FORM 10-K405
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 Number: P-7: 0-20265 P-8: 0-20264
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME
LIMITED PARTNERSHIP P-7
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME
LIMITED PARTNERSHIP P-8
- -----------------------------------------------------------------
(Exact name of Registrant as specified in its Articles)
P-7: 73-1367186
Oklahoma P-8: 73-1378683
- --------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two West Second Street, Tulsa, Oklahoma 74103
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(918) 583-1791
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Depositary Units of Limited Partnership interest
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 the
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 (Sec. 229.405 of this chapter) 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 Disclosure is not contained herein
-----
Disclosure is contained herein
-----
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The Depositary Units are not publicly traded, therefore, Registrant cannot
compute the aggregate market value of the voting units held by non-affiliates of
the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE: None
2
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FORM 10-K405
TABLE OF CONTENTS
PART I.......................................................................4
ITEM 1. BUSINESS...................................................4
ITEM 2. PROPERTIES.................................................9
ITEM 3. LEGAL PROCEEDINGS.........................................13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF LIMITED PARTNERS.......14
PART II.....................................................................14
ITEM 5. MARKET FOR UNITS AND RELATED LIMITED PARTNER MATTERS......14
ITEM 6. SELECTED FINANCIAL DATA .................................17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.........................................34
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...............34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.......................34
PART III....................................................................34
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL
PARTNER...................................................34
ITEM 11. EXECUTIVE COMPENSATION....................................36
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................39
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............40
PART IV.....................................................................42
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K...............................................42
SIGNATURES..................................................................45
3
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PART I.
ITEM 1. BUSINESS
General
The Geodyne Institutional/Pension Energy Income Limited Partnership P-7
(the "P-7 Partnership") and Geodyne Institutional/Pension Energy Income Limited
Partnership P-8 (the "P-8 Partnership") (collectively, the "Partnerships") are
limited partnerships formed under the Oklahoma Revised Uniform Limited
Partnership Act. Each Partnership is composed of Geodyne Resources, Inc.
("Geodyne" or the "General Partner"), a Delaware corporation, as the general
partner, Geodyne Institutional Depositary Company, a Delaware corporation, as
the sole initial limited partner, and public investors as substitute limited
partners (the "Limited Partners"). The Partnerships commenced operations on
February 28, 1992.
The General Partner currently serves as general partner of 29 limited
partnerships, including the Partnerships. The General Partner is a wholly-owned
subsidiary of Samson Investment Company. Samson Investment Company and its
various corporate subsidiaries, including the General Partner (collectively
"Samson"), are primarily engaged in the production and development of and
exploration for oil and gas reserves and the acquisition and operation of
producing properties. At January 31, 1999 Samson owned interests in
approximately 10,500 oil and gas wells located in 19 states of the United States
and the countries of Canada, Venezuela, and Russia. At January 31, 1999, Samson
operated approximately 2,900 oil and gas wells located in 15 states of the
United States, as well as Canada, Venezuela, and Russia.
The Partnerships are currently engaged in the business of owning net
profits and royalty interests in oil and gas properties located in the
continental United States. Most of the net profits interests acquired by the
Partnerships have been carved out of working interests in oil and gas properties
("Working Interests") which were acquired by affiliated oil and gas investment
programs or other affiliates (the "Affiliated Programs"). Net profits interests
entitle the Partnerships to a share of net revenues from producing properties
measured by a specific percentage of the net profits realized by such Affiliated
Programs. Except where otherwise noted, references to certain operational
activities of the Partnerships are actually the activities of the Affiliated
Programs. As the holder of a net profits interest, a Partnership is not liable
to pay any amount by which oil and gas operating costs and expenses exceed
revenues for any period, although any deficit, together with interest, is
applied to reduce the amounts payable to the Partnership in subsequent periods.
As used throughout this Annual Report on Form 10-K405 ("Annual Report") the
Partnerships'
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net profits and royalty interests in oil and gas sales will be referred to as
"Net Profits" and the Partnerships' net profits and royalty interests in oil and
gas properties will be collectively referred to as "Net Profits Interests."
In order to prudently manage the properties which are burdened by the
Partnerships' Net Profits Interests, it may be appropriate for drilling
operations to be conducted on such properties. Since the Partnerships'
capitalized cost of their Net Profits Interests are calculated after considering
such costs, the Partnerships also indirectly engage in development drilling.
As limited partnerships, the Partnerships have no officers, directors, or
employees. They rely instead on the personnel of the General Partner and the
other Samson Companies. As of February 15, 1999, Samson employed approximately
850 persons. No employees are covered by collective bargaining agreements, and
management believes that Samson provides a sound employee relations environment.
For information regarding the executive officers of the General Partner, see
"Item 10. Directors and Executive Officers of the General Partner."
