----------- -----------
6,540,053 6,523,134
Accumulated depletion...................................... (5,330,375) (4,675,235)
----------- -----------
Net capitalized costs............................ $ 1,209,678 $ 1,847,899
=========== ===========
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $153,822 $161,457 $160,155
Reimbursement of general and administrative
expenses........................................... $ 17,270 $ 25,384 $ 32,317
</TABLE>
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
P&P Employees 89-A Conv., Ltd.
18
<PAGE> 865
PARKER & PARSLEY 89-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
("EMPL") (the "Entities"), Parker & Parsley 89-A Conv., L.P. and the Partnership
(the "Partnerships") are parties to the Program agreement. EMPL is a limited
partnership organized for the benefit of certain employees of Pioneer USA.
The costs and revenues of the Program are allocated to the Entities and the
Partnerships as follows:
<TABLE>
<CAPTION>
ENTITIES(1) PARTNERSHIPS(2)
----------- ---------------
<S> <C> <C>
Revenues:
Proceeds from disposition of depreciable and depletable
properties --
First three years..................................... 14.141414% 85.858586%
After first three years............................... 19.191919% 80.808081%
All other revenues --
First three years..................................... 14.141414% 85.858586%
After first three years............................... 19.191919% 80.808081%
Costs and expenses:
Lease acquisition costs, drilling and completion costs
and all other costs................................... 9.090909% 90.909091%
Operating costs, reporting and legal expenses and general
and administrative expenses --
First three years..................................... 14.141414% 85.858586%
After first three years............................... 19.191919% 80.808081%
</TABLE>
- ---------------
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at
the Partnership level and 105 limited partner interests owned by Pioneer
USA.
(2) The allocation between the Partnership and Parker & Parsley 89-A Conv., L.P.
is 74.833543% and 25.166457%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 1998, 1997 and 1996 and
changes in such quantities during the years then ended. Due to a change in the
accounting policy of the managing general partner in 1997, the Partnership began
accounting for processed natural gas production in two components: processed
natural gas liquids ("NGLs") and dry residue gas. NGLs are reflected in "Oil and
NGLs" in the table below. All of the Partnership's reserves are proved developed
and located within the United States. The Partnership's reserves are based on an
evaluation prepared by the engineering staff of Pioneer USA and reviewed by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant,
using criteria established by
19
<PAGE> 866
PARKER & PARSLEY 89-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the Securities and Exchange Commission. Reserve value information is available
to limited partners pursuant to the Partnership agreement and, therefore, is not
presented.
<TABLE>
<CAPTION>
OIL AND NGLS GAS
(BBLS) (MCF)
------------ ----------
<S> <C> <C>
Net proved reserves at January 1, 1996...................... 483,752 1,690,761
Revisions................................................... 108,354 653,434
Production.................................................. (36,531) (131,428)
-------- ----------
Net proved reserves at December 31, 1996.................... 555,575 2,212,767
Revisions................................................... 45,139 (1,149,379)
Production.................................................. (36,061) (92,294)
-------- ----------
Net proved reserves at December 31, 1997.................... 564,653 971,094
Revisions................................................... (248,699) (328,006)
Production.................................................. (41,931) (62,751)
-------- ----------
Net proved reserves at December 31, 1998.................... 274,023 580,337
======== ==========
</TABLE>
As of December 31, 1998, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 1998 prices of $10.61 per
barrel of oil, $4.20 per barrel of NGLs and $1.60 per mcf of gas, discounted at
10% was approximately $613,000 and undiscounted was $914,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Genesis Crude Oil, L.P...................................... 59% 60% 63%
Western Gas Resources, Inc. ................................ 12% 11% 11%
Producers Energy Marketing, LLC............................. 1% 10% 4%
</TABLE>
At December 31, 1998, the amounts receivable from Genesis Crude Oil, L.P.
and Western Gas Resources, Inc. were $26,956 and $11,426, respectively, which
are included in the caption "Accounts receivable -- oil and gas sales" in the
accompanying Balance Sheet.
The Partnership's share of oil and gas production is sold to various
purchasers. Pioneer USA is of the opinion that the loss of any one purchaser
would not have an adverse effect on the ability of the Partnership to sell its
oil and gas production.
20
<PAGE> 867
PARKER & PARSLEY 89-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. ORGANIZATION AND OPERATIONS
The Partnership was organized October 30, 1989 as a limited partnership
under the Delaware Act for the purpose of acquiring and developing oil and gas
properties. The following is a brief summary of the more significant provisions
of the limited partnership agreement:
Managing general partner -- The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Program and Partnership affairs. As
managing general partner and operator of the Partnership's properties, all
production expenses are incurred by Pioneer USA and billed to the
Partnership and a portion of revenue is initially received by Pioneer USA
prior to being paid to the Partnership. Under the limited partnership
agreement, the managing general partner pays 1% of the Partnership's
acquisition, drilling and completion costs and 1% of its operating and
general and administrative expenses. In return, it is allocated 1% of the
Partnership's revenues.
Limited partner liability -- The maximum amount of liability of any
limited partner is the total contributions of such partner plus his share
of any undistributed profits.
Initial capital contributions -- The limited partners entered into
subscription agreements for aggregate capital contributions of $8,317,000.
The managing general partner is required to contribute amounts equal to 1%
of initial Partnership capital less commission and offering expenses
allocated to the limited partners and to contribute amounts necessary to
pay costs and expenses allocated to it under the Partnership agreement to
the extent its share of revenues does not cover such costs.
21
<PAGE> 868
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and
executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve
until the next annual meeting of stockholders or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31,
NAME 1998 POSITION
- ---- ------------ --------
<S> <C> <C>
Scott D. Sheffield................. 46 President and Director
Timothy L. Dove.................... 42 Executive Vice President and
Director
Dennis E. Fagerstone............... 49 Executive Vice President and
Director
Mark L. Withrow.................... 51 Executive Vice President, General
Counsel and Director
M. Garrett Smith................... 37 Executive Vice President, Chief
Financial Officer and Director
Mel Fischer (a).................... 64 Executive Vice President
Lon C. Kile........................ 43 Executive Vice President
Rich Dealy......................... 32 Vice President and Chief Accounting
Officer
</TABLE>
- ---------------
(a) Mr. Fischer was a director and officer until his retirement from Pioneer
and Pioneer USA on February 19, 1999.
Scott D. Sheffield. Mr. Sheffield is a distinguished graduate of The
University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he
has served as President, Chief Executive Officer and a director of Pioneer and
President and a director of Pioneer USA. Mr. Sheffield was the President and a
director of Parker & Parsley from May 1990 until August 1997 and was the
Chairman of the Board and Chief Executive Officer of Parker & Parsley from
October 1990 until August 1997. He was the sole director of Parker & Parsley
from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley
Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum
engineer in 1979. He served as Vice President -- Engineering of PPDC from
September 1981 until April 1985 when he was elected President and a director. In
March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive
Officer of PPDC. Before joining PPDC, Mr. Sheffield was employed as a production
and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President -- Business
Development of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. Mr. Dove joined Parker & Parsley in May
1994 as Vice President -- International and was promoted to Senior Vice
President -- Business Development in October 1996, in which position he served
until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with
Diamond Shamrock Corp., and its
22
<PAGE> 869
successor, Maxus Energy Corp, in various capacities in international exploration
and production, marketing, refining and marketing and planning and development.
Mr. Dove earned a B.S. in Mechanical Engineering from Massachusetts Institute of
Technology in 1979 and received his M.B.A. in 1981 from the University of
Chicago.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of Mesa from March 1, 1997 until August 1997. From October
1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief
Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice
President -- Exploration and Production of Mesa. From June 1988 to May 1991, Mr.
Fagerstone served as Vice President -- Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President -- General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President -- General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
M. Garrett Smith. Mr. Smith, a graduate of The University of Texas with a
B.S. in Electrical Engineering and Southern Methodist University with an M.B.A.,
was appointed Executive Vice President and Chief Financial Officer of Pioneer in
December 1997. He served as Senior Vice President -- Finance of Pioneer from
August 1997 until December 1997. Mr. Smith was elected Senior Vice President --
Finance and a director of Pioneer USA in August 1997. He served as Vice
President -- Corporate Acquisitions of Mesa from January 1997 until August 1997.
From October 1996 to December 1996, Mr. Smith served as Vice
President -- Finance of Mesa and from 1994 to 1996 he served as Director of
Financial Planning of Mesa. Mr. Smith was employed by BTC Partners, Inc. (a
former financial advisor to Mesa) from 1989 to 1994.
Mel Fischer. Mr. Fischer, a graduate of the University of California at
Berkeley with a Masters degree in Geology, became Executive Vice President
- -Worldwide Exploration of Pioneer and Pioneer USA in August 1997. He served as a
director of Parker & Parsley from November 1995 until August 1997 and was
Executive Vice President -- Worldwide Exploration for Parker & Parsley from
February 1997 to August 1997. Mr. Fischer retired from Pioneer and Pioneer USA
effective February 15, 1999. He worked in the petroleum industry for 32 years,
starting as a Petroleum Geologist with Texaco in 1962, and retiring as
President, Occidental International Exploration and Production Company in March
1994. For the 10 years prior to becoming President of Occidental International,
he served as Executive Vice President, World Wide Exploration with Occidental
Oil and Gas Corporation. He is a registered geologist in the State of
California, a member of the American Association of Petroleum Geologists and an
emeritus member of the Board of Advisors for the Earth Sciences Research
Institute at the University of Utah.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a
B.B.A. in Accounting, became Executive Vice President of Pioneer and Pioneer USA
in August 1997. Mr. Kile was Senior Vice President -- Investor Relations from
October 1996 to August 1997. Previously, he served as Vice President and Manager
of the Mid-Continent Division, Vice President -- Equity Finance & Analysis and
Vice President -- Marketing & Program Administration. Prior to joining Parker &
Parsley in 1985, he was employed as Supervisor -- Senior, Audit, in charge of
Parker & Parsley's audit, with Arthur Young.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a
B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became
Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
23
<PAGE> 870
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is vested in Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA and P&P Employees 89-A Conv., Ltd. ("EMPL") pay
approximately 10% of the Partnership's acquisition, drilling and completion
costs and approximately 15% during the first three years and approximately 20%
after three years of its operating and general and administrative expenses. In
return, they are allocated approximately 15% during the first three years and
approximately 20% after three years of the Partnership's revenues. See Notes 6
and 9 of Notes to Financial Statements included in "Item 8. Financial Statements
and Supplementary Data" for information regarding fees and reimbursements paid
to the managing general partner or its affiliates by the Partnership.
Pioneer USA's current executive officers and other employees are general
partners of EMPL which serves as a co-general partner of the Program. Under this
arrangement, EMPL pays approximately 2.5% of the Partnership's acquisition,
drilling and completion costs and approximately 3.75% during the first three
years and approximately 5% after three years of its operating and general and
administrative expenses. In return, EMPL is allocated approximately 3.75% during
the first three years and approximately 5% after three years of the
Partnership's revenues. EMPL does not receive any fees or reimbursements from
the Partnership.
The Partnership does not directly pay any salaries of the executive
officers of Pioneer USA, but does pay a portion of Pioneer USA's general and
administrative expenses of which these salaries are a part. See Note 6 of Notes
to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more
of the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 105 limited partner interests at January 1, 1999.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing
general partner of the Partnership, Pioneer USA, has the exclusive right and
full authority to manage, control and administer the Partnership's business.
Under the limited partnership agreement, limited partners holding a majority of
the outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
24
<PAGE> 871
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner or its affiliates
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $153,822 $161,457 $160,155
Reimbursement of general and administrative
expenses........................................... $ 17,270 $ 25,384 $ 32,317
</TABLE>
Under the limited partnership agreement, the managing general partner pays
1% of the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data"
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial statements
The following are filed as part of this annual report:
Independent Auditors' Report -- Ernst & Young LLP
Independent Auditors' Report -- KPMG LLP
Balance sheets as of December 31, 1998 and 1997
Statements of operations for the years ended December 31, 1998, 1997
and 1996
Statements of partners' capital for the years ended December 31, 1998,
1997 and 1996
Statements of cash flows for the years ended December 31, 1998, 1997
and 1996
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this annual report.
25
<PAGE> 872
SIGNATURES
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 89-A, L.P.
By: Pioneer Natural Resources USA,
Inc.
Managing General Partner
By: /s/ SCOTT D. SHEFFIELD
----------------------------------
Scott D. Sheffield,
President
Dated: March 26, 1999
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 date indicated.
<TABLE>
<C> <S> <C>
/s/ SCOTT D. SHEFFIELD President and Director of March 26, 1999
- ----------------------------------------------------- Pioneer USA
Scott D. Sheffield
/s/ TIMOTHY L. DOVE Executive Vice President and March 26, 1999
- ----------------------------------------------------- Director of Pioneer USA
Timothy L. Dove
/s/ DENNIS E. FAGERSTONE Executive Vice President and March 26, 1999
- ----------------------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ MARK L. WITHROW Executive Vice President, March 26, 1999
- ----------------------------------------------------- General Counsel and Director
Mark L. Withrow of Pioneer USA
/s/ M. GARRETT SMITH Executive Vice President, Chief March 26, 1999
- ----------------------------------------------------- Financial Officer and
M. Garrett Smith Director of Pioneer USA
/s/ LON C. KILE Executive Vice President of March 26, 1999
- ----------------------------------------------------- Pioneer USA
Lon C. Kile
/s/ RICH DEALY Vice President and Chief March 26, 1999
- ----------------------------------------------------- Accounting Officer of Pioneer
Rich Dealy USA
</TABLE>
26
<PAGE> 873
PARKER & PARSLEY 89-A, L.P.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
3(a) -- Form of Agreement of Limited Partnership of Parker &
Parsley 89-A, L.P. incorporated by reference to Exhibit A
of the Post-Effective Amendment No. 1 of the
Partnership's Registration Statement on Form S-1
(Registration No. 33-26097)
4(b) -- Form of Limited Partner Subscription Agreement
incorporated by reference to Exhibit C of the
Post-Effective Amendment No. 1 of the Partnership's
Registration Statement on Form S-1 (Registration No.
33-26097)
4(b) -- Form of General Partner Subscription Agreement
incorporated by reference to Exhibit D of the
Post-Effective Amendment No. 1 of the Partnership's
Registration Statement on Form S-1 (Registration No.
33-26097)
4(b) -- Power of Attorney incorporated by reference to Exhibit B
of Amendment No. 1 of the Partnership's Registration
Statement on Form S-1 (Registration No. 33-26097)
4(c) -- Specimen Certificate of Limited Partnership Interest
incorporated by reference to Exhibit 4c of the
Partnership's Registration Statement on Form S-1
(Registration No. 33-26097)
10(b) -- Form of Development Drilling Program Agreement
incorporated by reference to Exhibit B of the
Post-Effective Amendment No. 1 of the Partnership's
Registration Statement on Form S-1 (Registration No.
33-26097)
27.1* -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith
<PAGE> 874
PARKER & PARSLEY 89-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
DECEMBER 31, 1998, 1997 AND 1996
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. Future income taxes are calculated by comparing
discounted future cash flows to the tax basis of oil and gas properties plus
available carryforwards and credits and applying the current tax rates to the
difference.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and gas producing activities:
Future cash inflows....................................... $ 3,146 $11,062 $ 22,161
Future production costs................................... (2,232) (6,339) (10,443)
Future development costs.................................. -- -- 132
------- ------- --------
914 4,723 11,850
10% annual discount factor................................ (301) (2,138) (6,111)
------- ------- --------
Standardized measure of discounted future net cash
flows.................................................. $ 613 $ 2,585 $ 5,739
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1998 1997 1996
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs................ $ (221) $ (452) $ (709)
Net changes in prices and production costs................ (1,520) (2,697) 2,362
Extensions and discoveries................................ -- -- --
Sales of minerals-in-place................................ -- -- --
Purchases of minerals-in-place............................ -- -- --
Revisions of estimated future development costs........... -- (72) (65)
Revisions of previous quantity estimates and reserves
added by development drilling.......................... (409) (461) 1,448
Accretion of discount..................................... 259 573 287
Changes in production rates, timing and other............. (81) (45) (453)
------- ------- --------
Change in present value of future net revenues............ (1,972) (3,154) 2,870
------- ------- --------
Balance, beginning of year................................ 2,585 5,739 2,869
------- ------- --------
Balance, end of year...................................... $ 613 $ 2,585 $ 5,739
======= ======= ========
</TABLE>
<PAGE> 875
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 90-A, L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT DATED , 1999
----------------------
THE DATE OF THIS SUPPLEMENT IS , 1999
----------------------
This document contains important information specific to Parker & Parsley
90-A, L.P. and supplements the proxy statement dated , 1999, of
Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies
to be voted at a special meeting of limited partners of the partnerships
described in the proxy statement. The purpose of the special meeting is for you
to vote upon the merger of Parker & Parsley 90-A, L.P. with and into Pioneer USA
that, if completed, will result in your receiving cash for your partnership
interests.
This supplement contains the following information concerning Parker &
Parsley 90-A, L.P.:
- A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through June
30, 1999
-- the merger value per $1,000 limited partner investment as of June 30,
1999
-- the merger value per $1,000 limited partner investment as a multiple
of distributions for the 12 months ended June 30, 1999
-- the book value per $1,000 limited partner investment as of June 30,
1999 and as of December 31, 1998 and
-- the ordinary tax loss per $1,000 limited partner investment in year
of initial investment
- Quarterly Report on Form 10-Q for the six months ended June 30, 1999
- Annual Report on Form 10-K for the year ended December 31, 1998
- Disclosures about the partnership's oil and gas producing activities
<PAGE> 876
PARKER & PARSLEY 90-A, L.P.
SUPPLEMENTAL INFORMATION TABLE
<TABLE>
<S> <C>
Aggregate Initial Investment by the Limited Partners(a)..... $ 6,811
Aggregate Historical Limited Partner Distributions through
June 30, 1999(a).......................................... $ 5,379
Merger Value per $1,000 Limited Partner Investment as of
June 30, 1999(b).......................................... $158.27
Merger Value per $1,000 Limited Partner Investment as a
Multiple of Distributions for the 12 Months ended June 30,
1999(b)................................................... 10.81times
Book Value per $1,000 Limited Partner Investment:
-- as of June 30, 1999(b)................................. $193.39
-- as of December 31, 1998(b)............................. $199.51
Ordinary Tax Loss per $1,000 Limited Partner Investment in
Year of Initial Investment(b), (c)........................ $ 377
</TABLE>
- ---------------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as any
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
<PAGE> 877
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JUNE 30, 1999
COMMISSION FILE NO. 33-26097-05
PARKER & PARSLEY 90-A, L.P.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2329245
(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)
</TABLE>
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> 878
PARKER & PARSLEY 90-A, L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1999 and December 31,
1998.................................................. 3
Statements of Operations for the three and six months
ended June 30, 1999 and 1998.......................... 4
Statement of Partners' Capital for the six months ended
June 30, 1999......................................... 5
Statements of Cash Flows for the six months ended June
30, 1999 and 1998..................................... 6
Notes to Financial Statements.......................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................. 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 11
27.1 Financial Reporting Schedule
Signatures............................................. 12
</TABLE>
2
<PAGE> 879
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER & PARSLEY 90-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 108,664 $ 92,210
Accounts receivable -- oil and gas sales.................. 67,453 50,121
----------- -----------
Total current assets.............................. 176,117 142,331
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 5,070,780 5,076,345
Accumulated depletion....................................... (3,898,611) (3,832,899)
----------- -----------
Net oil and gas properties........................ 1,172,169 1,243,446
----------- -----------
$ 1,348,286 $ 1,385,777
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 17,726 $ 13,101
Partners' capital:
Managing general partner.................................. 13,387 13,808
Limited partners (6,811 interests)........................ 1,317,173 1,358,868
----------- -----------
1,330,560 1,372,676
----------- -----------
$ 1,348,286 $ 1,385,777
=========== ===========
</TABLE>
The financial information included as of June 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
<PAGE> 880
PARKER & PARSLEY 90-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas...................................... $111,127 $113,383 $195,089 $240,589
Interest......................................... 1,063 1,500 1,956 3,199
-------- -------- -------- --------
112,190 114,883 197,045 243,788
-------- -------- -------- --------
Costs and expenses:
Oil and gas production........................... 71,921 75,490 132,744 148,593
General and administrative....................... 3,806 7,201 7,264 11,447
Depletion........................................ 21,066 34,815 65,712 67,710
-------- -------- -------- --------
96,793 117,506 205,720 227,750
-------- -------- -------- --------
Net income (loss).................................. $ 15,397 $ (2,623) $ (8,675) $ 16,038
======== ======== ======== ========
Allocation of net income (loss):
Managing general partner......................... $ 154 $ (26) $ (87) $ 160
======== ======== ======== ========
Limited partners................................. $ 15,243 $ (2,597) $ (8,588) $ 15,878
======== ======== ======== ========
Net income (loss) per limited partnership
interest......................................... $ 2.24 $ (.38) $ (1.26) $ 2.33
======== ======== ======== ========
Distributions per limited partnership interest..... $ 1.68 $ 6.05 $ 4.86 $ 18.98
======== ======== ======== ========
</TABLE>
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> 881
PARKER & PARSLEY 90-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1, 1999................................. $13,808 $1,358,868 $1,372,676
Distributions............................................ (334) (33,107) (33,441)
Net loss................................................. (87) (8,588) (8,675)
------- ---------- ----------
Balance at June 30, 1999................................... $13,387 $1,317,173 $1,330,560
======= ========== ==========
</TABLE>
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> 882
PARKER & PARSLEY 90-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (8,675) $ 16,038
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depletion.............................................. 65,712 67,710
Changes in assets and liabilities:
Accounts receivable.................................... (17,332) 30,977
Accounts payable....................................... 4,625 8,171
-------- ---------
Net cash provided by operating activities......... 44,330 122,896
-------- ---------
Cash flows used in investing activities:
Additions to oil and gas properties....................... (1,655) (6,679)
Proceeds from asset dispositions.......................... 7,220 --
-------- ---------
Net cash provided by (used in) investing
activities...................................... 5,565 (6,679)
-------- ---------
Cash flows used in financing activities:
Cash distributions to partners............................ (33,441) (130,571)
-------- ---------
Net increase (decrease) in cash............................. 16,454 (14,354)
Cash at beginning of period................................. 92,210 116,510
-------- ---------
Cash at end of period....................................... $108,664 $ 102,156
======== =========
</TABLE>
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> 883
PARKER & PARSLEY 90-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 90-A, L.P. (the "Partnership") is a limited partnership
organized in 1990 under the laws of the State of Delaware.
The Partnership engages primarily in oil and gas development and production
in the Spraberry Trend area of West 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 June 30, 1999 and for the three and six months ended June 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.
7
<PAGE> 884
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
RESULTS OF OPERATIONS
Six months ended June 30, 1999 compared with six months ended June 30, 1998
Revenues:
The Partnership's oil and gas revenues decreased 19% to $195,089 from
$240,589 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from lower average prices received and a decrease
in production. For the six months ended June 30, 1999, 9,267 barrels of oil,
5,512 barrels of natural gas liquids ("NGLs") and 21,392 mcf of gas were sold,
or 18,344 barrel of oil equivalents ("BOEs"). For the six months ended June 30,
1998, 11,127 barrels of oil, 5,392 barrels of NGLs and 24,197 mcf of gas were
sold, or 20,552 BOEs.
The average price received per barrel of oil decreased 6% from $14.16 for
the six months ended June 30, 1998 to $13.27 for the same period ended June 30,
1999. The average price received per barrel of NGLs decreased 10% from $7.92
during the six months ended June 30, 1998 to $7.10 for the same period in 1999.
The average price received per mcf of gas decreased 8% from $1.67 during the six
months ended June 30, 1998 to $1.54 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 six months ended
June 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.
Costs and Expenses:
Total costs and expenses decreased to $205,720 for the six months ended
June 30, 1999 as compared to $227,750 for the same period in 1998, a decrease of
$22,030, or 10%. This decrease was due to declines in production costs, general
and administrative expenses ("G&A") and depletion.
Production costs were $132,744 for the six months ended June 30, 1999 and
$148,593 for the same period in 1998 resulting in a $15,849 decrease, or 11%.
The decrease was primarily due to less well maintenance costs and declines in
production taxes and ad valorem 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, 37%, from $11,447 for the six months ended June 30,
1998 to $7,264 for the same period in 1999.
Depletion was $65,712 for the six months ended June 30, 1999 compared to
$67,710 for the same period in 1998, a decrease of $1,998, or 3%. This decrease
was primarily the result of a reduction in oil production of 1,860 barrels for
the six months ended June 30, 1999 compared to the same period in 1998, an
increase in proved reserves during the period ended June 30, 1999 due to higher
commodity prices 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.
Three months ended June 30, 1999 compared with three months ended June 30,
1998
Revenues:
The Partnership's oil and gas revenues decreased slightly to $111,127 from
$113,383 for the three months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from decreases in production and lower average
prices received from barrels of NGLs and mcf of gas, offset by a higher average
price received per barrel of oil. For the three months ended June 30, 1999,
4,486 barrels of oil, 3,061 barrels of NGLs and 10,259 mcf of gas were sold, or
9,257 BOEs. For the three months ended June 30, 1998, 5,358 barrels of oil,
2,355 barrels of NGLs and 9,423 mcf of gas were sold, or 9,284 BOEs.
8
<PAGE> 885
The average price received per barrel of oil increased $1.54, or 11%, from
$13.45 for the three months ended June 30, 1998 to $14.99 for the same period in
1999. The average price received per barrel of NGLs decreased 10% from $9.60
during the three months ended June 30, 1998 to $8.62 for the same period in
1999. The average price received per mcf of gas decreased 14% from $1.98 during
the three months ended June 30, 1998 to $1.71 for the same period in 1999.
Costs and Expenses:
Total costs and expenses decreased to $96,793 for the three months ended
June 30, 1999 as compared to $117,506 for the same period in 1998, a decrease of
$20,713, or 18%. This decrease was due to declines in depletion, production
costs and G&A.
Production costs were $71,921 for the three months ended June 30, 1999 and
$75,490 for the same period in 1998 resulting in a $3,569 decrease, or 5%. The
decrease was due to less well maintenance costs and declines in production taxes
and ad valorem taxes.
During this period, G&A decreased, in aggregate, 47%, from $7,201 for the
three months ended June 30, 1998 to $3,806 for the same period in 1999.
Depletion was $21,066 for the three months ended June 30, 1999 compared to
$34,815 for the same period in 1998, a decrease of $13,749, or 39%. This
decrease was primarily attributable to an increase in proved reserves during the
period ended June 30, 1999 as a result of higher commodity prices, a decrease in
oil production of 872 barrels for the three months ended June 30, 1999 as
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.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $78,566 during the six
months ended June 30, 1999 from the same period ended June 30, 1998. This
decrease was primarily due to a decline in oil and gas sales receipts, offset by
declines in production costs and G&A expenses paid.
Net Cash Provided by (Used in) Investing Activities
The Partnership's principal investing activities during the six months
ended June 30, 1999 and 1998 were for expenditures related to oil and gas
equipment replacement on various oil and gas properties.
Proceeds of $7,220 were recognized during the six months ended June 30,
1999 from equipment credits on active properties.
Net Cash Used in Financing Activities
Cash was sufficient for the six months ended June 30, 1999 to cover
distributions to the partners of $33,441 of which $334 was distributed to the
managing general partner and $33,107 to the limited partners. For the same
period ended June 30, 1998, cash was sufficient for distributions to the
partners of $130,571 of which $1,306 was distributed to the managing general
partner and $129,265 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 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 early indications that the nations have initiated
their planned reductions, have had some stabilizing effect on commodity prices
during the latter part of the first quarter of 1999 and into August 1999.
However, no assurances can be given that the stabilizing effect of these
actions, or the planned reductions in export volumes, will be sustained for an
extended period of time.
9
<PAGE> 886
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.
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 June 30, 1999, the managing general partner estimates that the
assessment phase is approximately 99% complete and has included, but is not
limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- the formulation of contingency plans for mission-critical information
technology systems.
Through June 30, 1999, the managing general partner had 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 varying 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 June 30, 1999, the managing general partner
estimates that the remedial phase is approximately 83% complete, on a worldwide
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 is expected
to be completed by 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 expects to complete the testing of
information technology systems by October 1999. The testing of the
non-information technology remediation is scheduled to be completed by the end
of November 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. As of June 30, 1999, the managing general partner's total costs
10
<PAGE> 887
incurred on the Year 2000 problem were $2.3 million, of which approximately $200
thousand were incurred to replace non-compliant systems.
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) Form 8-K -- none
11
<PAGE> 888
SIGNATURES
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 90-A, L.P.
By: Pioneer Natural Resources USA,
Inc., Managing General Partner
By: /s/ RICH DEALY
----------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
Dated: August 6, 1999
12
<PAGE> 889
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 33-26097-05
PARKER & PARSLEY 90-A, L.P.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2329245
(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)
</TABLE>
Registrant's Telephone Number, including area code: (915) 683-4768
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
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]
No market currently exists for the limited partnership interests of the
Registrant. Based on original purchase price the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$6,664,000.
As of March 8, 1999, the number of outstanding limited partnership
interests was 6,811.
The following documents are incorporated by reference into the indicated
parts of this Annual Report on Form 10-K: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 890
Parts I and II of this Report contain 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. See "Item 1.
Business" for a description of various factors that could materially affect the
ability of the Partnership to achieve the anticipated results described in the
forward looking statements.
PART I
ITEM 1. BUSINESS
Parker & Parsley 90-A, L.P. (the "Partnership") is a limited partnership
organized in 1990 under the laws of the State of Delaware. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. ("Mesa") received shareholder approval
to merge and create Pioneer Natural Resources Company ("Pioneer"). On August 8,
1997, PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership as PPDLP's successor by merger. For a more complete description of
the Parker & Parsley and Mesa merger, see Pioneer's Registration Statement on
Form S-4 as filed with the Securities & Exchange Commission.
A Registration Statement, as amended, filed pursuant to the Securities Act
of 1933, registering limited partnership interests aggregating $70,000,000 in a
series of Delaware limited partnerships formed under the Parker & Parsley 89-90
Development Drilling Program, was declared effective by the Securities and
Exchange Commission on August 1, 1989. On April 30, 1990, the offering of
limited partnership interests in the Partnership, the third partnership formed
under such registration statement, was closed, with interests aggregating
$6,811,000 being sold to 525 subscribers.
The Partnership engages primarily in oil and gas development and production
and is not involved in any industry segment other than oil and gas. See "Item 6.
Selected Financial Data" and "Item 8. Financial Statements and Supplementary
Data" of this report for a summary of the Partnership's revenue, income and
identifiable assets.
The principal markets during 1998 for the oil produced by the Partnership
were refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. The principal markets for the
Partnership's gas were companies that have pipelines located near the
Partnership's gas producing properties. Of the Partnership's total oil and gas
revenues for 1998, approximately 57% and 22% were attributable to sales made to
Genesis Crude Oil, L.P. and Western Gas Resources, Inc., respectively.
The Partnership's revenues, profitability, cash flow and future rate of
growth are highly dependent on the prevailing prices of oil and gas, which are
affected by numerous factors beyond the Partnership's control. Oil and gas
prices historically have been very volatile. A substantial or extended decline
in the prices of oil or gas could have a material adverse effect on the
Partnership's revenues, profitability and cash flow and could, under certain
circumstances, result in a reduction in the carrying value of the Partnership's
oil and gas properties.
Because of the demand for oil and gas, the Partnership does not believe
that the termination of the sales of its products to any one customer would have
a material adverse impact on its operations. The loss of a particular customer
for gas may have an effect if that particular customer has the only gas pipeline
located in the areas of the Partnership's gas producing properties. The
Partnership believes, however, that the effect would be temporary, until
alternative arrangements could be made.
Federal and state regulation of oil and gas operations generally includes
the fixing of maximum prices for regulated categories of natural gas, the
imposition of maximum allowable production rates, the taxation
1
<PAGE> 891
of income and other items, and the protection of the environment. Although the
Partnership believes that its business operations do not impair environmental
quality and that its costs of complying with any applicable environmental
regulations are not currently significant, the Partnership cannot predict what,
if any, effect these environmental regulations may have on its current or future
operations.
The Partnership does not have any employees of its own. Pioneer USA employs
818 persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this report is filed. Pioneer
USA is responsible for all management functions.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the
Partnership conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist primarily of leasehold interests in
properties on which oil and gas wells are located. Such property interests are
often subject to landowner royalties, overriding royalties and other oil and gas
leasehold interests.
Fractional working interests in developmental oil and gas prospects located
primarily in the Spraberry Trend Area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 27
oil and gas wells. Two wells have been sold. At December 31, 1998, 25 wells were
producing.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 1998, 1997 and 1996 and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been estimated by the engineering staff of Pioneer USA with a review by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
2
<PAGE> 892
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 8, 1999, the Partnership had 6,811 outstanding limited partnership
interests held of record by 525 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are
not required to meet the Partnership's obligations are distributed to the
partners at least quarterly in accordance with the limited partnership
agreement. During the years ended December 31, 1998 and 1997, $193,717 and
$361,394, respectively, of such revenue-related distributions were made to the
limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Operating results:
Oil and gas sales.............. $ 441,480 $ 643,882 $ 777,677 $ 661,198 $ 733,354
========== ========== ========== ========== ==========
Impairment of oil and gas
properties.................. $ 34,145 $ 321,019 $ -- $ 583,706 $ --
========== ========== ========== ========== ==========
Net income (loss).............. $ (44,421) $ (149,948) $ 261,210 $ (696,986) $ 2,920
========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general partner.... $ (444) $ (1,499) $ 2,612 $ (6,960) $ 58
========== ========== ========== ========== ==========
Limited partners............ $ (43,977) $ (148,449) $ 258,598 $ (690,026) $ 2,862
========== ========== ========== ========== ==========
Limited partners' net income
(loss) per limited
partnership interest........ $ (6.46) $ (21.80) $ 37.97 $ (101.31) $ .42
========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest........ $ 28.44 $ 53.06 $ 53.75 $ 48.45 $ 57.38
========== ========== ========== ========== ==========
At year end:
Total assets................... $1,385,777 $1,634,061 $2,146,498 $2,277,937 $3,289,433
========== ========== ========== ========== ==========
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1998 compared to 1997
The Partnership's 1998 oil and gas revenues decreased 31% to $441,480 from
$643,882 in 1997. The decrease in revenues resulted from lower average prices
received. In 1998, 21,587 barrels of oil, 11,328 barrels of natural gas liquids
("NGLs") and 47,086 mcf of gas were sold, or 40,763 barrel of oil equivalents
("BOEs"). In 1997, 21,972 barrels of oil, 4,763 barrels of NGLs and 68,973 mcf
of gas were sold, or 38,231 BOEs. Due to the decline characteristics of the
Partnership's oil and gas properties, management expects a certain amount of
decline in production in the future until the Partnership's economically
recoverable reserves are fully depleted.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. Effective September 30, 1997, as a result of the
merger with Mesa, the managing general partner accounts for processed natural
gas production in two components: natural gas liquids and dry residue gas. As a
result of the change in the managing general partner's policy, the Partnership
now accounts for processed natural gas production as processed natural
3
<PAGE> 893
gas liquids and dry residue gas. Consequently, separate product volumes will not
be comparable for 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
year ended December 31, 1998 is the price received for dry residue gas and the
price per mcf for natural gas produced prior to October 1997 was presented as a
price for wet gas (i.e., natural gas liquids combined with dry residue gas).
The average price received per barrel of oil decreased $6.21, or 32% from
$19.41 in 1997 to $13.20 in 1998. The average price received per barrel of NGLs
decreased $4.14, or 37% from $11.16 in 1997 to $7.02 in 1998. The average price
received per mcf of gas decreased 31% in 1998 to $1.64 compared to $2.38 in
1997. 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 in 1998.
Total costs and expenses decreased in 1998 to $492,078 as compared to
$801,240 in 1997, a decrease of $309,162, or 39%. This decrease was primarily
due to declines in the impairment of oil and gas properties, production costs
and general and administrative expenses ("G&A"), offset by a slight increase in
depletion.
Production costs were $282,430 in 1998 and $305,774 in 1997, resulting in a
$23,344 decline, or 8%. The decline includes a reduction in production taxes due
to the decline in oil and gas revenues and less well maintenance costs.
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, 41% from $23,842 in 1997 to $14,124 in 1998. The
Partnership paid the managing general partner $11,560 in 1998 and $20,526 in
1997 for G&A incurred on behalf of the Partnership. G&A is allocated, in part,
to the Partnership by the managing general partner. Such allocated expenses are
determined by the managing general partner based upon its judgement of the level
of activity of the Partnership relative to the managing general partner's
activities and other entities it manages. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
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"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. Declining commodity prices prompted
impairment reviews in 1998 and 1997. As a result of the review and evaluation of
its long-lived assets for impairment, the Partnership recognized non-cash
charges of $34,145 and $321,019 related to its oil and gas properties during
1998 and 1997, respectively.
Depletion was $161,379 in 1998 compared to $150,605 in 1997. This
represented an increase of $10,774, or 7%. This increase was primarily the
result of a decline in proved reserves during 1998 due to the lower commodity
prices, 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 and
a reduction in oil production of 385 barrels for the period ended December 31,
1998 compared to the same period in 1997.
1997 compared to 1996
The Partnership's 1997 oil and gas revenues decreased 17% to $643,882 from
$777,677 in 1996. The decrease in revenues resulted from declines in production
and lower average prices received. In 1997, 21,972 barrels of oil, 4,763 barrels
of NGLs and 68,973 mcf of gas were sold, or 38,231 BOEs. In 1996, 25,428 barrels
of oil and 88,919 mcf of gas were sold, or 40,248 BOEs.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. As is described above in "Results of
4
<PAGE> 894
Operations -- 1998 compared to 1997", the Partnership changed its method of
accounting for processed natural gas to a dry gas basis in the fourth quarter of
1997. As a result of this change, the Partnership now accounts for processed
natural gas production as processed natural gas liquids and dry residue gas.
Consequently, 1997 and 1996 separate product volumes are not comparable.
The declines in production volumes were primarily attributable to the
decline characteristics of the Partnership's oil and gas properties.
The average price received per barrel of oil decreased 10% from $21.62 in
1996 to $19.41 in 1997. The average price received per barrel of NGLs during
1997 was $11.16. The average price received per mcf of gas decreased 7% in 1997
to $2.38 compared to $2.56 in 1996.
Total costs and expenses increased in 1997 to $801,240 as compared to
$523,562 in 1996, an increase of $277,678, or 53%. This increase was primarily
due to the impairment of oil and gas properties and an increase in production
costs, offset by declines in loss on disposition of assets, depletion and G&A.
Production costs were $305,774 in 1997 and $298,749 in 1996, resulting in a
$7,025 increase. The increase was due to additional well maintenance costs,
offset by a decrease in production taxes.
During this period, G&A decreased, in aggregate, 9% from $26,252 in 1996 to
$23,842 in 1997. The Partnership paid the managing general partner $20,526 in
1997 and $22,989 in 1996 for G&A incurred on behalf of the Partnership.
The Partnership recognized a non-cash SFAS 121 impairment provision of
$321,019 related to its oil and gas properties during the fourth quarter of
1997.
Depletion was $150,605 in 1997 compared to $169,844 in 1996. This
represented a decrease of $19,239, or 11%. This decrease was primarily
attributable to a decline in oil production of 3,456 barrels from 1996.
A loss on disposition of assets of $28,717 was recognized during 1996
resulting from the sale of one gas well and the write-off of remaining
capitalized well costs of $35,532 less proceeds received of $6,815.
IMPACT OF INFLATION AND CHANGING PRICES ON SALES AND NET INCOME
Inflation impacts the fixed overhead rate charges of the lease operating
expenses for the Partnership. During 1998, the annual change in the index of
average weekly earnings of crude petroleum and gas production workers issued by
the U.S. Department of Labor, Bureau of Labor Statistics increased (effective
April 1, 1998) 10.3%. The 1997 annual change in average weekly earnings
increased by 2%. The 1996 index increased 4.1%. The impact of inflation for
other lease operating expenses is small due to the current economic condition of
the oil industry.
The oil and gas industry experienced volatility during the past decade
because of the fluctuation of the supply of most fossil fuels relative to the
demand for such products and other uncertainties in the world energy markets
causing significant fluctuations in oil and gas prices. During 1998, the price
per barrel for oil production similar to the Partnership's ranged from
approximately $9.50 to $15.50. During most of 1997 and 1996, 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 March 1999. On March 8, 1999, the market price for West Texas intermediate
crude was $11.00 per barrel. A continuation of the current commodity price
environment experienced will continue to have an adverse effect on the
Partnership's revenues, operating cash flow and distributions and could result
in additional decreases in the carrying value of the Partnership's oil and gas
properties.
Prices for natural gas are subject to ordinary seasonal fluctuations, and
this volatility of natural gas prices may result in production being curtailed
and, in some cases, wells being completely shut-in.
5
<PAGE> 895
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $187,810 during the
year ended December 31, 1998 from the year ended December 31, 1997, attributable
to a decrease in oil and gas sales receipts, offset by declines in production
costs and G&A expenses paid.
Net Cash Provided by (Used in) Investing Activities
The Partnership's investing activities during 1998 and 1997 were for
expenditures related to oil and gas equipment replacement on active properties.
Net Cash Used in Financing Activities
Cash was sufficient in 1998 for distributions to the partners of $195,674
of which $1,957 was distributed to the managing general partner and $193,717 to
the limited partners. In 1997, cash was sufficient for distributions to the
partners of $365,044 of which $3,650 was distributed to the managing general
partner and $361,394 to the limited partners.
The current commodity price environment will continue to impact the
distributions and could result in limited or no distributions to the partners.
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.
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
at varying stages of completion as it pertains to information technology and
non-information technology applications and systems in the United States, Canada
and Argentina. As of December 31, 1998, the managing general partner estimates
that the assessment phase is approximately 86% complete, on a worldwide basis,
and has included, but is not limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
6
<PAGE> 896
- 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 to
approximately 37% of those inquiries.
The remedial phase of the managing general partner's Year 2000 project is
also at varying 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 December 31, 1998, the
managing general partner estimates that the remedial phase is approximately 54%
complete, on a worldwide basis, subject to the continuing 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 through remedial coding and is currently testing this system for Year
2000 compliance. The remediation of non-information technology is expected to be
completed during July 1999. The managing general partner's Year 2000 remedial
actions have not significantly 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 and non-information technology remediation by the end of the third
quarter of 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. The managing general partner intends to use its working capital to pay
for the costs of the Year 2000 projects. As of December 31, 1998, the managing
general partner's total costs incurred on the Year 2000 problem were $1.8
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 in accordance with the general and
administration allocation. (See Note 2 of Notes to Financial Statements included
in "Item 8. Financial Statements and Supplementary Data".)
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 assessment phase of the managing general partner's Year 2000
project, contingency plans are being 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.
7
<PAGE> 897
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Parker & Parsley 90-A, L.P.:
Independent Auditors' Report -- Ernst & Young LLP......... 9
Independent Auditors' Report -- KPMG LLP.................. 10
Balance Sheets as of December 31, 1998 and 1997........... 11
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996.................................... 12
Statements of Partners' Capital for the Years Ended
December 31, 1998, 1997 and 1996....................... 13
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996.................................... 14
Notes to Financial Statements............................. 15
</TABLE>
8
<PAGE> 898
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 90-A, L.P.
(A Delaware Limited Partnership):
We have audited the balance sheet of Parker & Parsley 90-A, L.P. as of
December 31, 1998, and the related statements of operations, partners' capital
and cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 90-A, L.P.
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Dallas, Texas
March 15, 1999
9
<PAGE> 899
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 90-A, L.P.
(A Delaware Limited Partnership):
We have audited the financial statements of Parker & Parsley 90-A, L.P. as
of December 31, 1997, and the related statements of operations, partners'
capital and cash flows for the years ended December 31, 1997 and 1996. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 90-A, L.P.
as of December 31, 1997, and the results of its operations and its cash flows
for the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
KPMG LLP
Midland, Texas
March 20, 1998
10
<PAGE> 900
PARKER & PARSLEY 90-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 92,210 $ 116,510
Accounts receivable -- oil and gas sales.................. 50,121 87,628
----------- -----------
Total current assets.............................. 142,331 204,138
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 5,076,345 5,067,298
Accumulated depletion....................................... (3,832,899) (3,637,375)
----------- -----------
Net oil and gas properties........................ 1,243,446 1,429,923
----------- -----------
$ 1,385,777 $ 1,634,061
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 13,101 $ 21,290
Partners' capital:
Managing general partner.................................. 13,808 16,209
Limited partners (6,811 interests)........................ 1,358,868 1,596,562
----------- -----------
1,372,676 1,612,771
----------- -----------
$ 1,385,777 $ 1,634,061
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 901
PARKER & PARSLEY 90-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
Revenues:
Oil and gas............................................... $441,480 $ 643,882 $777,677
Interest.................................................. 6,177 7,410 7,095
-------- --------- --------
447,657 651,292 784,772
-------- --------- --------
Costs and expenses:
Oil and gas production.................................... 282,430 305,774 298,749
General and administrative................................ 14,124 23,842 26,252
Impairment of oil and gas properties...................... 34,145 321,019 --
Depletion................................................. 161,379 150,605 169,844
Loss on disposition of assets............................. -- -- 28,717
-------- --------- --------
492,078 801,240 523,562
-------- --------- --------
Net income (loss)........................................... $(44,421) $(149,948) $261,210
======== ========= ========
Allocation of net income (loss):
Managing general partner.................................. $ (444) $ (1,499) $ 2,612
======== ========= ========
Limited partners.......................................... $(43,977) $(148,449) $258,598
======== ========= ========
Net income (loss) per limited partnership interest.......... $ (6.46) $ (21.80) $ 37.97
======== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 902
PARKER & PARSLEY 90-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Partners' capital at January 1, 1996....................... $22,444 $2,213,917 $2,236,361
Distributions............................................ (3,698) (366,110) (369,808)
Net income............................................... 2,612 258,598 261,210
------- ---------- ----------
Partners' capital at December 31, 1996..................... 21,358 2,106,405 2,127,763
Distributions............................................ (3,650) (361,394) (365,044)
Net loss................................................. (1,499) (148,449) (149,948)
------- ---------- ----------
Partners' capital at December 31, 1997..................... 16,209 1,596,562 1,612,771
Distributions............................................ (1,957) (193,717) (195,674)
Net loss................................................. (444) (43,977) (44,421)
------- ---------- ----------
Partners' capital at December 31, 1998..................... $13,808 $1,358,868 $1,372,676
======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 903
PARKER & PARSLEY 90-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $ (44,421) $(149,948) $ 261,210
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Impairment of oil and gas properties................. 34,145 321,019 --
Depletion............................................ 161,379 150,605 169,844
Loss on disposition of assets........................ -- -- 28,717
Changes in assets and liabilities:
Accounts receivable.................................. 37,507 44,000 (63,996)
Accounts payable..................................... (8,189) 2,555 (22,583)
--------- --------- ---------
Net cash provided by operating activities....... 180,421 368,231 373,192
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties..................... (9,047) (14,202) (1,425)
Proceeds from asset dispositions........................ -- -- 6,815
--------- --------- ---------
Net cash provided by (used in) investing
activities.................................... (9,047) (14,202) 5,390
--------- --------- ---------
Cash flows from financing activities:
Cash distributions to partners.......................... (195,674) (365,044) (369,808)
--------- --------- ---------
Net increase (decrease) in cash........................... (24,300) (11,015) 8,774
Cash at beginning of year................................. 116,510 127,525 118,751
--------- --------- ---------
Cash at end of year....................................... $ 92,210 $ 116,510 $ 127,525
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 904
PARKER & PARSLEY 90-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 90-A, L.P. (the "Partnership") is a limited partnership
organized in 1990 under the laws of the State of Delaware. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. received shareholder approval to merge
and create Pioneer Natural Resources Company ("Pioneer"). On August 8, 1997,
PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership as PPDLP's successor by merger.
The Partnership engages primarily in oil and gas development and production
in the Spraberry Trend area of West Texas and is not involved in any industry
segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties -- The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as determined by the engineering staff of Pioneer
USA, the Partnership's managing general partner, and reviewed by independent
petroleum consultants. The carrying amounts of properties sold or otherwise
disposed of and the related allowances for depletion are eliminated from the
accounts and any gain or loss is included in operations.