The General Partner's and the Partnerships' principal place of business is
located at Samson Plaza, Two West Second Street, Tulsa, Oklahoma 74103, and
their telephone number is (918) 583-1791 or (888) 436-3963 [(888) GEODYNE].
The Partnerships will terminate on February 28, 2002 in accordance with
the partnership agreement for each Partnership (the "Partnership Agreement").
However, the General Partner may extend the term of each Partnership for up to
five periods of two years each. As of the date of this Annual Report, the
General Partner has not determined whether to extend the term of any
Partnership.
Funding
Although the partnership agreement for each Partnership permits each
Partnership to incur a limited amount of borrowings, operations and expenses are
currently funded out of revenues from each Partnership's Net Profits Interests.
The General Partner may, but is not required to, advance funds to the
Partnerships for the same purposes for which Partnership borrowings are
authorized.
Principal Products Produced and Services Rendered
The Partnerships' sole business is the holding of certain Net Profits
Interests. The Partnerships do not refine or otherwise process crude oil and
condensate. The Partnerships do not hold any patents, trademarks, licenses, or
concessions and are not a party to any government contracts. The Partnerships
have no backlog of orders and do not participate in research and
5
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development activities. The Partnerships are not presently encountering
shortages of oilfield tubular goods, compressors, production material, or other
equipment.
Competition and Marketing
The domestic oil and gas industry is highly competitive, with a large
number of companies and individuals engaged in the exploration and development
of oil and gas properties. The ability of the Partnerships to produce and market
oil and gas profitably depends on a number of factors that are beyond the
control of the Partnerships. These factors include worldwide political
instability (especially in oil-producing regions), United Nations export
embargoes, the supply and price of foreign imports of oil and gas, the level of
consumer product demand (which can be heavily influenced by weather patterns),
government regulations and taxes, the price and availability of alternative
fuels, the overall economic environment, and the availability and capacity of
transportation and processing facilities. The effect of these factors on future
oil and gas industry trends cannot be accurately predicted or anticipated.
The most important variable affecting the Partnerships' revenues is the
prices received for the sale of oil and gas. Predicting future prices is not
possible. Concerning past trends, average yearly wellhead gas prices in the
United States have been volatile for a number of years. For the past ten years,
such average prices have generally been in the $1.40 to $2.40 per Mcf range. Gas
prices are currently in the lower half of the 10-year average range described
above.
Substantially all of the Partnerships' gas reserves are being sold on the
"spot market." Prices on the spot market are subject to wide seasonal and
regional pricing fluctuations due to the highly competitive nature of the spot
market. In addition, such spot market sales are generally short-term in nature
and are dependent upon the obtaining of transportation services provided by
pipelines. Spot prices for the Partnerships' gas decreased from approximately
$2.32 per Mcf at December 31, 1997 to approximately $1.93 per Mcf at December
31, 1998. Such prices were on an MMBTU basis and differ from the prices actually
received by the Partnerships due to transportation and marketing costs, BTU
adjustments, and regional price and quality differences. Continued very low oil
prices as discussed below may cause downward pressure on gas prices due to some
users of gas converting to oil as a cheaper fuel alternative.
For the past ten years, average oil prices have generally been in the
$16.00 to $24.00 per barrel range. Due to global consumption and supply trends
over the last year as well as a drop in Asian energy demand, oil prices over the
past year have reached historically low levels, dropping to as low as
approximately $9.25 per barrel. It is not known whether this
6
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trend will continue. Prices for the Partnerships' oil decreased from
approximately $16.25 per barrel at December 31, 1997 to approximately $9.50 per
barrel at December 31, 1998.
Future prices for both oil and gas will likely be different from (and may
be lower than) the prices in effect on December 31, 1998. Management is unable
to predict whether future oil and gas prices will (i) stabilize, (ii) increase,
or (iii) decrease.
Significant Customers
The following customers accounted for ten percent or more of the oil and
gas revenues attributable to the Partnerships' Net Profits Interests during the
year ended December 31, 1998:
Partnership Customer Percentage
----------- ---------------------- ----------
P-7 National Cooperative
Refinery Association
("NCRA") 23.3%
Scurlock Permian Corp.
("Scurlock") 14.4%
P-8 NCRA 22.2%
El Paso Energy
Marketing Company 13.0%
Scurlock 11.8%
In the event of interruption of purchases by one or more of these
significant customers or the cessation or material change in availability of
open access transportation by pipeline transporters, the Partnerships may
encounter difficulty in marketing gas and in maintaining historic sales levels.
Management does not expect any of its open access transporters to seek
authorization to terminate their transportation services. Even if the services
were terminated, management believes that alternatives would be available
whereby the Partnerships would be able to continue to market their gas.
The Partnerships' principal customers for crude oil production are
refiners and other companies which have pipeline facilities near the producing
properties in which the Partnerships own Net Profits Interests. In the event
pipeline facilities are not conveniently available to production areas, crude
oil is usually trucked by purchasers to storage facilities.
7
<PAGE>
Oil, Gas, and Environmental Control Regulations
Regulation of Production Operations -- The production of oil and gas is
subject to extensive federal and state laws and regulations governing a wide
variety of matters, including the drilling and spacing of wells, allowable rates
of production, prevention of waste and pollution, and protection of the
environment. In addition to the direct costs borne in complying with such
regulations, operations and revenues may be impacted to the extent that certain
regulations limit oil and gas production to below economic levels.
Regulation of Sales and Transportation of Oil and Gas -- Sales of crude
oil and condensate are made at market prices and are not subject to price
controls. The sale of gas may be subject to both federal and state laws and
regulations. The provisions of these laws and regulations are complex, and
affect all who produce, resell, transport, or purchase gas. Although virtually
all of the natural gas production affecting the Partnerships is not subject to
price regulation, other regulations affect the availability of gas
transportation services and the ability of gas consumers to continue to purchase
or use gas at current levels. Accordingly, such regulations may have a material
effect on the Partnerships' Net Profits and projections of future Net Profits.
Future Legislation -- Legislation affecting the oil and gas industry is
under constant review for amendment or expansion. Because such laws and
regulations are frequently amended or reinterpreted, management is unable to
predict what additional energy legislation may be proposed or enacted or the
future cost and impact of complying with existing or future regulations.
Regulation of the Environment - Oil and gas operations are subject to
numerous laws and regulations governing the discharge of materials into the
environment or otherwise relating to environmental protection. Compliance with
such laws and regulations, together with any penalties resulting from
noncompliance, may decrease the Partnerships' Net Profits. Management
anticipates that various local, state, and federal environmental control
agencies will have an increasing impact on oil and gas operations.
Insurance Coverage
Exploration for and production of oil and gas are subject to many inherent
risks, including blowouts, pollution, fires, and other casualties. The
Partnerships maintain insurance coverage as is customary for entities of a
similar size engaged in similar operations, but losses can occur from
uninsurable risks or in amounts in excess of existing insurance coverage. The
occurrence of an event which is not fully covered by insurance could have a
material adverse effect on the Partnerships' financial condition
8
<PAGE>
and results of operations in that it could negatively impact the cash flow
received from the Net Profits Interests.
ITEM 2. PROPERTIES
Well Statistics
The following table sets forth the number of productive wells in which the
Partnerships had a Net Profits Interest as of December 31, 1998.
Number of Wells(1)
---------------------------
P/ship Total Oil Gas
------ ----- ----- ---
P-7 1,558 1,266 292
P-8 1,748 1,408 340
- -----------
(1) The designation of a well as an oil well or gas well is made by the
General Partner based on the relative amount of oil and gas reserves for
the well. Regardless of a well's oil or gas designation, it may produce
oil, gas, or both oil and gas.
Drilling Activities
During 1998, the Partnerships indirectly participated in the drilling of
22 developmental wells in the Goldsmith Adobe Unit located in Ector County,
Texas. This large unitized property produces primarily oil.
Oil and Gas Production, Revenue, and Price History
The following tables set forth certain historical information concerning
the oil (including condensates) and gas production attributable to the
Partnerships' Net Profits Interests, revenues attributable to such production,
and certain price information.
9
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Net Production Data
P-7 Partnership
---------------
Year ended December 31,
-------------------------------------------
1998 1997 1996
---------- ---------- ----------
Production:
Oil (Bbls) 98,774 120,178 138,204
Gas (Mcf) 511,563 641,756 702,019
Oil and gas sales(1):
Oil $1,248,689 $2,324,633 $2,781,358
Gas 929,598 1,402,005 1,400,864
--------- --------- ---------
Total $2,178,287 $3,726,638 $4,182,222
========= ========= =========
Average sales price:
Per barrel of oil $12.64 $19.34 $20.13
Per Mcf of gas 1.82 2.18 2.00
- -------------------
(1) These amounts differ from the Net Profits included in the P-7
Partnership's financial statements because they do not reflect the offset
of $730,501, $1,655,228, and $1,993,149, respectively, of production
expenses incurred by the Affiliated Programs.
Net Production Data
P-8 Partnership
---------------
Year ended December 31,
--------------------------------------------
1998 1997 1996
---------- ---------- ----------
Production:
Oil (Bbls) 58,417 71,117 80,477
Gas (Mcf) 364,998 451,812 499,493
Oil and gas sales(1):
Oil $ 734,314 $1,370,094 $1,620,507
Gas 661,625 1,009,409 1,044,563
--------- --------- ---------
Total $1,395,939 $2,379,503 $2,665,070
========= ========= =========
Average sales price:
Per barrel of oil $12.57 $19.27 $20.14
Per Mcf of gas 1.81 2.23 2.09
- -------------------
(1) These amounts differ from the Net Profits included in the P-8
Partnership's financial statements because they do not reflect the offset
of $564,328, $826,922 and $1,342,721,
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respectively, of production expenses incurred by the Affiliated Programs.