Impairment of long-lived assets -- 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"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -- Preparation
of the accompanying financial statements 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 reporting amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest -- The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes -- A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
15
<PAGE> 905
PARKER & PARSLEY 90-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statements of cash flows -- For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses -- General and administrative expenses
are allocated in part to the Partnership by the managing general partner or its
affiliates. Such allocated expenses are determined by the managing general
partner based upon its judgement of the level of activity of the Partnership
relative to the managing general partner's activities and other entities it
manages. The method of allocation has been consistent over the past several
years with certain modifications incorporated to reflect changes in Pioneer
USA's overall business activities.
Reclassifications -- Certain reclassifications may have been made to the
1997 and 1996 financial statements to conform to the 1998 financial statement
presentations.
Environmental -- The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 1998.
Revenue recognition -- The Partnership uses the entitlements method of
accounting for crude oil and natural gas revenues.
Reporting comprehensive income -- Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes
standards for the reporting and display of comprehensive income (loss) and its
components in a full set of general purpose financial statements. Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss).
The Partnership has no items of other comprehensive income (loss), as defined by
SFAS No. 130. Consequently, the provisions of SFAS No. 130 do not apply to the
Partnership.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. Based upon a decline in the Partnership's outlook for future
commodity prices, the Partnership has estimated the expected future cash flows
of its oil and gas properties as of December 31, 1998, 1997 and 1996, and
compared such estimated future cash flows to the respective carrying amount of
the oil and gas properties to determine if the carrying amounts were likely to
be recoverable. For those proved oil and gas properties for which the carrying
amount exceeded the estimated future cash flows, an impairment was determined to
exist; therefore, the Partnership adjusted the carrying amount of those oil and
gas properties to their fair value as determined by discounting their expected
future cash flows at a discount rate commensurate with the risks involved in the
industry. As a result, the Partnership recognized non-cash impairment provisions
of $34,145 and $321,019 related to its proved oil and gas properties during 1998
and 1997, respectively.
16
<PAGE> 906
PARKER & PARSLEY 90-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $482,501 greater than the tax basis at December 31, 1998.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
Net income (loss) per statements of operations...... $(44,421) $(149,948) $261,210
Depletion and depreciation provisions for tax
reporting purposes (greater than) less than
amounts for financial reporting purposes.......... 149,296 16,293 (25,153)
Impairment of oil and gas properties for financial
reporting purposes................................ 34,145 321,019 --
Loss on sale of an asset for financial reporting
purposes greater than amounts for tax reporting
purposes.......................................... -- -- 26,940
Other............................................... 3,688 (2,745) 2,545
-------- --------- --------
Net income per Federal income tax
returns................................. $142,708 $ 184,619 $265,542
======== ========= ========
</TABLE>
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------- ------
<S> <C> <C> <C>
Development costs......................................... $9,047 $14,202 $1,168
====== ======= ======
</TABLE>
Capitalized oil and gas properties consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Proved properties:
Property acquisition costs............................... $ 200,177 $ 200,177
Completed wells and equipment............................ 4,876,168 4,867,121
----------- -----------
5,076,345 5,067,298
Accumulated depletion...................................... (3,832,899) (3,637,375)
----------- -----------
Net capitalized costs............................ $ 1,243,446 $ 1,429,923
=========== ===========
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $119,432 $139,545 $121,284
Reimbursement of general and administrative
expenses........................................... $ 11,560 $ 20,526 $ 22,989
</TABLE>
17
<PAGE> 907
PARKER & PARSLEY 90-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA
and P&P Employees 90-A, L.P., ("EMPL") (the "Entities"), Parker & Parsley 90-A
Conv., L.P. and the Partnership (the "Partnerships") are parties to the Program
agreement. EMPL is a limited partnership organized for the benefit of certain
employees of Pioneer USA.
The costs and revenues of the Program are allocated to the Entities and the
Partnerships as follows:
<TABLE>
<CAPTION>
ENTITIES(1) PARTNERSHIPS(2)
----------- ---------------
<S> <C> <C>
Revenues:
Proceeds from disposition of depreciable and
depletable properties --
First three years.................................. 14.141414% 85.858586%
After first three years............................ 19.191919% 80.808081%
All other revenues --
First three years.................................. 14.141414% 85.858586%
After first three years............................ 19.191919% 80.808081%
Costs and expenses:
Lease acquisition costs, drilling and completion costs
and all other costs................................ 9.090909% 90.909091%
Operating costs, reporting and legal expenses and
general and administrative expenses --
First three years.................................. 14.141414% 85.858586%
After first three years............................ 19.191919% 80.808081%
</TABLE>
- ---------------
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at
the Partnership level and 147 limited partner interests owned by Pioneer
USA.
(2) The allocation between the Partnership and Parker & Parsley 90-A Conv., L.P.
is 74.274809% and 25.725191%, respectively.
18
<PAGE> 908
PARKER & PARSLEY 90-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 1998, 1997 and 1996 and
changes in such quantities during the years then ended. Due to a change in the
accounting policy of the managing general partner in 1997, the Partnership began
accounting for processed natural gas production in two components: processed
natural gas liquids ("NGLs") and dry residue gas. NGLs are reflected in "Oil and
NGLs" in the table below. All of the Partnership's reserves are proved developed
and located within the United States. The Partnership's reserves are based on an
evaluation prepared by the engineering staff of Pioneer USA and reviewed by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant,
using criteria established by the Securities and Exchange Commission. Reserve
value information is available to limited partners pursuant to the Partnership
agreement and therefore, is not presented.
<TABLE>
<CAPTION>
OIL AND NGLS GAS
(BBLS) (MCF)
------------ ---------
<S> <C> <C>
Net proved reserves at January 1, 1996...................... 308,386 1,305,645
Revisions................................................... 60,341 363,559
Sale of reserves............................................ (141) (51,479)
Production.................................................. (25,428) (88,919)
-------- ---------
Net proved reserves at December 31, 1996.................... 343,158 1,528,806
Revisions................................................... 81,982 (865,758)
Production.................................................. (26,735) (68,973)
-------- ---------
Net proved reserves at December 31, 1997.................... 398,405 594,075
Revisions................................................... (141,729) (152,757)
Production.................................................. (32,915) (47,086)
-------- ---------
Net proved reserves at December 31, 1998.................... 223,761 394,232
======== =========
</TABLE>
As of December 31, 1998, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 1998 prices of $10.61 per
barrel of oil, $5.53 per barrel of NGLs and $1.40 per mcf of gas, discounted at
10% was approximately $378,000 and undiscounted was $533,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Genesis Crude Oil, L.P...................................... 57% 58% 61%
Western Gas Resources, Inc. ................................ 22% 19% 14%
</TABLE>
19
<PAGE> 909
PARKER & PARSLEY 90-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998, the amounts receivable from Genesis Crude Oil, L.P.
and Western Gas Resources, Inc. were $17,024 and $14,116, respectively, which
are included in the caption "Accounts receivable -- oil and gas sales" in the
accompanying Balance Sheet.
The Partnership's share of oil and gas production is sold to various
purchasers. Pioneer USA is of the opinion that the loss of any one purchaser
would not have an adverse effect on the ability of the Partnership to sell its
oil and gas production.
NOTE 9. ORGANIZATION AND OPERATIONS
The Partnership was organized April 30, 1990 as a limited partnership under
the Delaware Act for the purpose of acquiring and developing oil and gas
properties. The following is a brief summary of the more significant provisions
of the limited partnership agreement:
Managing general partner -- The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Program and Partnership affairs. As
managing general partner and operator of the Partnership's properties, all
production expenses are incurred by Pioneer USA and billed to the
Partnership and a portion of revenue is initially received by Pioneer USA
prior to being paid to the Partnership. Under the limited partnership
agreement, the managing general partner pays 1% of the Partnership's
acquisition, drilling and completion costs and 1% of its operating and
general and administrative expenses. In return, it is allocated 1% of the
Partnership's revenues.
Limited partner liability -- The maximum amount of liability of any
limited partner is the total contributions of such partner plus his share
of any undistributed profits.
Initial capital contributions -- The limited partners entered into
subscription agreements for aggregate capital contributions of $6,811,000.
Pioneer USA is required to contribute amounts equal to 1% of initial
Partnership capital less commission and organization and offering costs
allocated to the limited partners and to contribute amounts necessary to
pay costs and expenses allocated to it under the Partnership agreement to
the extent its share of revenues does not cover such costs.
NOTE 10. DISPOSITION OF ASSETS
Loss on disposition of assets was due to a loss of $28,717 on sale of
assets during 1996. This loss was the result of the write-off of remaining
capitalized well costs for one gas well of $35,532, less proceeds received of
$6,815.
20
<PAGE> 910
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and
executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve
until the next annual meeting of stockholders or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31,
NAME 1998 POSITION
- ---- ------------ --------
<S> <C> <C>
Scott D. Sheffield..... 46 President and Director
Timothy L. Dove........ 42 Executive Vice President and Director
Dennis E. Fagerstone... 49 Executive Vice President and Director
Mark L. Withrow........ 51 Executive Vice President, General Counsel and Director
M. Garrett Smith....... 37 Executive Vice President, Chief Financial Officer and
Director
Mel Fischer (a)........ 64 Executive Vice President
Lon C. Kile............ 43 Executive Vice President
Rich Dealy............. 32 Vice President and Chief Accounting Officer
</TABLE>
- ---------------
(a) Mr. Fischer was a director and officer until his retirement from Pioneer
and Pioneer USA on February 19, 1999.
Scott D. Sheffield. Mr. Sheffield is a distinguished graduate of The
University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he
has served as President, Chief Executive Officer and a director of Pioneer and
President and a director of Pioneer USA. Mr. Sheffield was the President and a
director of Parker & Parsley from May 1990 until August 1997 and was the
Chairman of the Board and Chief Executive Officer of Parker & Parsley from
October 1990 until August 1997. He was the sole director of Parker & Parsley
from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley
Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum
engineer in 1979. He served as Vice President -- Engineering of PPDC from
September 1981 until April 1985 when he was elected President and a director. In
March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive
Officer of PPDC. Before joining PPDC, Mr. Sheffield was employed as a production
and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President -- Business
Development of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. Mr. Dove joined Parker & Parsley in May
1994 as Vice President -- International and was promoted to Senior Vice
President -- Business Development in October 1996, in which position he served
until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with
Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various
capacities in international exploration and production, marketing, refining and
marketing and planning and development. Mr. Dove earned a B.S. in Mechanical
Engineering from Massachusetts Institute of Technology in 1979 and received his
M.B.A. in 1981 from the University of Chicago.
21
<PAGE> 911
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of Mesa from March 1, 1997 until August 1997. From October
1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief
Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice
President -- Exploration and Production of Mesa. From June 1988 to May 1991, Mr.
Fagerstone served as Vice President -- Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President -- General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President -- General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
M. Garrett Smith. Mr. Smith, a graduate of The University of Texas with a
B.S. in Electrical Engineering and Southern Methodist University with an M.B.A.,
was appointed Executive Vice President and Chief Financial Officer of Pioneer in
December 1997. He served as Senior Vice President -- Finance of Pioneer from
August 1997 until December 1997. Mr. Smith was elected Senior Vice President --
Finance and a director of Pioneer USA in August 1997. He served as Vice
President -- Corporate Acquisitions of Mesa from January 1997 until August 1997.
From October 1996 to December 1996, Mr. Smith served as Vice
President -- Finance of Mesa and from 1994 to 1996 he served as Director of
Financial Planning of Mesa. Mr. Smith was employed by BTC Partners, Inc. (a
former financial advisor to Mesa) from 1989 to 1994.
Mel Fischer. Mr. Fischer, a graduate of the University of California at
Berkeley with a Masters degree in Geology, became Executive Vice
President -- Worldwide Exploration of Pioneer and Pioneer USA in August 1997. He
served as a director of Parker & Parsley from November 1995 until August 1997
and was Executive Vice President -- Worldwide Exploration for Parker & Parsley
from February 1997 to August 1997. Mr. Fischer retired from Pioneer and Pioneer
USA effective February 15, 1999. He worked in the petroleum industry for 32
years, starting as a Petroleum Geologist with Texaco in 1962, and retiring as
President, Occidental International Exploration and Production Company in March
1994. For the 10 years prior to becoming President of Occidental International,
he served as Executive Vice President, World Wide Exploration with Occidental
Oil and Gas Corporation. He is a registered geologist in the State of
California, a member of the American Association of Petroleum Geologists and an
emeritus member of the Board of Advisors for the Earth Sciences Research
Institute at the University of Utah.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a
B.B.A. in Accounting, became Executive Vice President of Pioneer and Pioneer USA
in August 1997. Mr. Kile was Senior Vice President -- Investor Relations from
October 1996 to August 1997. Previously, he served as Vice President and Manager
of the Mid-Continent Division, Vice President -- Equity Finance & Analysis and
Vice President -- Marketing & Program Administration. Prior to joining Parker &
Parsley in 1985, he was employed as Supervisor -- Senior, Audit, in charge of
Parker & Parsley's audit, with Arthur Young.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a
B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became
Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
22
<PAGE> 912
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is vested in Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA and P&P Employees 90-A, L.P., ("EMPL") pay approximately
10% of the Partnership's acquisition, drilling and completion costs and
approximately 15% during the first three years and approximately 20% after three
years of its operating and general and administrative expenses. In return, they
are allocated approximately 15% during the first three years and approximately
20% after three years of the Partnership's revenues. See Notes 6 and 9 of Notes
to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data" for information regarding fees and reimbursements paid to
the managing general partner or its affiliates by the Partnership.
Pioneer USA's current executive officers and other employees are general
partners of EMPL which serves as a co-general partner of the Program. Under this
arrangement, EMPL pays approximately 2 1/2% of the Partnership's acquisition,
drilling and completion costs and approximately 3.75% during the first three
years and approximately 5% after three years of its operating and general and
administrative expenses. In return, EMPL is allocated approximately 3.75% during
the first three years and approximately 5% after three years of the
Partnership's revenues. EMPL does not receive any fees or reimbursements from
the Partnership.
The Partnership does not directly pay any salaries of the executive
officers of Pioneer USA, but does pay a portion of Pioneer USA's general and
administrative expenses of which these salaries are a part. See Note 6 of Notes
to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more
of the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 147 limited partner interests at January 1, 1999.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing
general partner of the Partnership, Pioneer USA, has the exclusive right and
full authority to manage, control and administer the Partnership's business.
Under the limited partnership agreement, limited partners holding a majority of
the outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner or its affiliates
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $119,432 $139,545 $121,284
Reimbursement of general and administrative
expenses........................................... $ 11,560 $ 20,526 $ 22,989
</TABLE>
23
<PAGE> 913
Under the limited partnership agreement, the managing general partner pays
1% of the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial statements
The following are filed as part of this annual report:
Independent Auditors' Report -- Ernst & Young LLP
Independent Auditors' Report -- KPMG LLP
Balance sheets as of December 31, 1998 and 1997
Statements of operations for the years ended December 31, 1998, 1997
and 1996
Statements of partners' capital for the years ended December 31, 1998,
1997 and 1996
Statements of cash flows for the years ended December 31, 1998, 1997
and 1996
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this annual report.
24
<PAGE> 914
SIGNATURES
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 90-A, L.P.
By: Pioneer Natural Resources USA,
Inc. Managing General Partner
By: /s/ SCOTT D. SHEFFIELD
----------------------------------
Scott D. Sheffield,
President
Dated: March 25, 1999
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 date indicated.
<TABLE>
<C> <S> <C>
/s/ SCOTT D. SHEFFIELD President and Director of March 25, 1999
- ----------------------------------------------------- Pioneer USA
Scott D. Sheffield
/s/ TIMOTHY L. DOVE Executive Vice President and March 25, 1999
- ----------------------------------------------------- Director of Pioneer USA
Timothy L. Dove
/s/ DENNIS E. FAGERSTONE Executive Vice President and March 25, 1999
- ----------------------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ MARK L. WITHROW Executive Vice President, March 25, 1999
- ----------------------------------------------------- General Counsel and Director
Mark L. Withrow of Pioneer USA
/s/ M. GARRETT SMITH Executive Vice President, Chief March 25, 1999
- ----------------------------------------------------- Financial Officer and
M. Garrett Smith Director of Pioneer USA
/s/ LON C. KILE Executive Vice President of March 25, 1999
- ----------------------------------------------------- Pioneer USA
Lon C. Kile
/s/ RICH DEALY Vice President and Chief March 25, 1999
- ----------------------------------------------------- Accounting Officer of Pioneer
Rich Dealy USA
</TABLE>
25
<PAGE> 915
PARKER & PARSLEY 90-A, L.P.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3(a) -- Form of Agreement of Limited Partnership of Parker &
Parsley 90-A, L.P. incorporated by reference to Exhibit A
of the Post-Effective Amendment No. 1 of the
Partnership's Registration Statement on Form S-1
(Registration No. 33-26097)
4(b) -- Form of Limited Partner Subscription Agreement
incorporated by reference to Exhibit C of the
Post-Effective Amendment No. 1 of the Partnership's
Registration Statement on Form S-1 (Registration No.
33-26097)
4(b) -- Form of General Partner Subscription Agreement
incorporated by reference to Exhibit D of the
Post-Effective Amendment No. 1 of the Partnership's
Registration Statement on Form S-1 (Registration No.
33-26097)
4(b) -- Power of Attorney incorporated by reference to Exhibit B
of Amendment No. 1 of the Partnership's Registration
Statement on Form S-1 (Registration No. 33-26097)
4(c) -- Specimen Certificate of Limited Partnership Interest
incorporated by reference to Exhibit 4c of the
Partnership's Registration Statement on Form S-1
(Registration No. 33-26097)
10(b) -- Form of Development Drilling Program Agreement
incorporated by reference to Exhibit B of the
Post-Effective Amendment No. 1 of the Partnership's
Registration Statement on Form S-1 (Registration No.
33-26097)
27.1* -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith
<PAGE> 916
PARKER & PARSLEY 90-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
DECEMBER 31, 1998, 1997 AND 1996
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. Future income taxes are calculated by comparing
discounted future cash flows to the tax basis of oil and gas properties plus
available carryforwards and credits and applying the current tax rates to the
difference.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and gas producing activities:
Future cash inflows....................................... $ 2,464 $ 7,483 $14,291
Future production costs................................... (1,931) (4,629) (7,636)
Future development costs.................................. -- -- 100
------- ------- -------
533 2,854 6,755
10% annual discount factor................................ (155) (1,237) (3,392)
------- ------- -------
Standardized measure of discounted future net cash
flows.................................................. $ 378 $ 1,617 $ 3,363
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs................ $ (159) $ (338) $ (479)
Net changes in prices and production costs................ (1,027) (1,539) 1,365
Extensions and discoveries................................ -- -- --
Sales of minerals-in-place................................ -- -- (31)
Purchases of minerals-in-place............................ -- -- --
Revisions of estimated future development costs........... -- (57) (51)
Revisions of previous quantity estimates and reserves
added by development drilling.......................... (174) (178) 724
Accretion of discount..................................... 162 336 191
Changes in production rates, timing and other............. (41) 30 (266)
------- ------- -------
Change in present value of future net revenues............ (1,239) (1,746) 1,453
------- ------- -------
Balance, beginning of year................................ 1,617 3,363 1,910
------- ------- -------
Balance, end of year...................................... $ 378 $ 1,617 $ 3,363
======= ======= =======
</TABLE>
<PAGE> 917
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 90-B CONV., L.P., A DELAWARE
LIMITED PARTNERSHIP
TO
PROXY STATEMENT DATED , 1999
----------------------
THE DATE OF THIS SUPPLEMENT IS , 1999
----------------------
This document contains important information specific to Parker & Parsley
90-B Conv., L.P. and supplements the proxy statement dated , 1999,
of Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting
proxies to be voted at a special meeting of limited partners of the partnerships
described in the proxy statement. The purpose of the special meeting is for you
to vote upon the merger of Parker & Parsley 90-B Conv., L.P. with and into
Pioneer USA that, if completed, will result in your receiving cash for your
partnership interests.
This supplement contains the following information concerning Parker &
Parsley 90-B Conv., L.P.:
- A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through June
30, 1999
-- the merger value per $1,000 limited partner investment as of June 30,
1999
-- the merger value per $1,000 limited partner investment as a multiple
of distributions for the 12 months ended June 30, 1999
-- the book value per $1,000 limited partner investment as of June 30,
1999 and as of December 31, 1998 and
-- the ordinary tax loss per $1,000 limited partner investment in year
of initial investment
- Quarterly Report on Form 10-Q for the six months ended June 30, 1999
- Annual Report on Form 10-K for the year ended December 31, 1998
- Disclosures about the partnership's oil and gas producing activities
<PAGE> 918
PARKER & PARSLEY 90-B CONV., L.P.
SUPPLEMENTAL INFORMATION TABLE
<TABLE>
<S> <C>
Aggregate Initial Investment by the Limited Partners(a)..... $11,897
Aggregate Historical Limited Partner Distributions through
June 30, 1999(a).......................................... $ 7,190
Merger Value per $1,000 Limited Partner Investment as of
June 30, 1999(b).......................................... $158.61
Merger Value per $1,000 Limited Partner Investment as a
Multiple of Distributions for the 12 Months ended June 30,
1999(b)................................................... 12.23times
Book Value per $1,000 Limited Partner Investment:
-- as of June 30, 1999(b)................................. $166.39
-- as of December 31, 1998(b)............................. $169.31
Ordinary Tax Loss per $1,000 Limited Partner Investment in
Year of Initial Investment(b), (c)........................ $ 469
</TABLE>
- ---------------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as any
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
<PAGE> 919
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JUNE 30, 1999
COMMISSION FILE NO. 33-26097-08
PARKER & PARSLEY 90-B CONV., L.P.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2329284
(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)
</TABLE>
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> 920
PARKER & PARSLEY 90-B CONV., L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1999 and December 31,
1998.................................................. 3
Statements of Operations for the three and six months
ended June 30, 1999 and 1998.......................... 4
Statement of Partners' Capital for the six months ended
June 30, 1999......................................... 5
Statements of Cash Flows for the six months ended June
30, 1999 and 1998..................................... 6
Notes to Financial Statements.......................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................. 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 11
27.1 Financial Data Schedule
Signatures............................................. 12
</TABLE>
2
<PAGE> 921
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER & PARSLEY 90-B CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 96,775 $ 76,330
Accounts receivable -- oil and gas sales.................. 125,793 83,807
----------- -----------
Total current assets.............................. 222,568 160,137
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 9,606,297 9,600,469
Accumulated depletion....................................... (7,794,127) (7,703,198)
----------- -----------
Net oil and gas properties........................ 1,812,170 1,897,271
----------- -----------
$ 2,034,738 $ 2,057,408
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 35,235 $ 22,740
Partners' capital:
Managing general partner.................................. 19,995 20,346
Limited partners (11,897 interests)....................... 1,979,508 2,014,322
----------- -----------
1,999,503 2,034,668
----------- -----------
$ 2,034,738 $ 2,057,408
=========== ===========
</TABLE>
The financial information included as of June 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
<PAGE> 922
PARKER & PARSLEY 90-B CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas...................................... $196,244 $203,398 $349,651 $410,441
Interest......................................... 960 1,558 1,899 3,475
Gain on disposition of assets.................... -- -- -- 123
-------- -------- -------- --------
197,204 204,956 351,550 414,039
-------- -------- -------- --------
Costs and expenses:
Oil and gas production........................... 115,052 134,541 236,655 274,144
General and administrative....................... 6,427 6,706 12,245 13,701
Depletion........................................ 29,386 61,424 90,929 114,204
-------- -------- -------- --------
150,865 202,671 339,829 402,049
-------- -------- -------- --------
Net income......................................... $ 46,339 $ 2,285 $ 11,721 $ 11,990
======== ======== ======== ========
Allocation of net income:
Managing general partner......................... $ 463 $ 23 $ 117 $ 120
======== ======== ======== ========
Limited partners................................. $ 45,876 $ 2,262 $ 11,604 $ 11,870
======== ======== ======== ========
Net income per limited partnership interest........ $ 3.86 $ .19 $ .98 $ 1.00
======== ======== ======== ========
Distributions per limited partnership interest..... $ 1.80 $ 4.76 $ 3.90 $ 14.69
======== ======== ======== ========
</TABLE>
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> 923
PARKER & PARSLEY 90-B CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1, 1999................................. $20,346 $2,014,322 $2,034,668
Distributions............................................ (468) (46,418) (46,886)
Net income............................................... 117 11,604 11,721
------- ---------- ----------
Balance at June 30, 1999................................... $19,995 $1,979,508 $1,999,503
======= ========== ==========
</TABLE>
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> 924
PARKER & PARSLEY 90-B CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 11,721 $ 11,990
Adjustments to reconcile net income to net cash provided
by operating activities:
Depletion.............................................. 90,929 114,204
Gain on disposition of assets.......................... -- (123)
Changes in assets and liabilities:
Accounts receivable.................................... (41,986) 31,700
Accounts payable....................................... 12,495 6,802
-------- --------
Net cash provided by operating activities......... 73,159 164,573
-------- --------
Cash flows from investing activities:
Additions to oil and gas properties....................... (5,828) (7,888)
Proceeds from asset dispositions.......................... -- 123
-------- --------
Net cash used in investing activities............. (5,828) (7,765)
-------- --------
Cash flows used in financing activities:
Cash distributions to partners............................ (46,886) (176,476)
-------- --------
Net increase (decrease) in cash equivalents................. 20,445 (19,668)
Cash at beginning of period................................. 76,330 118,712
-------- --------
Cash at end of period....................................... $ 96,775 $ 99,044
======== ========
</TABLE>
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> 925
PARKER & PARSLEY 90-B CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 90-B Conv., L.P. (the "Partnership") was organized as a
general partnership in 1990 under the laws of the State of Texas and was
converted to a Delaware limited partnership on August 1, 1991.
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 June 30, 1999 and for the three and six months ended June 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.
7
<PAGE> 926
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (1)
RESULTS OF OPERATIONS
Six months ended June 30, 1999 compared with six months ended June 30, 1998
Revenues:
The Partnership's oil and gas revenues decreased 15% to $349,651 from
$410,441 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from lower average prices received and a decrease
in production. For the six months ended June 30, 1999, 18,107 barrels of oil,
8,670 barrels of natural gas liquids ("NGLs") and 36,322 mcf of gas were sold,
or 32,831 barrel of oil equivalents ("BOEs"). For the six months ended June 30,
1998, 21,153 barrels of oil, 8,110 barrel of NGLs and 36,722 mcf of gas were
sold, or 35,383 BOEs.
The average price received per barrel of oil decreased 6%, from $13.99 for
the six months ended June 30, 1998 to $13.22 for the same period in 1999. The
average price received per barrel of NGLs decreased 6%, from $7.27 during the
six months ended June 30, 1998 to $6.81 for the same period in 1999. The average
price received per mcf of gas decreased 7% from $1.51 for the six months ended
June 30, 1998 to $1.41 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 six months ended June 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 $123 was received during the six months
ended June 30, 1998 from the sale of equipment on one saltwater disposal well
plugged and abandoned in a prior year.
Costs and Expenses:
Total costs and expenses decreased to $339,829 for the six months ended
June 30, 1998 as compared to $402,049 for the same period in 1998, a decrease of
$62,220, or 15%. This decrease was due to declines in production costs,
depletion and general and administrative expenses ("G&A").
Production costs were $236,655 for the six months ended June 30, 1999 and
$274,144 for the same period in 1998, resulting in a $37,489 decrease, or 14%.
This decrease was due to declines in well maintenance costs, production taxes
and workover expenses.
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, 11% from $13,701 for the six months ended June 30, 1998
to $12,245 for the same period in 1999.
Depletion was $90,929 for the six months ended June 30, 1999 compared to
$114,204 for the same period in 1998, a decrease in depletion of $23,275, or
20%. This decrease was primarily due to a reduction in oil production of 3,046
barrels for the six months ended June 30, 1999 compared to the same period in
1998, an increase in proved reserves during the period ended June 30, 1999 due
to higher commodity prices 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.
Three months ended June 30, 1999 compared with three months ended June 30,
1998
Revenues:
The Partnership's oil and gas revenues decreased 4% to $196,244 from
$203,398 for the three months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from a decrease in production, offset by higher
average prices received. For the three months ended June 30, 1999, 8,675
8
<PAGE> 927
barrels of oil, 4,896 barrels of NGLs and 18,753 mcf of gas were sold, or 16,697
BOEs. For the three months ended June 30, 1998, 10,684 barrels of oil, 4,429
barrels of NGLs and 18,359 mcf of gas were sold, or 18,173 BOEs.
The average price received per barrel of oil increased $1.56, or 12%, from
$13.25 for the three months ended June 30, 1998 to $14.81 for the same period in
1999. The average price received per barrel of NGLs increased 4% from $7.62
during the three months ended June 30, 1998 to $7.90 for the same period in
1999. The average price received per mcf of gas increased slightly from $1.53
during the three months ended June 30, 1998 to $1.55 for the same period in
1999.
Costs and Expenses:
Total costs and expenses decreased to $150,865 for the three months ended
June 30, 1999 as compared to $202,671 for the same period in 1998, a decrease of
$51,806, or 26%. This decrease was due to declines in depletion, production
costs and G&A.
Production costs were $115,052 for the three months ended June 30, 1999 and
$134,541 for the same period in 1998, resulting in a $19,489 decrease, or 14%.
The decrease was due to lower well maintenance costs, production taxes and ad
valorem taxes.
During this period, G&A decreased, in aggregate, 4% from $6,706 for the
three months ended June 30, 1998 to $6,427 for the same period in 1999.
Depletion was $29,386 for the three months ended June 30, 1999 compared to
$61,424 for the same period in 1997, a decrease of $32,038, or 52%. This
decrease was primarily attributable to an increase in proved reserves during the
period ended June 30, 1999 as a result of higher commodity prices, a decrease in
oil production of 2,009 barrels for the three months ended June 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.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $91,414 during the six
months ended June 30, 1999 from the same period ended June 30, 1998. This
decrease was primarily due to a decline in oil and gas sales receipts, offset by
a decrease in production costs paid.
Net Cash Used in Investing Activities
The Partnership's principal investing activities for the six months ended
June 30, 1999 and 1998 included expenditures related to equipment replacement on
various oil and gas properties.
Proceeds from asset dispositions of $123 were received during the six
months ended June 30, 1998 from the sale of equipment on one saltwater disposal
well abandoned in a prior year.
Net Cash Used in Financing Activities
Cash was sufficient for the six months ended June 30, 1999 to cover
distributions to the partners of $46,886 of which $468 was distributed to the
managing general partner and $46,418 to the limited partners. For the same
period ended June 30, 1998, cash was sufficient for distributions to the
partners of $176,476 of which $1,765 was distributed to the managing general
partner and $174,711 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 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 early indications that the nations have initiated
their planned reductions,
9
<PAGE> 928
have had some stabilizing effect on commodity prices during the latter part of
the first quarter of 1999 and into August 1999. However, no assurances can be
given that the stabilizing effect of these actions, or the planned reductions in
export volumes, will 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.
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 June 30, 1999, the managing general partner estimates that the
assessment phase is approximately 99% complete and has included, but is not
limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- the formulation of contingency plans for mission-critical information
technology systems.
Through June 30, 1999, the managing general partner had 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 varying 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 June 30, 1999, the managing general partner
estimates that the remedial phase is approximately 83% complete, on a worldwide
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 is expected
to be completed by 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 expects to complete the testing of
information technology systems by October 1999. The testing of the
non-information technology remediation is scheduled to be completed by the end
of November 1999.
10
<PAGE> 929
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. As of June 30, 1999, the managing general partner's total costs
incurred on the Year 2000 problem were $2.3 million, of which approximately $200
thousand were incurred to replace non-compliant systems.
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) Form 8-K -- none
11
<PAGE> 930
SIGNATURES
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 90-B CONV., L.P.
By: Pioneer Natural Resources USA,
Inc.,
Managing General Partner
By: /s/ RICH DEALY
----------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
Dated: August 9, 1999
12
<PAGE> 931
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 33-26097-08
PARKER & PARSLEY 90-B CONV., L.P.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2329284
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
303 WEST WALL, SUITE 101, MIDLAND, TEXAS 679701
(Address of principal executive offices) (Zip code)
</TABLE>
Registrant's Telephone Number, including area code : (915) 683-4768
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
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]
No market currently exists for the limited partnership interests of the
Registrant. Based on original purchase price the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$11,817,000.
As of March 8, 1999, the number of outstanding limited partnership
interests was 11,897.
The following documents are incorporated by reference into the indicated
parts of this Annual Report on Form 10-K: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 932
Parts I and II of this Report contain 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. See "Item 1.
Business" for a description of various factors that could materially affect the
ability of the Partnership to achieve the anticipated results described in the
forward looking statements.
PART I
ITEM 1. BUSINESS
Parker & Parsley 90-B Conv., L.P. (the "Partnership") was organized in 1990
as a general partnership under the laws of the State of Texas. The Partnership
converted to a Delaware limited partnership on August 1, 1991. As of August 8,
1997, Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing
general partner of the Partnership. Prior to August 8, 1997, the Partnership's
managing general partner was Parker & Parsley Development L.P. ("PPDLP"), a
wholly-owned subsidiary of Parker & Parsley Petroleum Company ("Parker &
Parsley"). On August 7, 1997, Parker & Parsley and Mesa Inc. ("Mesa") received
shareholder approval to merge and create Pioneer Natural Resources Company
("Pioneer"). On August 8, 1997, PPDLP was merged with and into Pioneer USA, a
wholly-owned subsidiary of Pioneer, resulting in Pioneer USA becoming the
managing general partner of the Partnership as PPDLP's successor by merger. For
a more complete description of the Parker & Parsley and Mesa merger, see
Pioneer's Registration Statement on Form S-4 as filed with the Securities &
Exchange Commission.
A Registration Statement, as amended, filed pursuant to the Securities Act
of 1933, registering general partnership interests aggregating $30,000,000 in a
series of Texas general partnerships formed under the Parker & Parsley 89-90
Development Drilling Program, was declared effective by the Securities and
Exchange Commission on August 1, 1989. On October 5, 1990, the offering of
general partnership interests in the Partnership, the fourth partnership formed
under such statement, was closed, with interests aggregating $11,897,000 being
sold to 668 subscribers.
The Partnership engages primarily in oil and gas development and production
and is not involved in any industry segment other than oil and gas. See "Item 6.
Selected Financial Data" and "Item 8. Financial Statements and Supplementary
Data" of this report for a summary of the Partnership's operating information
and identifiable assets.
The principal markets during 1998 for the oil produced by the Partnership
were refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. The principal markets for the
Partnership's gas were companies that have pipelines located near the
Partnership's gas producing properties. Of the Partnership's total oil and gas
revenues for 1998, approximately 58% and 21% were attributable to sales made to
Genesis Crude Oil, L.P. and Western Gas Resources, Inc., respectively.
The Partnership's revenues, profitability, cash flow and future rate of
growth are highly dependent on the prevailing prices of oil and gas, which are
affected by numerous factors beyond the Partnership's control. Oil and gas
prices historically have been very volatile. A substantial or extended decline
in the prices of oil or gas could have a material adverse effect on the
Partnership's revenues, profitability and cash flow and could, under certain
circumstances, result in a reduction in the carrying value of the Partnership's
oil and gas properties.
Because of the demand for oil and gas, the Partnership does not believe
that the termination of the sales of its products to any one customer would have
a material adverse impact on its operations. The loss of a particular customer
for gas may have an effect if that particular customer has the only gas pipeline
located in the areas of the Partnership's gas producing properties. The
Partnership believes, however, that the effect would be temporary, until
alternative arrangements could be made.
1
<PAGE> 933
Federal and state regulation of oil and gas operations generally includes
the fixing of maximum prices for regulated categories of natural gas, the
imposition of maximum allowable production rates, the taxation of income and
other items, and the protection of the environment. Although the Partnership
believes that its business operations do not impair environmental quality and
that its costs of complying with any applicable environmental regulations are
not currently significant, the Partnership cannot predict what, if any, effect
these environmental regulations may have on its current or future operations.
The Partnership does not have any employees of its own. Pioneer USA employs
818 persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this report is filed. Pioneer
USA supplies all management functions.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the
Partnership conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist primarily of leasehold interests in
properties on which oil and gas wells are located. Such property interests are
often subject to landowner royalties, overriding royalties and other oil and gas
leasehold interests.
Fractional working interests in developmental oil and gas prospects located
primarily in the Spraberry Trend Area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 104
oil and gas wells. One well has been plugged and abandoned. At December 31,
1998, the Partnership had 103 producing oil and gas wells.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 1998, 1997 and 1996 and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been estimated by the engineering staff of Pioneer USA with a review by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
2
<PAGE> 934
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 8, 1999, the Partnership had 11,897 outstanding limited
partnership interests held of record by 664 subscribers. There is no established
public trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are
not required to meet the Partnership's obligations are distributed to the
partners at least quarterly in accordance with the limited partnership
agreement. During the years ended December 31, 1998 and 1997, $281,505 and
$623,178, respectively, of such revenue-related distributions were made to the
limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Oil and gas sales.............. $ 764,787 $1,118,628 $1,382,265 $1,160,419 $1,266,515
========== ========== ========== ========== ==========
Impairment of oil and gas
properties.................. $ 275,430 $ 328,594 $ 22,474 $ 115,434 $ --
========== ========== ========== ========== ==========
Net income (loss).............. $ (373,956) $ (55,191) $ 544,919 $ 181,451 $ 229,524
========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general partner.... $ (3,740) $ (552) $ 5,449 $ 1,852 $ 2,345
========== ========== ========== ========== ==========
Limited partners............ $ (370,216) $ (54,639) $ 539,470 $ 179,599 $ 227,179
========== ========== ========== ========== ==========
Limited partners' net income
(loss) per limited
partnership interest........ $ (31.12) $ (4.59) $ 45.35 $ 15.10 $ 19.10
========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest........ $ 23.66 $ 52.38 $ 56.21 $ 48.84 $ 53.88
========== ========== ========== ========== ==========
AT YEAR END:
Total assets................... $2,057,408 $2,727,510 $3,402,932 $3,580,821 $3,947,513
========== ========== ========== ========== ==========
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1998 compared to 1997
The Partnership's 1998 oil and gas revenues decreased 32% to $764,787 from
$1,118,628 in 1997. The decrease in revenues resulted from lower average prices
received. In 1998, 41,140 barrels of oil, 17,403 barrels of natural gas liquids
("NGLs") and 73,460 mcf of gas were sold, or 70,786 barrel of oil equivalents
("BOEs"). In 1997, 42,270 barrels of oil, 6,929 barrels of NGLs and 100,068 mcf
of gas were sold, or 65,877 BOEs. Due to the decline characteristics of the
Partnership's oil and gas properties, management expects a certain amount of
decline in production in the future until the Partnership's economically
recoverable reserves are fully depleted.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. Effective September 30, 1997, as a result of the
merger with Mesa, the managing general partner accounts for processed natural
gas production in two components: natural gas liquids and dry residue gas. As a
result of the change in the managing general
3
<PAGE> 935
partner's policy, the Partnership now accounts for processed natural gas
production as processed natural gas liquids and dry residue gas. Consequently,
separate product volumes will not be comparable for 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 year ended December 31, 1998 is the price received
for dry residue gas and the price per mcf for natural gas produced prior to
October 1997 was presented as a price for wet gas (i.e., natural gas liquids
combined with dry residue gas).
The average price received per barrel of oil decreased $6.33, or 33%, from
$19.45 in 1997 to $13.12 in 1998. The average price received per barrel of NGLs
decreased $3.78, or 36%, from $10.38 in 1997 to $6.60 in 1998. The average price
received per mcf of gas decreased 33% from $2.24 in 1997 to $1.50 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 in 1998.
Gain on disposition of assets of $1,669 for 1998 was attributable to
credits received from the disposal of oil and gas equipment on a fully depleted
well and from credits received for the disposal of oil and gas equipment on one
well that was plugged and abandoned in a prior year.
Total costs and expenses decreased to $1,147,349 in 1998 as compared to
$1,182,470 in 1997, a decrease of $35,121, or 3%. The decrease was due to
declines in the impairment of oil and gas properties, production costs and
general and administrative expenses ("G&A"), offset by an increase in depletion.
Production costs were $517,526 in 1998 and $534,097 in 1997, resulting in a
$16,571 decrease, or 3%. The decrease was due to lower production taxes due to
decreased oil and gas revenues and declines in workover costs and ad valorem
taxes, offset by an increase in well maintenance costs.
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 $37,876 in 1997 to $26,722 in 1998. The
Partnership paid the managing general partner $22,923 in 1998 and $33,218 in
1997 for G&A incurred on behalf of the Partnership. G&A is allocated, in part,
to the Partnership by the managing general partner. Such allocated expenses are
determined by the managing general partner based upon its judgement of the level
of activity of the Partnership relative to the managing general partner's
activities and other entities it manages. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
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"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. Declining commodity prices prompted
impairment reviews in 1998 and 1997. As a result of the review and evaluation of
its long-lived assets for impairment, the Partnership recognized non-cash
charges of $275,430 and $328,594 related to its oil and gas properties during
1998 and 1997, respectively.
Depletion was $327,671 in 1998 compared to $281,903 in 1997. This
represented an increase of $45,768, or 16%. The increase was primarily the
result of a combination of factors that included a decline in proved reserves
during 1998 due to the lower commodity prices, 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 and a reduction in oil production of 1,130
barrels for the period ended December 31, 1998 compared to the same period in
1997.
1997 compared to 1996
The Partnership's 1997 oil and gas revenues decreased 19% to $1,118,628
from $1,382,265 in 1996. The decrease in revenues resulted from declines in
production and lower average prices received. In 1997,
4
<PAGE> 936
42,270 barrels of oil, 6,929 barrels of NGLs and 100,068 mcf of gas were sold,
or 65,877 BOEs. In 1996, 48,188 barrels of oil and 130,387 mcf of gas were sold,
or 69,919 BOEs.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. As is described above in "Results of
Operations -- 1998 compared to 1997", the Partnership changed its method of
accounting for processed natural gas to a dry gas basis in the fourth quarter of
1997. As a result of this change, the Partnership now accounts for processed
natural gas production as processed natural gas liquids and dry residue gas.
Consequently, 1997 and 1996 separate product volumes are not comparable.
The declines in production volumes were primarily attributable to the
decline characteristics of the Partnership's oil and gas properties.
The average price received per barrel of oil decreased $2.30, or 11%, from
$21.75 in 1996 to $19.45 in 1997. The average price received per barrel of NGLs
during 1997 was $10.38. The average price received per mcf of gas decreased 13%
from $2.56 in 1996 to $2.24 in 1997.
A gain on disposition of assets of $2,401 was recognized during 1996 from
credits received from the disposal of oil and gas equipment on one well that was
plugged and abandoned in a prior year and credits received from the disposal of
oil and gas equipment on fully depleted wells, offset by a loss from the write-
off of remaining capitalized well costs on the abandonment of one saltwater
disposal well.
Total costs and expenses increased to $1,182,470 in 1997 as compared to
$847,612 in 1996, an increase of $334,858, or 40%. The increase was due to the
impairment of oil and gas properties and increases in depletion and production
costs, offset by a decrease in G&A.
Production costs were $534,097 in 1997 and $523,763 in 1996, resulting in a
$10,334 increase. The increase was due to additional well maintenance costs,
workover costs incurred in an effort to stimulate well production and ad valorem
taxes, offset by a decline in production taxes.
During this period, G&A decreased, in aggregate, 10% from $41,920 in 1996
to $37,876 in 1997. The Partnership paid the managing general partner $33,218 in
1997 and $37,351 in 1996 for G&A incurred on behalf of the Partnership.
The Partnership recognized non-cash SFAS 121 impairment provisions of
$328,594 and $22,474 related to its oil and gas properties during the fourth
quarters of 1997 and 1996, respectively.
Depletion was $281,903 in 1997 compared to $259,455 in 1996. This
represented an increase of $22,448 or 9%. The increase was primarily
attributable to a decrease in oil reserves during 1997 as a result of lower
commodity prices, offset by a decline in oil production of 5,918 barrels for
1997 as compared to 1996.
IMPACT OF INFLATION AND CHANGING PRICES ON SALES AND NET INCOME
Inflation impacts the fixed overhead rate charges of the lease operating
expenses for the Partnership. During 1998, the annual change in the index of
average weekly earnings of crude petroleum and gas production workers issued by
the U.S. Department of Labor, Bureau of Labor Statistics increased (effective
April 1, 1998) 10.3%. The 1997 annual change in average weekly earnings
increased by 2%. The 1996 index increased 4.1%. The impact of inflation for
other lease operating expenses is small due to the current economic condition of
the oil industry.
The oil and gas industry experienced volatility during the past decade
because of the fluctuation of the supply of most fossil fuels relative to the
demand for such products and other uncertainties in the world energy markets
causing significant fluctuations in oil and gas prices. During 1998, the price
per barrel for oil production similar to the Partnership's ranged from
approximately $9.50 to $15.50. During most of 1997 and 1996, 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 March 1999. On March 8, 1999, the market price for West Texas intermediate
crude was $11.00 per barrel. A
5
<PAGE> 937
continuation of the current commodity price environment will continue to have an
adverse effect on the Partnership's revenues, operating cash flow and
distributions and could result in additional decreases in the carrying value of
the Partnership's oil and gas properties.
Prices for natural gas are subject to ordinary seasonal fluctuations, and
this volatility of natural gas prices may result in production being curtailed
and, in some cases, wells being completely shut-in.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $384,699 during the
year ended December 31, 1998 from the year ended December 31, 1997. The decrease
was primarily due to declines in oil and gas sales receipts, offset by declines
in production costs and G&A expenses paid.
Net Cash Used in Investing Activities
The Partnership's principal investing activities during 1998 and 1997 were
related to the replacement of oil and gas equipment on active properties.
Proceeds from asset dispositions of $1,669 were received in 1998 from
credits received on one fully depleted well and from the sale of oil and gas
equipment on one well abandoned in a prior year.
Net Cash Used in Financing Activities
Cash was sufficient in 1998 for distributions to the partners of $284,348
of which $2,843 was distributed to the managing general partner and $281,505 to
the limited partners. In 1997, cash was sufficient for distributions to the
partners of $629,473 of which $6,295 was distributed to the managing general
partner and $623,178 to the limited partners.
The current commodity price environment will continue to impact the
distributions and could result in limited or no distributions to the partners.
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.
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
at varying stages of completion as it pertains to information technology and
non-information technology applications and systems in the United States, Canada
and Argentina. As of December 31, 1998, the managing general
6
<PAGE> 938
partner estimates that the assessment phase is approximately 86% complete, on a
worldwide basis, and has included, but is not limited to, the following
procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- 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 to
approximately 37% of those inquiries.
The remedial phase of the managing general partner's Year 2000 project is
also at varying 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 December 31, 1998, the
managing general partner estimates that the remedial phase is approximately 54%
complete, on a worldwide basis, subject to the continuing 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 through remedial coding and is currently testing this system for Year
2000 compliance. The remediation of non-information technology is expected to be
completed during July 1999. The managing general partner's Year 2000 remedial
actions have not significantly 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 and non-information technology remediation by the end of the third
quarter of 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. The managing general partner intends to use its working capital to pay
for the costs of the Year 2000 projects. As of December 31, 1998, the managing
general partner's total costs incurred on the Year 2000 problem were $1.8
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 in accordance with the general and
administration allocation. (See Note 2 of Notes to Financial Statements included
in "Item 8. Financial Statements and Supplementary Data".)
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.
7
<PAGE> 939
In the assessment phase of the managing general partner's Year 2000
project, contingency plans are being 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.
8
<PAGE> 940
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Parker & Parsley 90-B Conv., L.P.:
Independent Auditors' Report -- Ernst & Young LLP......... 10
Independent Auditors' Report -- KPMG LLP.................. 11
Balance Sheets as of December 31, 1998 and 1997........... 12
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996.................................... 13
Statements of Partners' Capital for the Years Ended
December 31, 1998, 1997 and 1996....................... 14
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996.................................... 15
Notes to Financial Statements............................. 16
</TABLE>
9
<PAGE> 941
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 90-B Conv., L.P.
(A Delaware Limited Partnership):
We have audited the balance sheet of Parker & Parsley 90-B Conv., L.P. as
of December 31, 1998, and the related statements of operations, partners'
capital and cash flows for the year then ended. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 90-B Conv.,
L.P. as of December 31, 1998, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Dallas, Texas
March 15, 1999
10
<PAGE> 942
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 90-B Conv., L.P.
(A Delaware Limited Partnership):
We have audited the financial statements of Parker & Parsley 90-B Conv.,
L.P. as of December 31, 1997, and the related statements of operations,
partners' capital and cash flows for the years ended December 31, 1997 and 1996.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 90-B Conv.,
L.P. as of December 31, 1997, and the results of its operations and its cash
flows for the years ended December 31, 1997 and 1996, in conformity with
generally accepted accounting principles.
KPMG LLP
Midland, Texas
March 20, 1998
11
<PAGE> 943
PARKER & PARSLEY 90-B CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 76,330 $ 118,712
Accounts receivable -- oil and gas sales.................. 83,807 126,770
----------- -----------
Total current assets.............................. 160,137 245,482
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 9,600,469 9,582,125
Accumulated depletion....................................... (7,703,198) (7,100,097)
----------- -----------
Net oil and gas properties........................ 1,897,271 2,482,028
----------- -----------
$ 2,057,408 $ 2,727,510
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 22,740 $ 34,538
Partners' capital:
Managing general partner.................................. 20,346 26,929
Limited partners (11,897 interests)....................... 2,014,322 2,666,043
----------- -----------
2,034,668 2,692,972
----------- -----------
$ 2,057,408 $ 2,727,510
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 944
PARKER & PARSLEY 90-B CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Oil and gas............................................ $ 764,787 $1,118,628 $1,382,265
Interest............................................... 6,937 8,651 7,865
Gain on disposition of assets.......................... 1,669 -- 2,401
---------- ---------- ----------
773,393 1,127,279 1,392,531
---------- ---------- ----------
Costs and expenses:
Oil and gas production................................. 517,526 534,097 523,763
General and administrative............................. 26,722 37,876 41,920
Impairment of oil and gas properties................... 275,430 328,594 22,474
Depletion.............................................. 327,671 281,903 259,455
---------- ---------- ----------
1,147,349 1,182,470 847,612
---------- ---------- ----------
Net income (loss)........................................ $ (373,956) $ (55,191) $ 544,919
========== ========== ==========
Allocation of net income (loss):
Managing general partner............................... $ (3,740) $ (552) $ 5,449
========== ========== ==========
Limited partners....................................... $ (370,216) $ (54,639) $ 539,470
========== ========== ==========
Net income (loss) per limited partnership interest....... $ (31.12) $ (4.59) $ 45.35
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 945
PARKER & PARSLEY 90-B CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Partners' capital at January 1, 1996....................... $35,082 $3,473,154 $3,508,236
Distributions............................................ (6,755) (668,764) (675,519)
Net income............................................... 5,449 539,470 544,919
------- ---------- ----------
Partners' capital at December 31, 1996..................... 33,776 3,343,860 3,377,636
Distributions............................................ (6,295) (623,178) (629,473)
Net loss................................................. (552) (54,639) (55,191)
------- ---------- ----------
Partners' capital at December 31, 1997..................... 26,929 2,666,043 2,692,972
Distributions............................................ (2,843) (281,505) (284,348)
Net loss................................................. (3,740) (370,216) (373,956)
------- ---------- ----------
Partners' capital at December 31, 1998..................... $20,346 $2,014,322 $2,034,668
======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 946
PARKER & PARSLEY 90-B CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $(373,956) $ (55,191) $ 544,919
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Impairment of oil and gas properties................. 275,430 328,594 22,474
Depletion............................................ 327,671 281,903 259,455
Gain on disposition of assets........................ (1,669) -- (2,401)
Changes in assets and liabilities:
Accounts receivable.................................. 42,963 78,792 (92,911)
Accounts payable..................................... (11,798) 9,242 (36,632)
--------- --------- ---------
Net cash provided by operating activities....... 258,641 643,340 694,904
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties..................... (18,344) (18,952) (3,686)
Proceeds from disposition of assets..................... 1,669 -- 3,145
--------- --------- ---------
Net cash used in investing activities........... (16,675) (18,952) (541)
--------- --------- ---------
Cash flows from financing activities:
Cash distributions to partners.......................... (284,348) (629,473) (675,519)
--------- --------- ---------
Net increase (decrease) in cash........................... (42,382) (5,085) 18,844
Cash at beginning of year................................. 118,712 123,797 104,953
--------- --------- ---------
Cash at end of year....................................... $ 76,330 $ 118,712 $ 123,797
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 947
PARKER & PARSLEY 90-B CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 90-B Conv., L.P. (the "Partnership") was organized as a
general partnership in 1990 under the laws of the State of Texas and was
converted to a Delaware limited partnership on August 1, 1991. As of August 8,
1997, Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing
general partner of the Partnership. Prior to August 8, 1997, the Partnership's
managing general partner was Parker & Parsley Development L.P. ("PPDLP"), a
wholly-owned subsidiary of Parker & Parsley Petroleum Company ("Parker &
Parsley"). On August 7, 1997, Parker & Parsley and Mesa Inc. received
shareholder approval to merge and create Pioneer Natural Resources Company
("Pioneer"). On August 8, 1997, PPDLP was merged with and into Pioneer USA, a
wholly-owned subsidiary of Pioneer, resulting in Pioneer USA becoming the
managing general partner of the Partnership as PPDLP's successor by merger.
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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties -- The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as determined by the engineering staff of Pioneer
USA, the Partnership's managing general partner, and reviewed by independent
petroleum consultants. The carrying amounts of properties sold or otherwise
disposed of and the related allowances for depletion are eliminated from the
accounts and any gain or loss is included in operations.
Impairment of long-lived assets -- 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"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -- Preparation
of the accompanying financial statements 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 reporting amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest -- The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
16
<PAGE> 948
PARKER & PARSLEY 90-B CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes -- A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows -- For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses -- General and administrative expenses
are allocated in part to the Partnership by the managing general partner or its
affiliates. Such allocated expenses are determined by the managing general
partner based upon its judgement of the level of activity of the Partnership
relative to the managing general partner's activities and other entities it
manages. The method of allocation has been consistent over the past several
years with certain modifications incorporated to reflect changes in Pioneer
USA's overall business activities.
Reclassifications -- Certain reclassifications may have been made to the
1997 and 1996 financial statements to conform to the 1998 financial statement
presentations.
Environmental -- The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 1998.
Revenue recognition -- The Partnership uses the entitlements method of
accounting for crude oil and natural gas revenues.
Reporting comprehensive income -- Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes
standards for the reporting and display of comprehensive income (loss) and its
components in a full set of general purpose financial statements. Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss).
The Partnership has no items of other comprehensive income (loss), as defined by
SFAS No. 130. Consequently, the provisions of SFAS No. 130 do not apply to the
Partnership.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. Based upon a decline in the Partnership's outlook for future
commodity prices, the Partnership has estimated the expected future cash flows
of its oil and gas properties as of December 31, 1998, 1997 and 1996, and
compared such estimated future cash flows to the respective carrying amount of
the oil and gas properties to determine if the carrying amounts were likely to
be recoverable. For those proved oil and gas properties for which the carrying
amount exceeded the estimated future cash flows, an impairment was determined to
exist; therefore, the Partnership adjusted the carrying amount of those oil and
gas properties to their fair value as determined by discounting their expected
future cash flows at a discount rate commensurate with the risks involved in the
industry. As a result, the Partnership recognized non-cash impairment provisions
of $275,430, $328,594 and $22,474 related to its proved oil and gas properties
during 1998, 1997 and 1996, respectively.
17
<PAGE> 949
PARKER & PARSLEY 90-B CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $570,148 greater than the tax basis at December 31, 1998.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Net income (loss) per statements of operations...... $(373,956) $(55,191) $544,919
Depletion and depreciation provisions for tax
reporting purposes (greater than) less than
amounts for financial reporting purposes.......... 175,500 (73,043) (112,161)
Impairment of oil and gas properties for financial
reporting purposes................................ 275,430 328,594 22,474
Other............................................... 3,987 (508) 11,966
--------- -------- --------
Net income per Federal income tax
returns................................. $ 80,961 $199,852 $467,198
========= ======== ========
</TABLE>
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Development costs....................................... $18,344 $18,939 $10,116
======= ======= =======
</TABLE>
Capitalized oil and gas properties consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Proved properties:
Property acquisition costs............................... $ 369,498 $ 369,498
Completed wells and equipment............................ 9,230,971 9,212,627
----------- -----------
9,600,469 9,582,125
Accumulated depletion...................................... (7,703,198) (7,100,097)
----------- -----------
Net capitalized costs............................ $ 1,897,271 $ 2,482,028
=========== ===========
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $209,549 $217,885 $205,705
Reimbursement of general and administrative
expenses........................................... $ 22,923 $ 33,218 $ 37,351
</TABLE>
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
P&P Employees 90-B Conv., L.P. ("EMPL") (the "Entities"), Parker & Parsley 90-B,
L.P. and the Partnership (the "Partnerships") are
18
<PAGE> 950
PARKER & PARSLEY 90-B CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
parties to the Program agreement. EMPL is a limited partnership organized for
the benefit of certain employees of Pioneer USA.
The costs and revenues of the Program are allocated to the Entities and the
Partnerships as follows:
<TABLE>
<CAPTION>
ENTITIES(1) PARTNERSHIPS(2)
----------- ---------------
<S> <C> <C>
Revenues:
Proceeds from disposition of depreciable and depletable
properties:
First three years..................................... 14.141414% 85.858586%
After first three years............................... 19.191919% 80.808081%
All other revenues
First three years..................................... 14.141414% 85.858586%
After first three years............................... 19.191919% 80.808081%
Costs and expenses:
Lease acquisition costs, drilling and completion costs
and all other costs................................... 9.090909% 90.909091%
Operating costs, reporting and legal expenses and general
and administrative expenses:
First three years..................................... 14.141414% 85.858586%
After first three years............................... 19.191919% 80.808081%
</TABLE>
- ---------------
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at
the Partnership level and 80 limited partner interests owned by Pioneer USA.
(2) The allocation between the Partnership and Parker & Parsley 90-B, L.P. is
26.94006% and 73.05994%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 1998, 1997 and 1996 and
changes in such quantities during the years then ended. Due to a change in the
accounting policy of the managing general partner in 1997, the Partnership began
accounting for processed natural gas production in two components: processed
natural gas liquids ("NGLs") and dry residue gas. NGLs are reflected in "Oil and
NGLs" in the table below. All of the Partnership's reserves are proved developed
and located within the United States. The Partnership's reserves are based on an
evaluation prepared by the engineering staff of Pioneer USA and reviewed by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant,
using criteria established by
19
<PAGE> 951
PARKER & PARSLEY 90-B CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the Securities and Exchange Commission. Reserve value information is available
to limited partners pursuant to the Partnership agreement and, therefore, is not
presented.
<TABLE>
<CAPTION>
OIL AND NGLS GAS
(BBLS) (MCF)
------------ ----------
<S> <C> <C>
Net proved reserves at January 1, 1996...................... 617,986 1,843,851
Revisions................................................... 128,128 452,504
Production.................................................. (48,188) (130,387)
-------- ----------
Net proved reserves at December 31, 1996.................... 697,926 2,165,968
Revisions................................................... 266,203 (1,201,254)
Production.................................................. (49,199) (100,068)
-------- ----------
Net proved reserves at December 31, 1997.................... 914,930 864,646
Revisions................................................... (446,456) (190,771)
Production.................................................. (58,543) (73,460)
-------- ----------
Net proved reserves at December 31, 1998.................... 409,931 600,415
======== ==========
</TABLE>
As of December 31, 1998, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 1998 prices of $10.61 per
barrel of oil, $5.35 per barrel of NGLs and $1.37 per mcf of gas, discounted at
10% was approximately $735,000 and undiscounted was $1,110,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Genesis Crude Oil, L.P. .................................... 58% 61% 63%
Western Gas Resources, Inc. ................................ 21% 18% 13%
</TABLE>
At December 31, 1998, the amounts receivable from Genesis Crude Oil, L.P.
and Western Gas Resources, Inc. were $27,474 and $23,975, respectively, which
are included in the caption "Accounts receivable -- oil and gas sales" in the
accompanying Balance Sheet.
The Partnership's share of oil and gas production is sold to various
purchasers. Pioneer USA is of the opinion that the loss of any one purchaser
would not have an adverse effect on the ability of the Partnership to sell its
oil and gas production.
NOTE 9. ORGANIZATION AND OPERATIONS
The Partnership was organized October 5, 1990 as a general partnership
under the Texas Uniform General Partnership Act for the purpose of acquiring and
developing oil and gas properties. The Partnership converted to a Delaware
limited partnership on August 1, 1991. The managing general partner received an
opinion of legal counsel to the effect that such conversion will not result in
material adverse
20
<PAGE> 952
PARKER & PARSLEY 90-B CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
tax consequences to the Partnership. The following is a brief summary of the
more significant provisions of the Partnership agreement:
Managing general partner -- The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Program and Partnership affairs. As
managing general partner and operator of the Partnership's properties, all
production expenses are incurred by Pioneer USA and billed to the
Partnership and a portion of revenue is initially received by Pioneer USA
prior to being paid to the Partnership. Under the Partnership agreement,
the managing general partner pays 1% of the Partnership's acquisition,
drilling and completion costs and 1% of its operating and general and
administrative expenses. In return, it is allocated 1% of the Partnership's
revenues.
Limited partner liability -- The maximum amount of liability of any
limited partner is the total contributions of such partner plus his share
of any undistributed profits.
Initial capital contributions -- The partners entered into
subscription agreements for aggregate capital contributions of $11,897,000.
The managing general partner is required to contribute amounts equal to 1%
of initial Partnership capital less commission and organization and
offering costs allocated to the limited partners and to contribute amounts
necessary to pay costs and expenses allocated to it under the Partnership
agreement to the extent its share of revenues does not cover such costs.
21
<PAGE> 953
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and
executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve
until the next annual meeting of stockholders or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31,
NAME 1998 POSITION
- ---- ------------ --------
<S> <C> <C>
Scott D. Sheffield................. 46 President and Director
Timothy L. Dove.................... 42 Executive Vice President and
Director
Dennis E. Fagerstone............... 49 Executive Vice President and
Director
Mark L. Withrow.................... 51 Executive Vice President, General
Counsel and Director
M. Garrett Smith................... 37 Executive Vice President, Chief
Financial Officer and Director
Mel Fischer(a)..................... 64 Executive Vice President
Lon C. Kile........................ 43 Executive Vice President
Rich Dealy......................... 32 Vice President and Chief Accounting
Officer
</TABLE>
- ---------------
(a) Mr. Fischer was a director and officer until his retirement from Pioneer
and Pioneer USA on February 19, 1999.
Scott D. Sheffield. Mr. Sheffield is a distinguished graduate of The
University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he
has served as President, Chief Executive Officer and a director of Pioneer and
President and a director of Pioneer USA. Mr. Sheffield was the President and a
director of Parker & Parsley from May 1990 until August 1997 and was the
Chairman of the Board and Chief Executive Officer of Parker & Parsley from
October 1990 until August 1997. He was the sole director of Parker & Parsley
from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley
Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum
engineer in 1979. He served as Vice President -- Engineering of PPDC from
September 1981 until April 1985 when he was elected President and a director. In
March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive
Officer of PPDC. Before joining PPDC, Mr. Sheffield was employed as a production
and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President -- Business
Development of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. Mr. Dove joined Parker & Parsley in May
1994 as Vice President -- International and was promoted to Senior Vice
President -- Business Development in October 1996, in which position he served
until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with
Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various
capacities in international exploration and production, marketing, refining and
marketing and planning and development. Mr. Dove earned a B.S. in Mechanical
Engineering from Massachusetts Institute of Technology in 1979 and received his
M.B.A. in 1981 from the University of Chicago.
22
<PAGE> 954
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of Mesa from March 1, 1997 until August 1997. From October
1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief
Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice
President -- Exploration and Production of Mesa. From June 1988 to May 1991, Mr.
Fagerstone served as Vice President -- Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B.S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President -- General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President -- General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
M. Garrett Smith. Mr. Smith, a graduate of The University of Texas with a
B.S. in Electrical Engineering and Southern Methodist University with an M.B.A.,
was appointed Executive Vice President and Chief Financial Officer of Pioneer in
December 1997. He served as Senior Vice President -- Finance of Pioneer from
August 1997 until December 1997. Mr. Smith was elected Senior Vice President --
Finance and a director of Pioneer USA in August 1997. He served as Vice
President -- Corporate Acquisitions of Mesa from January 1997 until August 1997.
From October 1996 to December 1996, Mr. Smith served as Vice
President -- Finance of Mesa and from 1994 to 1996 he served as Director of
Financial Planning of Mesa. Mr. Smith was employed by BTC Partners, Inc. (a
former financial advisor to Mesa) from 1989 to 1994.
Mel Fischer. Mr. Fischer, a graduate of the University of California at
Berkeley with a Masters degree in Geology, became Executive Vice
President -- Worldwide Exploration of Pioneer and Pioneer USA in August 1997. He
served as a director of Parker & Parsley from November 1995 until August 1997
and was Executive Vice President -- Worldwide Exploration for Parker & Parsley
from February 1997 to August 1997. Mr. Fischer retired from Pioneer and Pioneer
USA effective February 15, 1999. He worked in the petroleum industry for 32
years, starting as a Petroleum Geologist with Texaco in 1962, and retiring as
President, Occidental International Exploration and Production Company in March
1994. For the 10 years prior to becoming President of Occidental International,
he served as Executive Vice President, World Wide Exploration with Occidental
Oil and Gas Corporation. He is a registered geologist in the State of
California, a member of the American Association of Petroleum Geologists and an
emeritus member of the Board of Advisors for the Earth Sciences Research
Institute at the University of Utah.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a
B.B.A. in Accounting, became Executive Vice President of Pioneer and Pioneer USA
in August 1997. Mr. Kile was Senior Vice President -- Investor Relations from
October 1996 to August 1997. Previously, he served as Vice President and Manager
of the Mid-Continent Division, Vice President -- Equity Finance & Analysis and
Vice President -- Marketing & Program Administration. Prior to joining Parker &
Parsley in 1985, he was employed as Supervisor -- Senior, Audit, in charge of
Parker & Parsley's audit, with Arthur Young.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a
B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became
Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
23
<PAGE> 955
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is vested in Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA and P&P Employees 90-B Conv., L.P. ("EMPL") pay
approximately 10% of the Partnership's acquisition, drilling and completion
costs and approximately 15% during the first three years and approximately 20%
after three years of its operating and general and administrative expenses. In
return, they are allocated approximately 15% during the first three years and
approximately 20% after three years of the Partnership's revenues. See Notes 6
and 9 of Notes to Financial Statements included in "Item 8. Financial Statements
and Supplementary Data" for information regarding fees and reimbursements paid
to the managing general partner or its affiliates by the Partnership.
Pioneer USA's current executive officers and other employees are general
partners of EMPL which serves as a co-general partner of the Program. Under this
arrangement, EMPL pays approximately 2.5% of the Partnership's acquisition,
drilling and completion costs and approximately 3.75% during the first three
years and approximately 5% after three years of its operating and general and
administrative expenses. In return, EMPL is allocated approximately 3.75% during
the first three years and approximately 5% after three years of the
Partnership's revenues. EMPL does not receive any fees or reimbursements from
the Partnership.
The Partnership does not directly pay any salaries of the executive
officers of Pioneer USA, but does pay a portion of Pioneer USA's general and
administrative expenses of which these salaries are a part. See Note 6 of Notes
to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more
of the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 80 limited partnership interests at January 1, 1999.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing
general partner of the Partnership, Pioneer USA, has the exclusive right and
full authority to manage, control and administer the Partnership's business.
Under the limited partnership agreement, limited partners holding a majority of
the outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner or its affiliates
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $209,549 $217,885 $205,705
Reimbursement of general and administrative
expenses........................................... $ 22,923 $ 33,218 $ 37,351
</TABLE>
24
<PAGE> 956
Under the limited partnership agreement, the managing general partner pays
1% of the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial statements
The following are filed as part of this annual report:
Independent Auditors Report -- Ernst & Young LLP
Independent Auditors' Report -- KPMG LLP
Balance sheets as of December 31, 1998 and 1997
Statements of operations for the years ended December 31, 1998, 1997
and 1996
Statements of partners' capital for the years ended December 31, 1998,
1997 and 1996
Statements of cash flows for the years ended December 31, 1998, 1997
and 1996
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this annual report.
25
<PAGE> 957
SIGNATURES
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 90-B, CONV., L.P.
By: Pioneer Natural Resources USA,
Inc.
Managing General Partner
By: /s/ SCOTT D. SHEFFIELD
----------------------------------
Scott D. Sheffield,
President
Dated: March 29, 1999
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 date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ SCOTT D. SHEFFIELD President and Director of March 29, 1999
- ----------------------------------------------------- Pioneer USA
Scott D. Sheffield
/s/ TIMOTHY L. DOVE Executive Vice President and March 29, 1999
- ----------------------------------------------------- Director of Pioneer USA
Timothy L. Dove
/s/ DENNIS E. FAGERSTONE Executive Vice President and March 29, 1999
- ----------------------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ MARK L. WITHROW Executive Vice President, March 29, 1999
- ----------------------------------------------------- General Counsel and Director
Mark L. Withrow of Pioneer USA
/s/ M. GARRETT SMITH Executive Vice President, March 29, 1999
- ----------------------------------------------------- Chief Financial Officer and
M. Garrett Smith Director of Pioneer USA
/s/ LON C. KILE Executive Vice President of March 29, 1999
- ----------------------------------------------------- Pioneer USA
Lon C. Kile
/s/ RICH DEALY Vice President and Chief March 29, 1999
- ----------------------------------------------------- Accounting Officer of
Rich Dealy Pioneer USA
</TABLE>
26
<PAGE> 958
PARKER & PARSLEY 90-B CONV., L.P.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3(a) -- Form of Agreement of Limited Partnership of Parker &
Parsley 90-B Conv., L.P. incorporated by reference to
Exhibit A of the Post-Effective Amendment No. 1 of the
Partnership's Registration Statement on Form S-1
(Registration No. 33-26097)
4(b) -- Form of Limited Partner Subscription Agreement
incorporated by reference to Exhibit C of the
Post-Effective Amendment No. 1 of the Partnership's
Registration Statement on Form S-1 (Registration No.
33-26097)
4(b) -- Form of General Partner Subscription Agreement
incorporated by reference to Exhibit D of the
Post-Effective Amendment No. 1 of the Partnership's
Registration Statement on Form S-1 (Registration No.
33-26097)
4(b) -- Power of Attorney incorporated by reference to Exhibit B
of Amendment No. 1 of the Partnership's Registration
Statement on Form S-1 (Registration No. 33-26097)
4(c) -- Specimen Certificate of Limited Partnership Interest
incorporated by reference to Exhibit 4c of the
Partnership's Registration Statement on Form S-1
(Registration No. 33-26097)
10(b) -- Form of Development Drilling Program Agreement
incorporated by reference to Exhibit B of the
Post-Effective Amendment No. 1 of the Partnership's
Registration Statement on Form S-1 (Registration No.
33-26097)
27.1* -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith
<PAGE> 959
PARKER & PARSLEY 90-B CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
DECEMBER 31, 1998, 1997 AND 1996
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. Future income taxes are calculated by comparing
discounted future cash flows to the tax basis of oil and gas properties plus
available carryforwards and credits and applying the current tax rates to the
difference.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and gas producing activities:
Future cash inflows....................................... $ 4,449 $15,952 $ 25,317
Future production costs................................... (3,339) (8,685) (13,086)
Future development costs.................................. -- -- 178
------- ------- --------
1,110 7,267 12,409
10% annual discount factor................................ (375) (3,646) (6,349)
------- ------- --------
Standardized measure of discounted future net cash
flows.................................................. $ 735 $ 3,621 $ 6,060
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1998 1997 1996
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs................ $ (247) $ (584) $ (859)
Net changes in prices and production costs................ (2,389) (2,364) 2,489
Extensions and discoveries................................ -- -- --
Sales of minerals-in-place................................ -- -- --
Purchases of minerals-in-place............................ -- -- --
Revisions of estimated future development costs........... -- (88) (89)
Revisions of previous quantity estimates and reserves
added by development drilling.......................... (518) 221 1,262
Accretion of discount..................................... 362 606 346
Changes in production rates, timing and other............. (94) (230) (552)
------- ------- --------
Change in present value of future net revenues............ (2,886) (2,439) 2,597
------- ------- --------
Balance, beginning of year................................ 3,621 6,060 3,463
------- ------- --------
Balance, end of year...................................... $ 735 $ 3,621 $ 6,060
======= ======= ========
</TABLE>
<PAGE> 960
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 90-B, L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT DATED , 1999
----------------------
THE DATE OF THIS SUPPLEMENT IS , 1999
----------------------
This document contains important information specific to Parker & Parsley
90-B, L.P. and supplements the proxy statement dated , 1999, of
Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies
to be voted at a special meeting of limited partners of the partnerships
described in the proxy statement. The purpose of the special meeting is for you
to vote upon the merger of Parker & Parsley 90-B, L.P. with and into Pioneer USA
that, if completed, will result in your receiving cash for your partnership
interests.
This supplement contains the following information concerning Parker &
Parsley 90-B, L.P.:
- A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through June
30, 1999
-- the merger value per $1,000 limited partner investment as of June 30,
1999
-- the merger value per $1,000 limited partner investment as a multiple
of distributions for the 12 months ended June 30, 1999
-- the book value per $1,000 limited partner investment as of June 30,
1999 and as of December 31, 1998 and
-- the ordinary tax loss per $1,000 limited partner investment in year
of initial investment
- Quarterly Report on Form 10-Q for the six months ended June 30, 1999
- Annual Report on Form 10-K for the year ended December 31, 1998
- Disclosures about the partnership's oil and gas producing activities
<PAGE> 961
PARKER & PARSLEY 90-B, L.P.
SUPPLEMENTAL INFORMATION TABLE
<TABLE>
<S> <C>
Aggregate Initial Investment by the Limited Partners(a)..... $32,264
Aggregate Historical Limited Partner Distributions through
June 30, 1999(a).......................................... $19,502
Merger Value per $1,000 Limited Partner Investment as of
June 30, 1999(b).......................................... $158.78
Merger Value per $1,000 Limited Partner Investment as a
Multiple of Distributions for the 12 Months ended June 30,
1999(b)................................................... 12.30times
Book Value per $1,000 Limited Partner Investment:
-- as of June 30, 1999(b)................................. $166.57
-- as of December 31, 1998(b)............................. $169.47
Ordinary Tax Loss per $1,000 Limited Partner Investment in
Year of Initial Investment(b), (c)........................ $ 469
</TABLE>
- ---------------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as any
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
<PAGE> 962
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JUNE 30, 1999
COMMISSION FILE NO. 33-26097-07
PARKER & PARSLEY 90-B, L.P.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2329287
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
303 WEST WALL, SUITE 101, MIDLAND, TEXAS 79701
(Address of principal executive offices) (Zip code)
</TABLE>
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> 963
PARKER & PARSLEY 90-B, L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1999 and December 31,
1998.................................................. 3
Statements of Operations for the three and six months
ended June 30, 1999 and 1998.......................... 4
Statement of Partners' Capital for the six months ended
June 30, 1999......................................... 5
Statements of Cash Flows for the six months ended June
30, 1999 and 1998..................................... 6
Notes to Financial Statements.......................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................. 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 11
27.1 Financial Data Schedule
Signatures............................................. 12
</TABLE>
2
<PAGE> 964
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER & PARSLEY 90-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 267,265 $ 211,469
Accounts receivable -- oil and gas sales.................. 341,362 227,293
------------ ------------
Total current assets.............................. 608,627 438,762
------------ ------------
Oil and gas properties -- at cost, based on the successful
efforts accounting method.............................. 26,051,746 26,035,940
Accumulated depletion..................................... (21,136,203) (20,889,657)
------------ ------------
Net oil and gas properties........................ 4,915,543 5,146,283
------------ ------------
$ 5,524,170 $ 5,585,045
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable -- affiliate............................. $ 95,730 $ 61,975
Partners' capital:
Managing general partner.................................. 54,288 55,234
Limited partners (32,264 interests)....................... 5,374,152 5,467,836
------------ ------------
5,428,440 5,523,070
------------ ------------
$ 5,524,170 $ 5,585,045
============ ============
</TABLE>
The financial information included as of June 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
<PAGE> 965
PARKER & PARSLEY 90-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas.................................... $532,235 $551,596 $948,264 $1,113,100
Interest....................................... 2,647 4,282 5,232 9,531
Gain on disposition of assets.................. -- -- -- 333
-------- -------- -------- ----------
534,882 555,878 953,496 1,122,964
-------- -------- -------- ----------
Costs and expenses:
Oil and gas production......................... 311,851 364,847 641,619 743,438
General and administrative..................... 17,030 18,185 32,807 36,846
Depletion...................................... 79,706 166,765 246,546 309,796
-------- -------- -------- ----------
408,587 549,797 920,972 1,090,080
-------- -------- -------- ----------
Net income....................................... $126,295 $ 6,081 $ 32,524 $ 32,884
======== ======== ======== ==========
Allocation of net income:
Managing general partner....................... $ 1,263 $ 61 $ 325 $ 329
======== ======== ======== ==========
Limited partners............................... $125,032 $ 6,020 $ 32,199 $ 32,555
======== ======== ======== ==========
Net income per limited partnership interest...... $ 3.88 $ .19 $ 1.00 $ 1.01
======== ======== ======== ==========
Distributions per limited partnership
interest.................................... $ 1.80 $ 4.76 $ 3.90 $ 14.69
======== ======== ======== ==========
</TABLE>
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> 966
PARKER & PARSLEY 90-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1, 1999................................. $55,234 $5,467,836 $5,523,070
Distributions............................................ (1,271) (125,883) (127,154)
Net income............................................... 325 32,199 32,524
------- ---------- ----------
Balance at June 30, 1999................................... $54,288 $5,374,152 $5,428,440
======= ========== ==========
</TABLE>
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> 967
PARKER & PARSLEY 90-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 32,524 $ 32,884
Adjustments to reconcile net income to net cash provided
by operating activities:
Depletion.............................................. 246,546 309,796
Gain on disposition of assets.......................... -- (333)
Changes in assets and liabilities:
Accounts receivable.................................... (114,069) 85,944
Accounts payable....................................... 33,755 18,314
--------- ---------
Net cash provided by operating activities......... 198,756 446,605
--------- ---------
Cash flows from investing activities:
Additions to oil and gas properties....................... (15,806) (21,390)
Proceeds from asset dispositions.......................... -- 333
--------- ---------
Net cash used in investing activities............. (15,806) (21,057)
--------- ---------
Cash flows used in financing activities:
Cash distributions to partners............................ (127,154) (478,621)
--------- ---------
Net increase (decrease) in cash............................. 55,796 (53,073)
Cash at beginning of period................................. 211,469 326,401
--------- ---------
Cash at end of period....................................... $ 267,265 $ 273,328
========= =========
</TABLE>
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> 968
PARKER & PARSLEY 90-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 90-B, L.P. (the "Partnership") is a limited partnership
organized in 1990 under the laws of the State of Delaware.
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 June 30, 1999 and for the three and six months ended June 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.
7
<PAGE> 969
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
RESULTS OF OPERATIONS
Six months ended June 30, 1999 compared with six months ended June 30, 1998
Revenues:
The Partnership's oil and gas revenues decreased 15% to $948,264 from
$1,113,100 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from lower average prices received and a decrease
in production. For the six months ended June 30, 1999, 49,101 barrels of oil,
23,512 barrels of natural gas liquids ("NGLs") and 98,512 mcf of gas were sold,
or 89,032 barrel of oil equivalents ("BOEs"). For the six months ended June 30,
1998, 57,385 barrels of oil, 22,003 barrels of NGLs and 99,596 mcf of gas were
sold, or 95,987 BOEs.
The average price received per barrel of oil decreased 5% from $13.98 for
the six months ended June 30, 1998 to $13.22 for the same period in 1999. The
average price received per barrel of NGLs decreased 6% from $7.27 during the six
months ended June 30, 1998 to $6.81 for the same period in 1999. The average
price received per mcf of gas decreased 7% from $1.51 for the six months ended
June 30, 1998 to $1.41 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 six months ended June 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 $333 was received during the six months
ended June 30, 1998 from the sale of equipment on one saltwater disposal well
plugged and abandoned in a prior year.
Costs and Expenses:
Total costs and expenses decreased to $920,972 for the six months ended
June 30, 1999 as compared to $1,090,080 for the same period in 1998, a decrease
of $169,108, or 16%. The decrease was due to declines in production costs,
depletion and general and administrative expenses ("G&A").
Production costs were $641,619 for the six months ended June 30, 1999 and
$743,438 for the same period in 1998, resulting in a $101,819 decrease, or 14%.
The decrease was due to declines in well maintenance costs, production taxes and
workover expenses.
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, 11% from $36,846 for the six months ended June 30, 1998
to $32,807 for the same period in 1999.
Depletion was $246,546 for the six months ended June 30, 1999 compared to
$309,796 for the same period in 1998, a decrease of $63,250, or 20%. This
decrease was primarily due to a reduction in oil production of 8,284 barrels for
the six months ended June 30, 1999 compared to the same period in 1998, an
increase in proved reserves during the period ended June 30, 1999 due to higher
commodity prices 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.
Three months ended June 30, 1999 compared with three months ended June 30,
1998
Revenues:
The Partnership's oil and gas revenues decreased 4% to $532,235 from
$551,596 for the three months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from a decrease in production, offset by higher
average prices received. For the three months ended June 30, 1999,
8
<PAGE> 970
23,534 barrels of oil, 13,275 barrels of NGLs and 50,868 mcf of gas were sold,
or 45,287 BOEs. For the three months ended June 30, 1998, 28,992 barrels of oil,
12,013 barrels of NGLs and 49,788 mcf of gas were sold, or 49,303 BOEs.
The average price received per barrel of oil increased $1.57, or 12%, from
$13.24 for the three months ended June 30, 1998 to $14.81 for the same period in
1999. The average price received per barrel of NGLs increased 4% from $7.62
during the three months ended June 30, 1998 to $7.90 for the same period in
1999. The average price received per mcf of gas increased slightly from $1.53
during the three months ended June 30, 1998 to $1.55 for the same period in
1999.
Costs and Expenses:
Total costs and expenses decreased to $408,587 for the three months ended
June 30, 1999 as compared to $549,797 for the same period in 1998, a decrease of
$141,210, or 26%. This decrease was due to declines in depletion, production
costs and G&A.
Production costs were $311,851 for the three months ended June 30, 1999 and
$364,847 for the same period in 1998 resulting in a $52,996 decrease, or 15%.
This decrease was the result of lower well maintenance costs, production taxes
and ad valorem taxes.
During this period, G&A decreased, in aggregate, 6% from $18,185 for the
three months ended June 30, 1998 to $17,030 for the same period in 1999.
Depletion was $79,706 for the three months ended June 30, 1999 compared to
$166,765 for the same period in 1998, a decrease of $87,059, or 52%. This
decrease was primarily attributable to an increase in proved reserves during the
period ended June 30, 1999 as a result of higher commodity prices, a decrease in
oil production of 5,458 barrels for the three months ended June 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.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $247,849 during the six
months ended June 30, 1999 from the same period ended June 30, 1998. This
decrease resulted primarily from a decline in oil and gas sales receipts, offset
by a decrease in production costs paid.
Net Cash Used in Investing Activities
The Partnership's principal investing activities for the six months ended
June 30, 1999 and 1998 included expenditures related to equipment replacement on
various oil and gas properties.
Proceeds from asset dispositions of $333 were received during the six
months ended June 30, 1998 from the sale of equipment on one saltwater disposal
well abandoned in a prior year.
Net Cash Used in Financing Activities
Cash was sufficient for the six months ended June 30, 1999 to cover
distributions to the partners of $127,154 of which $1,271 was distributed to the
managing general partner and $125,883 to the limited partners. For the same
period ended June 30, 1998, cash was sufficient for distributions to the
partners of $478,621 of which $4,787 was distributed to the managing general
partner and $473,834 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 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 early indications that the nations have initiated
their planned reductions,
9
<PAGE> 971
have had some stabilizing effect on commodity prices during the latter part of
the first quarter of 1999 and into August 1999. However, no assurances can be
given that the stabilizing effect of these actions, or the planned reductions in
export volumes, will 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.
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 June 30, 1999, the managing general partner estimates that the
assessment phase is approximately 99% complete and has included, but is not
limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- the formulation of contingency plans for mission-critical information
technology systems.
Through June 30, 1999, the managing general partner had 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 varying 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 June 30, 1999, the managing general partner
estimates that the remedial phase is approximately 83% complete, on a worldwide
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 is expected
to be completed by 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 expects to complete the testing of
information technology systems by October 1999. The testing of the
non-information technology remediation is scheduled to be completed by the end
of November 1999.
10
<PAGE> 972
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. As of June 30, 1999, the managing general partner's total costs
incurred on the Year 2000 problem were $2.3 million, of which approximately $200
thousand were incurred to replace non-compliant systems.
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) Form 8-K -- none
11
<PAGE> 973
SIGNATURES
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 90-B, L.P.
By: Pioneer Natural Resources USA,
Inc.,
Managing General Partner
By: /s/ RICH DEALY
----------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
Dated: August 9, 1999
12
<PAGE> 974
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 33-26097-07
PARKER & PARSLEY 90-B, L.P.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2329287
(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)
</TABLE>
Registrant's Telephone Number, including area code: (915) 683-4768
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
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]
No market currently exists for the limited partnership interests of the
Registrant. Based on original purchase price the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$32,181,000.
As of March 8, 1999, the number of outstanding limited partnership
interests was 32,264.
The following documents are incorporated by reference into the indicated
parts of this Annual Report on Form 10-K: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 975
Parts I and II of this Report contain 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. See "Item 1.
Business" for a description of various factors that could materially affect the
ability of the Partnership to achieve the anticipated results described in the
forward looking statements.
PART I
ITEM 1. BUSINESS
Parker & Parsley 90-B, L.P. (the "Partnership") is a limited partnership
organized in 1990 under the laws of the State of Delaware. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. ("Mesa") received shareholder approval
to merge and create Pioneer Natural Resources Company ("Pioneer"). On August 8,
1997, PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership as PPDLP's successor by merger. For a more complete description of
the Parker & Parsley and Mesa merger, see Pioneer's Registration Statement on
Form S-4 as filed with the Securities & Exchange Commission.
A Registration Statement, as amended, filed pursuant to the Securities Act
of 1933, registering limited partnership interests aggregating $70,000,000 in a
series of Delaware limited partnerships formed under the Parker & Parsley 89-90
Development Drilling Program, was declared effective by the Securities and
Exchange Commission on August 1, 1989. On October 5, 1990, the offering of
limited partnership interests in the Partnership, the fourth partnership formed
under such statement, was closed, with interests aggregating $32,264,000 being
sold to 2,248 subscribers.
The Partnership engages primarily in oil and gas development and production
and is not involved in any industry segment other than oil and gas. See "Item 6.
Selected Financial Data" and "Item 8. Financial Statements and Supplementary
Data" of this report for a summary of the Partnership's operating information
and identifiable assets.
The principal markets during 1998 for the oil produced by the Partnership
were refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. The principal markets for the
Partnership's gas were companies that have pipelines located near the
Partnership's gas producing properties. Of the Partnership's total oil and gas
revenues for 1998, approximately 58% and 22% were attributable to sales made to
Genesis Crude Oil, L.P. and Western Gas Resources, Inc., respectively.
The Partnership's revenues, profitability, cash flow and future rate of
growth are highly dependent on the prevailing prices of oil and gas, which are
affected by numerous factors beyond the Partnership's control. Oil and gas
prices historically have been very volatile. A substantial or extended decline
in the prices of oil or gas could have a material adverse effect on the
Partnership's revenues, profitability and cash flow and could, under certain
circumstances, result in a reduction in the carrying value of the Partnership's
oil and gas properties.
Because of the demand for oil and gas, the Partnership does not believe
that the termination of the sales of its products to any one customer would have
a material adverse impact on its operations. The loss of a particular customer
for gas may have an effect if that particular customer has the only gas pipeline
located in the areas of the Partnership's gas producing properties. The
Partnership believes, however, that the effect would be temporary, until
alternative arrangements could be made.
Federal and state regulation of oil and gas operations generally includes
the fixing of maximum prices for regulated categories of natural gas, the
imposition of maximum allowable production rates, the taxation
1
<PAGE> 976
of income and other items, and the protection of the environment. Although the
Partnership believes that its business operations do not impair environmental
quality and that its costs of complying with any applicable environmental
regulations are not currently significant, the Partnership cannot predict what,
if any, effect these environmental regulations may have on its current or future
operations.
The Partnership does not have any employees of its own. Pioneer USA employs
818 persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this report is filed. Pioneer
USA supplies all management functions.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the
Partnership conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist primarily of leasehold interests in
properties on which oil and gas wells are located. Such property interests are
often subject to landowner royalties, overriding royalties and other oil and gas
leasehold interests.
Fractional working interests in developmental oil and gas prospects located
primarily in the Spraberry Trend Area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 104
oil and gas wells. One well was plugged and abandoned. At December 31, 1998, the
Partnership had 103 producing oil and gas wells.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 1998, 1997 and 1996 and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been estimated by the engineering staff of Pioneer USA with a review by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
2
<PAGE> 977
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 8, 1999, the Partnership had 32,264 outstanding limited
partnership interests held of record by 2,225 subscribers. There is no
established public trading market for the limited partnership interests. Under
the limited partnership agreement, Pioneer USA has made certain commitments to
purchase partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are
not required to meet the Partnership's obligations are distributed to the
partners at least quarterly in accordance with the limited partnership
agreement. During the years ended December 31, 1998 and 1997, $763,451 and
$1,690,035, respectively, of such revenue-related distributions were made to the
limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Oil and gas sales.... $ 2,074,056 $3,033,675 $3,748,608 $3,147,004 $ 3,434,740
=========== ========== ========== ========== ===========
Impairment of oil and
gas properties.... $ 744,642 $ 891,257 $ 61,080 $ 312,969 $ --
=========== ========== ========== ========== ===========
Net income (loss).... $(1,011,459) $ (149,382) $1,479,052 $ 493,276 $ 619,939
=========== ========== ========== ========== ===========
Allocation of net
income (loss):
Managing general
partner......... $ (10,115) $ (1,494) $ 14,790 $ 5,035 $ 6,335
=========== ========== ========== ========== ===========
Limited
partners........ $(1,001,344) $ (147,888) $1,464,262 $ 488,241 $ 613,604
=========== ========== ========== ========== ===========
Limited partners' net
income (loss) per
limited
partnership
interest.......... $ (31.04) $ (4.58) $ 45.38 $ 15.13 $ 19.02
=========== ========== ========== ========== ===========
Limited partners'
cash distributions
per limited
partnership
interest.......... $ 23.66 $ 52.38 $ 56.25 $ 48.87 $ 53.89
=========== ========== ========== ========== ===========
AT YEAR END:
Total assets......... $ 5,585,045 $7,399,664 $9,230,704 $9,713,167 $10,707,318
=========== ========== ========== ========== ===========
</TABLE>
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1998 compared to 1997
The Partnership's 1998 oil and gas revenues decreased 32% to $2,074,056
from $3,033,675 in 1997. The decrease in revenues resulted from lower average
prices received. In 1998, 111,585 barrels of oil, 47,190 barrels of natural gas
liquids ("NGLs") and 199,215 mcf of gas were sold, or 191,978 barrel of oil
equivalents ("BOEs"). In 1997, 114,621 barrels of oil, 18,786 barrels of NGLs
and 271,374 mcf of gas were sold, or 178,636 BOEs. Due to the decline
characteristics of the Partnership's oil and gas properties, management expects
a certain amount of decline in production in the future until the Partnership's
economically recoverable reserves are fully depleted.
3
<PAGE> 978
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. Effective September 30, 1997, as a result of the
merger with Mesa, the managing general partner accounts for processed natural
gas production in two components: natural gas liquids and dry residue gas. As a
result of the change in the managing general partner's policy, the Partnership
now accounts for processed natural gas production as processed natural gas
liquids and dry residue gas. Consequently, separate product volumes will not be
comparable for 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
year ended December 31, 1998 is the price received for dry residue gas and the
price per mcf for natural gas produced prior to October 1997 was presented as a
price for wet gas (i.e., natural gas liquids combined with dry residue gas).
The average price received per barrel of oil decreased $6.33, or 33%, from
$19.45 in 1997 to $13.12 in 1998. The average price received per barrel of NGLs
decreased $3.78, or 36%, from $10.38 in 1997 to $6.60 in 1998. The average price
received per mcf of gas decreased 33% from $2.24 in 1997 to $1.50 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 in 1998.
A gain on disposition of assets of $4,527 was due to credits received
during 1998 from the disposal of oil and gas equipment on one fully depleted
well and one well that was plugged and abandoned in a prior year.
Total costs and expenses decreased in 1998 to $3,108,696 as compared to
$3,206,784 in 1997, a decrease of $98,088, or 3%. The decrease was due to
declines in the impairment of oil and gas properties, production costs and
general and administrative expenses ("G&A"), offset by an increase in depletion.
Production costs were $1,403,494 in 1998 and $1,448,425 in 1997, resulting
in a $44,931 decrease, or 3%. The decrease was due to a decline in workover
costs, lower production taxes due to decreased oil and gas revenues and lower ad
valorem taxes, offset by an increase in well maintenance costs.
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, 30% from $103,014 in 1997 to $72,284 in 1998. The
Partnership paid the managing general partner $62,152 in 1998 and $90,687 in
1997 for G&A incurred on behalf of the Partnership. G&A is allocated, in part,
to the Partnership by the managing general partner. Such allocated expenses are
determined by the managing general partner based upon its judgement of the level
of activity of the Partnership relative to the managing general partner's
activities and other entities it manages. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
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"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. Declining commodity prices prompted
impairment reviews in 1998 and 1997. As a result of the review and evaluation of
its long-lived assets for impairment, the Partnership recognized non-cash
charges of $744,642 and $891,257 related to its oil and gas properties during
1998 and 1997, respectively.
Depletion was $888,276 in 1998 compared to $764,088 in 1997. This
represented an increase of $124,188, or 16%. This increase was primarily the
result of a combination of factors that included a decline in proved reserves
during 1998 due to the lower commodity prices, 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 and a reduction in oil production of 3,036
barrels for the period ended December 31, 1998 compared to the same period in
1997.
4
<PAGE> 979
1997 compared to 1996
The Partnership's 1997 oil and gas revenues decreased 19% to $3,033,675
from $3,748,608 in 1996. The decrease in revenues resulted from declines in
production and lower average prices received. In 1997, 114,621 barrels of oil,
18,786 barrels of NGLs and 271,374 mcf of gas were sold, or 178,636 BOEs. In
1996, 130,683 barrels of oil and 353,616 mcf of gas were sold, or 189,619 BOEs.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. As is described above in "Results of
Operations -- 1998 compared to 1997", the Partnership changed its method of
accounting for processed natural gas to a dry gas basis in the fourth quarter of
1997. As a result of this change, the Partnership now accounts for processed
natural gas production as processed natural gas liquids and dry residue gas.
Consequently, 1997 and 1996 separate product volumes are not comparable.
The declines in production volumes were primarily attributable to the
decline characteristics of the Partnership's oil and gas properties.
The average price received per barrel of oil decreased $2.30, or 11%, from
$21.75 in 1996 to $19.45 in 1997. The average price received per barrel of NGLs
was $10.38 in 1997. The average price received per mcf of gas decreased 13% from
$2.56 in 1996 to $2.24 in 1997.
A gain on disposition of assets of $6,512 was attributable to credits
received during 1996 from the disposal of oil and gas equipment on one well that
was plugged and abandoned in a prior year and to credits received from the
disposal of oil and gas equipment on fully depleted wells.
Total costs and expenses increased in 1997 to $3,206,784 as compared to
$2,297,595 in 1996, an increase of $909,189, or 40%. The increase was due to the
impairment of oil and gas properties and increases in depletion and production
costs, offset by a decline in G&A.
Production costs were $1,448,425 in 1997 and $1,420,416 in 1996, resulting
in a $28,009 increase. The increase was due to additional workover costs
incurred in an effort to stimulate well production and an increase in ad valorem
taxes, offset by a decline in production taxes.
During this period, G&A decreased, in aggregate, 9% from $112,892 in 1996
to $103,014 in 1997. The Partnership paid the managing general partner $90,687
in 1997 and $101,293 in 1996 for G&A incurred on behalf of the Partnership.
The Partnership recognized non-cash SFAS 121 impairment provisions of
$891,257 and $61,080 related to its proved oil and gas properties during the
fourth quarters of 1997 and 1996, respectively.
Depletion was $764,088 in 1997 compared to $703,207 in 1996. This
represented an increase of $60,881, or 9%. This increase was primarily
attributable to the decrease in oil reserves during 1997, as a result of lower
commodity prices, offset by a decline in oil production of 16,062 barrels for
1997 as compared to 1996.