Proved Reserves and Net Present Value
The following table sets forth each Partnership's estimated proved oil and
gas reserves and net present value therefrom as of December 31, 1998 which were
attributable to the Partnerships' Net Profits Interests. The schedule of
quantities of proved oil and gas reserves was prepared by the General Partner in
accordance with the rules prescribed by the Securities and Exchange Commission
(the "SEC"). Certain reserve information was reviewed by Ryder Scott Company
Petroleum Engineers ("Ryder Scott"), an independent petroleum engineering firm.
As used throughout this Annual Report, "proved reserves" refers to those
estimated quantities of crude oil, gas, and gas liquids which 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.
Net present value represents estimated future gross cash flow from the
production and sale of proved reserves, net of estimated oil and gas production
costs (including production taxes, ad valorem taxes, and operating expenses) and
estimated future development costs, discounted at 10% per annum. Net present
value of the proved reserves was calculated on the basis of current costs and
prices at December 31, 1998. Such prices were not escalated except in certain
circumstances where escalations were fixed and readily determinable in
accordance with applicable contract provisions. The prices used in calculating
the net present value of the proved reserves do not necessarily reflect market
prices for oil and gas production subsequent to December 31, 1998. There can be
no assurance that the prices used in calculating the net present value at
December 31, 1998 will actually be realized for such production.
The process of estimating oil and gas reserves is complex, requiring
significant subjective decisions in the evaluation of available geological,
engineering, and economic data for each reservoir. The data for a given
reservoir may change substantially over time as a result of, among other things,
additional development activity, production history, and viability of production
under varying economic conditions; consequently, it is reasonably possible that
material revisions to existing reserve estimates may occur in the near future.
Although every reasonable effort has been made to ensure that these reserve
estimates represent the most accurate assessment possible, the significance of
the subjective decisions required and variances in available data for various
reservoirs make these estimates generally less precise than other estimates
presented in connection with financial statement disclosures.
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Proved Reserves and
Net Present Values
From Proved Reserves
As of December 31, 1998(1)
P-7 Partnership:
- ---------------
Estimated proved reserves:
Gas (Mcf) 3,719,317
Oil and liquids (Bbls) 523,497
Net present value (discounted at 10% per annum) $3,714,687
P-8 Partnership:
- ---------------
Estimated proved reserves:
Gas (Mcf) 2,629,946
Oil and liquids (Bbls) 298,695
Net present value (discounted at 10% per annum) $2,618,668
- ----------
(1) Includes certain gas balancing adjustments which cause the gas volumes and
net present values to differ from the reserve reports which were prepared
by the General Partner and reviewed by Ryder Scott.
No estimates of the proved reserves of the Partnerships comparable to
those included herein have been included in reports to any federal agency other
than the SEC. Additional information relating to the Partnerships' proved
reserves is contained in Note 4 to the Partnerships' financial statements,
included in Item 8 of this Annual Report.
Significant Properties
The following table sets forth certain well and reserve information for
the basins in which the Partnerships own a significant amount of Net Profits
Interests. The table contains the following information for each significant
basin: (i) the number of wells in which a Net Profits Interest is owned, (ii)
the number and percentage of wells operated by the Partnership's affiliates,
(iii) estimated proved oil reserves, (iv) estimated proved gas reserves, and (v)
the present value (discounted at 10% per annum) of estimated future net cash
flow.
The Anadarko Basin is located in western Oklahoma and the Texas panhandle,
while the Permian Basin is located in west Texas
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and southeast New Mexico. The Mid-Gulf Coast Basin is located in southern
Alabama and Mississippi.
Significant Properties as of December 31, 1998
----------------------------------------------
Wells
Operated by
Affiliates Oil Gas
Total ---------- Reserves Reserves Present
Basin Wells Number % (Bbl) (Mcf) Value
- ----------- ----- ------ --- ------- ----------- ----------
P-7 P/ship:
Anadarko 26 15 58% 17,818 1,558,266 $1,215,446
Permian 1,380 5 -% 481,944 1,746,714 2,107,713
P-8 P/ship:
Permian 1,824 5 -% 273,910 1,103,709 $1,303,049
Anadarko 35 19 54% 10,328 1,064,481 877,254
Mid-Gulf 5 - -% 2,527 440,043 368,446
Coast
Title to Oil and Gas Properties
Management believes that the Partnerships have satisfactory title to their
Net Profits Interests. Record title to all of the properties subject to the
Partnerships' Net Profits Interests is held by either the Partnerships or
Geodyne Nominee Corporation, an affiliate of the General Partner.