IMPACT OF INFLATION AND CHANGING PRICES ON SALES AND NET INCOME
Inflation impacts the fixed overhead rate charges of the lease operating
expenses for the Partnership. During 1998, the annual change in the index of
average weekly earnings of crude petroleum and gas production workers issued by
the U.S. Department of Labor, Bureau of Labor Statistics increased (effective
April 1, 1998) 10.3%. The 1997 annual change in average weekly earnings
increased by 2%. The 1996 index increased 4.1%. The impact of inflation for
other lease operating expenses is small due to the current economic condition of
the oil industry.
The oil and gas industry experienced volatility during the past decade
because of the fluctuation of the supply of most fossil fuels relative to the
demand for such products and other uncertainties in the world energy markets
causing significant fluctuations in oil and gas prices. During 1998, the price
per barrel for oil production similar to the Partnership's ranged from
approximately $9.50 to $15.50. During most of 1997 and 1996, the Partnership
benefitted from higher oil prices as compared to previous years. However,
5
<PAGE> 980
during the fourth quarter of 1997, oil prices began a downward trend that has
continued into March 1999. On March 8, 1999, the market price for West Texas
intermediate crude was $11.00 per barrel. A continuation of the current
commodity price environment will continue to have an adverse effect on the
Partnership's revenues, operating cash flow and distributions and could result
in additional decreases in the carrying value of the Partnership's oil and gas
properties.
Prices for natural gas are subject to ordinary seasonal fluctuations, and
this volatility of natural gas prices may result in production being curtailed
and, in some cases, wells being completely shut-in.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $1,050,449 during the
year ended December 31, 1998 from the year ended December 31, 1997. The decrease
was primarily due to a decline in oil and gas sales receipts, offset by declines
in production costs and G&A expenses paid.
Net Cash Used in Investing Activities
The Partnership's principal investing activities during 1998 and 1997
included expenditures related to equipment replacement on several oil and gas
properties.
Proceeds of $4,527 were recognized in 1998 from the sale of oil and gas
equipment on one fully depleted well and one well abandoned in a prior year.
Net Cash Used in Financing Activities
Cash was sufficient in 1998 for distributions to the partners of $771,163
of which $7,712 was distributed to the managing general partner and $763,451 to
the limited partners. In 1997, cash was sufficient for distributions to the
partners of $1,707,106 of which $17,071 was distributed to the managing general
partner and $1,690,035 to the limited partners.
The current commodity price environment will continue to impact the
distributions and could result in limited or no distributions to the partners.
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.
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
at varying stages of completion as it pertains to information technology and
non-information technology applications and systems in the United States, Canada
and Argentina. As of December 31, 1998, the managing general
6
<PAGE> 981
partner estimates that the assessment phase is approximately 86% complete, on a
worldwide basis, and has included, but is not limited to, the following
procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- 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 to
approximately 37% of those inquiries.
The remedial phase of the managing general partner's Year 2000 project is
also at varying 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 December 31, 1998, the
managing general partner estimates that the remedial phase is approximately 54%
complete, on a worldwide basis, subject to the continuing 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 through remedial coding and is currently testing this system for Year
2000 compliance. The remediation of non-information technology is expected to be
completed during July 1999. The managing general partner's Year 2000 remedial
actions have not significantly 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 and non-information technology remediation by the end of the third
quarter of 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. The managing general partner intends to use its working capital to pay
for the costs of the Year 2000 projects. As of December 31, 1998, the managing
general partner's total costs incurred on the Year 2000 problem were $1.8
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 in accordance with the general and
administration allocation. (See Note 2 of Notes to Financial Statements included
in "Item 8. Financial Statements and Supplementary Data".)
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.
7
<PAGE> 982
In the assessment phase of the managing general partner's Year 2000
project, contingency plans are being 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.
8
<PAGE> 983
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Parker & Parsley 90-B, L.P:
Independent Auditors' Report -- Ernst & Young LLP......... 10
Independent Auditors' Report -- KPMG LLP.................. 11
Balance Sheets as of December 31, 1998 and 1997........... 12
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996.................................... 13
Statements of Partners' Capital for the Years Ended
December 31, 1998, 1997 and 1996....................... 14
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996.................................... 15
Notes to Financial Statements............................. 16
</TABLE>
9
<PAGE> 984
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 90-B, L.P.
(A Delaware Limited Partnership):
We have audited the balance sheet of Parker & Parsley 90-B, L.P. as of
December 31, 1998, and the related statements of operations, partners' capital
and cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 90-B, L.P.
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Dallas, Texas
March 15, 1999
10
<PAGE> 985
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 90-B, L.P.
(A Delaware Limited Partnership):
We have audited the financial statements of Parker & Parsley 90-B, L.P. as
of December 31, 1997, and the related statements of operations, partners'
capital and cash flows for the years ended December 31, 1997 and 1996. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 90-B, L.P.
as of December 31, 1997, and the results of its operations and its cash flows
for the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
KPMG LLP
Midland, Texas
March 20, 1998
11
<PAGE> 986
PARKER & PARSLEY 90-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash...................................................... $ 211,469 $ 326,401
Accounts receivable -- oil and gas sales.................. 227,293 343,809
------------ ------------
Total current assets.............................. 438,762 670,210
------------ ------------
Oil and gas properties -- at cost, based on the successful
efforts
accounting method......................................... 26,035,940 25,986,193
Accumulated depletion....................................... (20,889,657) (19,256,739)
------------ ------------
Net oil and gas properties........................ 5,146,283 6,729,454
------------ ------------
$ 5,585,045 $ 7,399,664
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 61,975 $ 93,972
Partners' capital:
Managing general partner.................................. 55,234 73,061
Limited partners (32,264 interests)....................... 5,467,836 7,232,631
------------ ------------
5,523,070 7,305,692
------------ ------------
$ 5,585,045 $ 7,399,664
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 987
PARKER & PARSLEY 90-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Oil and gas........................................... $ 2,074,056 $3,033,675 $3,748,608
Interest.............................................. 18,654 23,727 21,527
Gain on disposition of assets......................... 4,527 -- 6,512
----------- ---------- ----------
2,097,237 3,057,402 3,776,647
----------- ---------- ----------
Costs and expenses:
Oil and gas production................................ 1,403,494 1,448,425 1,420,416
General and administrative............................ 72,284 103,014 112,892
Impairment of oil and gas properties.................. 744,642 891,257 61,080
Depletion............................................. 888,276 764,088 703,207
----------- ---------- ----------
3,108,696 3,206,784 2,297,595
----------- ---------- ----------
Net income (loss)....................................... $(1,011,459) $ (149,382) $1,479,052
=========== ========== ==========
Allocation of net income (loss):
Managing general partner.............................. $ (10,115) $ (1,494) $ 14,790
=========== ========== ==========
Limited partners...................................... $(1,001,344) $ (147,888) $1,464,262
=========== ========== ==========
Net income (loss) per limited partnership interest...... $ (31.04) $ (4.58) $ 45.38
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 988
PARKER & PARSLEY 90-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ----------- -----------
<S> <C> <C> <C>
Partners' capital at January 1, 1996.................... $ 95,156 $ 9,421,164 $ 9,516,320
Distributions......................................... (18,320) (1,814,872) (1,833,192)
Net income............................................ 14,790 1,464,262 1,479,052
-------- ----------- -----------
Partners' capital at December 31, 1996.................. 91,626 9,070,554 9,162,180
Distributions......................................... (17,071) (1,690,035) (1,707,106)
Net loss.............................................. (1,494) (147,888) (149,382)
-------- ----------- -----------
Partners' capital at December 31, 1997.................. 73,061 7,232,631 7,305,692
Distributions......................................... (7,712) (763,451) (771,163)
Net loss.............................................. (10,115) (1,001,344) (1,011,459)
-------- ----------- -----------
Partners' capital at December 31, 1998.................. $ 55,234 $ 5,467,836 $ 5,523,070
======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 989
PARKER & PARSLEY 90-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................... $(1,011,459) $ (149,382) $ 1,479,052
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Impairment of oil and gas properties............. 744,642 891,257 61,080
Depletion........................................ 888,276 764,088 703,207
Gain on disposition of assets.................... (4,527) -- (6,512)
Changes in assets and liabilities:
Accounts receivable.............................. 116,516 220,489 (258,793)
Accounts payable................................. (31,997) 25,448 (99,423)
----------- ----------- -----------
Net cash provided by operating activities... 701,451 1,751,900 1,878,611
----------- ----------- -----------
Cash flows from investing activities:
Additions to oil and gas properties................. (49,747) (51,399) (9,995)
Proceeds from disposition of assets................. 4,527 -- 8,529
----------- ----------- -----------
Net cash used in investing activities....... (45,220) (51,399) (1,466)
----------- ----------- -----------
Cash flows from financing activities:
Cash distributions to partners...................... (771,163) (1,707,106) (1,833,192)
----------- ----------- -----------
Net increase (decrease) in cash....................... (114,932) (6,605) 43,953
Cash at beginning of year............................. 326,401 333,006 289,053
----------- ----------- -----------
Cash at end of year................................... $ 211,469 $ 326,401 $ 333,006
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 990
PARKER & PARSLEY 90-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 90-B, L.P. (the "Partnership") is a limited partnership
organized in 1990 under the laws of the State of Delaware. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. received shareholder approval to merge
and create Pioneer Natural Resources Company ("Pioneer"). On August 8, 1997,
PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership as PPDLP's successor by merger.
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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties -- The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as determined by the engineering staff of Pioneer
USA, the Partnership's managing general partner, and reviewed by independent
petroleum consultants. The carrying amounts of properties sold or otherwise
disposed of and the related allowances for depletion are eliminated from the
accounts and any gain or loss is included in operations.
Impairment of long-lived assets -- 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"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -- Preparation
of the accompanying financial statements 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 reporting amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest -- The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes -- A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
16
<PAGE> 991
PARKER & PARSLEY 90-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statements of cash flows -- For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses -- General and administrative expenses
are allocated in part to the Partnership by the managing general partner or its
affiliates. Such allocated expenses are determined by the managing general
partner based upon its judgement of the level of activity of the Partnership
relative to the managing general partner's activities and other entities it
manages. The method of allocation has been consistent over the past several
years with certain modifications incorporated to reflect changes in Pioneer
USA's overall business activities.
Reclassifications -- Certain reclassifications may have been made to the
1997 and 1996 financial statements to conform to the 1998 financial statement
presentations.
Environmental -- The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 1998.
Revenue recognition -- The Partnership uses the entitlements method of
accounting for crude oil and natural gas revenues.
Reporting comprehensive income -- Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes
standards for the reporting and display of comprehensive income (loss) and its
components in a full set of general purpose financial statements. Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss).
The Partnership has no items of other comprehensive income (loss), as defined by
SFAS No. 130. Consequently, the provisions of SFAS No. 130 do not apply to the
Partnership.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. Based upon a decline in the Partnership's outlook for future
commodity prices, the Partnership has estimated the expected future cash flows
of its oil and gas properties as of December 31, 1998, 1997 and 1996, and
compared such estimated future cash flows to the respective carrying amount of
the oil and gas properties to determine if the carrying amounts were likely to
be recoverable. For those proved oil and gas properties for which the carrying
amount exceeded the estimated future cash flows, an impairment was determined to
exist; therefore, the Partnership adjusted the carrying amount of those oil and
gas properties to their fair value as determined by discounting their expected
future cash flows at a discount rate commensurate with the risks involved in the
industry. As a result, the Partnership recognized non-cash impairment provisions
of $744,642, $891,257 and $61,080 related to its proved oil and gas properties
during 1998, 1997 and 1996, respectively.
17
<PAGE> 992
PARKER & PARSLEY 90-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $1,546,892 greater than the tax basis at December 31, 1998.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
----------- --------- ----------
<S> <C> <C> <C>
Net income (loss) per statements of
operations................................ $(1,011,459) $(149,382) $1,479,052
Depletion and depreciation provisions for
tax reporting purposes (greater than) less
than amounts for financial reporting
purposes.................................. 475,607 (199,568) (305,568)
Impairment of oil and gas properties for
financial reporting purposes.............. 744,642 891,257 61,080
Other....................................... 11,120 (1,386) 32,451
----------- --------- ----------
Net income per Federal income tax
returns......................... $ 219,910 $ 540,921 $1,267,015
=========== ========= ==========
</TABLE>
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- -------- -------
<S> <C> <C> <C>
Development costs.................................. $49,747 $ 51,361 $27,435
======= ======== =======
</TABLE>
Capitalized oil and gas properties consist of the following:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Proved properties:
Property acquisition costs.............................. $ 1,002,057 $ 1,002,057
Completed wells and equipment........................... 25,033,883 24,984,136
------------ -----------
26,035,940 25,986,193
Accumulated depletion..................................... (20,889,657) (19,256,739)
------------ -----------
Net capitalized costs........................... $ 5,146,283 $ 6,729,454
============ ===========
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $568,275 $590,888 $558,348
Reimbursement of general and administrative
expenses........................................... $ 62,152 $ 90,687 $101,293
</TABLE>
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA
and P&P Employees 90-B Conv., L.P. ("EMPL") (the "Entities"), Parker & Parsley
90-B Conv., L.P. and the Partnership (the "Partnerships")
18
<PAGE> 993
PARKER & PARSLEY 90-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
are parties to the Program agreement. EMPL is a limited partnership organized
for the benefit of certain employees of Pioneer USA.
The costs and revenues of the Program are allocated to the Entities and the
Partnerships as follows:
<TABLE>
<CAPTION>
ENTITIES(1) PARTNERSHIPS(2)
----------- ---------------
<S> <C> <C>
Revenues:
Proceeds from disposition of depreciable and depletable
properties
First three years..................................... 14.141414% 85.858586%
After first three years............................... 19.191919% 80.808081%
All other revenues
First three years..................................... 14.141414% 85.858586%
After first three years............................... 19.191919% 80.808081%
Costs and expenses:
Lease acquisition costs, drilling and completion costs
and all other costs................................... 9.090909% 90.909091%
Operating costs, reporting and legal expenses and general
and administrative expenses
First three years..................................... 14.141414% 85.858586%
After first three years............................... 19.191919% 80.808081%
</TABLE>
- ---------------
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at
the Partnership level and 83 limited partner interests owned by Pioneer USA.
(2) The allocation between the Partnership and Parker & Parsley 90-B Conv., L.P.
is 73.05994% and 26.94006%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 1998, 1997 and 1996 and
changes in such quantities during the years then ended. Due to a change in the
accounting policy of the managing general partner in 1997, the Partnership began
accounting for processed natural gas production in two components: processed
natural gas liquids ("NGLs") and dry residue gas. NGLs are reflected in "Oil and
NGLs" in the table below. All of the Partnership's reserves are proved developed
and located within the United States. The Partnership's reserves are based on an
evaluation prepared by the engineering staff of Pioneer USA and reviewed by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant,
using criteria established by
19
<PAGE> 994
PARKER & PARSLEY 90-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the Securities and Exchange Commission. Reserve value information is available
to limited partners pursuant to the Partnership agreement and, therefore, is not
presented.
<TABLE>
<CAPTION>
OIL AND NGLS GAS
(BBLS) (MCF)
------------ ----------
<S> <C> <C>
Net proved reserves at January 1, 1996...................... 1,676,179 5,001,110
Revisions................................................... 347,453 1,227,075
Production.................................................. (130,683) (353,616)
---------- ----------
Net proved reserves at December 31, 1996.................... 1,892,949 5,874,569
Revisions................................................... 721,659 (3,258,236)
Production.................................................. (133,407) (271,374)
---------- ----------
Net proved reserves at December 31, 1997.................... 2,481,201 2,344,959
Revisions................................................... (1,210,571) (517,240)
Production.................................................. (158,775) (199,215)
---------- ----------
Net proved reserves at December 31, 1998.................... 1,111,855 1,628,504
========== ==========
</TABLE>
As of December 31, 1998, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 1998 prices of $10.61 per
barrel of oil, $5.35 per barrel of NGLs and $1.37 per mcf of gas, discounted at
10% was approximately $1,994,000 and undiscounted was $3,010,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Genesis Crude Oil, L.P...................................... 58% 61% 63%
Western Gas Resources, Inc. ................................ 22% 18% 13%
</TABLE>
At December 31, 1998, the amounts receivable from Genesis Crude Oil, L.P.
and Western Gas Resources, Inc. were $74,502 and $65,025, respectively, which
are included in the caption "Accounts receivable -- oil and gas sales" in the
accompanying Balance Sheet.
The Partnership's share of oil and gas production is sold to various
purchasers. Pioneer USA is of the opinion that the loss of any one purchaser
would not have an adverse effect on the ability of the Partnership to sell its
oil and gas production.
20
<PAGE> 995
PARKER & PARSLEY 90-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9. ORGANIZATION AND OPERATIONS
The Partnership was organized October 5, 1990 as a limited partnership
under the Delaware Act for the purpose of acquiring and developing oil and gas
properties. The following is a brief summary of the more significant provisions
of the limited partnership agreement:
Managing general partner -- The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Program and Partnership affairs. As
managing general partner and operator of the Partnership's properties, all
production expenses are incurred by Pioneer USA and billed to the
Partnership and a portion of revenue is initially received by Pioneer USA
prior to being paid to the Partnership. Under the Partnership agreement,
the managing general partner pays 1% of the Partnership's acquisition,
drilling and completion costs and 1% of its operating and general and
administrative expenses. In return, it is allocated 1% of the Partnership's
revenues.
Limited partner liability -- The maximum amount of liability of any
limited partner is the total contributions of such partner plus his share
of any undistributed profits.
Initial capital contributions -- The limited partners entered into
subscription agreements for aggregate capital contributions of $32,264,000.
The managing general partner is required to contribute amounts equal to 1%
of initial Partnership capital less commission and organization and
offering costs allocated to the limited partners and to contribute amounts
necessary to pay costs and expenses allocated to it under the Partnership
agreement to the extent its share of revenues does not cover such costs.
21
<PAGE> 996
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and
executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve
until the next annual meeting of stockholders or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31,
NAME 1998 POSITION
- ---- ------------ --------
<S> <C> <C>
Scott D. Sheffield..... 46 President and Director
Timothy L. Dove........ 42 Executive Vice President and Director
Dennis E. Fagerstone... 49 Executive Vice President and Director
Mark L. Withrow........ 51 Executive Vice President, General Counsel and
Director
M. Garrett Smith....... 37 Executive Vice President, Chief Financial
Officer and Director
Mel Fischer(a)......... 64 Executive Vice President
Lon C. Kile............ 43 Executive Vice President
Rich Dealy............. 32 Vice President and Chief Accounting Officer
</TABLE>
- ---------------
(a) Mr. Fischer was a director and officer until his retirement from Pioneer
and Pioneer USA on February 19, 1999.
Scott D. Sheffield. Mr. Sheffield is a distinguished graduate of The
University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he
has served as President, Chief Executive Officer and a director of Pioneer and
President and a director of Pioneer USA. Mr. Sheffield was the President and a
director of Parker & Parsley from May 1990 until August 1997 and was the
Chairman of the Board and Chief Executive Officer of Parker & Parsley from
October 1990 until August 1997. He was the sole director of Parker & Parsley
from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley
Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum
engineer in 1979. He served as Vice President -- Engineering of PPDC from
September 1981 until April 1985 when he was elected President and a director. In
March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive
Officer of PPDC. Before joining PPDC, Mr. Sheffield was employed as a production
and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President -- Business
Development of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. Mr. Dove joined Parker & Parsley in May
1994 as Vice President -- International and was promoted to Senior Vice
President -- Business Development in October 1996, in which position he served
until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with
Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various
capacities in international exploration and production, marketing, refining and
marketing and planning and development. Mr. Dove earned a B.S. in Mechanical
Engineering from Massachusetts Institute of Technology in 1979 and received his
M.B.A. in 1981 from the University of Chicago.
22
<PAGE> 997
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of Mesa from March 1, 1997 until August 1997. From October
1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief
Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice
President -- Exploration and Production of Mesa. From June 1988 to May 1991, Mr.
Fagerstone served as Vice President -- Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President -- General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President -- General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
M. Garrett Smith. Mr. Smith, a graduate of The University of Texas with a
B.S. in Electrical Engineering and Southern Methodist University with an M.B.A.,
was appointed Executive Vice President and Chief Financial Officer of Pioneer in
December 1997. He served as Senior Vice President -- Finance of Pioneer from
August 1997 until December 1997. Mr. Smith was elected Senior Vice President --
Finance and a director of Pioneer USA in August 1997. He served as Vice
President -- Corporate Acquisitions of Mesa from January 1997 until August 1997.
From October 1996 to December 1996, Mr. Smith served as Vice
President -- Finance of Mesa and from 1994 to 1996 he served as Director of
Financial Planning of Mesa. Mr. Smith was employed by BTC Partners, Inc. (a
former financial advisor to Mesa) from 1989 to 1994.
Mel Fischer. Mr. Fischer, a graduate of the University of California at
Berkeley with a Masters degree in Geology, became Executive Vice
President -- Worldwide Exploration of Pioneer and Pioneer USA in August 1997. He
served as a director of Parker & Parsley from November 1995 until August 1997
and was Executive Vice President -- Worldwide Exploration for Parker & Parsley
from February 1997 to August 1997. Mr. Fischer retired from Pioneer and Pioneer
USA effective February 15, 1999. He worked in the petroleum industry for 32
years, starting as a Petroleum Geologist with Texaco in 1962, and retiring as
President, Occidental International Exploration and Production Company in March
1994. For the 10 years prior to becoming President of Occidental International,
he served as Executive Vice President, World Wide Exploration with Occidental
Oil and Gas Corporation. He is a registered geologist in the State of
California, a member of the American Association of Petroleum Geologists and an
emeritus member of the Board of Advisors for the Earth Sciences Research
Institute at the University of Utah.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a
B.B.A. in Accounting, became Executive Vice President of Pioneer and Pioneer USA
in August 1997. Mr. Kile was Senior Vice President -- Investor Relations from
October 1996 to August 1997. Previously, he served as Vice President and Manager
of the Mid-Continent Division, Vice President -- Equity Finance & Analysis and
Vice President -- Marketing & Program Administration. Prior to joining Parker &
Parsley in 1985, he was employed as Supervisor -- Senior, Audit, in charge of
Parker & Parsley's audit, with Arthur Young.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a
B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became
Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
23
<PAGE> 998
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is vested in Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA and P&P Employees 90-B Conv., L.P. ("EMPL") pay
approximately 10% of the Partnership's acquisition, drilling and completion
costs and approximately 15% during the first three years and approximately 20%
after three years of its operating and general and administrative expenses. In
return, they are allocated approximately 15% during the first three years and
approximately 20% after three years of the Partnership's revenues. See Notes 6
and 9 of Notes to Financial Statements included in "Item 8. Financial Statements
and Supplementary Data" for information regarding fees and reimbursements paid
to the managing general partner or its affiliates by the Partnership.
Pioneer USA's current executive officers and other employees are general
partners of EMPL which serves as a co-general partner of the Program. Under this
arrangement, EMPL pays approximately 2 1/2% of the Partnership's acquisition,
drilling and completion costs and approximately 3.75% during the first three
years and approximately 5% after three years of its operating and general and
administrative expenses. In return, EMPL is allocated approximately 3.75% during
the first three years and approximately 5% after three years of the
Partnership's revenues. EMPL does not receive any fees or reimbursements from
the Partnership.
The Partnership does not directly pay any salaries of the executive
officers of Pioneer USA, but does pay a portion of Pioneer USA's general and
administrative expenses of which these salaries are a part. See Note 6 of Notes
to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more
of the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 83 limited partnership interests at January 1, 1999.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing
general partner of the Partnership, Pioneer USA, has the exclusive right and
full authority to manage, control and administer the Partnership's business.
Under the limited partnership agreement, limited partners holding a majority of
the outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general or its affiliates
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $568,275 $590,888 $558,348
Reimbursement of general and administrative
expenses........................................... $ 62,152 $ 90,687 $101,293
</TABLE>
24
<PAGE> 999
Under the limited partnership agreement, the managing general partner pays
1% of the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial statements
The following are filed as part of this annual report:
Independent Auditors' Report -- Ernst & Young LLP
Independent Auditors' Report -- KPMG LLP
Balance sheets as of December 31, 1998 and 1997
Statements of operations for the years ended December 31, 1998, 1997
and 1996
Statements of partners' capital for the years ended December 31, 1998,
1997 and 1996
Statements of cash flows for the years ended December 31, 1998, 1997
and 1996
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this annual report.
25
<PAGE> 1000
SIGNATURES
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 90-B, L.P.
By: Pioneer Natural Resources USA,
Inc.
Managing General Partner
By: /s/ SCOTT D. SHEFFIELD
----------------------------------
Scott D. Sheffield,
President
Dated: March 29, 1999
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 date indicated.
<TABLE>
<C> <S> <C>
/s/ SCOTT D. SHEFFIELD President and Director of March 29, 1999
- ------------------------------------- Pioneer USA
Scott D. Sheffield
/s/ TIMOTHY L. DOVE Executive Vice President and March 29, 1999
- ------------------------------------- Director of Pioneer USA
Timothy L. Dove
/s/ DENNIS E. FAGERSTONE Executive Vice President and March 29, 1999
- ------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ MARK L. WITHROW Executive Vice President, General March 29, 1999
- ------------------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ M. GARRETT SMITH Executive Vice President, Chief March 29, 1999
- ------------------------------------- Financial Officer and Director of
M. Garrett Smith Pioneer USA
/s/ LON C. KILE Executive Vice President of March 29, 1999
- ------------------------------------- Pioneer USA
Lon C. Kile
/s/ RICH DEALY Vice President and Chief Accounting March 29, 1999
- ------------------------------------- Officer of Pioneer USA
Rich Dealy
</TABLE>
26
<PAGE> 1001
PARKER & PARSLEY 90-B, L.P.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3(a) -- Form of Agreement of Limited Partnership of Parker &
Parsley 90-B, L.P. incorporated by reference to Exhibit A
of the Post-Effective Amendment No. 1 of the
Partnership's Registration Statement on Form S-1
(Registration No. 33-26097)
4(b) -- Form of Limited Partner Subscription Agreement
incorporated by reference to Exhibit C of the
Post-Effective Amendment No. 1 of the Partnership's
Registration Statement on Form S-1 (Registration No.
33-26097)
4(b) -- Form of General Partner Subscription Agreement
incorporated by reference to Exhibit D of the
Post-Effective Amendment No. 1 of the Partnership's
Registration Statement on Form S-1 (Registration No.
33-26097)
4(b) -- Power of Attorney incorporated by reference to Exhibit B
of Amendment No. 1 of the Partner-ship's Registration
Statement on Form S-1 (Registration No. 33-26097)
4(c) -- Specimen Certificate of Limited Partnership Interest
incorporated by reference to Exhibit 4c of the
Partnership's Registration Statement on Form S-1
(Registration No. 33-26097)
10(b) -- Form of Development Drilling Program Agreement
incorporated by reference to Exhibit B of the
Post-Effective Amendment No. 1 of the Partnership's
Registration Statement on Form S-1 (Registration No.
33-26097)
27.1* -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith
<PAGE> 1002
PARKER & PARSLEY 90-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
DECEMBER 31, 1998, 1997 AND 1996
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. Future income taxes are calculated by comparing
discounted future cash flows to the tax basis of oil and gas properties plus
available carryforwards and credits and applying the current tax rates to the
difference.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and gas producing activities:
Future cash inflows....................................... $12,063 $ 43,263 $ 68,666
Future production costs................................... (9,053) (23,552) (35,491)
Future development costs.................................. -- -- 482
------- -------- --------
3,010 19,711 33,657
10% annual discount factor................................ (1,016) (9,889) (17,220)
------- -------- --------
Standardized measure of discounted future net cash
flows.................................................. $ 1,994 $ 9,822 $ 16,437
======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1998 1997 1996
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs................ $ (671) $ (1,585) $ (2,328)
Net changes in prices and production costs................ (6,480) (6,410) 6,751
Extensions and discoveries................................ -- -- --
Sales of minerals-in-place................................ -- -- --
Purchases of minerals-in-place............................ -- -- --
Revisions of estimated future development costs........... -- (240) (242)
Revisions of previous quantity estimates and reserves
added by development drilling.......................... (1,405) 598 3,422
Accretion of discount..................................... 982 1,644 939
Changes in production rates, timing and other............. (254) (622) (1,497)
------- -------- --------
Change in present value of future net revenues............ (7,828) (6,615) 7,045
------- -------- --------
Balance, beginning of year................................ 9,822 16,437 9,392
------- -------- --------
Balance, end of year...................................... $ 1,994 $ 9,822 $ 16,437
======= ======== ========
</TABLE>
<PAGE> 1003
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 90-C CONV., L.P., A DELAWARE
LIMITED PARTNERSHIP
TO
PROXY STATEMENT DATED , 1999
----------------------
THE DATE OF THIS SUPPLEMENT IS , 1999
----------------------
This document contains important information specific to Parker & Parsley
90-C Conv., L.P. and supplements the proxy statement dated , 1999,
of Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting
proxies to be voted at a special meeting of limited partners of the partnerships
described in the proxy statement. The purpose of the special meeting is for you
to vote upon the merger of Parker & Parsley 90-C Conv., L.P. with and into
Pioneer USA that, if completed, will result in your receiving cash for your
partnership interests.
This supplement contains the following information concerning Parker &
Parsley 90-C Conv., L.P.:
- A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through June
30, 1999
-- the merger value per $1,000 limited partner investment as of June 30,
1999
-- the merger value per $1,000 limited partner investment as a multiple
of distributions for the 12 months ended June 30, 1999
-- the book value per $1,000 limited partner investment as of June 30,
1999 and as of December 31, 1998 and
-- the ordinary tax loss per $1,000 limited partner investment in year
of initial investment
- Quarterly Report on Form 10-Q for the six months ended June 30, 1999
- Annual Report on Form 10-K for the year ended December 31, 1998
- Disclosures about the partnership's oil and gas producing activities
<PAGE> 1004
PARKER & PARSLEY 90-C CONV., L.P.
SUPPLEMENTAL INFORMATION TABLE
<TABLE>
<S> <C>
Aggregate Initial Investment by the Limited Partners(a)..... $ 7,531
Aggregate Historical Limited Partner Distributions through
June 30, 1999(a).......................................... $ 4,055
Merger Value per $1,000 Limited Partner Investment as of
June 30, 1999(b).......................................... $127.70
Merger Value per $1,000 Limited Partner Investment as a
Multiple of Distributions for the 12 Months ended June 30,
1999(b)................................................... 18.22times
Book Value per $1,000 Limited Partner Investment:
-- as of June 30, 1999(b)................................. $127.82
-- as of December 31, 1998(b)............................. $131.15
Ordinary Tax Loss per $1,000 Limited Partner Investment in
Year of Initial Investment(b), (c)........................ $ 451
</TABLE>
- ---------------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as any
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
<PAGE> 1005
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JUNE 30, 1999
COMMISSION FILE NO. 33-26097-10
PARKER & PARSLEY 90-C CONV., L.P.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2347264
(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)
</TABLE>
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> 1006
PARKER & PARSLEY 90-C CONV., L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1999 and December 31,
1998.................................................. 3
Statements of Operations for the three and six months
ended June 30, 1999 and 1998.......................... 4
Statement of Partners' Capital for the six months ended
June 30, 1999......................................... 5
Statements of Cash Flows for the six months ended June
30, 1999 and 1998..................................... 6
Notes to Financial Statements.......................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................. 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 11
27.1 Financial Data Schedule
Signatures............................................. 12
</TABLE>
2
<PAGE> 1007
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER & PARSLEY 90-C CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 78,398 $ 66,221
Accounts receivable -- oil and gas sales.................. 61,696 41,400
----------- -----------
Total current assets.............................. 140,094 107,621
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 5,773,448 5,765,217
Accumulated depletion....................................... (4,918,294) (4,861,804)
----------- -----------
Net oil and gas properties........................ 855,154 903,413
----------- -----------
$ 995,248 $ 1,011,034
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 22,933 $ 13,398
Partners' capital:
Managing general partner.................................. 9,693 9,946
Limited partners (7,531 interests)........................ 962,622 987,690
----------- -----------
972,315 997,636
----------- -----------
$ 995,248 $ 1,011,034
=========== ===========
</TABLE>
The financial information included as of June 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
<PAGE> 1008
PARKER & PARSLEY 90-C CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas...................................... $107,431 $108,532 $198,577 $228,491
Interest......................................... 784 1,150 1,482 2,434
-------- -------- -------- --------
108,215 109,682 200,059 230,925
-------- -------- -------- --------
Costs and expenses:
Oil and gas production........................... 85,308 88,012 154,559 168,981
General and administrative....................... 3,635 3,608 7,085 7,593
Depletion........................................ 16,722 26,902 56,490 54,799
-------- -------- -------- --------
105,665 118,522 218,134 231,373
-------- -------- -------- --------
Net income (loss).................................. $ 2,550 $ (8,840) $(18,075) $ (448)
======== ======== ======== ========
Allocation of net income (loss):
Managing general partner......................... $ 25 $ (88) $ (181) $ (4)
======== ======== ======== ========
Limited partners................................. $ 2,525 $ (8,752) $(17,894) $ (444)
======== ======== ======== ========
Net income (loss) per limited partnership
interest......................................... $ .33 $ (1.16) $ (2.38) $ (.06)
======== ======== ======== ========
Distributions per limited partnership interest..... $ -- $ 3.59 $ .95 $ 11.27
======== ======== ======== ========
</TABLE>
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> 1009
PARKER & PARSLEY 90-C CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1, 1999.................................. $9,946 $987,690 $997,636
Distributions............................................. (72) (7,174) (7,246)
Net loss.................................................. (181) (17,894) (18,075)
------ -------- --------
Balance at June 30, 1999.................................... $9,693 $962,622 $972,315
====== ======== ========
</TABLE>
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> 1010
PARKER & PARSLEY 90-C CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(18,075) $ (448)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depletion.............................................. 56,490 54,799
Changes in assets and liabilities:
Accounts receivable.................................... (20,296) 24,039
Accounts payable....................................... 9,535 2,322
-------- --------
Net cash provided by operating activities......... 27,654 80,712
-------- --------
Cash flows from investing activities:
Additions to oil and gas properties....................... (8,231) (6,919)
Cash flows used in financing activities:
Cash distributions to partners............................ (7,246) (85,723)
-------- --------
Net increase (decrease) in cash............................. 12,177 (11,930)
Cash at beginning of period................................. 66,221 87,423
-------- --------
Cash at end of period....................................... $ 78,398 $ 75,493
======== ========
</TABLE>
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> 1011
PARKER & PARSLEY 90-C CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 90-C Conv., L.P. (the "Partnership") was organized as a
general partnership in 1990 under the laws of the State of Texas and was
converted to a Delaware limited partnership on August 1, 1991.
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 June 30, 1999 and for the three and six months ended June 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.
7
<PAGE> 1012
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
RESULTS OF OPERATIONS
Six months ended June 30, 1999 compared with six months ended June 30, 1998
Revenues:
The Partnership's oil and gas revenues decreased 13% to $198,577 from
$228,491 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from lower average prices received and a decrease
in production. For the six months ended June 30, 1999, 11,520 barrels of oil,
4,114 barrels of natural gas liquids ("NGLs") and 13,600 mcf of gas were sold,
or 17,901 barrel of oil equivalents ("BOEs"). For the six months ended June 30,
1998, 12,574 barrels of oil, 3,737 barrels of NGLs and 14,569 mcf of gas were
sold, or 18,739 BOEs.
The average price received per barrel of oil decreased $1.02, or 7%, from
$14.14 for the six months ended June 30, 1998 to $13.12 for the same period in
1999. The average price received per barrel of NGLs decreased 12% from $7.51
during the six months ended June 30, 1998 to $6.63 for the same period in 1999.
The average price received per mcf of gas decreased 5% from $1.56 during the six
months ended June 30, 1998 to $1.48 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 six months ended June 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.
Costs and Expenses:
Total costs and expenses decreased to $218,134 for the six months ended
June 30, 1999 as compared to $231,373 for the same period in 1998, a decrease of
$13,239, or 6%. This decrease was due to declines in production costs and
general and administrative expenses, ("G&A"), offset by an increase in
depletion.
Production costs were $154,559 for the six months ended June 30, 1999 and
$168,981 for the same period in 1998, resulting in a $14,422 decrease, or 9%.
The decrease was due to lower well maintenance costs and declines in production
taxes and ad valorem 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, 7% from $7,593 for the six months ended June 30, 1998
to $7,085 for the same period in 1999.
Depletion was $56,490 for the six months ended June 30, 1999 compared to
$54,799 for the same period in 1998, an increase of $1,691, or 3%. This increase
was the result of a combination of factors that included a decline in proved
reserves during the period ended March 31, 1999 due to reserve revisions and
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 1998 and a reduction in oil production of 1,054 barrels for
the six months ended June 30, 1999 compared to the same period in 1998.
Three months ended June 30, 1999 compared with three months ended June 30,
1998
Revenues:
The Partnership's oil and gas revenues decreased to $107,431 from $108,532
for the three months ended June 30, 1999 and 1998, respectively. The decrease in
revenues resulted from declines in production, offset by higher average prices
received. For the three months ended June 30, 1999, 5,499 barrels of oil, 2,209
barrels of NGLs and 6,284 mcf of gas were sold, or 8,755 BOEs. For the three
months ended June 30, 1998, 6,135 barrels of oil, 1,914 barrels of NGLs and
6,742 mcf of gas were sold, or 9,173 BOEs.
8
<PAGE> 1013
The average price received per barrel of oil increased $1.07, or 8%, from
$13.44 for the three months ended June 30, 1998 to $14.51 for the same period in
1999. The average price received per barrels of NGLs increased slightly from
$7.96 during the three months ended June 30, 1998 to $7.98 for the same period
in 1999. The average price received per mcf of gas decreased slightly from $1.61
during the three months ended June 30, 1998 to $1.59 in 1999.
Costs and Expenses:
Total costs and expenses decreased to $105,665 for the three months ended
June 30, 1999 as compared to $118,522 for the same period in 1998, a decrease of
$12,857, or 11%. This decrease was due to declines in depletion and production
costs, offset by an increase in G&A.
Production costs were $85,308 for the three months ended June 30, 1999 and
$88,012 for the same period in 1998, resulting in a $2,704 decrease, or 3%. The
decrease was due to lower well maintenance costs, production taxes and ad
valorem taxes.
During this period, G&A increased slightly from $3,608 for the three months
ended June 30, 1998 to $3,635 for the same period in 1999.
Depletion was $16,722 for the three months ended June 30, 1999 compared to
$26,902 for the same period in 1998, a decrease of $10,180, or 38%. This
decrease was primarily attributable to an increase in proved reserves during the
period ended June 30, 1999 as a result of higher commodity prices, a reduction
in oil production of 636 barrels for the three months ended June 30, 1999
compared to the same period in 1998 and a reduction in the Partnership's net
depletable basis from changes taken in accordance with SFAS 121 during the
fourth quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $53,058 during the six
months ended June 30, 1999 from the same period ended June 30, 1998. This
decrease was due to a decline in oil and gas sales receipts, offset by declines
in production costs and G&A expenses paid.
Net Cash Used in Investing Activities
The Partnership's principal investing activities during the six months
ended June 30, 1999 and 1998 were for expenditures related to equipment
replacement on various oil and gas properties.
Net Cash Used in Financing Activities
Cash was sufficient for the six months ended June 30, 1999 to cover
distributions to the partners of $7,246 of which $72 was distributed to the
managing general partner and $7,174 to the limited partners. For the same period
ended June 30, 1998, cash was sufficient for distributions to the partners of
$85,723 of which $858 was distributed to the managing general partner and
$84,865 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 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 early indications that the nations have initiated
their planned reductions, have had some stabilizing effect on commodity prices
during the latter part of the first quarter of 1999 and into August 1999.
However, no assurances can be given that the stabilizing effect of these
actions, or the planned reductions in export volumes, will 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
9
<PAGE> 1014
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.
As of June 30, 1999, the managing general partner estimates that the
assessment phase is approximately 99% complete and has included, but is not
limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- the formulation of contingency plans for mission-critical information
technology systems.
Through June 30, 1999, the managing general partner had 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 varying 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 June 30, 1999, the managing general partner
estimates that the remedial phase is approximately 83% complete, on a worldwide
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 is expected
to be completed by 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 expects to complete the testing of
information technology systems by October 1999. The testing of the
non-information technology remediation is scheduled to be completed by the end
of November 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. As of June 30, 1999, the managing general partner's total costs
incurred on the Year 2000 problem were $2.3 million, of which approximately $200
thousand were incurred to replace non-compliant systems.
10
<PAGE> 1015
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) Form 8-K -- none
11
<PAGE> 1016
SIGNATURES
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 90-C CONV., L.P.
By: Pioneer Natural Resources USA,
Inc.,
Managing General Partner
By: /s/ RICH DEALY
----------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
Dated: August 10, 1999
12
<PAGE> 1017
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 33-26097-10
PARKER & PARSLEY 90-C CONV., L.P.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2347264
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
303 WEST WALL, SUITE 101, MIDLAND, TEXAS 79701
(Address of principal executive offices) (Zip code)
</TABLE>
Registrant's Telephone Number, including area code: (915) 683-4768
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
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]
No market currently exists for the limited partnership interests of the
Registrant. Based on original purchase price the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$7,501,000.
As of March 8, 1999, the number of outstanding limited partnership
interests was 7,531.
The following documents are incorporated by reference into the indicated
parts of this Annual Report on Form 10-K: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 1018
Parts I and II of this Report contain 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. See "Item 1.
Business" for a description of various factors that could materially affect the
ability of the Partnership to achieve the anticipated results described in the
forward looking statements.
PART I
ITEM 1. BUSINESS
Parker & Parsley 90-C Conv., L.P. (the "Partnership") is a general
partnership organized in 1990 under the laws of the State of Texas. The
Partnership converted to a Delaware limited partnership on August 1, 1991. As of
August 8, 1997, Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the
managing general partner of the Partnership. Prior to August 8, 1997, the
Partnership's managing general partner was Parker & Parsley Development L.P.
("PPDLP"), a wholly-owned subsidiary of Parker & Parsley Petroleum Company
("Parker & Parsley"). On August 7, 1997, Parker & Parsley and Mesa Inc. ("Mesa")
received shareholder approval to merge and create Pioneer Natural Resources
Company ("Pioneer"). On August 8, 1997, PPDLP was merged with and into Pioneer
USA, a wholly-owned subsidiary of Pioneer, resulting in Pioneer USA becoming the
managing general partner of the Partnership as PPDLP's successor by merger. For
a more complete description of the Parker & Parsley and Mesa merger, see
Pioneer's Registration Statement on Form S-4 as filed with the Securities &
Exchange Commission.
A Registration Statement, as amended, filed pursuant to the Securities Act
of 1933, registering general partnership interests aggregating $30,000,000 in a
series of Texas general partnerships formed under the Parker & Parsley 89-90
Development Drilling Program, was declared effective by the Securities and
Exchange Commission on August 1, 1989. On December 28, 1990, the offering of
general partnership interests in the Partnership, the fifth partnership formed
under such registration statement, was closed, with interests aggregating
$7,531,000 being sold to 517 subscribers.
The Partnership engages primarily in oil and gas development and production
and is not involved in any industry segment other than oil and gas. See "Item 6.
Selected Financial Data" and "Item 8. Financial Statements and Supplementary
Data" of this report for a summary of the Partnership's operating information
and identifiable assets.
The principal markets during 1998 for the oil produced by the Partnership
were refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. The principal markets for the
Partnership's gas were companies that have pipelines located near the
Partnership's gas producing properties. Of the Partnership's total oil and gas
revenues for 1998, approximately 69% and 13% were attributable to sales made to
Genesis Crude Oil, L.P. and Western Gas Resources, Inc., respectively.
The Partnership's revenues, profitability, cash flow and future rate of
growth are highly dependent on the prevailing prices of oil and gas, which are
affected by numerous factors beyond the Partnership's control. Oil and gas
prices historically have been very volatile. A substantial or extended decline
in the prices of oil or gas could have a material adverse effect on the
Partnership's revenues, profitability and cash flow and could, under certain
circumstances, result in a reduction in the carrying value of the Partnership's
oil and gas properties.
Because of the demand for oil and gas, the Partnership does not believe
that the termination of the sales of its products to any one customer would have
a material adverse impact on its operations. The loss of a particular customer
for gas may have an effect if that particular customer has the only gas pipeline
located in the areas of the Partnership's gas producing properties. The
Partnership believes, however, that the effect would be temporary, until
alternative arrangements could be made.
1
<PAGE> 1019
Federal and state regulation of oil and gas operations generally includes
the fixing of maximum prices for regulated categories of natural gas, the
imposition of maximum allowable production rates, the taxation of income and
other items, and the protection of the environment. Although the Partnership
believes that its business operations do not impair environmental quality and
that its costs of complying with any applicable environmental regulations are
not currently significant, the Partnership cannot predict what, if any, effect
these environmental regulations may have on its current or future operations.
The Partnership does not have any employees of its own. Pioneer USA employs
818 persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this report is filed. Pioneer
USA is responsible for all management functions.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the
Partnership conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist primarily of leasehold interests in
properties on which oil and gas wells are located. Such property interests are
often subject to landowner royalties, overriding royalties and other oil and gas
leasehold interests.
Fractional working interests in developmental oil and gas prospects located
primarily in the Spraberry Trend Area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 44
oil and gas wells. One well was sold and one well was plugged and abandoned due
to uneconomical operations. At December 31, 1998, the Partnership had 42
producing oil and gas wells.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 1998, 1997 and 1996 and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been estimated by the engineering staff of Pioneer USA with a review by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
2
<PAGE> 1020
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 8, 1999, the Partnership had 7,531 outstanding limited partnership
interests held of record by 509 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are
not required to meet the Partnership's obligations are distributed to the
partners at least quarterly in accordance with the limited partnership
agreement. During the years ended December 31, 1998 and 1997, $130,281 and
$357,952, respectively, of such revenue-related distributions were made to the
limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Oil and gas sales.............. $ 430,499 $ 661,475 $ 837,849 $ 722,324 $ 804,039
========== ========== ========== ========== ==========
Impairment of oil and gas
properties.................. $ 185,784 $ 79,288 $ -- $ 48,088 $ --
========== ========== ========== ========== ==========
Net income (loss).............. $ (258,625) $ 105,740 $ 359,349 $ 163,626 $ 152,612
========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general partner.... $ (2,586) $ 1,057 $ 3,593 $ 1,668 $ 1,558
========== ========== ========== ========== ==========
Limited partners............ $ (256,039) $ 104,683 $ 355,756 $ 161,958 $ 151,054
========== ========== ========== ========== ==========
Limited partners' net income
(loss) per limited
partnership interest........ $ (34.00) $ 13.90 $ 47.24 $ 21.51 $ 20.06
========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest........ $ 17.30 $ 47.53 $ 51.98 $ 45.34 $ 51.71
========== ========== ========== ========== ==========
AT YEAR END:
Total assets................... $1,011,034 $1,411,804 $1,661,127 $1,728,891 $1,886,057
========== ========== ========== ========== ==========
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1998 compared to 1997
The Partnership's 1998 oil and gas revenues decreased 35% to $430,499 from
$661,475 in 1997. The decrease in revenues resulted from lower average prices
received. In 1998, 24,493 barrels of oil, 8,694 barrels of natural gas liquids
("NGLs") and 30,348 mcf of gas were sold, or 38,245 barrel of oil equivalents
("BOEs"). In 1997, 25,817 barrels of oil, 3,661 barrels of NGLs and 50,304 mcf
of gas were sold, or 37,862 BOEs. Due to the decline characteristics of the
Partnership's oil and gas properties, management expects a certain amount of
decline in production in the future until the Partnership's economically
recoverable reserves are fully depleted.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. Effective September 30, 1997, as a result of the
merger with Mesa, the managing general partner accounts for processed natural
gas production in two components: natural gas liquids and dry residue gas. As a
result of the change in the managing general
3
<PAGE> 1021
partner's policy, the Partnership now accounts for processed natural gas
production as processed natural gas liquids and dry residue gas. Consequently,
separate product volumes will not be comparable for 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 year ended December 31, 1998 is the price received
for dry residue gas and the price per mcf for natural gas produced prior to
October 1997 was presented as 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
$19.48 in 1997 to $13.24 in 1998. The average price received per barrel of NGLs
decreased $3.78, or 36%, from $10.58 in 1997 to $6.80 in 1998. The average price
received per mcf of gas decreased 35% from $2.38 in 1997 to $1.55 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 received in 1998.
Total costs and expenses increased in 1998 to $693,871 compared to $562,477
in 1997, an increase of $131,394, or 23%. This increase was due to increases in
impairment of oil and gas properties and depletion, offset by decreases in
production costs and general and administrative expenses ("G&A").
Production costs were $314,363 in 1998 and $331,332 in 1997, resulting in a
decrease of $16,969, or 5%. The decrease was due to declines in production and
ad valorem taxes and workover expense, offset by an increase in well maintenance
costs.
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, 30% from $21,436 in 1997 to $15,084 in 1998. The
Partnership paid the managing general partner $12,838 in 1998 and $17,703 in
1997 for G&A incurred on behalf of the Partnership. G&A is allocated, in part,
to the Partnership by the managing general partner. Such allocated expenses are
determined by the managing general partner based upon its judgement of the level
of activity of the Partnership relative to the managing general partner's
activities and other entities it manages. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
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"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. Declining commodity prices prompted
impairment reviews in 1998 and 1997. As a result of the review and evaluation of
its long-lived assets for impairment, the Partnership recognized non-cash
charges of $185,784 and $79,288 related to its oil and gas properties during
1998 and 1997, respectively.
Depletion was $178,640 in 1998 compared to $130,421 in 1997. This
represented an increase of $48,219, or 37%. This increase was primarily the
result of a combination of factors that included a decline in proved reserves
during 1998 due to the lower commodity prices, 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 and a reduction in oil production of 1,324
barrels for the period ended December 31, 1998 compared to the same period in
1997.
1997 compared to 1996
The Partnership's 1997 oil and gas revenues decreased 21% to $661,475 from
$837,849 in 1996. The decrease in revenues resulted from declines in production
and lower average prices received. In 1997, 25,817 barrels of oil, 3,661 barrels
of NGLs and 50,304 mcf of gas were sold, or 37,862 BOEs. In 1996, 30,485 barrels
of oil and 64,557 mcf of gas were sold, or 41,245 BOEs.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. As is described above in "Results of
4
<PAGE> 1022
Operations -- 1998 compared to 1997", the Partnership changed its method of
accounting for processed natural gas to a dry gas basis in the fourth quarter of
1997. As a result of this change, the Partnership now accounts for processed
natural gas production as processed natural gas liquids and dry residue gas.
Consequently, 1997 and 1996 separate product volumes are not comparable.
The declines in production volumes were primarily attributable to the
decline characteristics of the Partnership's oil and gas properties.
The average price received per barrel of oil decreased $2.40, or 11%, from
$21.88 in 1996 to $19.48 in 1997. The average price received per barrel of NGLs
during 1997 was $10.58. The average price received per mcf of gas decreased 10%
from $2.65 in 1996 to $2.38 in 1997.
A gain on disposition of assets of $800 was recognized during 1997 from
credits received from the disposal of oil and gas equipment on one fully
depleted well. Loss on disposition of assets of $6,508 was recognized during
1996 of which $6,674 was attributable to the sale of one gas well, offset by
salvage income of $166 received from the disposal of oil and gas equipment on
one well that was plugged and abandoned in a prior year and to credits received
from the disposal of oil and gas equipment on fully depleted wells.
Total costs and expenses increased in 1997 to $562,477 compared to $477,266
in 1996, an increase of $85,211, or 18%. This increase was due to the impairment
of oil and gas properties and depletion, offset by decreases in production costs
and G&A.
Production costs were $331,332 in 1997 and $337,193 in 1996, resulting in a
$5,861 decrease. The decrease was due to a decline in production taxes and
workover expense, offset by a slight increase in ad valorem taxes.
During this period G&A decreased, in aggregate, 21% from $27,292 in 1996 to
$21,436 in 1997. The Partnership paid the managing general partner $17,703 in
1997 and $24,441 in 1996 for G&A incurred on behalf of the Partnership.
The Partnership recognized a non-cash SFAS 121 impairment provision of
$79,288 related to its oil and gas properties during the fourth quarter of 1997.
Depletion was $130,421 in 1997 compared to $112,781 in 1996. This
represented an increase of $17,640 or 16%. This increase was primarily
attributable to a decline in oil reserves during 1997 as a result of lower
commodity prices, offset by a decline in oil production of 4,668 barrels for
1997 as compared to 1996.
IMPACT OF INFLATION AND CHANGING PRICES ON SALES AND NET INCOME
Inflation impacts the fixed overhead rate charges of the lease operating
expenses for the Partnership. During 1998, the annual change in the index of
average weekly earnings of crude petroleum and gas production workers issued by
the U.S. Department of Labor, Bureau of Labor Statistics increased (effective
April 1, 1998) 10.3%. The 1997 annual change in average weekly earnings
increased by 2%. The 1996 index increased 4.1%. The impact of inflation for
other lease operating expenses is small due to the current economic condition of
the oil industry.
The oil and gas industry experienced volatility during the past decade
because of the fluctuation of the supply of most fossil fuels relative to the
demand for such products and other uncertainties in the world energy markets
causing significant fluctuations in oil and gas prices. During 1998, the price
per barrel for oil production similar to the Partnership's ranged from
approximately $9.50 to $15.50. During most of 1997 and 1996, 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 March 1999. On March 8, 1999, the market price for West Texas intermediate
crude was $11.00 per barrel. A continuation of the current commodity price
environment will continue to have an adverse effect on the Partnership's
revenues, operating cash flow and distributions and could result in additional
decreases in the carrying value of the Partnership's oil and gas properties.
5
<PAGE> 1023
Prices for natural gas are subject to ordinary seasonal fluctuations, and
this volatility of natural gas prices may result in production being curtailed
and, in some cases, wells being completely shut-in.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $251,807 during the
year ended December 31, 1998 from the year ended December 31, 1997, primarily
attributable to declines in oil and gas sales receipts, offset by decreases in
production costs and G&A expenses paid.
Net Cash Provided by (Used in) Investing Activities
The Partnership's investing activities during 1998 and 1997 included
expenditures related to equipment replacement on various oil and gas properties.
Proceeds from disposition of assets of $800 from the salvage of equipment
on one fully depleted well were received during 1997.
Net Cash Used in Financing Activities
Cash was sufficient in 1998 for distributions to the partners of $131,597
of which $1,316 was distributed to the managing general partner and $130,281 to
the limited partners. In 1997, cash was sufficient for distributions to the
partners of $361,567 of which $3,615 was distributed to the managing general
partner and $357,952 to the limited partners.
The current commodity price environment will continue to impact the
distributions and could result in limited or no distributions to the partners.
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.
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
at varying stages of completion as it pertains to information technology and
non-information technology applications and systems in the United States, Canada
and Argentina. As of December 31, 1998, the managing general partner estimates
that the assessment phase is approximately 86% complete, on a worldwide basis,
and has included, but is not limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
6
<PAGE> 1024
- 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;
- 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,
- 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 to
approximately 37% of those inquiries.
The remedial phase of the managing general partner's Year 2000 project is
also at varying 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 December 31, 1998, the
managing general partner estimates that the remedial phase is approximately 54%
complete, on a worldwide basis, subject to the continuing 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 through remedial coding and is currently testing this system for Year
2000 compliance. The remediation of non-information technology is expected to be
completed during July 1999. The managing general partner's Year 2000 remedial
actions have not significantly 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 and non-information technology remediation by the end of the third
quarter of 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. The managing general partner intends to use its working capital to pay
for the costs of the Year 2000 projects. As of December 31, 1998, the managing
general partner's total costs incurred on the Year 2000 problem were $1.8
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 in accordance with the general and
administration allocation. (See Note 2 of Notes to Financial Statements included
in "Item 8. Financial Statements and Supplementary Data".)
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 assessment phase of the managing general partner's Year 2000
project, contingency plans are being 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.
7
<PAGE> 1025
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Parker & Parsley 90-C Conv., L.P:
Independent Auditors' Report -- Ernst & Young LLP......... 9
Independent Auditors' Report -- KPMG LLP.................. 10
Balance Sheets as of December 31, 1998 and 1997........... 11
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996.................................... 12
Statements of Partners' Capital for the Years Ended
December 31, 1998, 1997 and 1996....................... 13
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996.................................... 14
Notes to Financial Statements............................. 15
</TABLE>
8
<PAGE> 1026
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 90-C Conv., L.P.
(A Delaware Limited Partnership):
We have audited the balance sheet of Parker & Parsley 90-C Conv., L.P. as
of December 31, 1998, and the related statements of operations, partners'
capital and cash flows for the year then ended. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 90-C Conv.,
L.P. as of December 31, 1998, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Dallas, Texas
March 15, 1999
9
<PAGE> 1027
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 90-C Conv., L.P.
(A Delaware Limited Partnership):
We have audited the financial statements of Parker & Parsley 90-C Conv.,
L.P. as of December 31, 1997, and the related statements of operations,
partners' capital and cash flows for the years ended December 31, 1997 and 1996.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 90-C Conv.,
L.P. as of December 31, 1997, and the results of its operations and its cash
flows for the years ended December 31, 1997 and 1996, in conformity with
generally accepted accounting principles.
KPMG LLP
Midland, Texas
March 20, 1998
10
<PAGE> 1028
PARKER & PARSLEY 90-C CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 66,221 $ 87,423
Accounts receivable -- oil and gas sales.................. 41,400 69,891
----------- -----------
Total current assets.............................. 107,621 157,314
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 5,765,217 5,751,870
Accumulated depletion....................................... (4,861,804) (4,497,380)
----------- -----------
Net oil and gas properties............................. 903,413 1,254,490
----------- -----------
$ 1,011,034 $ 1,411,804
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable -- affiliate............................. $ 13,398 $ 23,946
Partners' capital:
Managing general partner.................................. 9,946 13,848
Limited partners (7,531 interests)........................ 987,690 1,374,010
----------- -----------
997,636 1,387,858
----------- -----------
$ 1,011,034 $ 1,411,804
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 1029
PARKER & PARSLEY 90-C CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Revenues:
Oil and gas............................................... $ 430,499 $661,475 $837,849
Interest.................................................. 4,747 5,942 5,274
Gain (loss) on disposition of assets...................... -- 800 (6,508)
--------- -------- --------
435,246 668,217 836,615
--------- -------- --------
Costs and expenses:
Oil and gas production.................................... 314,363 331,332 337,193
General and administrative................................ 15,084 21,436 27,292
Impairment of oil and gas properties...................... 185,784 79,288 --
Depletion................................................. 178,640 130,421 112,781
--------- -------- --------
693,871 562,477 477,266
--------- -------- --------
Net income (loss)........................................... $(258,625) $105,740 $359,349
========= ======== ========
Allocation of net income (loss):
Managing general partner.................................. $ (2,586) $ 1,057 $ 3,593
========= ======== ========
Limited partners.......................................... $(256,039) $104,683 $355,756
========= ======== ========
Net income (loss) per limited partnership interest.......... $ (34.00) $ 13.90 $ 47.24
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 1030
PARKER & PARSLEY 90-C CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Partners' capital at January 1, 1996....................... $16,767 $1,662,989 $1,679,756
Distributions............................................ (3,954) (391,466) (395,420)
Net income............................................... 3,593 355,756 359,349
------- ---------- ----------
Partners' capital at December 31, 1996..................... 16,406 1,627,279 1,643,685
Distributions............................................ (3,615) (357,952) (361,567)
Net income............................................... 1,057 104,683 105,740
------- ---------- ----------
Partners' capital at December 31, 1997..................... 13,848 1,374,010 1,387,858
Distributions............................................ (1,316) (130,281) (131,597)
Net loss................................................. (2,586) (256,039) (258,625)
------- ---------- ----------
Partners' capital at December 31, 1998..................... $ 9,946 $ 987,690 $ 997,636
======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 1031
PARKER & PARSLEY 90-C CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $(258,625) $ 105,740 $ 359,349
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Impairment of oil and gas properties................. 185,784 79,288 --
Depletion............................................ 178,640 130,421 112,781
(Gain) loss on disposition of assets................. -- (800) 6,508
Changes in assets and liabilities:
Accounts receivable.................................. 28,491 54,396 (54,851)
Accounts payable..................................... (10,548) 6,504 (31,693)
--------- --------- ---------
Net cash provided by operating activities....... 123,742 375,549 392,094
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties..................... (13,347) (6,923) (3,869)
Proceeds from disposition of assets..................... -- 800 4,608
--------- --------- ---------
Net cash provided by (used in) investing
activities.................................... (13,347) (6,123) 739
--------- --------- ---------
Cash flows from financing activities:
Cash distributions to partners.......................... (131,597) (361,567) (395,420)
--------- --------- ---------
Net increase (decrease) in cash........................... (21,202) 7,859 (2,587)
Cash at beginning of year................................. 87,423 79,564 82,151
--------- --------- ---------
Cash at end of year....................................... $ 66,221 $ 87,423 $ 79,564
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 1032
PARKER & PARSLEY 90-C CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 90-C Conv., L.P. (the "Partnership") is a general
partnership organized in 1990 under the laws of the State of Texas. The
Partnership converted to a Delaware limited partnership on August 1, 1991. As of
August 8, 1997, Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the
managing general partner of the Partnership. Prior to August 8, 1997, the
Partnership's managing general partner was Parker & Parsley Development L.P.
("PPDLP"), a wholly-owned subsidiary of Parker & Parsley Petroleum Company
("Parker & Parsley"). On August 7, 1997, Parker & Parsley and Mesa Inc. received
shareholder approval to merge and create Pioneer Natural Resources Company
("Pioneer"). On August 8, 1997, PPDLP was merged with and into Pioneer USA, a
wholly-owned subsidiary of Pioneer, resulting in Pioneer USA becoming the
managing general partner of the Partnership as PPDLP's successor by merger.
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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties -- The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as determined by the engineering staff of Pioneer
USA, the Partnership's managing general partner, and reviewed by independent
petroleum consultants. The carrying amounts of properties sold or otherwise
disposed of and the related allowances for depletion are eliminated from the
accounts and any gain or loss is included in operations.
Impairment of long-lived assets -- 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"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -- Preparation
of the accompanying financial statements 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 reporting amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest -- The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
15
<PAGE> 1033
PARKER & PARSLEY 90-C CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes -- A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows -- For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses -- General and administrative expenses
are allocated in part to the Partnership by the managing general partner or its
affiliates. Such allocated expenses are determined by the managing general
partner based upon its judgement of the level of activity of the Partnership
relative to the managing general partner's activities and other entities it
manages. The method of allocation has been consistent over the past several
years with certain modifications incorporated to reflect changes in Pioneer
USA's overall business activities.
Reclassifications -- Certain reclassifications may have been made to the
1997 and 1996 financial statements to conform to the 1998 financial statement
presentations.
Environmental -- The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 1998.
Revenue recognition -- The Partnership uses the entitlements method of
accounting for crude oil and natural gas revenues.
Reporting comprehensive income -- Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes
standards for the reporting and display of comprehensive income (loss) and its
components in a full set of general purpose financial statements. Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss).
The Partnership has no items of other comprehensive income (loss), as defined by
SFAS No. 130. Consequently, the provisions of SFAS No. 130 do not apply to the
Partnership.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. Based upon a decline in the Partnership's outlook for future
commodity prices, the Partnership has estimated the expected future cash flows
of its oil and gas properties as of December 31, 1998, 1997 and 1996, and
compared such estimated future cash flows to the respective carrying amount of
the oil and gas properties to determine if the carrying amounts were likely to
be recoverable. For those proved oil and gas properties for which the carrying
amount exceeded the estimated future cash flows, an impairment was determined to
exist; therefore, the Partnership adjusted the carrying amount of those oil and
gas properties to their fair value as determined by discounting their expected
future cash flows at a discount rate commensurate with the risks involved in the
industry. As a result, the Partnership recognized non-cash impairment provisions
of $185,784 and $79,288 related to its proved oil and gas properties during 1998
and 1997, respectively.
16
<PAGE> 1034
PARKER & PARSLEY 90-C CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $64,114 greater than the tax basis at December 31, 1998.
The following is a reconciliation of net income (loss) per statements of
operations with the net income (loss) per Federal income tax returns for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- ---------
<S> <C> <C> <C>
Net income (loss) per statements of operations..... $(258,625) $105,740 $ 359,349
Depletion and depreciation provisions for tax
reporting purposes (greater than) less than
amounts for financial reporting purposes......... 50,997 (98,399) (121,400)
Impairment of oil and gas properties for financial
reporting purposes............................... 185,784 79,288 --
Other.............................................. 1,870 (2,081) 6,706
--------- -------- ---------
Net income (loss) per Federal income tax
returns................................ $ (19,974) $ 84,548 $ 244,655
========= ======== =========
</TABLE>
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Development costs......................................... $13,347 $6,123 $3,704
======= ====== ======
</TABLE>
Capitalized oil and gas properties consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Proved properties:
Property acquisition costs............................... $ 226,701 $ 226,701
Completed wells and equipment............................ 5,538,516 5,525,169
----------- -----------
5,765,217 5,751,870
Accumulated depletion...................................... (4,861,804) (4,497,380)
----------- -----------
Net capitalized costs............................ $ 903,413 $ 1,254,490
=========== ===========
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $124,074 $128,942 $120,014
Reimbursement of general and administrative
expenses........................................... $ 12,838 $ 17,703 $ 24,441
</TABLE>
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
P&P Employees 90-C Conv., L.P. ("EMPL") (the "Entities"), Parker & Parsley 90-C,
L.P. and the Partnership (the "Partnerships") are
17
<PAGE> 1035
PARKER & PARSLEY 90-C CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
parties to the Program agreement. EMPL is a limited partnership organized for
the benefit of certain employees of Pioneer USA.
The costs and revenues of the Program are allocated to the Entities and the
Partnerships as follows:
<TABLE>
<CAPTION>
ENTITIES(1) PARTNERSHIPS(2)
----------- ---------------
<S> <C> <C>
Revenues:
Proceeds from disposition of depreciable and depletable
properties --
First three years..................................... 14.141414% 85.858586%
After first three years............................... 19.191919% 80.808081%
All other revenues --
First three years..................................... 14.141414% 85.858586%
After first three years............................... 19.191919% 80.808081%
Costs and expenses:
Lease acquisition costs, drilling and completion costs
and all other costs................................... 9.090909% 90.909091%
Operating costs, reporting and legal expenses and general
and administrative expenses --
First three years..................................... 14.141414% 85.858586%
After first three years............................... 19.191919% 80.808081%
</TABLE>
- ---------------
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at
the Partnership level and 30 limited partner interests owned by Pioneer USA.
(2) The allocation between the Partnership and Parker & Parsley 90-C, L.P. is
38.349119% and 61.650881%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table represents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 1998, 1997 and 1996 and
changes in such quantities during the years then ended. Due to a change in the
accounting policy of the managing general partner in 1997, the Partnership began
accounting for processed natural gas production in two components: processed
natural gas liquids ("NGLs") and dry residue gas. NGLs are reflected in "Oil and
NGLs" in the table below. All of the Partnership's reserves are proved developed
and located within the United States. The Partnership's reserves are based on an
evaluation prepared by the engineering staff of Pioneer USA and reviewed by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant,
using criteria established by
18
<PAGE> 1036
PARKER & PARSLEY 90-C CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
the Securities and Exchange Commission. Reserve value information is available
to limited partners pursuant to the Partnership agreement and, therefore, is not
presented.
<TABLE>
<CAPTION>
OIL AND NGLS GAS
(BBLS) (MCF)
------------ ---------
<S> <C> <C>
Net proved reserves at January 1, 1996...................... 386,827 964,462
Revisions................................................... 95,644 258,581
Sale of reserves............................................ (126) (18,702)
Production.................................................. (30,485) (64,557)
-------- ---------
Net proved reserves at December 31, 1996.................... 451,860 1,139,784
Revisions................................................... 2,219 (662,760)
Production.................................................. (29,478) (50,304)
-------- ---------
Net proved reserves at December 31, 1997.................... 424,601 426,720
Revisions................................................... (204,124) (171,338)
Production.................................................. (33,187) (30,348)
-------- ---------
Net proved reserves at December 31, 1998.................... 187,290 225,034
======== =========
</TABLE>
As of December 31, 1998, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 1998 prices of $10.61 per
barrel of oil, $5.48 per barrel of NGLs and $1.41 per mcf of gas, discounted at
10% was approximately $301,000 and undiscounted was $417,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Genesis Crude Oil, L.P...................................... 69% 69% 73%
Western Gas Resources, Inc.................................. 13% 12% 8%
</TABLE>
At December 31, 1998, the amounts receivable from Genesis Crude Oil, L.P.
and Western Gas Resources, Inc. were $18,361 and $8,629, respectively, which are
included in the caption "Accounts receivable -- oil and gas sales" in the
accompanying Balance Sheet.
The Partnership's share of oil and gas production is sold to various
purchasers. Pioneer USA is of the opinion that the loss of any one purchaser
would not have an adverse effect on the ability of the Partnership to sell its
oil and gas production.
NOTE 9. ORGANIZATION AND OPERATIONS
The Partnership was organized December 28, 1990 as a general partnership
under the Texas Uniform General Partnership Act for the purpose of acquiring and
developing oil and gas properties. The
19
<PAGE> 1037
PARKER & PARSLEY 90-C CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Partnership converted to a Delaware limited partnership on August 1, 1991. The
managing general partner received an opinion of legal counsel to the effect that
such conversion will not result in material adverse tax consequences to the
Partnership. The following is a brief summary of the more significant provisions
of the limited partnership agreement:
Managing general partner -- The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Program and Partnership affairs. As
managing general partner and operator of the Partnership's properties, all
production expenses are incurred by Pioneer USA and billed to the
Partnership and a portion of revenue is initially received by Pioneer USA
prior to being paid to the Partnership. Under the Partnership agreement,
the managing general partner pays 1% of the Partnership's acquisition,
drilling and completion costs and 1% of its operating and general and
administrative expenses. In return, it is allocated 1% of the Partnership's
revenues.
Limited partner liability -- The maximum amount of liability of any
limited partner is the total contributions of such partner plus his share
of any undistributed profits.
Initial capital contributions -- The partners entered into
subscription agreements for aggregate capital contributions of $7,531,000.
Pioneer USA is required to contribute amounts equal to 1% of initial
Partnership capital less commission and organization and offering costs
allocated to the limited partners and to contribute amounts necessary to
pay costs and expenses allocated to it under the Partnership agreement to
the extent its share of revenues does not cover such costs.
20
<PAGE> 1038
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and
executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve
until the next annual meeting of stockholders or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31,
NAME 1998 POSITION
- ---- ------------ --------
<S> <C> <C>
Scott D. Sheffield................ 46 President and Director
Timothy L. Dove................... 42 Executive Vice President and Director
Dennis E. Fagerstone.............. 49 Executive Vice President and Director
Mark L. Withrow................... 51 Executive Vice President, General Counsel
and Director
M. Garrett Smith.................. 37 Executive Vice President, Chief Financial
Officer and Director
Mel Fischer(a).................... 64 Executive Vice President
Lon C. Kile....................... 43 Executive Vice President
Rich Dealy........................ 32 Vice President and Chief Accounting Officer
</TABLE>
- ---------------
(a) Mr. Fischer was a director and officer until his retirement from Pioneer
and Pioneer USA on February 19, 1999.
Scott D. Sheffield. Mr. Sheffield is a distinguished graduate of The
University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he
has served as President, Chief Executive Officer and a director of Pioneer and
President and a director of Pioneer USA. Mr. Sheffield was the President and a
director of Parker & Parsley from May 1990 until August 1997 and was the
Chairman of the Board and Chief Executive Officer of Parker & Parsley from
October 1990 until August 1997. He was the sole director of Parker & Parsley
from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley
Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum
engineer in 1979. He served as Vice President -- Engineering of PPDC from
September 1981 until April 1985 when he was elected President and a director. In
March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive
Officer of PPDC. Before joining PPDC, Mr. Sheffield was employed as a production
and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President -- Business
Development of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. Mr. Dove joined Parker & Parsley in May
1994 as Vice President -- International and was promoted to Senior Vice
President -- Business Development in October 1996, in which position he served
until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with
Diamond Shamrock Corp., and its successor, Maxus Energy Corp. in various
capacities in international exploration and production, marketing, refining and
marketing and planning and development. Mr. Dove earned a B.S. in Mechanical
21
<PAGE> 1039
Engineering from Massachusetts Institute of Technology in 1979 and received his
M.B.A. in 1981 from the University of Chicago.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of Mesa from March 1, 1997 until August 1997. From October
1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief
Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice
President -- Exploration and Production of Mesa. From June 1988 to May 1991, Mr.
Fagerstone served as Vice President -- Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President -- General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President -- General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
M. Garrett Smith. Mr. Smith, a graduate of The University of Texas with a
B.S. in Electrical Engineering and Southern Methodist University with an M.B.A.,
was appointed Executive Vice President and Chief Financial Officer of Pioneer in
December 1997. He served as Senior Vice President -- Finance of Pioneer from
August 1997 until December 1997. Mr. Smith was elected Senior Vice President --
Finance and a director of Pioneer USA in August 1997. He served as Vice
President -- Corporate Acquisitions of Mesa from January 1997 until August 1997.
From October 1996 to December 1996, Mr. Smith served as Vice
President -- Finance of Mesa and from 1994 to 1996 he served as Director of
Financial Planning of Mesa. Mr. Smith was employed by BTC Partners, Inc. (a
former financial advisor to Mesa) from 1989 to 1994.
Mel Fischer. Mr. Fischer, a graduate of the University of California at
Berkeley with a Masters degree in Geology, became Executive Vice
President -- Worldwide Exploration of Pioneer and Pioneer USA in August 1997. He
served as a director of Parker & Parsley from November 1995 until August 1997
and was Executive Vice President -- Worldwide Exploration for Parker & Parsley
from February 1997 to August 1997. Mr. Fischer retired from Pioneer and Pioneer
USA effective February 15, 1999. He worked in the petroleum industry for 32
years, starting as a Petroleum Geologist with Texaco in 1962, and retiring as
President, Occidental International Exploration and Production Company in March
1994. For the 10 years prior to becoming President of Occidental International,
he served as Executive Vice President, World Wide Exploration with Occidental
Oil and Gas Corporation. He is a registered geologist in the State of
California, a member of the American Association of Petroleum Geologists and an
emeritus member of the Board of Advisors for the Earth Sciences Research
Institute at the University of Utah.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a
B.B.A. in Accounting, became Executive Vice President of Pioneer and Pioneer USA
in August 1997. Mr. Kile was Senior Vice President -- Investor Relations from
October 1996 to August 1997. Previously, he served as Vice President and Manager
of the Mid-Continent Division, Vice President -- Equity Finance & Analysis and
Vice President -- Marketing & Program Administration. Prior to joining Parker &
Parsley in 1985, he was employed as Supervisor -- Senior, Audit, in charge of
Parker & Parsley's audit, with Arthur Young.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a
B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became
Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
22
<PAGE> 1040
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is vested in Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA and P&P Employees 90-C Conv., L.P. ("EMPL") pay
approximately 10% of the Partnership's acquisition, drilling and completion
costs and approximately 15% during the first three years and approximately 20%
after three years of its operating and general and administrative expenses. In
return, they are allocated approximately 15% during the first three years and
approximately 20% after three years of the Partnership's revenues. See Notes 6
and 9 of Notes to Financial Statements included in "Item 8. Financial Statements
and Supplementary Data" for information regarding fees and reimbursements paid
to the managing general partner or its affiliates by the Partnership.
Pioneer USA's current executive officers and other employees are general
partners of EMPL which serves as a co-general partner of the Program. Under this
arrangement, EMPL pays approximately 2.5% of the Partnership's acquisition,
drilling and completion costs and approximately 3.75% during the first three
years and approximately 5% after three years of its operating and general and
administrative expenses. In return, EMPL is allocated approximately 3.75% during
the first three years and approximately 5% after three years of the
Partnership's revenues. EMPL does not receive any fees or reimbursements from
the Partnership.
The Partnership does not directly pay any salaries of the executive
officers of Pioneer USA, but does pay a portion of Pioneer USA's general and
administrative expenses of which these salaries are a part. See Note 6 of Notes
to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more
of the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 30 limited partner interests at January 1, 1999.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing
general partner of the Partnership, Pioneer USA, has the exclusive right and
full authority to manage, control and administer the Partnership's business.
Under the limited partnership agreement, limited partners holding a majority of
the outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner or its affiliates
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $124,074 $128,942 $120,014
Reimbursement of general and administrative
expenses........................................... $ 12,838 $ 17,703 $ 24,441
</TABLE>
23
<PAGE> 1041
Under the limited partnership agreement, the managing general partner pays
1% of the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial statements
The following are filed as part of this annual report:
Independent Auditors' Report -- Ernst & Young LLP
Independent Auditors' Report -- KPMG LLP
Balance sheets as of December 31, 1998 and 1997
Statements of operations for the years ended December 31, 1998, 1997
and 1996
Statements of partners' capital for the years ended December 31, 1998,
1997 and 1996
Statements of cash flows for the years ended December 31, 1998, 1997
and 1996
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this annual report.
24
<PAGE> 1042
SIGNATURES
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 90-C CONV., L.P.
By: Pioneer Natural Resources USA,
Inc.
Managing General Partner
By: /s/ SCOTT D. SHEFFIELD
----------------------------------
Scott D. Sheffield,
President
Dated: March 26, 1999
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 date indicated.
<TABLE>
<C> <S> <C>
/s/ SCOTT D. SHEFFIELD President and Director of March 26, 1999
- ----------------------------------------------------- Pioneer USA
Scott D. Sheffield
/s/ TIMOTHY L. DOVE Executive Vice President and March 26, 1999
- ----------------------------------------------------- Director of Pioneer USA
Timothy L. Dove
/s/ DENNIS E. FAGERSTONE Executive Vice President and March 26, 1999
- ----------------------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ MARK L. WITHROW Executive Vice President, March 26, 1999
- ----------------------------------------------------- General Counsel and Director
Mark L. Withrow of Pioneer USA
/s/ M. GARRETT SMITH Executive Vice President, Chief March 26, 1999
- ----------------------------------------------------- Financial Officer and
M. Garrett Smith Director of Pioneer USA
/s/ LON C. KILE Executive Vice President of March 26, 1999
- ----------------------------------------------------- Pioneer USA
Lon C. Kile
/s/ RICH DEALY Vice President and Chief March 26, 1999
- ----------------------------------------------------- Accounting Officer of Pioneer
Rich Dealy USA
</TABLE>
25
<PAGE> 1043
PARKER & PARSLEY 90-C CONV., L.P.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3(a) -- Form of Agreement of Limited Partnership of Parker &
Parsley 90-C Conv., L.P. incorporated by reference to
Exhibit A of the Post-Effective Amendment No. 1 of the
Partnership's Registration Statement on Form S-1
(Registration No. 33-26097)
4(b) -- Form of Limited Partner Subscription Agreement
incorporated by reference to Exhibit C of the
Post-Effective Amendment No. 1 of the Partnership's
Registration Statement on Form S-1 (Registration No.
33-26097)
4(b) -- Form of General Partner Subscription Agreement
incorporated by reference to Exhibit D of the
Post-Effective Amendment No. 1 of the Partnership's
Registration Statement on Form S-1 (Registration No.
33-26097)
4(b) -- Power of Attorney incorporated by reference to Exhibit B
of Amendment No. 1 of the Partnership's Registration
Statement on Form S-1 (Registration No. 33-26097)
4(c) -- Specimen Certificate of Limited Partnership Interest
incorporated by reference to Exhibit 4c of the
Partnership's Registration Statement on Form S-1
(Registration No. 33-26097)
10(b) -- Form of Development Drilling Program Agreement
incorporated by reference to Exhibit B of the
Post-Effective Amendment No. 1 of the Partnership's
Registration Statement on Form S-1 (Registration No.
33-26097)
27.1* -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith
<PAGE> 1044
PARKER & PARSLEY 90-C CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
DECEMBER 31, 1998, 1997 AND 1996
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. Future income taxes are calculated by comparing
discounted future cash flows to the tax basis of oil and gas properties plus
available carryforwards and credits and applying the current tax rates to the
difference.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and gas producing activities:
Future cash inflows....................................... $ 2,041 $ 7,715 $15,628
Future production costs................................... (1,624) (4,688) (7,998)
Future development costs.................................. -- -- 107
------- ------- -------
417 3,027 7,737
10% annual discount factor................................ (116) (1,359) (3,986)
------- ------- -------
Standardized measure of discounted future net cash
flows.................................................. $ 301 $ 1,668 $ 3,751
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1998 1997 1996
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs................ $ (116) $ (330) $ (500)
Net changes in prices and production costs................ (1,115) (1,741) 1,508
Extensions and discoveries................................ -- -- --
Sales of minerals-in-place................................ -- -- (10)
Purchases of minerals-in-place............................ -- -- --
Revisions of estimated future development costs........... -- (59) (50)
Revisions of previous quantity estimates and reserves
added by development drilling.......................... (238) (320) 893
Accretion of discount..................................... 167 375 213
Changes in production rates, timing and other............. (65) (8) (439)
------- ------- ------
Change in present value of future net revenues............ (1,367) (2,083) 1,615
------- ------- ------
Balance, beginning of year................................ 1,668 3,751 2,136
------- ------- ------
Balance, end of year...................................... $ 301 $ 1,668 $3,751
======= ======= ======
</TABLE>
<PAGE> 1045
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 90-C, L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT DATED , 1999
----------------------
THE DATE OF THIS SUPPLEMENT IS , 1999
----------------------
This document contains important information specific to Parker & Parsley
90-C, L.P. and supplements the proxy statement dated , 1999, of
Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies
to be voted at a special meeting of limited partners of the partnerships
described in the proxy statement. The purpose of the special meeting is for you
to vote upon the merger of Parker & Parsley 90-C, L.P. with and into Pioneer USA
that, if completed, will result in your receiving cash for your partnership
interests.
This supplement contains the following information concerning Parker &
Parsley 90-C, L.P.:
- A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through June 30,
1999
-- the merger value per $1,000 limited partner investment as of June 30,
1999
-- the merger value per $1,000 limited partner investment as a multiple of
distributions for the 12 months ended June 30, 1999
-- the book value per $1,000 limited partner investment as of June 30,
1999 and as of December 31, 1998 and
-- the ordinary tax loss per $1,000 limited partner investment in year of
initial investment
- Quarterly Report on Form 10-Q for the six months ended June 30, 1999
- Annual Report on Form 10-K for the year ended December 31, 1998
- Disclosures about the partnership's oil and gas producing activities
<PAGE> 1046
PARKER & PARSLEY 90-C, L.P.
SUPPLEMENTAL INFORMATION TABLE
<TABLE>
<S> <C>
Aggregate Initial Investment by the Limited Partners(a)..... $12,107
Aggregate Historical Limited Partner Distributions through
June 30, 1999(a).......................................... $ 6,519
Merger Value per $1,000 Limited Partner Investment as of
June 30, 1999(b).......................................... $126.92
Merger Value per $1,000 Limited Partner Investment as a
Multiple of Distributions for the 12 Months ended June 30,
1999(b)................................................... 18.13times
Book Value per $1,000 Limited Partner Investment:
-- as of June 30, 1999(b)................................. $127.01
-- as of December 31, 1998(b)............................. $130.35
Ordinary Tax Loss per $1,000 Limited Partner Investment in
Year of Initial Investment(b), (c)........................ $ 451
</TABLE>
- ---------------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as any
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
<PAGE> 1047
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JUNE 30, 1999
COMMISSION FILE NO. 33-26097-09
PARKER & PARSLEY 90-C, L.P.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2347262
(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)
</TABLE>
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> 1048
PARKER & PARSLEY 90-C, L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1999 and December 31,
1998.................................................. 3
Statements of Operations for the three and six months
ended June 30, 1999 and 1998.......................... 4
Statement of Partners' Capital for the six months ended
June 30, 1999......................................... 5
Statements of Cash Flows for the six months ended June
30, 1999 and 1998..................................... 6
Notes to Financial Statements.......................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................. 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 11
27.1 Financial Data Schedule
Signatures............................................. 12
</TABLE>
2
<PAGE> 1049
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER & PARSLEY 90-C, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 117,575 $ 99,482
Accounts receivable -- oil and gas sales.................. 98,852 66,369
----------- -----------
Total current assets.............................. 216,427 165,851
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 9,281,520 9,268,288
Accumulated depletion....................................... (7,907,802) (7,817,025)
----------- -----------
Net oil and gas properties........................ 1,373,718 1,451,263
----------- -----------
$ 1,590,145 $ 1,617,114
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 36,928 $ 23,084
Partners' capital:
Managing general partner.................................. 15,482 15,890
Limited partners (12,107 interests)....................... 1,537,735 1,578,140
----------- -----------
1,553,217 1,594,030
----------- -----------
$ 1,590,145 $ 1,617,114
=========== ===========
</TABLE>
The financial information included as of June 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
<PAGE> 1050
PARKER & PARSLEY 90-C, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas................................... $172,712 $174,479 $319,242 $367,337
Interest...................................... 1,178 1,756 2,241 3,744
-------- -------- -------- --------
173,890 176,235 321,483 371,081
-------- -------- -------- --------
Costs and expenses:
Oil and gas production........................ 137,477 141,492 248,624 271,671
General and administrative.................... 5,701 5,738 11,247 12,145
Depletion..................................... 26,863 43,222 90,777 88,083
-------- -------- -------- --------
170,041 190,452 350,648 371,899
-------- -------- -------- --------
Net income (loss)............................. $ 3,849 $(14,217) $(29,165) $ (818)
======== ======== ======== ========
Allocation of net income (loss):
Managing general partner...................... $ 38 $ (142) $ (292) $ (8)
======== ======== ======== ========
Limited partners.............................. $ 3,811 $(14,075) $(28,873) $ (810)
======== ======== ======== ========
Net income (loss) per limited partnership
interest................................... $ .32 $ (1.17) $ (2.38) $ (.07)
======== ======== ======== ========
Distributions per limited partnership
interest................................... $ -- $ 3.59 $ .95 $ 11.27
======== ======== ======== ========
</TABLE>
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> 1051
PARKER & PARSLEY 90-C, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1, 1999................................. $15,890 $1,578,140 $1,594,030
Distributions............................................ (116) (11,532) (11,648)
Net loss................................................. (292) (28,873) (29,165)
------- ---------- ----------
Balance at June 30, 1999................................... $15,482 $1,537,735 $1,553,217
======= ========== ==========
</TABLE>
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> 1052
PARKER & PARSLEY 90-C, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(29,165) $ (818)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depletion.............................................. 90,777 88,083
Changes in assets and liabilities:
Accounts receivable.................................... (32,483) 38,650
Accounts payable....................................... 13,844 3,733
-------- ---------
Net cash provided by operating activities......... 42,973 129,648
-------- ---------
Cash flows from investing activities:
Additions to oil and gas properties....................... (13,232) (11,124)
Cash flows used in financing activities:
Cash distributions to partners............................ (11,648) (137,809)
-------- ---------
Net increase (decrease) in cash............................. 18,093 (19,285)
Cash at beginning of period................................. 99,482 133,831
-------- ---------
Cash at end of period....................................... $117,575 $ 114,546
======== =========
</TABLE>
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> 1053
PARKER & PARSLEY 90-C, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 90-C, L.P. (the "Partnership") is a limited partnership
organized in 1990 under the laws of the State of Delaware.
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 June 30, 1999 and for the three and six months ended June 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.
7
<PAGE> 1054
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
RESULTS OF OPERATIONS
Six months ended June 30, 1999 compared with six months ended June 30, 1998
Revenues:
The Partnership's oil and gas revenues decreased 13% to $319,242 from
$367,337 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from lower average prices received and a decrease
in production. For the six months ended June 30, 1999, 18,522 barrels of oil,
6,611 barrels of natural gas liquids ("NGLs") and 21,869 mcf of gas were sold,
or 28,778 barrel of oil equivalents ("BOEs"). For the six months ended June 30,
1998, 20,218 barrels of oil, 6,010 barrels of NGLs and 23,433 mcf of gas were
sold, or 30,134 BOEs.
The average price received per barrel of oil decreased $1.01, or 7%, from
$14.13 for the six months ended June 30, 1998 to $13.12 for the same period in
1999. The average price received per barrel of NGLs decreased 12% from $7.51
during the six months ended June 30, 1998 to $6.63 for the same period in 1999.
The average price received per mcf of gas decreased 5% from $1.56 during the six
months ended June 30, 1998 to $1.48 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 six months ended June 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.
Costs and Expenses:
Total costs and expenses decreased to $350,648 for the six months ended
June 30, 1999 as compared to $371,899 for the same period in 1998, a decrease of
$21,251, or 6%. This decrease was due to declines in production costs and
general and administrative expenses ("G&A"), offset by an increase in depletion.
Production costs were $248,624 for the six months ended June 30, 1999 and
$271,671 for the same period in 1998, resulting in a $23,047 decrease, or 8%.
This decrease was due to lower well maintenance costs and declines in production
taxes and ad valorem 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, 7% from $12,145 for the six months ended June 30, 1998
to $11,247 for the same period in 1999.
Depletion was $90,777 for the six months ended June 30, 1999 compared to
$88,083 for the same period in 1998, an increase of $2,694, or 3%. This increase
was the result of a combination of factors that included a decline in proved
reserves during the period ended March 31, 1999 due to reserve revisions and
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 1998 and a reduction in oil production of 1,696 barrels for
the six months ended June 30, 1999 compared to the same period in 1998.
Three months ended June 30, 1999 compared with three months ended June 30,
1998
Revenues:
The Partnership's oil and gas revenues decreased to $172,712 from $174,479
for the three months ended June 30, 1999 and 1998, respectively. The decrease in
revenues resulted from a decrease in production, offset by higher average prices
received. For the three months ended June 30, 1999, 8,848 barrels of oil, 3,546
barrels of NGLs and 10,109 mcf of gas were sold, or 14,079 BOEs. For the three
8
<PAGE> 1055
months ended June 30, 1998, 9,861 barrels of oil, 3,082 barrels of NGLs and
10,841 mcf of gas were sold, or 14,750 BOEs.
The average price received per barrel of oil increased $1.06, or 8%, from
$13.44 for the three months ended June 30, 1998 to $14.50 for the same period in
1999. The average price received per barrel of NGLs increased slightly from
$7.95 during the three months ended June 30, 1998 to $7.99 for the same period
in 1999. The average price received per mcf of gas decreased slightly from $1.61
during the three months ended June 30, 1998 to $1.59 in 1999.
Costs and Expenses:
Total costs and expenses decreased to $170,041 for the three months ended
June 30, 1999 as compared to $190,452 for the same period in 1998, a decrease of
$20,411, or 11%. This decrease was due to declines in depletion, production
costs and G&A.
Production costs were $137,477 for the three months ended June 30, 1999 and
$141,492 for the same period in 1998, resulting in a $4,015 decrease, or 3%. The
decrease was due to lower well maintenance costs, ad valorem taxes and
production taxes.
During this period, G&A decreased slightly from $5,738 for the three months
ended June 30, 1998 to $5,701 for the same period in 1999.
Depletion was $26,863 for the three months ended June 30, 1999 compared to
$43,222 for the same period in 1998. This represented a decrease in depletion of
$16,359, or 38%. This decrease was primarily attributable to an increase in
proved reserves during the period ended June 30, 1999 as a result of higher
commodity prices, a reduction in oil production of 1,013 barrels for the three
months ended June 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.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $86,675 during the six
months ended June 30, 1999 from the same period ended June 30, 1998. This
decrease was primarily due to a decline in oil and gas sales receipts, offset by
declines in production costs and G&A expenses paid.
Net Cash Used in Investing Activities
The Partnership's principal investing activities during the six months
ended June 30, 1999 and 1998 were for expenditures related to equipment
replacement on various oil and gas properties.
Net Cash Used in Financing Activities
Cash was sufficient for the six months ended June 30, 1999 to cover
distributions to the partners of $11,648 of which $116 was distributed to the
managing general partner and $11,532 to the limited partners. For the same
period ended June 30, 1998, cash was sufficient for distributions to the
partners of $137,809 of which $1,378 was distributed to the managing general
partner and $136,431 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 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 early indications that the nations have initiated
their planned reductions, have had some stabilizing effect on commodity prices
during the latter part of the first quarter of 1999 and into August 1999.
However, no assurances can be given that the stabilizing effect of these
actions, or the planned reductions in export volumes, will be sustained for an
extended period of time.
9
<PAGE> 1056
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.
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 June 30, 1999, the managing general partner estimates that the
assessment phase is approximately 99% complete and has included, but is not
limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- the formulation of contingency plans for mission-critical information
technology systems.
Through June 30, 1999, the managing general partner had 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 varying 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 June 30, 1999, the managing general partner
estimates that the remedial phase is approximately 83% complete, on a worldwide
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 is expected
to be completed by 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 expects to complete the testing of
information technology systems by October 1999. The testing of the
non-information technology remediation is scheduled to be completed by the end
of November 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. As of June 30, 1999, the managing general partner's total costs
10
<PAGE> 1057
incurred on the Year 2000 problem were $2.3 million, of which approximately $200
thousand were incurred to replace non-compliant systems.
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) Form 8-K -- none
11
<PAGE> 1058
SIGNATURES
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 90-C, L.P.
By: Pioneer Natural Resources USA,
Inc., Managing General Partner
By: /s/ RICH DEALY
----------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
Dated: August 11, 1999
12
<PAGE> 1059
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 33-26097-09
PARKER & PARSLEY 90-C, L.P.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2347262
(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)
</TABLE>
Registrant's Telephone Number, including area code: (915) 683-4768
Securities registered pursuant to Section 12(b) of the Act: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
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]
No market currently exists for the limited partnership interests of the
Registrant. Based on original purchase price the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$12,080,000.
As of March 8, 1999, the number of outstanding limited partnership
interests was 12,107.
The following documents are incorporated by reference into the indicated
parts of this Annual Report on Form 10-K: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 1060
Parts I and II of this Report contain 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. See "Item 1.
Business" for a description of various factors that could materially affect the
ability of the Partnership to achieve the anticipated results described in the
forward looking statements.
PART I
ITEM 1. BUSINESS
Parker & Parsley 90-C, L.P. (the "Partnership") is a limited partnership
organized in 1990 under the laws of the State of Delaware. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. ("Mesa") received shareholder approval
to merge and create Pioneer Natural Resources Company ("Pioneer"). On August 8,
1997, PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership as PPDLP's successor by merger. For a more complete description of
the Parker & Parsley and Mesa merger, see Pioneer's Registration Statement on
Form S-4 as filed with the Securities & Exchange Commission.
A Registration Statement, as amended, filed pursuant to the Securities Act
of 1933, registering limited partnership interests aggregating $70,000,000 in a
series of Delaware limited partnerships formed under the Parker & Parsley 89-90
Development Drilling Program, was declared effective by the Securities and
Exchange Commission on August 1, 1989. On December 28, 1990, the offering of
limited partnership interests in the Partnership, the fifth partnership formed
under such statement, was closed, with interests aggregating $12,107,000 being
sold to 928 subscribers.
The Partnership engages primarily in oil and gas development and production
and is not involved in any industry segment other than oil and gas. See "Item 6.
Selected Financial Data" and "Item 8. Financial Statements and Supplementary
Data" of this report for a summary of the Partnership's operating information
and identifiable assets.
The principal markets during 1998 for the oil produced by the Partnership
were refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. The principal markets for the
Partnership's gas were companies that have pipelines located near the
Partnership's gas producing properties. Of the Partnership's total oil and gas
revenues for 1998, approximately 69% and 13% were attributable to sales made to
Genesis Crude Oil, L.P. and Western Gas Resources, Inc., respectively.
The Partnership's revenues, profitability, cash flow and future rate of
growth are highly dependent on the prevailing prices of oil and gas, which are
affected by numerous factors beyond the Partnership's control. Oil and gas
prices historically have been very volatile. A substantial or extended decline
in the prices of oil or gas could have a material adverse effect on the
Partnership's revenues, profitability and cash flow and could, under certain
circumstances, result in a reduction in the carrying value of the Partnership's
oil and gas properties.
Because of the demand for oil and gas, the Partnership does not believe
that the termination of the sales of its products to any one customer would have
a material adverse impact on its operations. The loss of a particular customer
for gas may have an effect if that particular customer has the only gas pipeline
located in the areas of the Partnership's gas producing properties. The
Partnership believes, however, that the effect would be temporary, until
alternative arrangements could be made.