Title to the Partnerships' Net Profits Interests is subject to customary
royalty, overriding royalty, carried, working, and other similar interests and
contractual arrangements customary in the oil and gas industry, to liens for
current taxes not yet due, and to other encumbrances. Management believes that
such burdens do not materially detract from the value of such properties or from
the Partnerships' Net Profits Interests therein or materially interfere with
their use in the operation of the Partnerships' business.
ITEM 3. LEGAL PROCEEDINGS
To the knowledge of the General Partner, neither the General Partner nor
the Partnerships or their properties are subject to any litigation, the results
of which would have a material effect on the Partnerships' or the General
Partner's financial condition or operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF LIMITED PARTNERS
There were no matters submitted to a vote of the Limited Partners of
either Partnership during 1998.
PART II.
ITEM 5. MARKET FOR UNITS AND RELATED LIMITED PARTNER MATTERS
As of February 1, 1999, the number of Units outstanding and the
approximate number of Limited Partners of record in the Partnerships were as
follows:
Number of Number of
Partnership Units Limited Partners
----------- --------- ----------------
P-7 188,702 1,191
P-8 116,168 1,070
Units were initially sold for a price of $100. The Units are not traded on
any exchange and there is no public trading market for them. The General Partner
is aware of certain transfers of Units between unrelated parties, some of which
are facilitated by secondary trading firms and matching services. In addition,
as further described below, the General Partner is aware of certain "4.9% tender
offers" which have been made for the Units. The General Partner believes that
the transfers between unrelated parties have been limited and sporadic in number
and volume. Other than trades facilitated by certain secondary trading firms and
matching services, no organized trading market for Units exists and none is
expected to develop. Due to the nature of these transactions, the General
Partner has no verifiable information regarding prices at which Units have been
transferred. Further, a transferee may not become a substitute Limited Partner
without the consent of the General Partner.
Pursuant to the terms of the Partnership Agreements, the General Partner
is obligated to annually issue a repurchase offer based on the estimated future
net revenues from the Partnerships' reserves and is calculated pursuant to the
terms of the Partnership Agreements. Such repurchase offer is recalculated
monthly in order to reflect cash distributions to the Limited Partners and
extraordinary events. The following table sets forth the General Partner's
repurchase offer per Unit as of the periods indicated. For purposes of this
Annual Report, a Unit represents an initial subscription of $100 to the
Partnership.
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Repurchase Offer Prices
-----------------------
1997 1998 1999
-------------------------- -------------------------- ----
1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st
P/ship Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr.
- ------ ---- ---- ---- ---- ---- ---- ---- ---- ----
P-7 $30 $34 $31 $28 $25 $30 $29 $28 $27
P-8 30 34 31 28 25 30 28 27 26
In addition to this repurchase offer, the Partnerships have been subject
to "4.9% tender offers" from several third parties during 1997 and 1998. The
General Partner does not know the terms of these offers or the prices received
by the Limited Partners who accepted these offers.
Cash Distributions
Cash distributions are primarily dependent upon a Partnership's cash
receipts from its Net Profits Interests and cash requirements of the
Partnership. Distributable cash is determined by the General Partner at the end
of each calendar quarter and distributed to the Limited Partners within 45 days
after the end of the quarter. Distributions are restricted to cash on hand less
amounts required to be retained out of such cash as determined in the sole
judgment of the General Partner to pay costs, expenses, or other Partnership
obligations whether accrued or anticipated to accrue. In certain instances, the
General Partner may not distribute the full amount of cash receipts which might
otherwise be available for distribution in an effort to equalize or stabilize
the amounts of quarterly distributions. Any available amounts not distributed
are invested and the interest or income thereon is for the accounts of the
Limited Partners.
The following is a summary of cash distributions paid to the Limited
Partners during 1997 and 1998 and the first quarter of 1999:
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Cash Distributions
------------------
1997
-------------------------------------------
1st 2nd 3rd 4th
P/ship Qtr.(1) Qtr. Qtr.(1) Qtr.
------ -------- ----- ------- -------
P-7 $3.22 $3.00 $3.65 $2.37
P-8 3.57 3.54 3.82 2.44
1998 1999
------------------------------------------ -----
1st 2nd 3rd 4th 1st
P/ship Qtr.(1) Qtr.(1) Qtr. Qtr. Qtr
------ -------- -------- ------ ------ -----
P-7 $2.73 $1.53 $1.02 $0.98 $1.16
P-8 2.85 1.72 1.38 1.06 1.13
- ------------------
(1) Amount of cash distribution includes proceeds from the sale of certain Net
Profits Interests.