Federal and state regulation of oil and gas operations generally includes
the fixing of maximum prices for regulated categories of natural gas, the
imposition of maximum allowable production rates, the taxation
1
<PAGE> 1061
of income and other items, and the protection of the environment. Although the
Partnership believes that its business operations do not impair environmental
quality and that its costs of complying with any applicable environmental
regulations are not currently significant, the Partnership cannot predict what,
if any, effect these environmental regulations may have on its current or future
operations.
The Partnership does not have any employees of its own. Pioneer USA employs
818 persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this report is filed. Pioneer
USA is responsible for all management functions.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the
Partnership conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist primarily of leasehold interests in
properties on which oil and gas are located. Such property interests are often
subject to landowner royalties, overriding royalties and other oil and gas
leasehold interests.
Fractional working interests in developmental oil and gas prospects located
primarily in the Spraberry Trend Area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 44
oil and gas wells. One well was sold and one well was plugged and abandoned due
to uneconomical operations. At December 31, 1998, the Partnership had 42
producing oil and gas wells.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 1998, 1997 and 1996 and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been estimated by the engineering staff of Pioneer USA with a review by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
2
<PAGE> 1062
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 8, 1999, the Partnership had 12,107 outstanding limited
partnership interests held of record by 890 subscribers. There is no established
public trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are
not required to meet the Partnership's obligations are distributed to the
partners at least quarterly in accordance with the limited partnership
agreement. During the years ended December 31, 1998 and 1997, $209,442 and
$575,452, respectively, of such revenue-related distributions were made to the
limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Oil and gas sales.............. $ 692,090 $1,063,396 $1,346,937 $1,161,251 $1,292,563
========== ========== ========== ========== ==========
Impairment of oil and gas
properties.................. $ 298,622 $ 127,213 $ -- $ 76,908 $ --
========== ========== ========== ========== ==========
Net income (loss).............. $ (416,064) $ 168,261 $ 577,803 $ 263,533 $ 245,360
========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general partner.... $ (4,161) $ 1,683 $ 5,778 $ 2,686 $ 2,505
========== ========== ========== ========== ==========
Limited partners............ $ (411,903) $ 166,578 $ 572,025 $ 260,847 $ 242,855
========== ========== ========== ========== ==========
Limited partners' net income
(loss) per limited
partnership interest........ $ (34.02) $ 13.76 $ 47.25 $ 21.55 $ 20.06
========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest........ $ 17.30 $ 47.53 $ 51.98 $ 45.35 $ 51.72
========== ========== ========== ========== ==========
AT YEAR END:
Total assets................... $1,617,114 $2,261,689 $2,664,141 $2,771,529 $3,023,786
========== ========== ========== ========== ==========
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1998 compared to 1997
The Partnership's 1998 oil and gas revenues decreased 35% to $692,090 from
$1,063,396 in 1997. The decrease in revenues resulted from lower average prices
received. In 1998, 39,380 barrels of oil, 13,978 barrels of natural gas liquids
("NGLs") and 48,787 mcf of gas were sold, or 61,489 barrel of oil equivalents
("BOEs"). In 1997, 41,504 barrels of oil, 5,885 barrels of NGLs and 80,867 mcf
of gas were sold, or 60,867 BOEs. Due to the decline characteristics of the
Partnership's oil and gas properties, management expects a certain amount of
decline in production in the future until the Partnership's economically
recoverable reserves are fully depleted.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. Effective September 30, 1997, as a result of the
merger with Mesa, the managing general partner accounts for processed natural
gas production in two components: natural gas liquids and dry residue gas. As a
result of the change in the managing general
3
<PAGE> 1063
partner's policy, the Partnership now accounts for processed natural gas
production as processed natural gas liquids and dry residue gas. Consequently,
separate product volumes will not be comparable for 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 year ended December 31, 1998 is the price received
for dry residue gas and the price per mcf for natural gas produced prior to
October 1997 was presented as 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
$19.48 in 1997 to $13.24 in 1998. The average price received per barrel of NGLs
decreased $3.78, or 36%, from $10.58 in 1997 to $6.80 in 1998. The average price
received per mcf of gas decreased 35% from $2.38 in 1997 to $1.55 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 in 1998.
Total costs and expenses increased in 1998 to $1,115,454 as compared to
$905,740 in 1997, an increase of $209,714, or 23%. This increase was due to
increases in the impairment of oil and gas properties and depletion, offset by
decreases in production costs and general and administrative expenses ("G&A").
Production costs were $505,571 in 1998 and $532,654 in 1997, resulting in a
$27,083 decrease, or 5%. The decrease was due to declines in production and ad
valorem taxes and workover expenses, offset by an increase in well maintenance
costs.
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, 33% from $36,037 in 1997 to $24,190 in 1998. The
Partnership paid the managing general partner $20,639 in 1998 and $31,578 in
1997 for G&A incurred on behalf of the Partnership. G&A is allocated, in part,
to the Partnership by the managing general partner. Such allocated expenses are
determined by the managing general partner based upon its judgement of the level
of activity of the Partnership relative to the managing general partner's
activities and other entities it manages. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
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"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. Declining commodity prices prompted
impairment reviews in 1998 and 1997. As a result of the review and evaluation of
its long-lived assets for impairment, the Partnership recognized non-cash
charges of $298,622 and $127,213 related to its oil and gas properties during
1998 and 1997, respectively.
Depletion was $287,071 in 1998 compared to $209,836 in 1997. This
represented an increase of $77,235, or 37%. This increase was primarily the
result of a combination of factors that included a decline in proved reserves
during 1998 due to the lower commodity prices, 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 and a reduction in oil production of 2,124
barrels for the period ended December 31, 1998 compared to the same period in
1997.
1997 compared to 1996
The Partnership's 1997 oil and gas revenues decreased 21% to $1,063,396
from $1,346,937 in 1996. The decrease in revenues resulted from declines in
production and lower average prices received. In 1997, 41,504 barrels of oil,
5,885 barrels of NGLs and 80,867 mcf of gas were sold, or 60,867 BOEs. In 1996,
49,009 barrels of oil and 103,786 mcf of gas were sold, or 66,307 BOEs.
4
<PAGE> 1064
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. As is described above in "Results of
Operations -- 1998 compared to 1997", the Partnership changed its method of
accounting for processed natural gas to a dry gas basis in the fourth quarter of
1997. As a result of this change, the Partnership now accounts for processed
natural gas production as processed natural gas liquids and dry residue gas.
Consequently, 1997 and 1996 separate product volumes are not comparable.
The declines in production volumes were primarily attributable to the
decline characteristics of the Partnership's oil and gas properties.
The average price received per barrel of oil decreased $2.40, or 11%, from
$21.88 in 1996 to $19.48 in 1997. The average price received per barrel of NGLs
during 1997 was $10.58. The average price received per mcf of gas decreased 10%
from $2.65 in 1996 to $2.38 in 1997.
A gain on disposition of assets of $1,287 was recognized during 1997 from
credits received from the disposal of oil and gas equipment on one fully
depleted well. Loss on disposition of asset of $10,427 was recognized during
1996 of which $10,693 was attributable to the sale of one gas well, offset by
salvage income of $266 received from the disposal of oil and gas equipment on
one well that was plugged and abandoned in a prior year and to credits received
from the disposal of oil and gas equipment on fully depleted wells.
Total costs and expenses increased in 1997 to $905,740 as compared to
$766,925 in 1996, an increase of $138,815, or 18%. This increase was due to the
impairment of oil and gas properties and depletion, offset by decreases in
production costs and G&A.
Production costs were $532,654 in 1997 and $542,077 in 1996, resulting in a
$9,423 decrease. The decrease was due to a decline in production taxes and
workover expenses, offset by a slight increase in ad valorem taxes.
During this period G&A decreased, in aggregate, 17% from $43,593 in 1996 to
$36,037 in 1997. The Partnership paid the managing general partner $31,578 in
1997 and $39,291 in 1996 for G&A incurred on behalf of the Partnership.
The Partnership recognized a non-cash SFAS 121 impairment provision of
$127,213 related to its proved oil and gas properties during the fourth quarter
of 1997.
Depletion was $209,836 in 1997 compared to $181,255 in 1996. This
represented an increase of $28,581, or 16%. This increase was primarily
attributable to a decline in oil reserves during 1997 as a result of lower
commodity prices, offset by a decline in oil production of 7,505 barrels for
1997 as compared to 1996.
IMPACT OF INFLATION AND CHANGING PRICES ON SALES AND NET INCOME
Inflation impacts the fixed overhead rate charges of the lease operating
expenses for the Partnership. During 1998, the annual change in the index of
average weekly earnings of crude petroleum and gas production workers issued by
the U.S. Department of Labor, Bureau of Labor Statistics increased (effective
April 1, 1998) 10.3%. The 1997 annual change in average weekly earnings
increased by 2%. The 1996 index increased 4.1%. The impact of inflation for
other lease operating expenses is small due to the current economic condition of
the oil industry.
The oil and gas industry experienced volatility during the past decade
because of the fluctuation of the supply of most fossil fuels relative to the
demand for such products and other uncertainties in the world energy markets
causing significant fluctuations in oil and gas prices. During 1998, the price
per barrel for oil production similar to the Partnership's ranged from
approximately $9.50 to $15.50. During most of 1997 and 1996, 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 March 1999. On March 8, 1999, the market price for West Texas intermediate
crude was $11.00 per barrel. A continuation of the current commodity price
environment will continue to have an adverse effect on the
5
<PAGE> 1065
Partnership's revenues, operating cash flow and distributions and could result
in additional decreases in the carrying value of the Partnership's oil and gas
properties.
Prices for natural gas are subject to ordinary seasonal fluctuations, and
this volatility of natural gas prices may result in production being curtailed
and, in some cases, wells being completely shut-in.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $403,361 during the
year ended December 31, 1998 from the year ended December 31, 1997, primarily
attributable to a decline in oil and gas sales receipts, offset by decreases in
production costs and G&A expenses paid.
Net Cash Provided by (Used in) Investing Activities
The Partnership's investing activities during 1998 and 1997 included
expenditures related to equipment replacement on various oil and gas properties.
Proceeds from disposition of assets of $1,287 from the salvage of equipment
on one fully depleted well were received during 1997.
Net Cash Used in Financing Activities
Cash was sufficient in 1998 for distributions to the partners of $211,557
of which $2,115 was distributed to the managing general partner and $209,442 to
the limited partners. In 1997, cash was sufficient for distributions to the
partners of $581,265 of which $5,813 was distributed to the managing general
partner and $575,452 to the limited partners.
The current commodity price environment will continue to impact the
distributions and could result in limited or no distributions to the partners.
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.
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
at varying stages of completion as it pertains to information technology and
non-information technology applications and systems in the United States, Canada
and Argentina. As of December 31, 1998, the managing general partner estimates
that the assessment phase is approximately 86% complete, on a worldwide basis,
and has included, but is not limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
6
<PAGE> 1066
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- 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 to
approximately 37% of those inquiries.
The remedial phase of the managing general partner's Year 2000 project is
also at varying 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 December 31, 1998, the
managing general partner estimates that the remedial phase is approximately 54%
complete, on a worldwide basis, subject to the continuing 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 through remedial coding and is currently testing this system for Year
2000 compliance. The remediation of non-information technology is expected to be
completed during July 1999. The managing general partner's Year 2000 remedial
actions have not significantly 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 and non-information technology remediation by the end of the third
quarter of 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. The managing general partner intends to use its working capital to pay
for the costs of the Year 2000 projects. As of December 31, 1998, the managing
general partner's total costs incurred on the Year 2000 problem were $1.8
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 in accordance with the general and
administration allocation. (See Note 2 of Notes to Financial Statements included
in "Item 8. Financial Statements and Supplementary Data".)
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 assessment phase of the managing general partner's Year 2000
project, contingency plans are being 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.
7
<PAGE> 1067
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Parker & Parsley 90-C, L.P:
Independent Auditors' Report -- Ernst & Young LLP......... 9
Independent Auditors' Report -- KPMG LLP.................. 10
Balance Sheets as of December 31, 1998 and 1997........... 11
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996.................................... 12
Statements of Partners' Capital for the Years Ended
December 31, 1998, 1997 and 1996....................... 13
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996.................................... 14
Notes to Financial Statements............................. 15
</TABLE>
8
<PAGE> 1068
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 90-C, L.P.
(A Delaware Limited Partnership):
We have audited the balance sheet of Parker & Parsley 90-C, L.P. as of
December 31, 1998, and the related statements of operations, partners' capital
and cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 90-C, L.P.
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Dallas, Texas
March 15, 1999
9
<PAGE> 1069
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 90-C, L.P.
(A Delaware Limited Partnership):
We have audited the financial statements of Parker & Parsley 90-C, L.P. as
of December 31, 1997, and the related statements of operations, partners'
capital and cash flows for the years ended December 31, 1997 and 1996. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 90-C, L.P.
as of December 31, 1997, and the results of its operations and its cash flows
for the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
KPMG LLP
Midland, Texas
March 20, 1998
10
<PAGE> 1070
PARKER & PARSLEY 90-C, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 99,482 $ 133,831
Accounts receivable -- oil and gas sales.................. 66,369 112,358
----------- -----------
Total current assets.............................. 165,851 246,189
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 9,268,288 9,246,832
Accumulated depletion....................................... (7,817,025) (7,231,332)
----------- -----------
Net oil and gas properties........................ 1,451,263 2,015,500
----------- -----------
$ 1,617,114 $ 2,261,689
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 23,084 $ 40,038
Partners' capital:
Managing general partner.................................. 15,890 22,166
Limited partners (12,107 interests)....................... 1,578,140 2,199,485
----------- -----------
1,594,030 2,221,651
----------- -----------
$ 1,617,114 $ 2,261,689
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 1071
PARKER & PARSLEY 90-C, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Oil and gas............................................ $ 692,090 $1,063,396 $1,346,937
Interest............................................... 7,300 9,318 8,218
Gain (loss) on disposition of assets................... -- 1,287 (10,427)
---------- ---------- ----------
699,390 1,074,001 1,344,728
---------- ---------- ----------
Costs and expenses:
Oil and gas production................................. 505,571 532,654 542,077
General and administrative............................. 24,190 36,037 43,593
Impairment of oil and gas properties................... 298,622 127,213 --
Depletion.............................................. 287,071 209,836 181,255
---------- ---------- ----------
1,115,454 905,740 766,925
---------- ---------- ----------
Net income (loss)........................................ $ (416,064) $ 168,261 $ 577,803
========== ========== ==========
Allocation of net income (loss):
Managing general partner............................... $ (4,161) $ 1,683 $ 5,778
========== ========== ==========
Limited partners....................................... $ (411,903) $ 166,578 $ 572,025
========== ========== ==========
Net income (loss) per limited partnership interest....... $ (34.02) $ 13.76 $ 47.25
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 1072
PARKER & PARSLEY 90-C, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Partners' capital at January 1, 1996....................... $26,875 $2,665,663 $2,692,538
Distributions............................................ (6,357) (629,329) (635,686)
Net income............................................... 5,778 572,025 577,803
------- ---------- ----------
Partners' capital at December 31, 1996..................... 26,296 2,608,359 2,634,655
Distributions............................................ (5,813) (575,452) (581,265)
Net income............................................... 1,683 166,578 168,261
------- ---------- ----------
Partners' capital at December 31, 1997..................... 22,166 2,199,485 2,221,651
Distributions............................................ (2,115) (209,442) (211,557)
Net loss................................................. (4,161) (411,903) (416,064)
------- ---------- ----------
Partners' capital at December 31, 1998..................... $15,890 $1,578,140 $1,594,030
======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 1073
PARKER & PARSLEY 90-C, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $(416,064) $168,261 $577,803
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Impairment of oil and gas properties................... 298,622 127,213 --
Depletion.............................................. 287,071 209,836 181,255
(Gain) loss on disposition of assets................... -- (1,287) 10,427
Changes in assets and liabilities:
Accounts receivable.................................... 45,989 87,450 (88,170)
Accounts payable....................................... (16,954) 10,552 (49,505)
--------- -------- --------
Net cash provided by operating activities......... 198,664 602,025 631,810
--------- -------- --------
Cash flows from investing activities:
Additions to oil and gas properties....................... (21,456) (11,129) (6,221)
Proceeds from disposition of assets....................... -- 1,287 7,406
--------- -------- --------
Net cash provided by (used in) investing
activities...................................... (21,456) (9,842) 1,185
--------- -------- --------
Cash flows from financing activities:
Cash distributions to partners............................ (211,557) (581,265) (635,686)
--------- -------- --------
Net increase (decrease) in cash............................. (34,349) 10,918 (2,691)
Cash at beginning of year................................... 133,831 122,913 125,604
--------- -------- --------
Cash at end of year......................................... $ 99,482 $133,831 $122,913
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 1074
PARKER & PARSLEY 90-C, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 90-C, L.P. (the "Partnership") is a limited partnership
organized in 1990 under the laws of the State of Delaware. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned
subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August
7, 1997, Parker & Parsley and Mesa Inc. received shareholder approval to merge
and create Pioneer Natural Resources Company ("Pioneer"). On August 8, 1997,
PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of
Pioneer, resulting in Pioneer USA becoming the managing general partner of the
Partnership as PPDLP's successor by merger.
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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties -- The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as determined by the engineering staff of Pioneer
USA, the Partnership's managing general partner, and reviewed by independent
petroleum consultants. The carrying amounts of properties sold or otherwise
disposed of and the related allowances for depletion are eliminated from the
accounts and any gain or loss is included in operations.
Impairment of long-lived assets -- 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"),
the Partnership reviews its long-lived assets to be held and used on an
individual property basis, including oil and gas properties accounted for under
the successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -- Preparation
of the accompanying financial statements 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 reporting amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest -- The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes -- A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
15
<PAGE> 1075
PARKER & PARSLEY 90-C, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statements of cash flows -- For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses -- General and administrative expenses
are allocated in part to the Partnership by the managing general partner or its
affiliates. Such allocated expenses are determined by the managing general
partner based upon its judgement of the level of activity of the Partnership
relative to the managing general partner's activities and other entities it
manages. The method of allocation has been consistent over the past several
years with certain modifications incorporated to reflect changes in Pioneer
USA's overall business activities.
Reclassifications -- Certain reclassifications may have been made to the
1997 and 1996 financial statements to conform to the 1998 financial statement
presentations.
Environmental -- The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 1998.
Revenue recognition -- The Partnership uses the entitlements method of
accounting for crude oil and natural gas revenues.
Reporting comprehensive income -- Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes
standards for the reporting and display of comprehensive income (loss) and its
components in a full set of general purpose financial statements. Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss).
The Partnership has no items of other comprehensive income (loss), as defined by
SFAS No. 130. Consequently, the provisions of SFAS No. 130 do not apply to the
Partnership.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. Based upon a decline in the Partnership's outlook for future
commodity prices, the Partnership has estimated the expected future cash flows
of its oil and gas properties as of December 31, 1998, 1997 and 1996, and
compared such estimated future cash flows to the respective carrying amount of
the oil and gas properties to determine if the carrying amounts were likely to
be recoverable. For those proved oil and gas properties for which the carrying
amount exceeded the estimated future cash flows, an impairment was determined to
exist; therefore, the Partnership adjusted the carrying amount of those oil and
gas properties to their fair value as determined by discounting their expected
future cash flows at a discount rate commensurate with the risks involved in the
industry. As a result, the Partnership recognized non-cash impairment provisions
of $298,622 and $127,213 related to its proved oil and gas properties during
1998 and 1997, respectively.
16
<PAGE> 1076
PARKER & PARSLEY 90-C, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $99,907 greater than the tax basis at December 31, 1998.
The following is a reconciliation of net income (loss) per statements of
operations with the net income (loss) per Federal income tax returns for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net income (loss) per statements of operations.... $(416,064) $ 168,261 $ 577,803
Depletion and depreciation provisions for tax
reporting purposes (greater than) less than
amounts for financial reporting purposes........ 81,152 (158,218) (195,360)
Impairment of oil and gas properties for financial
reporting purposes.............................. 298,622 127,213 --
Other............................................. 4,552 (3,336) 10,741
--------- --------- ---------
Net income (loss) per Federal income tax
return................................ $ (31,738) $ 133,920 $ 393,184
========= ========= =========
</TABLE>
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
<S> <C> <C> <C>
Development costs......................................... $21,456 $9,842 $5,955
======= ====== ======
</TABLE>
Capitalized oil and gas properties consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Proved properties:
Property acquisition costs............................... $ 364,450 $ 364,450
Completed wells and equipment............................ 8,903,838 8,882,382
----------- -----------
9,268,288 9,246,832
Accumulated depletion...................................... (7,817,025) (7,231,332)
----------- -----------
Net capitalized costs............................ $ 1,451,263 $ 2,015,500
=========== ===========
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $199,461 $207,290 $191,679
Reimbursement of general and administrative
expenses........................................... $ 20,639 $ 31,578 $ 39,291
</TABLE>
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA
and P&P Employees 90-C Conv., L.P. ("EMPL") (the "Entities"), Parker & Parsley
90-C Conv., L.P. and the Partnership (the "Partnerships")
17
<PAGE> 1077
PARKER & PARSLEY 90-C, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
are parties to the Program agreement. EMPL is a limited partnership organized
for the benefit of certain employees of Pioneer USA.
The costs and revenues of the Program are allocated to the Entities and the
Partnerships as follows:
<TABLE>
<CAPTION>
ENTITIES(1) PARTNERSHIPS(2)
----------- ---------------
<S> <C> <C>
Revenues:
Proceeds from disposition of depreciable and depletable
properties:
First three years.................................... 14.141414% 85.858586%
After first three years.............................. 19.191919% 80.808081%
All other revenues:
First three years.................................... 14.141414% 85.858586%
After first three years.............................. 19.191919% 80.808081%
Costs and expenses:
Lease acquisition costs, drilling and completion costs
and all other costs.................................. 9.090909% 90.909091%
Operating costs, reporting and legal expenses and
general and administrative expenses:
First three years.................................... 14.141414% 85.858586%
After first three years.............................. 19.191919% 80.808081%
</TABLE>
- ---------------
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at
the Partnership level and 27 limited partner interests owned by Pioneer USA.
(2) The allocation between the Partnership and Parker & Parsley 90-C Conv., L.P.
is 61.650881% and 38.349119%, respectively.
18
<PAGE> 1078
PARKER & PARSLEY 90-C, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 1998, 1997 and 1996 and
changes in such quantities during the years then ended. Due to a change in the
accounting policy of the managing general partner in 1997, the Partnership began
accounting for processed natural gas production in two components: processed
natural gas liquids ("NGLs") and dry residue gas. NGLs are reflected in "Oil and
NGLs" in the table below. All of the Partnership's reserves are proved developed
and located within the United States. The Partnership's reserves are based on an
evaluation prepared by the engineering staff of Pioneer USA and reviewed by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant,
using criteria established by the Securities and Exchange Commission. Reserve
value information is available to limited partners pursuant to the Partnership
agreement and, therefore, is not presented.
<TABLE>
<CAPTION>
OIL AND NGLS GAS
(BBLS) (MCF)
------------ ----------
<S> <C> <C>
Net proved reserves at January 1, 1996...................... 621,520 1,549,610
Revisions................................................... 153,639 415,372
Sale of reserves............................................ (203) (30,049)
Production.................................................. (49,009) (103,786)
-------- ----------
Net proved reserves at December 31, 1996.................... 725,947 1,831,147
Revisions................................................... 3,654 (1,064,663)
Production.................................................. (47,389) (80,867)
-------- ----------
Net proved reserves at December 31, 1997.................... 682,212 685,617
Revisions................................................... (327,935) (275,264)
Production.................................................. (53,358) (48,787)
-------- ----------
Net proved reserves at December 31, 1998.................... 300,919 361,566
======== ==========
</TABLE>
As of December 31, 1998, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 1998 prices of $10.61 per
barrel of oil, $5.48 per barrel of NGLs and $1.41 per mcf of gas, discounted at
10% was approximately $483,000 and undiscounted was $670,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Genesis Crude Oil, L.P...................................... 69% 69% 73%
Western Gas Resources, Inc. ................................ 13% 12% 8%
</TABLE>
19
<PAGE> 1079
PARKER & PARSLEY 90-C, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998, the amounts receivable from Genesis Crude Oil, L.P.
and Western Gas Resources, Inc. were $29,518 and $13,878, respectively, which
are included in the caption "Accounts receivable -- oil and gas sales" in the
accompanying Balance Sheet.
The Partnership's share of oil and gas production is sold to various
purchasers. Pioneer USA is of the opinion that the loss of any one purchaser
would not have an adverse effect on the ability of the Partnership to sell its
oil and gas production.
NOTE 9. ORGANIZATION AND OPERATIONS
The Partnership was organized December 28, 1990 as a limited partnership
under the Delaware Act for the purpose of acquiring and developing oil and gas
properties. The following is a brief summary of the more significant provisions
of the limited partnership agreement:
Managing general partner -- The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Program and Partnership affairs. As
managing general partner and operator of the Partnership's properties, all
production expenses are incurred by Pioneer USA and billed to the
Partnership and a portion of revenue is initially received by Pioneer USA
prior to being paid to the Partnership. Under the Partnership agreement,
the managing general partner pays 1% of the Partnership's acquisition,
drilling and completion costs and 1% of its operating and general and
administrative expenses. In return, it is allocated 1% of the Partnership's
revenues.
Limited partner liability -- The maximum amount of liability of any
limited partner is the total contributions of such partner plus his share
of any undistributed profits.
Initial capital contributions -- The limited partners entered into
subscription agreements for aggregate capital contributions of $12,107,000.
The managing general partner is required to contribute amounts equal to 1%
of initial Partnership capital less commission and organization and
offering costs allocated to the limited partners and to contribute amounts
necessary to pay costs and expenses allocated to it under the Partnership
agreement to the extent its share of revenues does not cover such costs.
20
<PAGE> 1080
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and
executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve
until the next annual meeting of stockholders or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31,
NAME 1998 POSITION
- ---- ------------ --------
<S> <C> <C>
Scott D. Sheffield................. 46 President and Director
Timothy L. Dove.................... 42 Executive Vice President and
Director
Dennis E. Fagerstone............... 49 Executive Vice President and
Director
Mark L. Withrow.................... 51 Executive Vice President, General
Counsel and Director
M. Garrett Smith................... 37 Executive Vice President, Chief
Financial Officer and Director
Mel Fischer(a)..................... 64 Executive Vice President
Lon C. Kile........................ 43 Executive Vice President
Rich Dealy......................... 32 Vice President and Chief Accounting
Officer
</TABLE>
- ---------------
(a) Mr. Fischer was a director and officer until his retirement from Pioneer
and Pioneer USA on February 19, 1999.
Scott D. Sheffield. Mr. Sheffield is a distinguished graduate of The
University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he
has served as President, Chief Executive Officer and a director of Pioneer and
President and a director of Pioneer USA. Mr. Sheffield was the President and a
director of Parker & Parsley from May 1990 until August 1997 and was the
Chairman of the Board and Chief Executive Officer of Parker & Parsley from
October 1990 until August 1997. He was the sole director of Parker & Parsley
from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley
Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum
engineer in 1979. He served as Vice President -- Engineering of PPDC from
September 1981 until April 1985 when he was elected President and a director. In
March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive
Officer of PPDC. Before joining PPDC, Mr. Sheffield was employed as a production
and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President -- Business
Development of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. Mr. Dove joined Parker & Parsley in May
1994 as Vice President -- International and was promoted to Senior Vice
President -- Business Development in October 1996, in which position he served
until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with
Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various
capacities in international exploration and production, marketing, refining and
marketing and planning and development. Mr. Dove earned a B.S. in Mechanical
Engineering from Massachusetts Institute of Technology in 1979 and received his
M.B.A. in 1981 from the University of Chicago.
21
<PAGE> 1081
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of Mesa from March 1, 1997 until August 1997. From October
1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief
Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice
President -- Exploration and Production of Mesa. From June 1988 to May 1991, Mr.
Fagerstone served as Vice President -- Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B.S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President -- General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President -- General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
M. Garrett Smith. Mr. Smith, a graduate of The University of Texas with a
B.S. in Electrical Engineering and Southern Methodist University with an M.B.A.,
was appointed Executive Vice President and Chief Financial Officer of Pioneer in
December 1997. He served as Senior Vice President -- Finance of Pioneer from
August 1997 until December 1997. Mr. Smith was elected Senior Vice President --
Finance and a director of Pioneer USA in August 1997. He served as Vice
President -- Corporate Acquisitions of Mesa from January 1997 until August 1997.
From October 1996 to December 1996, Mr. Smith served as Vice
President -- Finance of Mesa and from 1994 to 1996 he served as Director of
Financial Planning of Mesa. Mr. Smith was employed by BTC Partners, Inc. (a
former financial advisor to Mesa) from 1989 to 1994.
Mel Fischer. Mr. Fischer, a graduate of the University of California at
Berkeley with a Masters degree in Geology, became Executive Vice
President -- Worldwide Exploration of Pioneer and Pioneer USA in August 1997. He
served as a director of Parker & Parsley from November 1995 until August 1997
and was Executive Vice President -- Worldwide Exploration for Parker & Parsley
from February 1997 to August 1997. Mr. Fischer retired from Pioneer and Pioneer
USA effective February 15, 1999. He worked in the petroleum industry for 32
years, starting as a Petroleum Geologist with Texaco in 1962, and retiring as
President, Occidental International Exploration and Production Company in March
1994. For the 10 years prior to becoming President of Occidental International,
he served as Executive Vice President, World Wide Exploration with Occidental
Oil and Gas Corporation. He is a registered geologist in the State of
California, a member of the American Association of Petroleum Geologists and an
emeritus member of the Board of Advisors for the Earth Sciences Research
Institute at the University of Utah.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a
B.B.A. in Accounting, became Executive Vice President of Pioneer and Pioneer USA
in August 1997. Mr. Kile was Senior Vice President -- Investor Relations from
October 1996 to August 1997. Previously, he served as Vice President and Manager
of the Mid-Continent Division, Vice President -- Equity Finance & Analysis and
Vice President -- Marketing & Program Administration. Prior to joining Parker &
Parsley in 1985, he was employed as Supervisor -- Senior, Audit, in charge of
Parker & Parsley's audit, with Arthur Young.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a
B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became
Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
22
<PAGE> 1082
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is vested in Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA and P&P Employees 90-C Conv., L.P. ("EMPL") pay
approximately 10% of the Partnership's acquisition, drilling and completion
costs and approximately 15% during the first three years and approximately 20%
after three years of its operating and general and administrative expenses. In
return, they are allocated approximately 15% during the first three years and
approximately 20% after three years of the Partnership's revenues. See Notes 6
and 9 of Notes to Financial Statements included in "Item 8. Financial Statements
and Supplementary Data" for information regarding fees and reimbursements paid
to the managing general partner or its affiliates by the Partnership.
Pioneer USA's current executive officers and other employees are general
partners in EMPL which serves as a co-general partner of the Program. Under this
arrangement, EMPL pays approximately 2.5% of the Partnership's acquisition,
drilling and completion costs and approximately 3.75% during the first three
years and approximately 5% after three years of its operating and general and
administrative expenses. In return, EMPL is allocated approximately 3.75% during
the first three years and approximately 5% after three years of the
Partnership's revenues. EMPL does not receive any fees or reimbursements from
the Partnership.
The Partnership does not directly pay any salaries of the executive
officers or employees of Pioneer USA, but does pay a portion of Pioneer USA's
general and administrative expenses of which these salaries are a part. See Note
6 of Notes to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more
of the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 27 limited partner interests at January 1, 1999.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing
general partner of the Partnership, Pioneer USA, has the exclusive right and
full authority to manage, control and administer the Partnership's business.
Under the limited partnership agreement, limited partners holding a majority of
the outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner or its affiliates
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $199,461 $207,290 $191,679
Reimbursement of general and administrative
expenses........................................... $ 20,639 $ 31,578 $ 39,291
</TABLE>
23
<PAGE> 1083
Under the limited partnership agreement, the managing general partner pays
1% of the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial statements
The following are filed as part of this annual report:
Independent Auditors' Report -- Ernst & Young LLP
Independent Auditors' Report -- KPMG LLP
Balance sheets as of December 31, 1998 and 1997
Statements of operations for the years ended December 31, 1998, 1997
and 1996
Statements of partners' capital for the years ended December 31, 1998,
1997 and 1996
Statements of cash flows for the years ended December 31, 1998, 1997
and 1996
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this annual report.
24
<PAGE> 1084
SIGNATURES
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 90-C, L.P.
By: Pioneer Natural Resources USA,
Inc. Managing General Partner
By: /s/ SCOTT D. SHEFFIELD
----------------------------------
Scott D. Sheffield,
President
Dated: March 26, 1999
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 date indicated.
<TABLE>
<C> <S> <C>
/s/ SCOTT D. SHEFFIELD President and Director of Pioneer March 26, 1999
- ----------------------------------------------------- USA
Scott D. Sheffield
/s/ TIMOTHY L. DOVE Executive Vice President and March 26, 1999
- ----------------------------------------------------- Director of Pioneer USA
Timothy L. Dove
/s/ DENNIS E. FAGERSTONE Executive Vice President and March 26, 1999
- ----------------------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ MARK L. WITHROW Executive Vice President, General March 26, 1999
- ----------------------------------------------------- Counsel and Director of Pioneer
Mark L. Withrow USA
/s/ M. GARRETT SMITH Executive Vice President, Chief March 26, 1999
- ----------------------------------------------------- Financial Officer and Director
M. Garrett Smith of Pioneer USA
/s/ LON C. KILE Executive Vice President of March 26, 1999
- ----------------------------------------------------- Pioneer USA
Lon C. Kile
/s/ RICH DEALY Vice President and Chief March 26, 1999
- ----------------------------------------------------- Accounting Officer of Pioneer
Rich Dealy USA
</TABLE>
25
<PAGE> 1085
PARKER & PARSLEY 90-C, L.P.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<C> <S>
3(a) -- Form of Agreement of Limited Partnership of Parker &
Parsley 90-C, L.P. incorporated by reference to Exhibit A
of the Post-Effective Amendment No. 1 of the
Partnership's Registration Statement on Form S-1
(Registration No. 33-26097)
4(b) -- Form of Limited Partner Subscription Agreement
incorporated by reference to Exhibit C of the
Post-Effective Amendment No. 1 of the Partnership's
Registration Statement on Form S-1 (Registration No.
33-26097)
4(b) -- Form of General Partner Subscription Agreement
incorporated by reference to Exhibit D of the
Post-Effective Amendment No. 1 of the Partnership's
Registration Statement on Form S-1 (Registration No.
33-26097)
4(b) -- Power of Attorney incorporated by reference to Exhibit B
of Amendment No. 1 of the Partnership's Registration
Statement on Form S-1 (Registration No. 33-26097)
4(c) -- Specimen Certificate of Limited Partnership Interest
incorporated by reference to Exhibit 4c of the
Partnership's Registration Statement on Form S-1
(Registration No. 33-26097)
10(b) -- Form of Development Drilling Program Agreement
incorporated by reference to Exhibit B of the
Post-Effective Amendment No. 1 of the Partnership's
Registration Statement on Form S-1 (Registration No.
33-26097)
27.1* -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith
<PAGE> 1086
PARKER & PARSLEY 90-C, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
DECEMBER 31, 1998, 1997 AND 1996
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. Future income taxes are calculated by comparing
discounted future cash flows to the tax basis of oil and gas properties plus
available carryforwards and credits and applying the current tax rates to the
difference.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and gas producing activities:
Future cash inflows....................................... $ 3,279 $12,397 $ 25,108
Future production costs................................... (2,609) (7,533) (12,848)
Future development costs.................................. -- -- 173
------- ------- --------
670 4,864 12,433
10% annual discount factor................................ (187) (2,184) (6,405)
------- ------- --------
Standardized measure of discounted future net cash
flows.................................................. $ 483 $ 2,680 $ 6,028
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1998 1997 1996
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs................ $ (187) $ (531) $ (805)
Net changes in prices and production costs................ (1,792) (2,798) 2,425
Extensions and discoveries................................ -- -- --
Sales of minerals-in-place................................ -- -- (17)
Purchases of minerals-in-place............................ -- -- --
Revisions of estimated future development costs........... -- (95) (81)
Revisions of previous quantity estimates and reserves
added by development drilling.......................... (381) (515) 1,434
Accretion of discount..................................... 268 603 343
Changes in production rates, timing and other............. (105) (12) (702)
------- ------- --------
Change in present value of future net revenues............ (2,197) (3,348) 2,597
------- ------- --------
Balance, beginning of year................................ 2,680 6,028 3,431
------- ------- --------
Balance, end of year...................................... $ 483 $ 2,680 $ 6,028
======= ======= ========
</TABLE>
<PAGE> 1087
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 91-A, L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT DATED , 1999
----------------------
THE DATE OF THIS SUPPLEMENT IS , 1999
----------------------
This document contains important information specific to Parker & Parsley
91-A, L.P. and supplements the proxy statement dated , 1999, of Pioneer
Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies to be
voted at a special meeting of limited partners of the partnerships described in
the proxy statement. The purpose of the special meeting is for you to vote upon
the merger of Parker & Parsley 91-A, L.P. with and into Pioneer USA that, if
completed, will result in your receiving cash for your partnership interests.
This supplement contains the following information concerning Parker &
Parsley 91-A, L.P.:
- A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through June
30, 1999
-- the merger value per $1,000 limited partner investment as of June 30,
1999
-- the merger value per $1,000 limited partner investment as a multiple
of distributions for the 12 months ended June 30, 1999
-- the book value per $1,000 limited partner investment as of June 30,
1999 and as of December 31, 1998 and
-- the ordinary tax loss per $1,000 limited partner investment in year
of initial investment
- Quarterly Report on Form 10-Q for the six months ended June 30, 1999
- Annual Report on Form 10-K for the year ended December 31, 1998
- Disclosures about the partnership's oil and gas producing activities
<PAGE> 1088
PARKER & PARSLEY 91-A, L.P.
SUPPLEMENTAL INFORMATION TABLE
<TABLE>
<S> <C>
Aggregate Initial Investment by the Limited Partners(a)..... $11,620
Aggregate Historical Limited Partner Distributions through
June 30, 1999(a).......................................... $ 7,829
Merger Value per $1,000 Limited Partner Investment as of
June 30, 1999(b).......................................... $197.28
Merger Value per $1,000 Limited Partner Investment as a
Multiple of Distributions for the 12 Months ended June 30,
1999(b)................................................... 9.10times
Book Value per $1,000 Limited Partner Investment:
-- as of June 30, 1999(b)................................. $218.51
-- as of December 31, 1998(b)............................. $226.09
Ordinary Tax Loss per $1,000 Limited Partner Investment in
Year of Initial Investment(b), (c)........................ $ 481
</TABLE>
- ---------------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as any
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
<PAGE> 1089
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JUNE 30, 1999
COMMISSION FILE NO. 33-38582-01
PARKER & PARSLEY 91-A, L.P.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2387572
(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)
</TABLE>
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> 1090
PARKER & PARSLEY 91-A, L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1999 and December 31,
1998.................................................. 3
Statements of Operations for the three and six months
ended June 30, 1999 and 1998.......................... 4
Statement of Partners' Capital for the six months ended
June 30, 1999......................................... 5
Statements of Cash Flows for the six months ended June
30, 1999 and 1998..................................... 6
Notes to Financial Statements.......................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................. 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 11
27.1 Financial Data Schedule
Signatures............................................. 12
</TABLE>
2
<PAGE> 1091
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER & PARSLEY 91-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 194,248 $ 158,378
Accounts receivable -- oil and gas sales.................. 144,590 111,524
----------- -----------
Total current assets.............................. 338,838 269,902
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method.............................. 9,683,627 9,678,161
Accumulated depletion..................................... (7,414,165) (7,280,260)
----------- -----------
Net oil and gas properties........................ 2,269,462 2,397,901
----------- -----------
$ 2,608,300 $ 2,667,803
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 43,523 $ 14,062
Partners' capital:
Managing general partner.................................. 25,691 26,581
Limited partners (11,620 interests)....................... 2,539,086 2,627,160
----------- -----------
2,564,777 2,653,741
----------- -----------
$ 2,608,300 $ 2,667,803
=========== ===========
</TABLE>
The financial information included as of June 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
<PAGE> 1092
PARKER & PARSLEY 91-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas...................................... $252,835 $257,804 $435,655 $525,141
Interest......................................... 2,128 2,841 3,882 5,713
Gain on disposition of assets.................... 1,096 -- 1,096 --
-------- -------- -------- --------
256,059 260,645 440,633 530,854
-------- -------- -------- --------
Costs and expenses:
Oil and gas production........................... 123,097 141,346 245,642 270,636
General and administrative....................... 21,337 8,794 28,880 17,857
Depletion........................................ 45,404 72,826 133,905 138,813
-------- -------- -------- --------
189,838 222,966 408,427 427,306
-------- -------- -------- --------
Net income......................................... $ 66,221 $ 37,679 $ 32,206 $103,548
======== ======== ======== ========
Allocation of net income:
Managing general partner......................... $ 662 $ 376 $ 322 $ 1,035
======== ======== ======== ========
Limited partners................................. $ 65,559 $ 37,303 $ 31,884 $102,513
======== ======== ======== ========
Net income per limited partnership interest........ $ 5.64 $ 3.21 $ 2.74 $ 8.82
======== ======== ======== ========
Distribution per limited partnership interest...... $ 6.33 $ 10.82 $ 10.32 $ 25.51
======== ======== ======== ========
</TABLE>
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> 1093
PARKER & PARSLEY 91-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1, 1999................................. $26,581 $2,627,160 $2,653,741
Distributions............................................ (1,212) (119,958) (121,170)
Net income............................................... 322 31,884 32,206
------- ---------- ----------
Balance at June 30, 1999................................... $25,691 $2,539,086 $2,564,777
======= ========== ==========
</TABLE>
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> 1094
PARKER & PARSLEY 91-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 32,206 $ 103,548
Adjustment to reconcile net income to net cash provided by
operating activities:
Depletion.............................................. 133,905 138,813
Gain on disposition of assets.......................... (1,096) --
Changes in assets and liabilities:
Accounts receivable.................................... (33,066) 41,753
Accounts payable....................................... 29,461 21,473
--------- ---------
Net cash provided by operating activities......... 161,410 305,587
--------- ---------
Cash flows used in investing activities:
Additions to oil and gas properties....................... (5,466) (11,177)
Proceeds from asset disposition........................... 1,096 --
--------- ---------
Net cash used in investing activities............. (4,370) (11,177)
--------- ---------
Cash flows used in financing activities:
Cash distributions to partners............................ (121,170) (299,392)
--------- ---------
Net increase (decrease) in cash............................. 35,870 (4,982)
Cash at beginning of period................................. 158,378 181,103
--------- ---------
Cash at end of period....................................... $ 194,248 $ 176,121
========= =========
</TABLE>
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> 1095
PARKER & PARSLEY 91-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. ORGANIZATION AND NATURE OF ORGANIZATION
Parker & Parsley 91-A, L.P. (the "Partnership") is a limited partnership
organized in 1991 under the laws of the State of Delaware.
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 June 30, 1999 and for the three and six months ended June 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.
7
<PAGE> 1096
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
RESULTS OF OPERATIONS
Six months ended June 30, 1999 compared with six months ended June 30, 1998
Revenues:
The Partnership's oil and gas revenues decreased 17% to $435,655 from
$525,141 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from lower average prices received and a decrease
in production. For the six months ended June 30, 1999, 21,588 barrels of oil,
10,021 barrels of natural gas liquids ("NGLs") and 49,899 mcf of gas were sold,
or 39,926 barrel of oil equivalents ("BOEs"). For the six months ended June 30,
1998, 26,017 barrels of oil, 10,006 barrels of NGLs and 56,185 mcf of gas were
sold, or 45,387 BOEs.
The average price received per barrel of oil decreased 3% from $13.90 for
the six months ended June 30, 1998 to $13.55 for the same period ended June 30,
1999. The average price received per barrel of NGLs decreased 3% from $7.20
during the six months ended June 30, 1998 to $6.98 for the same period in 1999.
The average price received per mcf of gas decreased 10% from $1.63 during the
six months ended June 30, 1998 to $1.47 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 six months ended June 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 $1,096 was received during the six
months ended June 30, 1999 from the disposal of oil and gas equipment on fully
depleted wells.
Costs and Expenses:
Total costs and expenses decreased to $408,427 for the six months ended
June 30, 1999 as compared to $427,306 for the same period in 1998, a decrease of
$18,879, or 4%. This decrease was due to declines in production costs and
depletion, offset by an increase in general and administrative expenses ("G&A").
Production costs were $245,642 for the six months ended June 30, 1999 and
$270,636 for the same period in 1998 resulting in a $24,994 decrease, or 9%.
This decrease resulted from declines in well maintenance costs, production taxes
and workover costs.
G&A's components are independent accounting and engineering fees and
managing general partner personnel and operating costs. During this period, G&A
increased, in aggregate, 62% from $17,857 for the six months ended June 30, 1998
to $28,880 for the same period in 1999.
Depletion was $133,905 for the six months ended June 30, 1999 compared to
$138,813 for the same period in 1998, a decrease of $4,908, or 4%. This decrease
was due to a reduction in oil production of 4,429 barrels for the six months
ended June 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.
Three months ended June 30, 1999 compared with three months ended June 30,
1998
Revenues:
The Partnership's oil and gas revenues decreased slightly to $252,835 from
$257,804 for the three months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from a decrease in production, offset by higher
average prices received. For the three months ended June 30, 1999,
8
<PAGE> 1097
10,689 barrels of oil, 5,598 barrels of NGLs and 25,314 mcf of gas were sold, or
20,506 BOEs. For the three months ended June 30, 1998, 13,255 barrels of oil,
5,319 barrels of NGLs and 29,304 mcf of gas were sold, or 23,458 BOEs.
The average price received per barrel of oil increased $2.49, or 19%, from
$12.98 during the three months ended June 30, 1998 to $15.47 in 1999. The
average price received per barrel of NGLs increased $1.02, or 14%, from $7.17
during the three months ended June 30, 1998 to $8.19 for the same period in
1999. The average price received per mcf of gas increased slightly from $1.63
for the three months ended June 30, 1998 to $1.65 for the same period in 1999.
A gain on disposition of assets of $1,096 was received during the three
months ended June 30, 1999 from the disposal of oil and gas equipment on fully
depleted wells.
Costs and Expenses:
Total costs and expenses decreased to $189,838 for the three months ended
June 30, 1999 as compared to $222,966 for the same period in 1998, a decrease of
$33,128, or 15%. This decline was due to a decrease in depletion and production
costs, offset by an increase in G&A.
Production costs were $123,097 for the three months ended June 30, 1999 and
$141,346 for the same period in 1998 resulting in an $18,249 decrease, or 13%.
This decrease was due to declines in well maintenance costs and workover costs.
During this period, G&A increased from $8,794 for the three months ended
June 30, 1998 to $21,337 for the same period in 1999.
Depletion was $45,404 for the three months ended June 30, 1999 compared to
$72,826 for the same period in 1998, a decrease of $27,422, or 38%. This
decrease was primarily attributable to a reduction in oil production of 2,566
barrels for the three months ended June 30, 1999 compared to the same period in
1998, an increase in proved reserves during the period ended June 30, 1999 as a
result of higher commodity prices and a reduction in the Partnership's net
depletable basis from charges taken in accordance with SFAS 121 during the
fourth quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $144,177 during the six
months ended June 30, 1999 from the same period ended June 30, 1998. This
decrease was the result of declines in oil and gas sales receipts, offset by a
decrease in production costs paid.
Net Cash Used in Investing Activities
The Partnership's principal investing activities during the six months
ended June 30, 1999 and 1998 included expenditures related to equipment
replacement on various oil and gas properties.
Proceeds from asset dispositions of $1,096 were received during the six
months ended June 30, 1999 from the disposal of oil and gas equipment on fully
depleted wells.
Net Cash Used in Financing Activities
Cash was sufficient for the six months ended June 30, 1999 to cover
distributions to the partners of $121,170 of which $1,212 was distributed to the
managing general partner and $119,958 to the limited partners. For the same
period ended June 30, 1998, cash was sufficient for distributions to the
partners of $299,392 of which $2,993 was distributed to the managing general
partner and $296,399 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 levels. During the first quarter of 1999, the
Organization of Petroleum Exporting Countries and
9
<PAGE> 1098
certain other crude oil exporting nations announced reductions in their planned
export volumes. These announcements, together with early indications that the
nations have initiated their planned reductions, have had some stabilizing
effect on commodity prices during the latter part of the first quarter of 1999
and into August 1999. However, no assurances can be given that the stabilizing
effect of these actions, or the planned reductions in export volumes, will 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.
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 June 30, 1999, the managing general partner estimates that the
assessment phase is approximately 99% complete and has included, but is not
limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- the formulation of contingency plans for mission-critical information
technology systems.
Through June 30, 1999, the managing general partner had 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 varying 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 June 30, 1999, the managing general partner
estimates that the remedial phase is approximately 83% complete, on a worldwide
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 is expected
to be completed by 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 expects to complete the testing of
information technology systems by October 1999. The
10
<PAGE> 1099
testing of the non-information technology remediation is scheduled to be
completed by the end of November 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. As of June 30, 1999, the managing general partner's total costs
incurred on the Year 2000 problem were $2.3 million, of which approximately $200
thousand were incurred to replace non-compliant systems.
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
11
<PAGE> 1100
SIGNATURES
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 91-A, L.P.
By: Pioneer Natural Resources USA,
Inc.,
Managing General Partner
By: /s/ RICH DEALEY
----------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
Dated: August 11, 1999
12
<PAGE> 1101
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 33-38582-01
PARKER & PARSLEY 91-A, L.P.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2387572
(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)
</TABLE>
Registrant's Telephone Number, including area code: (915) 683-4768
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
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]
No market currently exists for the limited partnership interests of the
Registrant. Based on original purchase price the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$11,575,000.
As of March 8, 1999, the number of outstanding limited partnership
interests was 11,620.
The following documents are incorporated by reference into the indicated
parts of this Annual Report on Form 10-K: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 1102
Parts I and II of this Report contain 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. See "Item 1.
Business' for a description of various factors that could materially affect the
ability of the Partnership to achieve the anticipated results described in the
forward looking statements.
PART I
ITEM 1. BUSINESS
Parker & Parsley 91-A, L.P. (the "Partnership") is a limited partnership
organized in 1991 under the laws of the State of Delaware. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Petroleum USA, Inc. ("PPUSA"), a
wholly-owned subsidiary of Parker & Parsley Petroleum Company ("Parker &
Parsley"). On August 7, 1997, Parker & Parsley and Mesa Inc. ("Mesa") received
shareholder approval to merge and create Pioneer Natural Resources Company
("Pioneer"). On August 8, 1997, PPUSA was merged with and into Pioneer USA, a
wholly-owned subsidiary of Pioneer, resulting in Pioneer USA becoming the
managing general partner of the Partnership as PPUSA's successor by merger. For
a more complete description of the Parker & Parsley and Mesa merger, see
Pioneer's Registration Statement on Form S-4 as filed with the Securities &
Exchange Commission.
A Registration Statement, as amended, filed pursuant to the Securities Act
of 1933, registering limited partnership interests aggregating $105,000,000 and
$45,000,000 in general partnership interests in a series of Delaware limited
partnerships formed under the Parker & Parsley 91-92 Development Drilling
Program, was declared effective by the Securities and Exchange Commission on
June 25, 1991. On September 30, 1991, the offering of limited and general
partnership interests in the Partnership, the first partnership formed under
such statement, was closed, with interests aggregating $11,620,000 being sold to
705 subscribers of which $3,512,000 were sold to 199 subscribers as general
partner interests and $8,108,000 were sold to 506 subscribers as limited partner
interests. The general partners were converted to limited partners on November
30, 1992.
The Partnership engages primarily in oil and gas development and production
and is not involved in any industry segment other than oil and gas. See "Item 6.
Selected Financial Data" and "Item 8. Financial Statements and Supplementary
Data" of this report for a summary of the Partnership's revenue, income and
identifiable assets.
The principal markets during 1998 for the oil produced by the Partnership
were refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. The principal markets for the
Partnership's gas were companies that have pipelines located near the
Partnership's gas producing properties. Of the Partnership's total oil and gas
revenues for 1998, approximately 52% and 19% were attributable to sales made to
Genesis Crude Oil, L.P. and Western Gas Resources, Inc., respectively.
The Partnership's revenues, profitability, cash flow and future rate of
growth are highly dependent on the prevailing prices of oil and gas, which are
affected by numerous factors beyond the Partnership's control. Oil and gas
prices historically have been very volatile. A substantial or extended decline
in the prices of oil or gas could have a material adverse effect on the
Partnership's revenues, profitability and cash flow and could, under certain
circumstances, result in a reduction in the carrying value of the Partnership's
oil and gas properties.
Because of the demand for oil and gas, the Partnership does not believe
that the termination of the sales of its products to any one customer would have
a material adverse impact on its operations. The loss of a particular customer
for gas may have an effect if that particular customer has the only gas pipeline
located in the areas of the Partnership's gas producing properties. The
Partnership believes, however, that the effect would be temporary, until
alternative arrangements could be made.
1
<PAGE> 1103
Federal and state regulation of oil and gas operations generally includes
the fixing of maximum prices for regulated categories of natural gas, the
imposition of maximum allowable production rates, the taxation of income and
other items, and the protection of the environment. Although the Partnership
believes that its business operations do not impair environmental quality and
that its costs of complying with any applicable environmental regulations are
not currently significant, the Partnership cannot predict what, if any, effect
these environmental regulations may have on its current or future operations.
The Partnership does not have any employees of its own. Pioneer USA employs
818 persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this report is filed. Pioneer
USA is responsible for all management functions.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the
Partnership conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist primarily of leasehold interests in
properties on which oil and gas wells are located. Such property interests are
often subject to landowner royalties, overriding royalties and other oil and gas
leasehold interests.
Fractional working interests in developmental oil and gas prospects located
primarily in the Spraberry Trend Area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 48
oil and gas wells. One well has been plugged and abandoned. At December 31,
1998, the Partnership had 47 wells producing.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 1998, 1997 and 1996, see Note 7 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data"
below. Such reserves have been estimated by the engineering staff of Pioneer USA
with a review by Williamson Petroleum Consultants, Inc., an independent
petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
2
<PAGE> 1104
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 8, 1999, the Partnership had 11,620 outstanding limited
partnership interests held of record by 717 subscribers. There is no established
public trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are
not required to meet the Partnership's obligations are distributed to the
partners at least quarterly in accordance with the limited partnership
agreement. During the years ended December 31, 1998 and 1997, distributions of
$427,238 and $872,747, respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Oil and gas sales..... $ 955,645 $1,411,247 $1,629,975 $1,387,494 $ 1,568,783
========== ========== ========== ========== ===========
Impairment of oil and
gas properties..... $ 306,043 $ 485,158 $ -- $1,008,771 $ 1,055,409
========== ========== ========== ========== ===========
Net income (loss)..... $ (280,631) $ (7,029) $ 654,054 $ (755,419) $(1,032,621)
========== ========== ========== ========== ===========
Allocation of net
income (loss):
Managing general
partner.......... $ (2,806) $ (70) $ 6,540 $ (7,554) $ (10,326)
========== ========== ========== ========== ===========
Limited partners... $ (277,825) $ (6,959) $ 647,514 $ (747,865) $(1,022,295)
========== ========== ========== ========== ===========
Net income (loss) per
limited partners'
interest........... $ (23.91) $ (.60) $ 55.72 $ (64.36) $ (87.98)
========== ========== ========== ========== ===========
Limited partners' cash
distributions per
limited partners'
interest........... $ 36.77 $ 75.11 $ 70.97 $ 64.70 $ 77.81
========== ========== ========== ========== ===========
AT YEAR END:
Total
assets...... $2,667,803 $3,402,546 $4,289,878 $4,511,078 $ 5,976,067
========== ========== ========== ========== ===========
</TABLE>
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1998 compared to 1997
The Partnership's 1998 oil and gas revenues decreased 32% to $955,645 from
$1,411,247 in 1997. The decrease in revenues resulted from lower average prices
received. In 1998, 49,403 barrels of oil, 21,220 barrels of natural gas liquids
("NGLs") and 108,617 mcf of gas were sold, or 88,726 barrel of oil equivalents
("BOEs"). In 1997, 51,993 barrels of oil, 8,865 barrels of NGLs and 135,829 mcf
of gas were sold, or 83,496 BOEs. Due to the decline characteristics of the
Partnership's oil and gas properties, management expects a certain amount of
decline in production in the future until the Partnership's economically
recoverable reserves are fully depleted.
3
<PAGE> 1105
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. Effective September 30, 1997, as a result of the
merger with Mesa, the managing general partner accounts for processed natural
gas production in two components: natural gas liquids and dry residue gas. As a
result of the change in the managing general partner's policy, the Partnership
now accounts for processed natural gas production as processed natural gas
liquids and dry residue gas. Consequently, separate product volumes will not be
comparable for 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
year ended December 31, 1998 is the price received for dry residue gas and the
price per mcf for natural gas produced prior to October 1997 was presented as a
price for wet gas (i.e., natural gas liquids combined with dry residue gas).
The average price received per barrel of oil decreased $6.40, or 33%, from
$19.55 in 1997 to $13.15 in 1998. The average price received per barrel of NGLs
decreased $3.60, or 36%, from $10.04 in 1997 to $6.44 in 1998. The average price
received per mcf of gas decreased 31% from $2.25 in 1997 to $1.56 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 in 1998.
Total costs and expenses decreased in 1998 to $1,247,302 as compared to
$1,432,817 in 1997, a decrease of $185,515, or 13%. The decrease was due to
declines in the impairment of oil and gas properties, production costs and
general and administrative expenses ("G&A"), offset by an increase in depletion.
Production costs were $535,948 in 1998 and $570,417 in 1997, resulting in a
decrease of $34,469, or 6%. This decrease resulted from a decline in production
taxes due to the decline in oil and gas revenues and a decrease in well
maintenance costs.
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, 12% from $49,938 in 1997 to $43,977 in 1998. The
Partnership paid the managing general partner $24,415 in 1998 and $42,044 in
1997 for G&A incurred on behalf of the Partnership. G&A is allocated, in part,
to the Partnership by the managing general partner. Such allocated expenses are
determined by the managing general partner based upon its judgement of the level
of activity of the Partnership relative to the managing general partner's
activities and other entities it manages. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
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"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. Declining commodity prices prompted
impairment reviews in 1998 and 1997. As a result of the review and evaluation of
its long-lived assets for impairment, the Partnership recognized non-cash
charges of $306,043 and $485,158 related to its oil and gas properties during
1998 and 1997, respectively.
Depletion increased in 1998 to $361,334 as compared to $327,304 in 1997.
This represented an increase of $34,030, or 10%. This increase was the result of
a decline in proved reserves during 1998 due to the lower commodity prices,
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 and a
reduction in oil production of 2,590 barrels for the period ended December 31,
1998 compared to the same period in 1997.
1997 compared to 1996
The Partnership's 1997 oil and gas revenues decreased 13% to $1,411,247
from $1,629,975 in 1996. The decrease in revenues resulted from lower average
prices received. In 1997, 51,993 barrels of oil, 8,865
4
<PAGE> 1106
barrels of NGLs and 135,829 mcf of gas were sold, or 83,496 BOEs. In 1996,
57,484 barrels of oil and 150,454 mcf of gas were sold, or 82,560 BOEs.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. As is described above in "Results of
Operations -- 1998 compared to 1997", the Partnership changed its method of
accounting for processed natural gas to a dry gas basis in the fourth quarter of
1997. As a result of this change, the Partnership now accounts for processed
natural gas production as processed natural gas liquids and dry residue gas.
Consequently, 1997 and 1996 separate product volumes are not comparable.
The average price received per barrel of oil decreased $2.21, or 10%, from
$21.76 in 1996 to $19.55 in 1997. The average price received per barrel of NGLs
during 1997 was $10.04. The average price received per mcf of gas decreased 11%
from $2.52 in 1996 to $2.25 in 1997.
Total costs and expenses increased in 1997 to $1,432,817 as compared to
$987,243 in 1996, an increase of $445,574, or 45%. The increase was due to the
impairment of oil and gas properties, offset by decreases in depletion,
production costs and G&A.
Production costs were $570,417 in 1997 and $577,650 in 1996, resulting in a
decrease of $7,233. This decrease resulted from a decline in well maintenance
costs and production taxes, offset by an increase in ad valorem taxes.
During this period, G&A decreased, in aggregate, 11% from $56,036 in 1996
to $49,938 in 1997. The Partnership paid the managing general partner $42,044 in
1997 and $35,518 in 1996 for G&A incurred on behalf of the Partnership.
The Partnership recognized a non-cash SFAS 121 impairment provision of
$485,158 related to its proved oil and gas properties during the fourth quarter
of 1997.
Depletion decreased in 1997 to $327,304 as compared to $353,557 in 1996.
This represented a decrease of $26,253, or 7%. This decrease was primarily
attributable to a decrease in oil production of 5,491 barrels during 1997 as
compared to 1996, offset by a decline in oil reserves during 1997 as a result of
lower commodity prices.
IMPACT OF INFLATION AND CHANGING PRICES ON SALES AND NET LOSS
Inflation impacts the fixed overhead rate charges of the lease operating
expenses for the Partnership. During 1998, the annual change in the index of
average weekly earnings of crude petroleum and gas production workers issued by
the U.S. Department of Labor, Bureau of Labor Statistics increased (effective
April 1, 1998) 10.3%. The 1997 annual change in average weekly earnings
increased by 2%. The 1996 index increased 4.1%. The impact of inflation for
other lease operating expenses is small due to the current economic condition of
the oil industry.
The oil and gas industry experienced volatility during the past decade
because of the fluctuation of the supply of most fossil fuels relative to the
demand for such products and other uncertainties in the world energy markets
causing significant fluctuations in oil and gas prices. During 1998, the price
per barrel for oil production similar to the Partnership's ranged from
approximately $9.50 to $15.50. During most of 1997 and 1996, 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 March 1999. On March 8, 1999, the market price for West Texas intermediate
crude was $11.00 per barrel. A continuation of the current commodity price
environment will continue to have an adverse effect on the Partnership's
revenues, operating cash flow and distributions and could result in additional
decreases in the carrying value of the Partnership's oil and gas properties.
Prices for natural gas are subject to ordinary seasonal fluctuations, and
this volatility of natural gas prices may result in production being curtailed
and, in some cases, wells being completely shut-in.
5
<PAGE> 1107
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $456,561 during 1998
from 1997. The decrease was primarily due to a decline in oil and gas sales
receipts and higher G&A expenses paid, offset by a decline in production costs
paid.
Net Cash Used in Investing Activities
The Partnership's investing activities during 1998 and 1997 included
expenditures related to equipment replacement on various oil and gas properties.
Proceeds from asset dispositions of $5,617 recognized during 1998 was due
to equipment credits received on active properties.
Net Cash Used in Financing Activities
Cash was sufficient in 1998 for distributions to the partners of $431,553,
of which $4,315 was distributed to the managing general partner and $427,238 to
the limited partners. In 1997, cash was sufficient for distributions to the
partners of $881,563, of which $8,816 was distributed to the managing general
partner and $872,747 to the limited partners.
The current commodity price environment will continue to impact the
distributions and could result in limited or no distributions to the partners.
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.
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
at varying stages of completion as it pertains to information technology and
non-information technology applications and systems in the United States, Canada
and Argentina. As of December 31, 1998, the managing general partner estimates
that the assessment phase is approximately 86% complete, on a worldwide basis,
and has included, but is not limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
6
<PAGE> 1108
- 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,
- 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 to
approximately 37% of those inquiries.
The remedial phase of the managing general partner's Year 2000 project is
also at varying 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 December 31, 1998, the
managing general partner estimates that the remedial phase is approximately 54%
complete, on a worldwide basis, subject to the continuing 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 through remedial coding and is currently testing this system for Year
2000 compliance. The remediation of non-information technology is expected to be
completed during July 1999. The managing general partner's Year 2000 remedial
actions have not significantly 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 and non-information technology remediation by the end of the third
quarter of 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. The managing general partner intends to use its working capital to pay
for the costs of the Year 2000 projects. As of December 31, 1998, the managing
general partner's total costs incurred on the Year 2000 problem were $1.8
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 in accordance with the general and
administration allocation. (See Note 2 of Notes to Financial Statements included
in "Item 8. Financial Statements and Supplementary Data".)
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 assessment phase of the managing general partner's Year 2000
project, contingency plans are being 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.
7
<PAGE> 1109
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Parker & Parsley 91-A, L.P.:
Independent Auditors' Report -- Ernst & Young LLP......... 9
Independent Auditors' Report -- KPMG LLP.................. 10
Balance Sheets as of December 31, 1998 and 1997........... 11
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996.................................... 12
Statements of Partners' Capital for the Years Ended
December 31, 1998, 1997 and 1996....................... 13
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996.................................... 14
Notes to Financial Statements............................. 15
</TABLE>
8
<PAGE> 1110
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 91-A, L.P.
(A Delaware Limited Partnership):
We have audited the balance sheet of Parker & Parsley 91-A, L.P. as of
December 31, 1998, and the related statements of operations, partners' capital
and cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 91-A, L.P.
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Dallas, Texas
March 15, 1999
9
<PAGE> 1111
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 91-A, L.P.
(A Delaware Limited Partnership):
We have audited the financial statements of Parker & Parsley 91-A, L.P. as
of December 31, 1997, and the related statements of operations, partners'
capital and cash flows for the years ended December 31, 1997 and 1996. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 91-A, L.P.
as of December 31, 1997, and the results of its operations and its cash flows
for the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
KPMG LLP
Midland, Texas
March 20, 1998
10
<PAGE> 1112
PARKER & PARSLEY 91-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 158,378 $ 181,103
Accounts receivable -- oil and gas sales.................. 111,524 165,842
----------- -----------
Total current assets.............................. 269,902 346,945
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 9,678,161 9,668,484
Accumulated depletion....................................... (7,280,260) (6,612,883)
----------- -----------
Net oil and gas properties........................ 2,397,901 3,055,601
----------- -----------
$ 2,667,803 $ 3,402,546
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 14,062 $ 36,621
Partners' capital:
Managing general partner.................................. 26,581 33,702
Limited partners (11,620 interests)....................... 2,627,160 3,332,223
----------- -----------
2,653,741 3,365,925
----------- -----------
$ 2,667,803 $ 3,402,546
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE> 1113
PARKER & PARSLEY 91-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Oil and gas............................................ $ 955,645 $1,411,247 $1,629,975
Interest............................................... 11,026 14,541 11,172
Gain on disposition of assets.......................... -- -- 150
---------- ---------- ----------
966,671 1,425,788 1,641,297
---------- ---------- ----------
Costs and expenses:
Oil and gas production................................. 535,948 570,417 577,650
General and administrative............................. 43,977 49,938 56,036
Impairment of oil and gas properties................... 306,043 485,158 --
Depletion.............................................. 361,334 327,304 353,557
---------- ---------- ----------
1,247,302 1,432,817 987,243
---------- ---------- ----------
Net income (loss)........................................ $ (280,631) $ (7,029) $ 654,054
========== ========== ==========
Allocation of net income (loss):
Managing general partner............................... $ (2,806) $ (70) $ 6,540
========== ========== ==========
Limited partners....................................... $ (277,825) $ (6,959) $ 647,514
========== ========== ==========
Net income (loss) per limited partners' interest......... $ (23.91) $ (.60) $ 55.72
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 1114
PARKER & PARSLEY 91-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Partners' capital at January 1, 1996....................... $44,378 $4,389,079 $4,433,457
Distributions............................................ (8,330) (824,664) (832,994)
Net income............................................... 6,540 647,514 654,054
------- ---------- ----------
Partners' capital at December 31, 1996..................... 42,588 4,211,929 4,254,517
Distributions............................................ (8,816) (872,747) (881,563)
Net loss................................................. (70) (6,959) (7,029)
------- ---------- ----------
Partners' capital at December 31, 1997..................... 33,702 3,332,223 3,365,925
Distributions............................................ (4,315) (427,238) (431,553)
Net loss................................................. (2,806) (277,825) (280,631)
------- ---------- ----------
Partners' capital at December 31, 1998..................... $26,581 $2,627,160 $2,653,741
======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 1115
PARKER & PARSLEY 91-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operations:
Net income (loss)....................................... $(280,631) $ (7,029) $ 654,054
Adjustment to reconcile net income (loss) to net cash
provided by operating activities:
Impairment of oil and gas properties................. 306,043 485,158 --
Depletion............................................ 361,334 327,304 353,557
Gain on disposition of assets........................ -- -- (150)
Changes in assets and liabilities:
Accounts receivable.................................. 54,318 68,373 (95,384)
Accounts payable..................................... (22,559) 1,260 (41,134)
--------- --------- ---------
Net cash provided by operating activities....... 418,505 875,066 870,943
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties..................... (15,294) (14,946) (10,053)
Proceeds from asset disposition......................... 5,617 -- 150
--------- --------- ---------
Net cash used in investing activities........... (9,677) (14,946) (9,903)
--------- --------- ---------
Cash flows from financing activities:
Cash distributions to partners.......................... (431,553) (881,563) (832,994)
--------- --------- ---------
Net increase (decrease) in cash........................... (22,725) (21,443) 28,046
Cash at beginning of year................................. 181,103 202,546 174,500
--------- --------- ---------
Cash at end of year....................................... $ 158,378 $ 181,103 $ 202,546
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 1116
PARKER & PARSLEY 91-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 91-A, L.P. (the "Partnership") is a limited partnership
organized in 1991 under the laws of the State of Delaware. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Petroleum USA, Inc. ("PPUSA"), a
wholly-owned subsidiary of Parker & Parsley Petroleum Company ("Parker &
Parsley"). On August 7, 1997, Parker & Parsley and Mesa Inc. received
shareholder approval to merge and create Pioneer Natural Resources Company
("Pioneer"). On August 8, 1997, PPUSA was merged with and into Pioneer USA, a
wholly-owned subsidiary of Pioneer, resulting in Pioneer USA becoming the
managing general partner of the Partnership as PPUSA's successor by merger.
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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties -- The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as determined by the engineering staff of Pioneer
USA, the Partnership's managing general partner, and reviewed by independent
petroleum consultants. The carrying amounts of properties sold or otherwise
disposed of and the related allowances for depletion are eliminated from the
accounts and any gain or loss is included in operations.
Impairment of long-lived assets -- 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"),
the Partnership reviews its long-lived assets to be held and used on an
individual property basis, including oil and gas properties accounted for under
the successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -- Preparation
of the accompanying financial statements 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 reporting amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest -- The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes -- A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
15
<PAGE> 1117
PARKER & PARSLEY 91-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statements of cash flows -- For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses -- General and administrative expenses
are allocated in part to the Partnership by the managing general partner or its
affiliates. Such allocated expenses are determined by the managing general
partner based upon its judgement of the level of activity of the Partnership
relative to the managing general partner's activities and other entities it
manages. The method of allocation has been consistent over the past several
years with certain modifications incorporated to reflect changes in Pioneer
USA's overall business activities.
Reclassifications -- Certain reclassifications may have been made to the
1997 and 1996 financial statements to conform to the 1998 financial statement
presentations.
Environmental -- The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 1998.
Revenue recognition -- The Partnership uses the entitlements method of
accounting for crude oil and natural gas revenues.
Reporting comprehensive income -- Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes
standards for the reporting and display of comprehensive income (loss) and its
components in a full set of general purpose financial statements. Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss).
The Partnership has no items of other comprehensive income (loss), as defined by
SFAS No. 130. Consequently, the provisions of SFAS No. 130 do not apply to the
Partnership.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. Based upon a decline in the Partnership's outlook for future
commodity prices, the Partnership has estimated the expected future cash flows
of its oil and gas properties as of December 31, 1998, 1997 and 1996, and
compared such estimated future cash flows to the respective carrying amount of
the oil and gas properties to determine if the carrying amounts were likely to
be recoverable. For those proved oil and gas properties for which the carrying
amount exceeded the estimated future cash flows, an impairment was determined to
exist; therefore, the Partnership adjusted the carrying amount of those oil and
gas properties to their fair value as determined by discounting their expected
future cash flows at a discount rate commensurate with the risks involved in the
industry. As a result, the Partnership recognized non-cash impairment provisions
of $306,043 and $485,158 related to its proved oil and gas properties during
1998 and 1997, respectively.
16
<PAGE> 1118
PARKER & PARSLEY 91-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $1,258,242 greater than the tax basis at December 31, 1998.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Net income (loss) per statements of operations...... $(280,631) $ (7,029) $654,054
Depletion and depreciation provisions for tax
reporting purposes greater than amounts for
financial reporting purposes...................... (11,376) (56,924) (44,893)
Impairment of oil and gas properties for financial
reporting purposes................................ 306,043 485,158 --
Other............................................... 8,462 (3,418) 11,084
--------- -------- --------
Net income per Federal income tax
returns................................. $ 22,498 $417,787 $620,245
========= ======== ========
</TABLE>
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- ------
<S> <C> <C> <C>
Development costs........................................ $15,294 $14,946 $8,927
======= ======= ======
</TABLE>
Capitalized oil and gas properties consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Property acquisition costs................................ $ 343,666 $ 343,666
Completed wells and equipment............................. 9,334,495 9,324,818
----------- -----------
9,678,161 9,668,484
Accumulated depletion..................................... (7,280,260) (6,612,883)
----------- -----------
Net capitalized costs........................... $ 2,397,901 $ 3,055,601
=========== ===========
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $210,197 $244,169 $218,737
Reimbursement of general and administrative
expenses........................................... $ 24,415 $ 42,044 $ 35,518
</TABLE>
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
P&P Employees 91-A GP ("EMPL")
17
<PAGE> 1119
PARKER & PARSLEY 91-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(the "Entities") and the Partnership are parties to the Program agreement. EMPL
is a general partnership organized for the benefit of certain employees of
Pioneer USA.
The costs and revenues of the Program are allocated to the Entities and the
Partnership as follows:
<TABLE>
<CAPTION>
ENTITIES PARTNERSHIP(1)
---------- ---------------
<S> <C> <C>
Revenues:
Proceeds from disposition of depreciable and depletable
properties........................................... 34.3434343% 65.6565657%
All other revenues...................................... 34.3434343% 65.6565657%
Costs and expenses:
Lease acquisition costs, drilling and completion costs
and all other costs.................................. 24.2424242% 75.7575758%
Operating costs, reporting and legal expenses and
general and administrative expenses.................. 34.3434343% 65.6565657%
</TABLE>
- ---------------
(1) Includes Pioneer USA's 1% general partner ownership which is allocated at
the Partnership level and 45 limited partner interests owned by Pioneer USA.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 1998, 1997 and 1996 and
changes in such quantities during the years then ended. Due to a change in the
accounting policy of the managing general partner in 1997, the Partnership began
accounting for processed natural gas production in two components: processed
natural gas liquids ("NGLs") and dry residue gas. NGLs are reflected in "Oil and
NGLs" in the table below. All of the Partnership's reserves are proved developed
and located within the United States. The Partnership's reserves are based on an
evaluation prepared by Pioneer USA internal engineers and reviewed by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission. Reserve value information
is available to limited partners pursuant to the partnership agreement and,
therefore, is not presented.
<TABLE>
<CAPTION>
OIL AND NGSS GAS
(BBLS) (MCF)
------------ ----------
<S> <C> <C>
Net proved reserves at January 1, 1996...................... 717,366 1,838,294
Revisions................................................... 110,536 570,978
Production.................................................. (57,484) (150,454)
-------- ----------
Net proved reserves at December 31, 1996.................... 770,418 2,258,818
Revisions................................................... 200,381 (1,059,329)
Production.................................................. (60,858) (135,829)
-------- ----------
Net proved reserves at December 31, 1997.................... 909,941 1,063,660
Revisions................................................... (333,709) (228,660)
Production.................................................. (70,623) (108,617)
-------- ----------
Net proved reserves at December 31, 1998.................... 505,609 726,383
======== ==========
</TABLE>
18
<PAGE> 1120
PARKER & PARSLEY 91-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1998, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 1998 prices of $10.61 per
barrel of oil, $5.10 per barrel of NGLs and $1.40 per mcf of gas, discounted at
10% was approximately $949,000 and undiscounted was $1,405,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership s oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Genesis Crude Oil, L.P. .................................... 52% 55% 58%
Western Gas Resources, Inc. ................................ 19% 18% 6%
</TABLE>
At December 31, 1998, the amounts receivable from Genesis Crude Oil, L.P.
and Western Gas Resources, Inc. were $32,186 and $27,444, respectively, which
are included in the caption "Accounts receivable -- oil and gas sales" in the
accompanying Balance Sheet.
The Partnership's share of oil and gas production is sold to various
purchasers. Pioneer USA is of the opinion that the loss of any one purchaser
would not have an adverse effect on the ability of the Partnership to sell its
oil and gas production.
NOTE 9. ORGANIZATION AND OPERATIONS
The Partnership was organized September 30, 1991 as a limited partnership
under the Delaware Act for the purpose of acquiring and developing oil and gas
properties. The general partners were converted to limited partners on November
30, 1992. The managing general partner received an opinion of legal counsel to
the effect that such conversion will not result in material adverse tax
consequences. The following is a brief summary of the more significant
provisions of the limited partnership agreement:
Managing general partner -- The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Partnership affairs. As managing general
partner and operator of the Partnership's properties, all production
expenses are incurred by Pioneer USA and billed to the Partnership and a
portion of revenue is initially received by Pioneer USA prior to being paid
to the Partnership. Under the limited partnership agreement, the managing
general partner pays 1% of the Partnership's acquisition, drilling and
completion costs, and 1% of its operating and general and administrative
expenses. In return it is allocated 1% of the Partnership's revenues.
Limited partner liability -- The maximum amount of liability of any
limited partner is the total contributions of such partner plus his share
of any undistributed profits.
Initial capital contributions -- The limited partners entered into
subscription agreements for aggregate capital contributions of $11,620,000.
The managing general partner is required to contribute amounts equal to 1%
of initial Partnership capital less sales commission costs allocated to the
limited partners and to contribute amounts necessary to pay costs and
expenses allocated to it under the partnership agreement to the extent its
share of revenues does not cover such costs.
19
<PAGE> 1121
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and
executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve
until the next annual meeting of stockholders or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31,
NAME 1998 POSITION
- ---- ------------ --------
<S> <C> <C>
Scott D. Sheffield........................ 46 President and Director
Timothy L. Dove........................... 42 Executive Vice President and Director
Dennis E. Fagerstone...................... 49 Executive Vice President and Director
Mark L. Withrow........................... 51 Executive Vice President, General
Counsel and Director
M. Garrett Smith.......................... 37 Executive Vice President, Chief
Financial Officer and Director
Mel Fischer(a)............................ 64 Executive Vice President
Lon C. Kile............................... 43 Executive Vice President
Rich Dealy................................ 32 Vice President and Chief Accounting
Officer
</TABLE>
- ---------------
(a) Mr. Fischer was a director and officer until his retirement from Pioneer
and Pioneer USA on February 19, 1999.
Scott D. Sheffield. Mr. Sheffield is a distinguished graduate of The
University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he
has served as President, Chief Executive Officer and a director of Pioneer and
President and a director of Pioneer USA. Mr. Sheffield was the President and a
director of Parker & Parsley from May 1990 until August 1997 and was the
Chairman of the Board and Chief Executive Officer of Parker & Parsley from
October 1990 until August 1997. He was the sole director of Parker & Parsley
from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley
Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum
engineer in 1979. He served as Vice President -- Engineering of PPDC from
September 1981 until April 1985 when he was elected President and a director. In
March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive
Officer of PPDC. Before joining PPDC, Mr. Sheffield was employed as a production
and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President -- Business
Development of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. Mr. Dove joined Parker & Parsley in May
1994 as Vice President -- International and was promoted to Senior Vice
President -- Business Development in October 1996, in which position he served
until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with
Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various
capacities in international exploration and production, marketing, refining and
marketing and planning and development. Mr. Dove earned a B.S. in Mechanical
20
<PAGE> 1122
Engineering from Massachusetts Institute of Technology in 1979 and received his
M.B.A. in 1981 from the University of Chicago.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of Mesa from March 1, 1997 until August 1997. From October
1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief
Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice
President -- Exploration and Production of Mesa. From June 1988 to May 1991, Mr.
Fagerstone served as Vice President -- Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President -- General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President -- General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
M. Garrett Smith. Mr. Smith, a graduate of The University of Texas with a
B.S. in Electrical Engineering and Southern Methodist University with an M.B.A.,
was appointed Executive Vice President and Chief Financial Officer of Pioneer in
December 1997. He served as Senior Vice President -- Finance of Pioneer from
August 1997 until December 1997. Mr. Smith was elected Senior Vice President --
Finance and a director of Pioneer USA in August 1997. He served as Vice
President -- Corporate Acquisitions of Mesa from January 1997 until August 1997.
From October 1996 to December 1996, Mr. Smith served as Vice
President -- Finance of Mesa and from 1994 to 1996 he served as Director of
Financial Planning of Mesa. Mr. Smith was employed by BTC Partners, Inc. (a
former financial advisor to Mesa) from 1989 to 1994.
Mel Fischer. Mr. Fischer, a graduate of the University of California at
Berkeley with a Masters degree in Geology, became Executive Vice
President -- Worldwide Exploration of Pioneer and Pioneer USA in August 1997. He
served as a director of Parker & Parsley from November 1995 until August 1997
and was Executive Vice President -- Worldwide Exploration for Parker & Parsley
from February 1997 to August 1997. Mr. Fischer retired from Pioneer and Pioneer
USA effective February 15, 1999. He worked in the petroleum industry for 32
years, starting as a Petroleum Geologist with Texaco in 1962, and retiring as
President, Occidental International Exploration and Production Company in March
1994. For the 10 years prior to becoming President of Occidental International,
he served as Executive Vice President, World Wide Exploration with Occidental
Oil and Gas Corporation. He is a registered geologist in the State of
California, a member of the American Association of Petroleum Geologists and an
emeritus member of the Board of Advisors for the Earth Sciences Research
Institute at the University of Utah.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a
B.B.A. in Accounting, became Executive Vice President of Pioneer and Pioneer USA
in August 1997. Mr. Kile was Senior Vice President -- Investor Relations from
October 1996 to August 1997. Previously, he served as Vice President and Manager
of the Mid-Continent Division, Vice President -- Equity Finance & Analysis and
Vice President -- Marketing & Program Administration. Prior to joining Parker &
Parsley in 1985, he was employed as Supervisor -- Senior, Audit, in charge of
Parker & Parsley's audit, with Arthur Young.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a
B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became
Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
21
<PAGE> 1123
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is vested in the managing general partner. The Partnership
participates in oil and gas activities through an income tax partnership (the
"Program") pursuant to the Program agreement. Under the Program agreement,
Pioneer USA and P&P Employees 91-A GP ("EMPL") pay approximately 25% of the
Partnership's acquisition, drilling and completion costs and approximately 35%
of its operating and general and administrative expenses. In return, they are
allocated approximately 35% of the Partnership's revenues. See Notes 6 and 9 of
Notes to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data" for information regarding fees and reimbursements paid to
the managing general partner or its affiliates by the Partnership.
Pioneer USA's current executive officers and other employees are general
partners of EMPL. EMPL serves as a co-general partner of the Program. Under this
arrangement, EMPL pays approximately 2.5% of the Partnership's acquisition,
drilling and completion costs and approximately 3.5% of its operating and
general and administrative expenses. In return, EMPL is allocated approximately
3.5% of the Partnership's revenues. EMPL does not receive any fees or
reimbursements from the Partnership.
The Partnership does not directly pay any salaries of the executive
officers or employees of Pioneer USA, but does pay a portion of Pioneer USA's
general and administrative expenses of which these salaries are a part. See Note
6 of Notes to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more
of the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 45 limited partner interests at January 1, 1999.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing
general partner of the Partnership, Pioneer USA, has the exclusive right and
full authority to manage, control and administer the Partnership's business.
Under the limited partnership agreement, limited partners holding a majority of
the outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner or its affiliates
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $210,197 $244,169 $218,737
Reimbursement of general and administrative
expenses........................................... $ 24,415 $ 42,044 $ 35,518
</TABLE>
Under the limited partnership agreement, the managing general partner pays
1% of the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
22
<PAGE> 1124
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation in oil and gas activities of the
Program.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial statements
The following are filed as part of this annual report:
Independent Auditors' Report -- Ernst & Young LLP
Independent Auditors' Report -- KPMG LLP
Balance sheets as of December 31, 1998 and 1997
Statements of operations for the years ended December 31, 1998, 1997
and 1996
Statements of partners' capital for the years ended December 31, 1998,
1997 and 1996
Statements of cash flows for the years ended December 31, 1998, 1997
and 1996
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this annual report.
23
<PAGE> 1125
SIGNATURES
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 91-A, L.P.
By: Pioneer Natural Resources USA,
Inc.
Managing General Partner
By: /s/ SCOTT D. SHEFFIELD
----------------------------------
Scott D. Sheffield,
President
Dated: March 25, 1999
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 date indicated.
<TABLE>
<C> <S> <C>
/s/ SCOTT D. SHEFFIELD President and Director of March 25, 1999
- ----------------------------------------------------- Pioneer USA
Scott D. Sheffield
/s/ TIMOTHY L. DOVE Executive Vice President and March 25, 1999
- ----------------------------------------------------- Director of Pioneer USA
Timothy L. Dove
/s/ DENNIS E. FAGERSTONE Executive Vice President and March 25, 1999
- ----------------------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ MARK L. WITHROW Executive Vice President, March 25, 1999
- ----------------------------------------------------- General Counsel and Director
Mark L. Withrow of Pioneer USA
/s/ M. GARRETT SMITH Executive Vice President, Chief March 25, 1999
- ----------------------------------------------------- Financial Officer and
M. Garrett Smith Director of Pioneer USA
/s/ LON C. KILE Executive Vice President of March 25, 1999
- ----------------------------------------------------- Pioneer USA
Lon C. Kile
/s/ RICH DEALY Vice President and Chief March 25, 1999
- ----------------------------------------------------- Accounting Officer of Pioneer
Rich Dealy USA
</TABLE>
24
<PAGE> 1126
PARKER & PARSLEY 91-A, L.P.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3(a) -- Form of Agreement of Limited Partnership of Parker &
Parsley 91-A, L.P. incorporated by reference to Exhibit A
of the Partnership's Registration Statement on Form S-1
(Registration No. 33-38582) (hereinafter called the
Partnership's Registration Statement)
4(b) -- Form of Limited Partner Subscription Agreement
incorporated by reference to Exhibit C of the
Partnership's Registration Statement
4(b) -- Form of General Partner Subscription Agreement
incorporated by reference to Exhibit D of the
Partnership's Registration Statement
4(b) -- Power of Attorney incorporated by reference to Exhibit B
of the Partnership's Registration Statement
4(c) -- Specimen Certificate of Limited Partnership Interest
incorporated by reference to Exhibit 4.3 of Amendment No.
2 of the Partnership's Registration Statement
10(b) -- Development Drilling Program Agreement incorporated by
reference to Exhibit B of the Partnership's Registration
Statement
27.1* -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith
<PAGE> 1127
PARKER & PARSLEY 91-A, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
DECEMBER 31, 1998, 1997 AND 1996
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. Future income taxes are calculated by comparing
discounted future cash flows to the tax basis of oil and gas properties plus
available carryforwards and credits and applying the current tax rates to the
difference.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and gas producing activities:
Future cash inflows....................................... $ 5,509 $16,898 $ 27,284
Future production costs................................... (4,104) (9,524) (13,740)
Future development costs.................................. -- -- 172
------- ------- --------
1,405 7,374 13,716
10% annual discount factor................................ (456) (3,469) (6,952)
------- ------- --------
Standardized measure of discounted future net cash
flows.................................................. $ 949 $ 3,905 $ 6,764
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1998 1997 1996
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs................ $ (420) $ (841) $ (1,052)
Net changes in prices and production costs................ (2,438) (2,711) 2,128
Extensions and discoveries................................ -- -- --
Sales of minerals-in-place................................ -- -- --
Purchases of minerals-in-place............................ -- -- --
Revisions of estimated future development costs........... -- (91) (80)
Revisions of previous quantity estimates and reserves
added by development drilling.......................... (441) 80 1,682
Accretion of discount..................................... 391 676 400
Changes in production rates, timing and other............. (48) 28 (314)
------- ------- --------
Change in present value of future net revenues............ (2,956) (2,859) 2,764
------- ------- --------
Balance, beginning of year................................ 3,905 6,764 4,000
------- ------- --------
Balance, end of year...................................... $ 949 $ 3,905 $ 6,764
======= ======= ========
</TABLE>
<PAGE> 1128
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 91-B, L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT DATED , 1999
----------------------
THE DATE OF THIS SUPPLEMENT IS , 1999
----------------------
This document contains important information specific to Parker & Parsley
91-B, L.P. and supplements the proxy statement dated , 1999, of
Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies
to be voted at a special meeting of limited partners of the partnerships
described in the proxy statement. The purpose of the special meeting is for you
to vote upon the merger of Parker & Parsley 91-B, L.P. with and into Pioneer USA
that, if completed, will result in your receiving cash for your partnership
interests.
This supplement contains the following information concerning Parker &
Parsley 91-B, L.P.:
- A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through June
30, 1999
-- the merger value per $1,000 limited partner investment as of June 30,
1999
-- the merger value per $1,000 limited partner investment as a multiple
of distributions for the 12 months ended June 30, 1999
-- the book value per $1,000 limited partner investment as of June 30,
1999 and as of December 31, 1998 and
-- the ordinary tax loss per $1,000 limited partner investment in year
of initial investment
- Quarterly Report on Form 10-Q for the six months ended June 30, 1999
- Annual Report on Form 10-K for the year ended December 31, 1998
- Disclosures about the partnership's oil and gas producing activities
<PAGE> 1129
PARKER & PARSLEY 91-B, L.P.
SUPPLEMENTAL INFORMATION TABLE
<TABLE>
<S> <C>
Aggregate Initial Investment by the Limited Partners(a)..... $11,249
Aggregate Historical Limited Partner Distributions through
June 30, 1999(a).......................................... $ 6,052
Merger Value per $1,000 Limited Partner Investment as of
June 30, 1999(b).......................................... $212.20
Merger Value per $1,000 Limited Partner Investment as a
Multiple of Distributions for the 12 Months ended June 30,
1999(b)................................................... 9.23times
Book Value per $1,000 Limited Partner Investment:
-- as of June 30, 1999(b)................................. $156.06
-- as of December 31, 1998(b)............................. $158.87
Ordinary Tax Loss per $1,000 Limited Partner Investment in
Year of Initial Investment(b), (c)........................ $ 434
</TABLE>
- ---------------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as any
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
<PAGE> 1130
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 JUNE 30, 1999
COMMISSION FILE NO. 33-38582-02
PARKER & PARSLEY 91-B, L.P.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2397335
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
<TABLE>
<S> <C>
303 WEST WALL, SUITE 101, MIDLAND, TEXAS 79701
(Address of principal executive offices) (Zip code)
</TABLE>
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> 1131
PARKER & PARSLEY 91-B, L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of June 30, 1999 and December 31,
1998.................................................. 3
Statements of Operations for the three and six months
ended June 30, 1999 and 1998.......................... 4
Statement of Partners' Capital for the six months ended
June 30, 1999......................................... 5
Statements of Cash Flows for the six months ended June
30, 1999 and 1998..................................... 6
Notes to Financial Statements.......................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................. 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 11
27.1 Financial Data Schedule
Signatures............................................. 12
</TABLE>
2
<PAGE> 1132
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARKER & PARSLEY 91-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash...................................................... $ 164,394 $ 165,231
Accounts receivable -- oil and gas sales.................. 168,967 97,159
----------- -----------
Total current assets.............................. 333,361 262,390
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method................................. 9,739,820 9,728,987
Accumulated depletion....................................... (8,267,369) (8,171,041)
----------- -----------
Net oil and gas properties........................ 1,472,451 1,557,946
----------- -----------
$ 1,805,812 $ 1,820,336
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 35,581 $ 18,255
Partners' capital:
Managing general partner.................................. 14,669 14,988
Limited partners (11,249 interests)....................... 1,755,562 1,787,093
----------- -----------
1,770,231 1,802,081
----------- -----------
$ 1,805,812 $ 1,820,336
=========== ===========
</TABLE>
The financial information included as of June 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
<PAGE> 1133
PARKER & PARSLEY 91-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas...................................... $257,398 $217,358 $432,995 $472,291
Interest......................................... 2,096 2,796 3,859 5,661
Gain on disposition of assets -- -- 197
-------- -------- -------- --------
259,494 220,154 436,854 478,149
-------- -------- -------- --------
Costs and expenses:
Oil and gas production........................... 107,455 116,127 220,490 236,766
General and administrative....................... 20,376 6,826 26,994 15,831
Depletion........................................ 30,011 51,338 96,328 104,926
-------- -------- -------- --------
157,842 174,291 343,812 357,523
-------- -------- -------- --------
Net income......................................... $101,652 $ 45,863 $ 93,042 $120,626
======== ======== ======== ========
Allocation of net income:
Managing general partner......................... $ 1,016 $ 458 $ 930 $ 1,206
======== ======== ======== ========
Limited partners................................. $100,636 $ 45,405 $ 92,112 $119,420
======== ======== ======== ========
Net income per limited partnership interest........ $ 8.95 $ 4.04 $ 8.19 $ 10.62
======== ======== ======== ========
Net distribution per limited partnership
interest......................................... $ 7.04 $ 9.83 $ 10.99 $ 24.77
======== ======== ======== ========
</TABLE>
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> 1134
PARKER & PARSLEY 91-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Balance at January 1, 1999............................... $14,988 $1,787,093 $1,802,081
Distributions.......................................... (1,249) (123,643) (124,892)
Net income............................................. 930 92,112 93,042
------- ---------- ----------
Balance at June 30, 1999................................. $14,669 $1,755,562 $1,770,231
======= ========== ==========
</TABLE>
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> 1135
PARKER & PARSLEY 91-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------
1999 1998
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 93,042 $ 120,626
Adjustment to reconcile net income to net cash provided by
operating activities:
Depletion.............................................. 96,328 104,926
Gain on disposition of assets.......................... -- (197)
Changes in assets and liabilities:
Accounts receivable.................................... (71,808) 31,620
Accounts payable....................................... 17,326 10,781
--------- ---------
Net cash provided by operating activities......... 134,888 267,756
--------- ---------
Cash flows from investing activities:
Additions to oil and gas properties....................... (10,833) (5,207)
Proceeds from asset dispositions.......................... -- 197
--------- ---------
Net cash used in investing activities............. (10,833) (5,010)
--------- ---------
Cash flows used in financing activities:
Cash distributions to partners............................ (124,892) (281,485)
--------- ---------
Net decrease in cash........................................ (837) (18,739)
Cash at beginning of period................................. 165,231 200,122
--------- ---------
Cash at end of period....................................... $ 164,394 $ 181,383
========= =========
</TABLE>
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> 1136
PARKER & PARSLEY 91-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 91-B, L.P. (the "Partnership") is a limited partnership
organized in 1991 under the laws of the State of Delaware.
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 June 30, 1999 and for the three and six months ended June 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.
7
<PAGE> 1137
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
RESULTS OF OPERATIONS
Six months ended June 30, 1999 compared with six months ended June 30, 1998
Revenues:
The Partnership's oil and gas revenues decreased 8% to $432,995 from
$472,291 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in revenues resulted from lower average prices received and a decline
in production. For the six months ended June 30, 1999, 22,852 barrels of oil,
9,001 barrels of natural gas liquids ("NGLs") and 35,912 mcf of gas were sold,
or 37,838 barrel of oil equivalents ("BOEs"). For the six months ended June 30,
1998, 25,379 barrels of oil, 8,090 barrels of NGLs and 34,026 mcf of gas were
sold, or 39,140 BOEs.
The average price received per barrel of oil decreased 3% from $14.26 for
the six months ended June 30, 1998 to $13.79 for the same period in 1999. The
average price received per barrel of NGLs increased 4% from $7.32 during the six
months ended June 30, 1998 to $7.60 for the same period in 1999. The average
price received per mcf of gas decreased 9% from $1.51 during the six months
ended June 30, 1998 to $1.38 for the same period in 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 $197, received during the six months
ended June 30, 1998, was due to the sale of equipment on one saltwater disposal
well plugged and abandoned in a prior year.
Costs and Expenses:
Total costs and expenses decreased to $343,812 for the six months ended
June 30, 1999 as compared to $357,523 for the same period in 1998, a decrease of
$13,711, or 4%. This decrease was due to declines in production costs and
depletion, offset by an increase in general and administrative expenses ("G&A").
Production costs were $220,490 for the six months ended June 30, 1999 and
$236,766 for the same period in 1998 resulting in a $16,276 decrease, or 7%.
This decrease was due to lower well maintenance costs, production taxes and ad
valorem taxes.