16
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ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data for the
Partnerships. This data should be read in conjunction with the financial
statements of the Partnerships, and the respective notes thereto, included
elsewhere in this Annual Report. See "Item 8. Financial Statements and
Supplementary Data."
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<TABLE>
<CAPTION>
Selected Financial Data
P-7 Partnership
---------------
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Profits $1,447,786 $2,071,410 $2,189,073 $1,805,775 $ 1,765,636
Net Income (Loss):
Limited Partners ( 1,629,959) ( 291,307) 1,002,570 ( 173,270) ( 953,384)
General Partner 38,966 79,104 97,048 62,313 48,118
Total ( 1,590,993) ( 212,203) 1,099,618 ( 110,957) ( 905,266)
Limited Partners' Net
Income (Loss) per Unit ( 8.64) ( 1.54) 5.31 ( .92) ( 5.05)
Limited Partners' Cash
Distributions per Unit 6.26 12.24 8.49 6.49 10.38
Total Assets 2,877,677 5,707,521 8,329,130 8,975,278 10,374,235
Partners' Capital (Deficit)
Limited Partners 3,007,106 5,820,065 8,421,372 9,020,802 10,419,072
General Partner ( 129,429) ( 119,241) ( 92,242) ( 45,524) ( 44,837)
Number of Units
Outstanding 188,702 188,702 188,702 188,702 188,702
</TABLE>
18
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<TABLE>
<CAPTION>
Selected Financial Data
P-8 Partnership
---------------
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net Profits $ 831,611 $1,552,581 $1,322,349 $1,346,992 $ 976,911
Net Income (Loss):
Limited Partners ( 698,000) 23,531 454,230 ( 72,844) ( 987,517)
General Partner 25,063 62,184 55,352 48,233 20,615
Total ( 672,937) 85,715 509,582 ( 24,611) ( 966,902)
Limited Partners' Net
Income (Loss) per Unit ( 6.01) .20 3.91 ( .63) ( 8.50)
Limited Partners' Cash
Distributions per Unit 7.01 13.37 8.31 7.57 9.77
Total Assets 1,675,436 3,195,524 4,727,442 5,272,926 6,299,996
Partners' Capital (Deficit)
Limited Partners 1,740,288 3,252,288 4,781,757 5,293,527 6,246,371
General Partner ( 64,852) ( 56,764) ( 54,315) ( 20,601) ( 24,334)
Number of Units
Outstanding 116,168 116,168 116,168 116,168 116,168
</TABLE>
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Use of Forward-Looking Statements and Estimates
This Annual Report contains certain forward-looking statements. The words
"anticipate," "believe," "expect," "plan," "intend," "estimate," "project,"
"could," "may," and similar expressions are intended to identify forward-looking
statements. Such statements reflect management's current views with respect to
future events and financial performance. This Annual Report also includes
certain information which is, or is based upon, estimates and assumptions. Such
estimates and assumptions are management's efforts to accurately reflect the
condition and operation of the Partnerships.
Use of forward-looking statements and estimates and assumptions involve
risks and uncertainties which include, but are not limited to, the volatility of
oil and gas prices, the uncertainty of reserve information, the operating risk
associated with oil and gas properties (including the risk of personal injury,
death, property damage, damage to the well or producing reservoir, environmental
contamination, and other operating risks), the prospect of changing tax and
regulatory laws, the availability and capacity of processing and transportation
facilities, the general economic climate, the supply and price of foreign
imports of oil and gas, the level of consumer product demand, and the price and
availability of alternative fuels. Should one or more of these risks or
uncertainties occur or should estimates or underlying assumptions prove
incorrect, actual conditions or results may vary materially and adversely from
those stated, anticipated, believed, estimated, or otherwise indicated.
General Discussion
The following general discussion should be read in conjunction with the
analysis of results of operations provided below. As previously noted, the
Partnerships own net profits and royalty interests in oil and gas properties.
The Partnerships' net profits interests were carved out of Working Interests
which were acquired by the Affiliated Programs. Net profits interests entitle
the Partnerships to a share of net revenues from producing properties measured
by a specific percentage of the net profits realized by such Affiliated
Programs. Except where otherwise noted, references to certain operational
activities of the Partnerships are actually the activities of the Affiliated
Programs. As the holder of a net profits interest, a Partnership is not liable
to pay any amount by which oil and gas operating costs and expenses exceed
revenues for any period, although any deficit, together with interest, is
applied to reduce the amounts payable to the Partnership in subsequent periods.
As used throughout this Management's
20
<PAGE>
Discussion and Analysis of Financial Condition and Results of Operations, the
Partnerships' net profits and royalty interests in oil and gas sales will be
referred to as "Net Profits" and the Partnerships' net profits and royalty
interests in oil and gas properties will be collectively referred to as "Net
Profits Interests."