G&A's components are independent accounting and engineering fees and
managing general partner personnel costs. During this period, G&A increased, in
aggregate, 71%, from $15,831 for the six months ended June 30, 1998 to $26,994
for the same period in 1999.
Depletion was $96,328 for the six months ended June 30, 1999 compared to
$104,926 for the same period in 1998, a decrease of $8,598, or 8%. This decrease
was primarily due to a reduction in oil production of 2,527 barrels for the six
months ended June 30, 1999 compared to the same period in 1998, an increase in
proved reserves during the period ended June 30, 1999 due to higher commodity
prices 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.
Three months ended June 30, 1999 compared with three months ended June 30,
1998
Revenues:
The Partnership's oil and gas revenues increased 18% to $257,398 from
$217,358 for the three months ended June 30, 1999 and 1998, respectively. The
increase in revenues resulted from higher average prices received and an
increase in production. For the three months ended June 30, 1999, 11,233 barrels
of oil, 5,338 barrels of NGLs and 19,363 mcf of gas were sold, or 19,798 BOEs.
For the three months ended June 30, 1998, 11,963 barrels of oil, 4,057 barrels
of NGLs and 16,594 mcf of gas were sold, or 18,786 BOEs.
8
<PAGE> 1138
The average price received per barrel of oil increased $2.46, or 18%, from
$13.56 for the three months ended June 30, 1998 to $16.02 for the same period in
1999. The average price received per barrel of NGLs increased $1.49, or 20%,
from $7.41 during the three months ended June 30, 1998 to $8.90 for the same
period in 1999. The average price received per mcf of gas increased 3% from
$1.51 during the three months ended June 30, 1998 to $1.55 in 1999.
Costs and Expenses:
Total costs and expenses decreased to $157,842 for the three months ended
June 30, 1999 as compared to $174,291 for the same period in 1998, a decrease of
$16,449, or 9%. This decrease was due to declines in depletion and production
costs, offset by an increase in G&A.
Production costs were $107,455 for the three months ended June 30, 1999 and
$116,127 for the same period in 1998 resulting in an $8,672 decrease, or 7%.
This decrease was due to lower well maintenance costs and a decline in ad
valorem taxes, offset by an increase in production taxes.
During this period, G&A increased from $6,826 for the three months ended
June 30, 1998 to $20,376 for the same period in 1999.
Depletion was $30,011 for the three months ended June 30, 1999 compared to
$51,338 for the same period in 1998, a decrease of $21,327, or 42%. This
decrease was primarily attributable to an increase in proved reserves during the
period ended June 30, 1999 as a result of higher commodity prices, a reduction
in oil production of 730 barrels for the three months ended June 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.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $132,868 during the six
months ended June 30, 1999 from the same period ended June 30, 1998. This
decrease was primarily due to a decline in oil and gas sales receipts and an
increase in G&A expenses paid, offset by a decrease in production costs paid.
Net Cash Used in Investing Activities
The Partnership's investing activities for the six months ended June 30,
1999 and 1998 were related to the replacement of oil and gas equipment on active
properties.
Proceeds from asset dispositions of $197 were received during the six
months ended June 30, 1998 from salvage income on one saltwater disposal well
that was plugged and abandoned in a prior year.
Net Cash Used in Financing Activities
Cash was sufficient for the six months ended June 30, 1999 to cover
distributions to the partners of $124,892 of which $1,249 was distributed to the
managing general partner and $123,643 to the limited partners. For the same
period ended June 30, 1998, cash was sufficient for distributions to the
partners of $281,485 of which $2,815 was distributed to the managing general
partner and $278,670 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 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 early indications that the nations have initiated
their planned reductions, have had some stabilizing effect on commodity prices
during the latter part of the first quarter of 1999 and into August 1999.
However, no assurances can be given that the stabilizing effect of these
actions, or the planned reductions in export volumes, will be sustained for an
extended period of time.
9
<PAGE> 1139
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.
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 June 30, 1999, the managing general partner estimates that the
assessment phase is approximately 99% complete and has included, but is not
limited to, the following procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- the formulation of contingency plans for mission-critical information
technology systems.
Through June 30, 1999, the managing general partner had 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 varying 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 June 30, 1999, the managing general partner
estimates that the remedial phase is approximately 83% complete, on a worldwide
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 is expected
to be completed by 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 expects to complete the testing of
information technology systems by October 1999. The testing of the
non-information technology remediation is scheduled to be completed by the end
of November 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. As of June 30, 1999, the managing general partner's total costs
10
<PAGE> 1140
incurred on the Year 2000 problem were $2.3 million, of which approximately $200
thousand were incurred to replace non-compliant systems.
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
11
<PAGE> 1141
SIGNATURES
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 91-B, L.P.
By: Pioneer Natural Resources USA,
Inc.,
Managing General Partner
By: /s/ RICH DEALY
----------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
Dated: August 6, 1999
12
<PAGE> 1142
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NO. 33-38582-02
PARKER & PARSLEY 91-B, L.P.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2397335
(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)
</TABLE>
Registrant's Telephone Number, including area code: (915) 683-4768
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
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]
No market currently exists for the limited partnership interests of the
Registrant. Based on original purchase price the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$11,239,000.
As of March 8, 1999, the number of outstanding limited partnership
interests was 11,249.
The following documents are incorporated by reference into the indicated
parts of this Annual Report on Form 10-K: NONE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 1143
Parts I and II of this Report contain 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. See "Item 1.
Business" for a description of various factors that could materially affect the
ability of the Partnership to achieve the anticipated results described in the
forward looking statements.
PART I
ITEM 1. BUSINESS
Parker & Parsley 91-B, L.P. (the "Partnership") is a limited partnership
organized in 1991 under the laws of the State of Delaware. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Petroleum USA, Inc. ("PPUSA"), a
wholly-owned subsidiary of Parker & Parsley Petroleum Company ("Parker &
Parsley"). On August 7, 1997, Parker & Parsley and Mesa Inc. ("Mesa") received
shareholder approval to merge and create Pioneer Natural Resources Company
("Pioneer"). On August 8, 1997, PPUSA was merged with and into Pioneer USA, a
wholly-owned subsidiary of Pioneer, resulting in Pioneer USA becoming the
managing general partner of the Partnership as PPUSA's successor by merger. For
a more complete description of the Parker & Parsley and Mesa merger, see
Pioneer's Registration Statement on Form S-4 as filed with the Securities &
Exchange Commission.
A Registration Statement, as amended, filed pursuant to the Securities Act
of 1933, registering limited partnership interests aggregating $105,000,000 and
$45,000,000 in general partnership interests in a series of Delaware limited
partnerships formed under the Parker & Parsley 91-92 Development Drilling
Program, was declared effective by the Securities and Exchange Commission on
June 25, 1991. On December 31, 1991, the offering of limited and general
partnership interests in the Partnership, the second partnership formed under
such statement, was closed, with interests aggregating $11,249,000 being sold to
682 subscribers of which $6,675,000 were sold to 380 subscribers as general
partner interests and $4,574,000 were sold to 302 subscribers as limited partner
interests. The general partners were converted to limited partners on November
30, 1992.
The Partnership engages primarily in oil and gas development and production
and is not involved in any industry segment other than oil and gas. See "Item 6.
Selected Financial Data" and "Item 8. Financial Statements and Supplementary
Data" of this report for a summary of the Partnership's revenue, income and
identifiable assets.
The principal markets during 1998 for the oil produced by the Partnership
were refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. The principal markets for the
Partnership's gas were companies that have pipelines located near the
Partnership's gas producing properties. Of the Partnership's total oil and gas
revenues for 1998, approximately 48%, 26% and 22% were attributable to sales
made to Mobil Oil Corporation, Genesis Crude Oil, L.P. and Western Gas
Resources, Inc., respectively.
The Partnership's revenues, profitability, cash flow and future rate of
growth are highly dependent on the prevailing prices of oil and gas, which are
affected by numerous factors beyond the Partnership's control. Oil and gas
prices historically have been very volatile. A substantial or extended decline
in the prices of oil or gas could have a material adverse effect on the
Partnership's revenues, profitability and cash flow and could, under certain
circumstances, result in a reduction in the carrying value of the Partnership's
oil and gas properties.
Because of the demand for oil and gas, the Partnership does not believe
that the termination of the sales of its products to any one customer would have
a material adverse impact on its operations. The loss of a particular customer
for gas may have an effect if that particular customer has the only gas pipeline
1
<PAGE> 1144
located in the areas of the Partnership's gas producing properties. The
Partnership believes, however, that the effect would be temporary, until
alternative arrangements could be made.
Federal and state regulation of oil and gas operations generally includes
the fixing of maximum prices for regulated categories of natural gas, the
imposition of maximum allowable production rates, the taxation of income and
other items, and the protection of the environment. Although the Partnership
believes that its business operations do not impair environmental quality and
that its costs of complying with any applicable environmental regulations are
not currently significant, the Partnership cannot predict what, if any, effect
these environmental regulations may have on its current or future operations.
The Partnership does not have any employees of its own. Pioneer USA employs
818 persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this report is filed. Pioneer
USA is responsible for all management functions.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the
Partnership conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist primarily of leasehold interests in
properties on which oil and gas wells are located. Such property interests are
often subject to landowner royalties, overriding royalties and other oil and gas
leasehold interests.
Fractional working interests in developmental oil and gas prospects located
primarily in the Spraberry Trend Area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 29
oil and gas wells. At December 31, 1998, the Partnership had 29 producing oil
and gas wells.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 1998, 1997 and 1996, see Note 7 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data"
below. Such reserves have been estimated by the engineering staff of Pioneer USA
with a review by Williamson Petroleum Consultants, Inc., an independent
petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1998.
2
<PAGE> 1145
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 8, 1999, the Partnership had 11,249 outstanding limited
partnership interests held of record by 674 subscribers. There is no established
public trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are
not required to meet the Partnership's obligations will be distributed to the
partners at least quarterly in accordance with the limited partnership
agreement. During the years ended December 31, 1998 and 1997, $413,535 and
$847,290, respectively, of such revenue-related distributions were made to the
limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Oil and gas sales.............. $ 873,012 $1,273,373 $1,632,595 $1,416,748 $1,325,311
========== ========== ========== ========== ==========
Impairment of oil and gas
properties.................. $ 295,542 $ 323,078 $ -- $ 104,290 $ --
========== ========== ========== ========== ==========
Net income (loss).............. $ (177,905) $ 222,730 $ 924,002 $ 483,679 $ 466,370
========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general partner.... $ (1,779) $ 2,227 $ 9,240 $ 4,837 $ 4,664
========== ========== ========== ========== ==========
Limited partners............ $ (176,126) $ 220,503 $ 914,762 $ 478,842 $ 461,706
========== ========== ========== ========== ==========
Net income (loss) per limited
partners' interest.......... $ (15.66) $ 19.60 $ 81.32 $ 42.57 $ 41.04
========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partners' interest.......... $ 36.76 $ 75.32 $ 84.40 $ 70.24 $ 46.96
========== ========== ========== ========== ==========
AT YEAR END:
Total assets................... $1,820,336 $2,424,808 $3,051,464 $3,131,023 $3,404,388
========== ========== ========== ========== ==========
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
1998 compared to 1997
The Partnership's 1998 oil and gas revenues decreased 31% to $873,012 from
$1,273,373 in 1997. The decrease in revenues resulted from lower average prices
received. In 1998, 49,100 barrels of oil, 17,427 barrels of natural gas liquids
("NGLs") and 68,244 mcf of gas were sold, or 77,901 barrel of oil equivalents
("BOEs"). In 1997, 49,485 barrels of oil, 7,536 barrels of NGLs and 90,255 mcf
of gas were sold, or 72,064 BOEs. Due to the decline characteristics of the
Partnership's oil and gas properties, management expects a certain amount of
decline in production in the future until the Partnership's economically
recoverable reserves are fully depleted.
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. Effective September 30, 1997, as a result of the
merger with Mesa, the managing general partner accounts for processed natural
gas production in two components: natural gas liquids and dry residue gas. As a
result of the change in the managing general partner's policy, the Partnership
now accounts for processed natural gas production as processed natural
3
<PAGE> 1146
gas liquids and dry residue gas. Consequently, separate product volumes will not
be comparable for 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
year ended December 31, 1998 is the price received for dry residue gas and the
price per mcf for natural gas produced prior to October 1997 was presented as a
price for wet gas (i.e., natural gas liquids combined with dry residue gas).
The average price received per barrel of oil decreased $6.44, or 33%, from
$19.77 in 1997 to $13.33 in 1998. The average price received per barrel of NGLs
decreased $3.75, or 36%, from $10.54 in 1997 to $6.79 in 1998. The average price
received per mcf of gas decreased 38% from $2.39 in 1997 to $1.47 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 in 1998.
Gain on disposition of assets of $197 recognized in 1998 was attributable
to credits received from the disposal of oil and gas equipment on a well that
was plugged and abandoned in a prior year. During 1997, gain on disposition of
assets of $7,879 was recognized from proceeds received on the sale of mineral
rights on an undeveloped property.
Total costs and expenses decreased in 1998 to $1,062,299 as compared to
$1,072,064 in 1997, a decrease of $9,765. The decrease was due to declines in
production costs and impairment of oil and gas properties, offset by an increase
in depletion and general and administrative expenses ("G&A").
Production costs were $464,489 in 1998 and $524,112 in 1997, resulting in a
$59,623 decrease, or 11%. This decrease was due to lower well maintenance costs,
production taxes and ad valorem taxes.
The components of G&A are independent accounting and engineering fees and
managing general partner personnel and operating costs. During this period, G&A
increased, in aggregate, 12% from $39,082 in 1997 to $43,606 in 1998. The
Partnership paid the managing general partner $27,503 in 1998 and $35,160 in
1997 for G&A incurred on behalf of the Partnership. G&A is allocated, in part,
to the Partnership by the managing general partner. Such allocated expenses are
determined by the managing general partner based upon its judgement of the level
of activity of the Partnership relative to the managing general partner's
activities in other entities it manages. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
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"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. Declining commodity prices prompted
impairment reviews in 1998 and 1997. As a result of the review and evaluation of
its long-lived assets for impairment, the Partnership recognized non-cash
charges of $295,542 and $323,078 related to its oil and gas properties during
1998 and 1997, respectively.
Depletion was $258,662 in 1998 compared to $185,792 in 1997. This
represented an increase of $72,870, or 39%. This increase was primarily the
result of a decline in proved reserves during 1998 due to the lower commodity
prices, 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 and
a reduction in oil production of 385 barrels for the period ended December 31,
1998 compared to the same period in 1997.
1997 compared to 1996
The Partnership's 1997 oil and gas revenues decreased 22% to $1,273,373
from $1,632,595 in 1996. The decrease in revenues resulted from declines in
production and lower average prices received. In 1997, 49,485 barrels of oil,
7,536 barrels of NGLs and 90,255 mcf of gas were sold, or 72,064 BOEs. In 1996,
59,195 barrels of oil and 122,758 mcf of gas were sold, or 79,655 BOEs.
4
<PAGE> 1147
Consistent with the managing general partner, the Partnership has
historically accounted for processed natural gas production as wellhead
production on a wet gas basis. As is described above in "Results of
Operations -- 1998 compared to 1997", the Partnership changed its method of
accounting for processed natural gas to a dry gas basis in the fourth quarter of
1997. As a result of this change, the Partnership now accounts for processed
natural gas production as processed natural gas liquids and dry residue gas.
Consequently, 1997 and 1996 separate product volumes are not comparable.
The declines in production volumes were primarily attributable to the
decline characteristics of the Partnership's oil and gas properties.
The average price received per barrel of oil decreased $1.96, or 9%, from
$21.73 in 1996 to $19.77 in 1997. The average price received per barrel of NGLs
was $10.54 in 1997. The average price received per mcf of gas decreased 15% from
$2.82 in 1996 to $2.39 in 1997.
Gain on disposition of assets of $7,879 was recognized during 1997 from
proceeds received on the sale of mineral rights on an undeveloped property.
During 1996, a loss on disposition of assets of $1,221 resulted from the
abandonment of a saltwater disposal well.
Total costs and expenses increased in 1997 to $1,072,064 as compared to
$720,918 in 1996, an increase of $351,146, or 49%. The increase was due to the
impairment of oil and gas properties and increases in production costs, offset
by decreases in depletion, G&A and abandoned property costs.
Production costs were $524,112 in 1997 and $471,736 in 1996, resulting in a
$52,376 increase, or 11%. This increase was due to higher well maintenance
costs, ad valorem taxes and workover expenses, offset by a decline in production
taxes.
During this period, G&A decreased, in aggregate, 17% from $47,177 in 1996
to $39,082 in 1997. The Partnership paid the managing general partner $35,160 in
1997 and $31,806 in 1996 for G&A incurred on behalf of the Partnership.
The Partnership recognized a non-cash SFAS 121 impairment provision of
$323,078 related to its proved oil and gas properties during the fourth quarter
of 1997.
Depletion was $185,792 in 1997 compared to $201,563 in 1996. This
represented a decrease of $15,771, or 8%. This decrease was primarily
attributable to the reduction in oil production of 9,710 barrels for 1997 as
compared to 1996, offset by a decrease in oil reserves during 1997 as a result
of lower commodity prices.
Abandoned property costs associated with the abandonment of one saltwater
disposal well during 1996 totaled $442.
IMPACT OF INFLATION AND CHANGING PRICES ON SALES AND NET INCOME
Inflation impacts the fixed overhead rate charges of the lease operating
expenses for the Partnership. During 1998, the annual change in the index of
average weekly earnings of crude petroleum and gas production workers issued by
the U.S. Department of Labor, Bureau of Labor Statistics increased (effective
April 1, 1998) 10.3%. The 1997 annual change in average weekly earnings
increased by 2%. The 1996 index increased 4.1%. The impact of inflation for
other lease operating expenses is small due to the current economic condition of
the oil industry.
The oil and gas industry experienced volatility during the past decade
because of the fluctuation of the supply of most fossil fuels relative to the
demand for such products and other uncertainties in the world energy markets
causing significant fluctuations in oil and gas prices. During 1998, the price
per barrel for oil production similar to the Partnership's ranged from
approximately $9.50 to $15.50. During most of 1997 and 1996, 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 March 1999. On March 8, 1999, the market price for West Texas intermediate
crude was $11.00 per barrel. A continuation of the current commodity price
environment will continue to have an adverse effect on the
5
<PAGE> 1148
Partnership's revenues, operating cash flow and distributions and could result
in additional decreases in the carrying value of the Partnership's oil and gas
properties.
Prices for natural gas are subject to ordinary seasonal fluctuations, and
this volatility of natural gas prices may result in production being curtailed
and, in some cases, wells being completely shut-in.
LIQUIDITY AND CAPITAL RESOURCES
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $411,772 during the
year ended December 31, 1998 from the year ended December 31, 1997. The decrease
was primarily attributable to a decline in oil and gas sales receipts, offset by
a decline in production costs paid.
Net Cash Provided by (Used in) Investing Activities
The Partnership's principal investing activities during 1998 and 1997 were
related to the addition of equipment on various oil and gas properties.
Proceeds from disposition of assets of $197 from the salvage of equipment
on a well that was plugged and abandoned in a prior year were received during
1998. Proceeds from asset dispositions of $7,879 received during 1997 resulted
from the sale of mineral rights on an undeveloped property.
Net Cash Used in Financing Activities
Cash available was sufficient in 1998 for distributions to the partners of
$417,712 of which $4,177 was distributed to the managing general partner and
$413,535 to the limited partners. In 1997, cash was sufficient for distributions
to the partners of $855,848 of which $8,558 was distributed to the managing
general partner and $847,290 to the limited partners.
The current commodity price environment will continue to impact the
distributions and could result in limited or no distributions to the partners.
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.
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
at varying stages of completion as it pertains to information technology and
non-information technology applications and systems in the United States, Canada
and Argentina. As of December 31, 1998, the managing general
6
<PAGE> 1149
partner estimates that the assessment phase is approximately 86% complete, on a
worldwide basis, and has included, but is not limited to, the following
procedures:
- the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
- the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
- 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;
- 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,
- 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 to
approximately 37% of those inquiries.
The remedial phase of the managing general partner's Year 2000 project is
also at varying 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 December 31, 1998, the
managing general partner estimates that the remedial phase is approximately 54%
complete, on a worldwide basis, subject to the continuing 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 through remedial coding and is currently testing this system for Year
2000 compliance. The remediation of non-information technology is expected to be
completed during July 1999. The managing general partner's Year 2000 remedial
actions have not significantly 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 and non-information technology remediation by the end of the third
quarter of 1999.
The managing general partner expects that its total costs related to the
Year 2000 problem will approximate $3.6 million, of which approximately $500
thousand will have been incurred to replace non-compliant information technology
systems. The managing general partner intends to use its working capital to pay
for the costs of the Year 2000 projects. As of December 31, 1998, the managing
general partner's total costs incurred on the Year 2000 problem were $1.8
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 in accordance with the general and
administration allocation. (See Note 2 of Notes to Financial Statements included
in "Item 8. Financial Statements and Supplementary Data".)
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.
7
<PAGE> 1150
In the assessment phase of the managing general partner's Year 2000
project, contingency plans are being 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.
8
<PAGE> 1151
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements of Parker & Parsley 91-B, L.P.:
Independent Auditors' Report -- Ernst & Young LLP......... 10
Independent Auditors' Report -- KPMG LLP.................. 11
Balance Sheets as of December 31, 1998 and 1997........... 12
Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996.................................... 13
Statements of Partners' Capital for the Years Ended
December 31, 1998, 1997 and 1996....................... 14
Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996.................................... 15
Notes to Financial Statements............................. 16
</TABLE>
9
<PAGE> 1152
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 91-B, L.P.
(A Delaware Limited Partnership):
We have audited the balance sheet of Parker & Parsley 91-B, L.P. as of
December 31, 1998, and the related statements of operations, partners' capital
and cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 91-B, L.P.
as of December 31, 1998, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Dallas, Texas
March 15, 1999
10
<PAGE> 1153
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 91-B, L.P.
(A Delaware Limited Partnership):
We have audited the financial statements of Parker & Parsley 91-B, L.P. as
of December 31, 1997, and the related statements of operations, partners'
capital and cash flows for the years ended December 31, 1997 and 1996. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Parker & Parsley 91-B, L.P.
as of December 31, 1997, and the results of its operations and its cash flows
for the years ended December 31, 1997 and 1996, in conformity with generally
accepted accounting principles.
KPMG LLP
Midland, Texas
March 20, 1998
11
<PAGE> 1154
PARKER & PARSLEY 91-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash...................................................... $ 165,231 $ 200,122
Accounts receivable -- oil and gas sales.................. 97,159 136,917
----------- -----------
Total current assets.............................. 262,390 337,039
----------- -----------
Oil and gas properties -- at cost, based on the successful
efforts accounting method.............................. 9,728,987 9,704,606
Accumulated depletion..................................... (8,171,041) (7,616,837)
----------- -----------
Net oil and gas properties........................ 1,557,946 2,087,769
----------- -----------
$ 1,820,336 $ 2,424,808
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable -- affiliate............................. $ 18,255 $ 27,110
Partners' capital:
Managing general partner.................................. 14,988 20,944
Limited partners (11,249 interests)....................... 1,787,093 2,376,754
----------- -----------
1,802,081 2,397,698
----------- -----------
$ 1,820,336 $ 2,424,808
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 1155
PARKER & PARSLEY 91-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Oil and gas............................................ $ 873,012 $1,273,373 $1,632,595
Interest and other..................................... 11,185 13,542 13,546
Gain (loss) on disposition of assets................... 197 7,879 (1,221)
---------- ---------- ----------
884,394 1,294,794 1,644,920
---------- ---------- ----------
Costs and expenses:
Oil and gas production................................. 464,489 524,112 471,736
General and administrative............................. 43,606 39,082 47,177
Impairment of oil and gas properties................... 295,542 323,078 --
Depletion.............................................. 258,662 185,792 201,563
Abandoned property..................................... -- -- 442
---------- ---------- ----------
1,062,299 1,072,064 720,918
---------- ---------- ----------
Net income (loss)........................................ $ (177,905) $ 222,730 $ 924,002
========== ========== ==========
Allocation of net income (loss):
Managing general partner............................... $ (1,779) $ 2,227 $ 9,240
========== ========== ==========
Limited partners....................................... $ (176,126) $ 220,503 $ 914,762
========== ========== ==========
Net income (loss) per limited partnership interest....... $ (15.66) $ 19.60 $ 81.32
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 1156
PARKER & PARSLEY 91-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
MANAGING
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------- ---------- ----------
<S> <C> <C> <C>
Partners' capital at January 1, 1996....................... $27,625 $3,038,195 $3,065,820
Distributions............................................ (9,590) (949,416) (959,006)
Net income............................................... 9,240 914,762 924,002
------- ---------- ----------
Partners' capital at December 31, 1996..................... 27,275 3,003,541 3,030,816
Distributions............................................ (8,558) (847,290) (855,848)
Net income............................................... 2,227 220,503 222,730
------- ---------- ----------
Partners' capital at December 31, 1997..................... 20,944 2,376,754 2,397,698
Distributions............................................ (4,177) (413,535) (417,712)
Net loss................................................. (1,779) (176,126) (177,905)
------- ---------- ----------
Partners' capital at December 31, 1998..................... $14,988 $1,787,093 $1,802,081
======= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE> 1157
PARKER & PARSLEY 91-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ----------
<S> <C> <C> <C>
Cash flows from operations:
Net income (loss)....................................... $(177,905) $ 222,730 $ 924,002
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Impairment of oil and gas properties................. 295,542 323,078 --
Depletion............................................ 258,662 185,792 201,563
(Gain) loss on disposition of assets................. (197) (7,879) 1,221
Changes in assets and liabilities:
Accounts receivable.................................. 39,758 88,594 (75,782)
Accounts payable..................................... (8,855) 6,462 (43,340)
--------- --------- ----------
Net cash provided by operating activities....... 407,005 818,777 1,007,664
--------- --------- ----------
Cash flows from investing activities:
Additions to oil and gas properties..................... (24,381) (7,699) (721)
Proceeds from asset dispositions........................ 197 7,879 --
--------- --------- ----------
Net cash provided by (used in) investing
activities.................................... (24,184) 180 (721)
--------- --------- ----------
Cash flows from financing activities:
Cash distributions to partners.......................... (417,712) (855,848) (959,006)
--------- --------- ----------
Net increase (decrease) in cash........................... (34,891) (36,891) 47,937
Cash at beginning of year................................. 200,122 237,013 189,076
--------- --------- ----------
Cash at end of year....................................... $ 165,231 $ 200,122 $ 237,013
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE> 1158
PARKER & PARSLEY 91-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 91-B, L.P. (the "Partnership") is a limited partnership
organized in 1991 under the laws of the State of Delaware. As of August 8, 1997,
Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general
partner of the Partnership. Prior to August 8, 1997, the Partnership's managing
general partner was Parker & Parsley Petroleum USA, Inc. ("PPUSA"), a
wholly-owned subsidiary of Parker & Parsley Petroleum Company ("Parker &
Parsley"). On August 7, 1997, Parker & Parsley and Mesa Inc. received
shareholder approval to merge and create Pioneer Natural Resources Company
("Pioneer"). On August 8, 1997, PPUSA was merged with and into Pioneer USA, a
wholly-owned subsidiary of Pioneer, resulting in Pioneer USA becoming the
managing general partner of the Partnership as PPUSA's successor by merger.
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. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties -- The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as determined by the engineering staff of Pioneer
USA, the Partnership's managing general partner, and reviewed by independent
petroleum consultants. The carrying amounts of properties sold or otherwise
disposed of and the related allowances for depletion are eliminated from the
accounts and any gain or loss is included in operations.
Impairment of long-lived assets -- 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"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -- Preparation
of the accompanying financial statements 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 reporting amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest -- The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes -- A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
16
<PAGE> 1159
PARKER & PARSLEY 91-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Statements of cash flows -- For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses -- General and administrative expenses
are allocated in part to the Partnership by the managing general partner or its
affiliates. Such allocated expenses are determined by the managing general
partner based upon its judgement of the level of activity of the Partnership
relative to the managing general partner's activities and other entities it
manages. The method of allocation has been consistent over the past several
years with certain modifications incorporated to reflect changes in Pioneer
USA's overall business activities.
Reclassifications -- Certain reclassifications may have been made to the
1997 and 1996 financial statements to conform to the 1998 financial statement
presentations.
Environmental -- The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 1998.
Revenue recognition -- The Partnership uses the entitlements method of
accounting for crude oil and natural gas revenues.
Reporting comprehensive income -- Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") establishes
standards for the reporting and display of comprehensive income (loss) and its
components in a full set of general purpose financial statements. Comprehensive
income (loss) includes net income (loss) and other comprehensive income (loss).
The Partnership has no items of other comprehensive income (loss), as defined by
SFAS No. 130. Consequently, the provisions of SFAS No. 130 do not apply to the
Partnership.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. Based upon a decline in the Partnership's outlook for future
commodity prices, the Partnership has estimated the expected future cash flows
of its oil and gas properties as of December 31, 1998, 1997 and 1996, and
compared such estimated future cash flows to the respective carrying amount of
the oil and gas properties to determine if the carrying amounts were likely to
be recoverable. For those proved oil and gas properties for which the carrying
amount exceeded the estimated future cash flows, an impairment was determined to
exist; therefore, the Partnership adjusted the carrying amount of those oil and
gas properties to their fair value as determined by discounting their expected
future cash flows at a discount rate commensurate with the risks involved in the
industry. As a result, the Partnership recognized non-cash impairment provisions
of $295,542 and $323,078 related to its proved oil and gas properties during
1998 and 1997, respectively.
17
<PAGE> 1160
PARKER & PARSLEY 91-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $217,763 greater than the tax basis at December 31, 1998.
The following is a reconciliation of net income (loss) per statements of
operations with the net income (loss) per Federal income tax returns for the
years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net income (loss) per statements of operations.... $(177,905) $ 222,730 $ 924,002
Depletion and depreciation provisions for tax
reporting purposes greater than amounts for
financial reporting purposes.................... (139,323) (224,519) (257,785)
Impairment of oil and gas properties for financial
reporting purposes.............................. 295,542 323,078 --
Salvage income.................................... -- 6,755 1,373
Other............................................. 4,532 436 278
--------- --------- ---------
Net income (loss) per Federal income tax
returns............................... $ (17,154) $ 328,480 $ 667,868
========= ========= =========
</TABLE>
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the net costs incurred, whether capitalized
or expensed, related to the Partnership's oil and gas producing activities for
the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ----
<S> <C> <C> <C>
Development costs........................................... $24,381 $7,699 $(58)
======= ====== ====
</TABLE>
Capitalized oil and gas properties consist of the following:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Property acquisition costs.................................. $ 949,486 $ 949,486
Completed wells and equipment............................... 8,779,501 8,755,120
----------- -----------
9,728,987 9,704,606
Accumulated depletion..................................... (8,171,041) (7,616,837)
----------- -----------
Net capitalized costs............................. $ 1,557,946 $ 2,087,769
=========== ===========
</TABLE>
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $182,097 $194,622 $176,738
Reimbursement of general and administrative
expenses........................................... $ 27,503 $ 35,160 $ 31,806
</TABLE>
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
P&P Employees 91-B GP ("EMPL")
18
<PAGE> 1161
PARKER & PARSLEY 91-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(the "Entities") and the Partnership are parties to the Program agreement. EMPL
is a general partnership organized for the benefit of certain employees of
Pioneer USA.
The costs and revenues of the Program are allocated to the Entities and the
Partnership as follows:
<TABLE>
<CAPTION>
ENTITIES PARTNERSHIP(1)
---------- --------------
<S> <C> <C>
Revenues:
Proceeds from disposition of depreciable and depletable
properties............................................ 34.3434343% 65.6565657%
All other revenues....................................... 34.3434343% 65.6565657%
Costs and expenses:
Lease acquisition costs, drilling and completion costs
and all other costs................................... 24.2424242% 75.7575758%
Operating costs, reporting and legal expenses and general
and administrative expenses........................... 34.3434343% 65.6565657%
</TABLE>
- ---------------
(1) Includes Pioneer USA's 1% general partner ownership which is allocated at
the Partnership level and 10 limited partner interests owned by Pioneer USA.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 1998, 1997 and 1996 and
changes in such quantities during the years then ended. Due to a change in the
accounting policy of the managing general partner in 1997, the Partnership began
accounting for processed natural gas production in two components: processed
natural gas liquids ("NGLs") and dry residue gas. NGLs are reflected in "Oil and
NGLs" in the table below. All of the Partnership's reserves are proved developed
and located within the United States. The Partnership's reserves are based on an
evaluation prepared by the engineering staff of Pioneer USA and reviewed by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant,
using criteria established by the Securities and Exchange Commission. Reserve
value information is available to limited partners pursuant to the Partnership
agreement and, therefore, is not presented.
<TABLE>
<CAPTION>
OIL AND NGLS GAS
(BBLS) (MCF)
------------ ----------
<S> <C> <C>
Net proved reserves at January 1, 1996...................... 809,356 1,824,228
Revisions................................................... 101,417 333,217
Production.................................................. (59,195) (122,758)
-------- ----------
Net proved reserves at December 31, 1996.................... 851,578 2,034,687
Revisions................................................... 9,311 (1,177,065)
Production.................................................. (57,021) (90,255)
-------- ----------
Net proved reserves at December 31, 1997.................... 803,868 767,367
Revisions................................................... (224,362) (91,817)
Production.................................................. (66,527) (68,244)
-------- ----------
Net proved reserves at December 31, 1998.................... 512,979 607,306
======== ==========
</TABLE>
As of December 31, 1998, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 1998 prices of $10.61 per
barrel of oil, $5.53 per barrel of NGLs and $1.38 per mcf of gas, discounted at
10% was approximately $975,000 and undiscounted was $1,484,000.
19
<PAGE> 1162
PARKER & PARSLEY 91-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the periods ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Mobil Oil Corporation....................................... 48% 51% 52%
Genesis Crude Oil, L.P...................................... 26% 26% 27%
Western Gas Resources, Inc. ................................ 22% 19% 15%
</TABLE>
At December 31, 1998, the amounts receivable from Mobil Oil Corporation,
Genesis Crude Oil, L.P. and Western Gas Resources, Inc. were $31,064, $14,311
and $29,355, respectively, which are included in the caption "Accounts
receivable -- oil and gas sales" in the accompanying Balance Sheet.
The Partnership's share of oil and gas production is sold to various
purchasers. Pioneer USA is of the opinion that the loss of any one purchaser
would not have an adverse effect on the ability of the Partnership to sell its
oil and gas production.
NOTE 9. ORGANIZATION AND OPERATIONS
The Partnership was organized December 31, 1991 as a limited partnership
under the Delaware Act for the purpose of acquiring and developing oil and gas
properties. The general partners were converted to limited partners on November
30, 1992. The managing general partner received an opinion of legal counsel to
the effect that such conversion will not result in material adverse tax
consequences. The following is a brief summary of the more significant
provisions of the limited partnership agreement:
Managing general partner - The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Partnership affairs. As managing general
partner and operator of the Partnership's properties, all production
expenses are incurred by Pioneer USA and billed to the Partnership and a
portion of revenue is initially received by Pioneer USA prior to being paid
to the Partnership. Under the limited partnership agreement, the managing
general partner pays 1% of the Partnership's acquisition, drilling and
completion costs, and 1% of its operating and general and administrative
expenses. In return it is allocated 1% of the Partnership's revenues.
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his share
of any undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of $11,249,000.
The managing general partner is required to contribute amounts equal to 1%
of initial Partnership capital less sales commission costs allocated to the
limited partners and to contribute amounts necessary to pay costs and
expenses allocated to it under the Partnership agreement to the extent its
share of revenues does not cover such costs.
20
<PAGE> 1163
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and
executive officers of Pioneer USA. Directors of Pioneer USA are elected to serve
until the next annual meeting of stockholders or until their successors are
elected and qualified.
<TABLE>
<CAPTION>
AGE AT
DECEMBER 31,
NAME 1998 POSITION
- ---- ------------ --------
<S> <C> <C>
Scott D. Sheffield........... 46 President and Director
Timothy L. Dove.............. 42 Executive Vice President and Director
Dennis E. Fagerstone......... 49 Executive Vice President and Director
Executive Vice President, General Counsel and
Mark L. Withrow.............. 51 Director
Executive Vice President, Chief Financial Officer
M. Garrett Smith............. 37 and Director
Mel Fischer(a)............... 64 Executive Vice President
Lon C. Kile.................. 43 Executive Vice President
Rich Dealy................... 32 Vice President and Chief Accounting Officer
</TABLE>
- ---------------
(a) Mr. Fischer was a director and officer until his retirement from Pioneer
and Pioneer USA on February 19, 1999.
Scott D. Sheffield. Mr. Sheffield is a distinguished graduate of The
University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he
has served as President, Chief Executive Officer and a director of Pioneer and
President and a director of Pioneer USA. Mr. Sheffield was the President and a
director of Parker & Parsley from May 1990 until August 1997 and was the
Chairman of the Board and Chief Executive Officer of Parker & Parsley from
October 1990 until August 1997. He was the sole director of Parker & Parsley
from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley
Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum
engineer in 1979. He served as Vice President -- Engineering of PPDC from
September 1981 until April 1985 when he was elected President and a director. In
March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive
Officer of PPDC. Before joining PPDC, Mr. Sheffield was employed as a production
and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President -- Business
Development of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. Mr. Dove joined Parker & Parsley in May
1994 as Vice President -- International and was promoted to Senior Vice
President -- Business Development in October 1996, in which position he served
until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with
Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various
capacities in international exploration and production, marketing, refining and
marketing and planning and development. Mr. Dove earned a B.S. in Mechanical
Engineering from Massachusetts Institute of Technology in 1979 and received his
M.B.A. in 1981 from the University of Chicago.
21
<PAGE> 1164
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of Mesa from March 1, 1997 until August 1997. From October
1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief
Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice
President -- Exploration and Production of Mesa. From June 1988 to May 1991, Mr.
Fagerstone served as Vice President -- Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President -- General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President -- General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
M. Garrett Smith. Mr. Smith, a graduate of The University of Texas with a
B.S. in Electrical Engineering and Southern Methodist University with an M.B.A.,
was appointed Executive Vice President and Chief Financial Officer of Pioneer in
December 1997. He served as Senior Vice President -- Finance of Pioneer from
August 1997 until December 1997. Mr. Smith was elected Senior Vice President --
Finance and a director of Pioneer USA in August 1997. He served as Vice
President -- Corporate Acquisitions of Mesa from January 1997 until August 1997.
From October 1996 to December 1996, Mr. Smith served as Vice
President -- Finance of Mesa and from 1994 to 1996 he served as Director of
Financial Planning of Mesa. Mr. Smith was employed by BTC Partners, Inc. (a
former financial advisor to Mesa) from 1989 to 1994.
Mel Fischer. Mr. Fischer, a graduate of the University of California at
Berkeley with a Masters degree in Geology, became Executive Vice President
- -Worldwide Exploration of Pioneer and Pioneer USA in August 1997. He served as a
director of Parker & Parsley from November 1995 until August 1997 and was
Executive Vice President -- Worldwide Exploration for Parker & Parsley from
February 1997 to August 1997. Mr. Fischer retired from Pioneer and Pioneer USA
effective February 15, 1999. He worked in the petroleum industry for 32 years,
starting as a Petroleum Geologist with Texaco in 1962, and retiring as
President, Occidental International Exploration and Production Company in March
1994. For the 10 years prior to becoming President of Occidental International,
he served as Executive Vice President, World Wide Exploration with Occidental
Oil and Gas Corporation. He is a registered geologist in the State of
California, a member of the American Association of Petroleum Geologists and an
emeritus member of the Board of Advisors for the Earth Sciences Research
Institute at the University of Utah.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a
B.B.A. in Accounting, became Executive Vice President of Pioneer and Pioneer USA
in August 1997. Mr. Kile was Senior Vice President -- Investor Relations from
October 1996 to August 1997. Previously, he served as Vice President and Manager
of the Mid-Continent Division, Vice President -- Equity Finance & Analysis and
Vice President -- Marketing & Program Administration. Prior to joining Parker &
Parsley in 1985, he was employed as Supervisor -- Senior, Audit, in charge of
Parker & Parsley's audit, with Arthur Young.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a
B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became
Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
22
<PAGE> 1165
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is vested in the managing general partner. The Partnership
participates in oil and gas activities through an income tax partnership (the
"Program") pursuant to the Program agreement. Under the Program agreement,
Pioneer USA and P&P Employees 91-B GP ("EMPL") pay approximately 25% of the
Partnership's acquisition, drilling and completion costs and approximately 35%
of its operating and general and administrative expenses. In return, they are
allocated approximately 35% of the Partnership's revenues. See Notes 6 and 9 of
Notes to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data" for information regarding fees and reimbursements paid to
the managing general partner or its affiliates by the Partnership.
Pioneer USA's current executive officers and other employees are general
partners of EMPL. EMPL serves as a co-general partner of the Program. Under this
arrangement, EMPL pays approximately 2.5% of the Partnership's acquisition,
drilling and completion costs and approximately 3.5% of its operating and
general and administrative expenses. In return, EMPL is allocated approximately
3.5% of the Partnership's revenues. EMPL does not receive any fees or
reimbursements from the Partnership.
The Partnership does not directly pay any salaries of the executive
officers or employees of Pioneer USA, but does pay a portion of Pioneer USA's
general and administrative expenses of which these salaries are a part. See Note
6 of Notes to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more
of the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 10 limited partner interests at January 1, 1999.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing
general partner of the Partnership, Pioneer USA, has the exclusive right and
full authority to manage, control and administer the Partnership's business.
Under the limited partnership agreement, limited partners holding a majority of
the outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner or its affiliates
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner or its
affiliates during the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Payment of lease operating and supervision charges in
accordance with standard industry operating
agreements......................................... $182,097 $194,622 $176,738
Reimbursement of general and administrative
expenses........................................... $ 27,503 $ 35,160 $ 31,806
</TABLE>
Under the limited partnership agreement, the managing general partner pays
1% of the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
23
<PAGE> 1166
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. Financial statements
The following are filed as part of this annual report:
Independent Auditors' Report -- Ernst & Young LLP
Independent Auditors' Report -- KPMG LLP
Balance sheets as of December 31, 1998 and 1997
Statements of operations for the years ended December 31, 1998, 1997
and 1996
Statements of partners' capital for the years ended December 31, 1998,
1997 and 1996
Statements of cash flows for the years ended December 31, 1998, 1997
and 1997
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this annual report.
24
<PAGE> 1167
SIGNATURES
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 91-B, L.P.
By: Pioneer Natural Resources USA,
Inc.
Managing General Partner
By: /s/ SCOTT D. SHEFFIELD
----------------------------------
Scott D. Sheffield,
President
Dated: March 26, 1999
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 date indicated.
<TABLE>
<C> <S> <C>
/s/ SCOTT D. SHEFFIELD President and Director of March 26, 1999
- ----------------------------------------------------- Pioneer USA
Scott D. Sheffield
/s/ TIMOTHY L. DOVE Executive Vice President and March 26, 1999
- ----------------------------------------------------- Director of Pioneer USA
Timothy L. Dove
/s/ DENNIS E. FAGERSTONE Executive Vice President and March 26, 1999
- ----------------------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ MARK L. WITHROW Executive Vice President, March 26, 1999
- ----------------------------------------------------- General Counsel and Director
Mark L. Withrow of Pioneer USA
/s/ M. GARRETT SMITH Executive Vice President, Chief March 26, 1999
- ----------------------------------------------------- Financial Officer and
M. Garrett Smith Director of Pioneer USA
/s/ LON C. KILE Executive Vice President of March 26, 1999
- ----------------------------------------------------- Pioneer USA
Lon C. Kile
/s/ RICH DEALY Vice President and Chief March 26, 1999
- ----------------------------------------------------- Accounting Officer of Pioneer
Rich Dealy USA
</TABLE>
25
<PAGE> 1168
PARKER & PARSLEY 91-B, L.P.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3(a) -- Form of Agreement of Limited Partnership of Parker &
Parsley 91-B, L.P. incorporated by reference to Exhibit A
of the Partnership's Registration Statement on Form S-1
(Registration No. 33-38582) (hereinafter called the
Partnership's Registration Statement)
4(b) -- Form of Limited Partner Subscription Agreement
incorporated by reference to Exhibit C of the
Partnership's Registration Statement
4(b) -- Form of General Partner Subscription Agreement
incorporated by reference to Exhibit D of the
Partnership's Registration Statement
4(b) -- Power of Attorney incorporated by reference to Exhibit B
of the Partnership's Registration Statement
4(c) -- Specimen Certificate of Limited Partnership Interest
incorporated by reference to Exhibit 4.3 of Amendment No.
2 of the Partnership's Registration Statement
10(b) -- Development Drilling Program Agreement incorporated by
reference to Exhibit B of the Partnership's Registration
Statement
27.1* -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith
<PAGE> 1169
PARKER & PARSLEY 91-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
DECEMBER 31, 1998, 1997 AND 1996
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. Future income taxes are calculated by comparing
discounted future cash flows to the tax basis of oil and gas properties plus
available carryforwards and credits and applying the current tax rates to the
difference.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and gas producing activities:
Future cash inflows....................................... $ 5,585 $14,658 $ 29,545
Future production costs................................... (4,101) (8,821) (13,913)
Future development costs.................................. -- -- 171
------- ------- --------
1,484 5,837 15,803
10% annual discount factor................................ (509) (2,569) (8,389)
------- ------- --------
Standardized measure of discounted future net cash
flows.................................................. $ 975 $ 3,268 $ 7,414
======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs................ $ (409) $ (749) $(1,161)
Net changes in prices and production costs................ (1,842) (3,668) 3,124
Extensions and discoveries................................ -- -- --
Sales of minerals-in-place................................ -- -- --
Purchases of minerals-in-place............................ -- -- --
Revisions of estimated future development costs........... -- (96) (80)
Revisions of previous quantity estimates and reserves
added by development drilling.......................... (324) (549) 1,066
Accretion of discount..................................... 327 741 467
Changes in production rates, timing and other............. (45) 175 (671)
------- ------- -------
Change in present value of future net revenues............ (2,293) (4,146) 2,745
------- ------- -------
Balance, beginning of year................................ 3,268 7,414 4,669
------- ------- -------
Balance, end of year...................................... $ 975 $ 3,268 $ 7,414
======= ======= =======
</TABLE>
<PAGE> 1170
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
PROXY FOR 1999 SPECIAL MEETINGS OF LIMITED PARTNERS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF PIONEER NATURAL
RESOURCES USA, INC., AS MANAGING GENERAL PARTNER TO THE 25 PUBLICLY-HELD PARKER
& PARSLEY LIMITED PARTNERSHIPS LISTED IN THE PROXY STATEMENT DATED ,
1999. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
The undersigned hereby appoints Mark L. Withrow and Timothy L. Dove, and
either of them, proxies or proxy with full power of substitution and revocation
as to each of them, to represent the undersigned and to act and vote, with all
powers which the undersigned would possess if personally present, at the special
meetings of limited partners to be held on , 1999 at 2:00 p.m. at the
Wyndham Anatole Hotel, Room, 2201 Stemmons Freeway, Dallas, Texas 75207,
on the following matters and in their discretion on any other matters which may
come before the meeting or any adjournments thereof. Receipt of the proxy
statement dated , 1999 is acknowledged.
ITEM 1. Proposal to approve the Agreement and Plan of Merger dated as of
, 1999, among Pioneer Natural Resources Company, Pioneer Natural
Resources USA, Inc. and each of the partnerships.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
ITEM 2. Proposal to amend the partnership agreement of to permit the
partnership's merger with and into Pioneer Natural Resources USA, Inc.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
ITEM 3. Proposal to approve the opinion issued to Pioneer USA by on
behalf of the limited partners that neither the grant nor the exercise of the
right to approve the mergers by the limited partners will result in the loss of
any limited partner's limited liability or adversely affect the tax status of
the partnerships and to approve the selection of as special legal counsel
for the limited partners to render such legal opinion.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
ITEM 4. In the discretion of the proxies, upon such other business incident to
the conduct of the meeting as may properly come before the meeting.
This proxy when properly executed will be voted in the manner directed herein by
the undersigned. IN THE ABSENCE OF SUCH DIRECTION, THE PROXY WILL BE VOTED FOR
THE PROPOSALS SET FORTH IN ITEMS 1, 2 AND 3.
Signature
-------------------------------
Signature
-------------------------------
Date
-------------------------------
NOTE: PLEASE SIGN AS NAME
APPEARS HEREON. JOINT OWNERS
SHOULD EACH SIGN. WHEN SIGNING
AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL
TITLE AS SUCH.