The most important variable affecting the Partnerships' revenues is the
prices received for the sale of oil and gas. Predicting future prices is not
possible. Concerning past trends, average yearly wellhead gas prices in the
United States have been volatile for a number of years. For the past ten years,
such average prices have generally been in the $1.40 to $2.40 per Mcf range. Gas
prices are currently in the lower half of the 10-year average range described
above.
Substantially all of the Partnerships' gas reserves are being sold on the
"spot market." Prices on the spot market are subject to wide seasonal and
regional pricing fluctuations due to the highly competitive nature of the spot
market. In addition, such spot market sales are generally short-term in nature
and are dependent upon the obtaining of transportation services provided by
pipelines. Spot prices for the Partnerships' gas decreased from approximately
$2.32 per Mcf at December 31, 1997 to approximately $1.93 per Mcf at December
31, 1998. Such prices were on an MMBTU basis and differ from the prices actually
received by the Partnerships due to transportation and marketing costs, BTU
adjustments, and regional price and quality differences. Continued very low oil
prices as discussed below may cause downward pressure on gas prices due to some
users of gas converting to oil as a cheaper fuel alternative.
For the past ten years, average oil prices have generally been in the
$16.00 to $24.00 per barrel range. Due to global consumption and supply trends
over the last year as well as a drop in Asian energy demand, oil prices over the
past year have reached historically low levels, dropping to as low as
approximately $9.25 per barrel. It is not known whether this trend will
continue. Prices for the Partnerships' oil decreased from approximately $16.25
per barrel at December 31, 1997 to approximately $9.50 per barrel at December
31, 1998.
Future prices for both oil and gas will likely be different from (and may
be lower than) the prices in effect on December 31, 1998. Management is unable
to predict whether future oil and gas prices will (i) stabilize, (ii) increase,
or (iii) decrease.
As discussed in the "Results of Operations" section below, volumes of oil
and gas sold also significantly affect the Partnerships' revenues. Oil and gas
wells generally produce the most oil or gas in the earlier years of their lives
and, as production continues, the rate of production naturally declines. At some
point, production physically ceases or becomes no longer economic. The
Partnerships are not acquiring additional Net
21
<PAGE>
Profits Interests, and the existing Net Profits Interests are not experiencing
significant additional production through drilling or other capital projects.
Therefore, volumes of oil and gas produced from the properties underlying the
Partnerships' Net Profits Interests naturally decline from year to year. While
it is difficult for management to predict future production from these
properties, it is likely that this general trend of declining production will
continue.
Despite the general trend of declining production, several factors can
cause the volumes of oil and gas sold to increase or decrease at an even greater
rater over a given period. These factors include, but are not limited to, (i)
geophysical conditions which cause an acceleration of the decline in production,
(ii) the shutting in of wells (or the opening of previously shut-in wells) due
to low oil and gas prices, mechanical difficulties, loss of a market or
transportation, or performance of workovers, recompletions, or other operations
in the well, (iii) prior period volume adjustments (either positive or negative)
made by purchasers of the production, (iv) ownership adjustments in accordance
with agreements governing the operation or ownership of the well (such as
adjustments that occur at payout), and (v) completion of enhanced recovery
projects which increase production for the well. Many of these factors are very
significant as related to a single well or as related to many wells over a short
period of time. However, due to the large number of Net Profits Interests owned
by the Partnerships, these factors are generally not material as compared to the
normal decline in production experienced on all remaining wells in which a Net
Profits Interest is owned.
Results of Operations
An analysis of the change in net oil and gas operations (oil and gas
sales, less lease operating expenses and production taxes), is presented in the
tables following "Results of Operations" under the heading "Average Proceeds and
Units of Production." Following is a discussion of each Partnership's results of
operations for the year ended December 31, 1998 as compared to the year ended
December 31, 1997 and for the year ended December 31, 1997 as compared to the
year ended December 31, 1996.
22
<PAGE>
P-7 Partnership
---------------
Year Ended December 31, 1998 Compared
to Year Ended December 31, 1997
-------------------------------------
Total Net Profits decreased $623,624 (30.1%) in 1998 as compared to 1997.
Of this decrease, approximately $414,000 and $284,000, respectively, were
related to decreases in volumes of oil and gas sold and approximately $662,000
and $188,000, respectively, were related to decreases in the average prices of
oil and gas sold. The decrease in Net Profits related to decreased oil and gas
sales was partially offset by a decrease of approximately $925,000 in production
expenses incurred by the owners of the Working Interests. Volumes of oil and gas
sold decreased 21,404 barrels and 130,193 Mcf, respectively, in 1998 as compared
to 1997. The decrease in volumes of oil sold resulted primarily from positive
prior period volume adjustments made by the purchasers on two significant wells
during 1997. The decrease in volumes of gas sold resulted primarily from (i) the
normal decline in production and (ii) the sale of several wells during 1998. The
decrease in production expenses resulted primarily from (i) a decrease in lease
operating expenses associated with the decreases in volumes of oil and gas sold
during 1998 as compared to 1997 and (ii) workover expenses incurred on two
significant wells during 1997. Average oil and gas prices decreased to $12.64
per barrel and $1.82 per Mcf, respectively, in 1998 from $19.34 per barrel and
$2.18 per Mcf, respectively, in 1997.
As discussed in "Liquidity and Capital Resources" below, the P-7
Partnership sold certain Net Profits Interests during 1998 and recognized a
$148,737 gain on such sales. Sales of Net Profits Interests during 1997 resulted
in the P-7 Partnership recognizing similar gains totaling $190,985.
Depletion of Net Profits Interests increased $518,453 (65.3%) in 1998 as
compared to 1997. This increase resulted primarily from a significant downward
revision in the estimate of remaining oil reserves at December 31, 1998. As a
percentage of Net Profits, this expense increased to 90.6% in 1998 from 38.3% in
1997. This percentage increase was primarily due to (i) the decrease in Net
Profits and (ii) the dollar increase in depletion of Net Profits Interests.
The P-7 Partnership recognized a non-cash charge against earnings of
$1,664,601 in the fourth quarter of 1998. This charge was related to the decline
in oil and gas prices used to determine future cash flows from the P-7
Partnership's Net Profits Interests in proved oil and gas reserves at December
31, 1998. In the first quarter of 1997, a non-cash charge of $1,474,823 was also
recognized. Of this amount, $686,260 was
23
<PAGE>
related to the decline in oil and gas prices used to determine future cash flows
from the P-7 Partnership's Net Profits Interests in proved oil and gas reserves
at March 31, 1997 and $788,563 was related to the writing-off of Net Profits
Interests in unproved properties. These unproved properties were written off
based on the General Partner's determination that it was unlikely that such
properties would be developed due to low oil and gas prices and Partnership
Agreement provisions which limit the P-7 Partnership's level of permissible
indirect drilling activity through its Affiliated Programs.
General and administrative expenses decreased $4,757 (2.1%) in 1998 as
compared to 1997. As a percentage of Net Profits, these expenses increased to
15.3% in 1998 from 10.9% in 1997. This percentage increase was primarily due to
the decrease in Net Profits.
Cumulative cash distributions to the Limited Partners through December 31,
1998 were $10,845,916 or 57.48% of the Limited Partners' capital contributions.
Year Ended December 31, 1997 Compared
to Year Ended December 31, 1996
-------------------------------------
Total Net Profits decreased $117,663 (5.4%) in 1997 as compared to 1996.
Of this decrease, approximately $363,000 and $121,000, respectively, were
related to decreases in volumes of oil and gas sold and approximately $95,000
was related to a decrease in the average price of oil sold, which decrease was
partially offset by an increase of approximately $116,000 related to an increase
in the average price of gas sold. In addition, the decrease in Net Profits was
partially offset by an increase of approximately $338,000 related to a decrease
in production expenses incurred by the owners of the Working Interests. Volumes
of oil and gas sold decreased 18,026 barrels and 60,263 Mcf, respectively, in
1997 as compared to 1996. The decrease in production expenses resulted primarily
from (i) decreases in volumes of oil and gas sold in 1997, (ii) a decrease in
general repair and maintenance expenses incurred on one significant well in 1997
as compared to 1996, and (iii) workover expenses incurred on one significant
well in 1996 in order to increase production capabilities. Average oil prices
decreased to $19.34 per barrel in 1997 from $20.13 per barrel in 1996. Average
gas prices increased to $2.18 per Mcf in 1997 from $2.00 per Mcf in 1996.
Depletion of Net Profits Interests decreased $277,958 (25.9%) in 1997 as
compared to 1996. This decrease resulted primarily from (i) a lower depletable
base caused by significant write-downs of oil and gas properties in 1997, (ii)
an upward revision in the estimate of remaining oil and gas reserves at
24
<PAGE>
December 31, 1997, and (iii) the decreases in volumes of oil and gas sold in
1997. As a percentage of Net Profits, this expense decreased to 38.3% in 1997
from 49.0% in 1996. This percentage decrease was primarily due to the dollar
decrease in depletion of Net Profits Interests and the increase in the average
price of gas sold in 1997.
The P-7 Partnership recognized a non-cash charge against earnings of
$1,474,823 in the first quarter of 1997. Of this amount, $686,260 was related to
the decline in oil and gas prices used to determine future cash flows from the
P-7 Partnership's Net Profits Interests in proved oil and gas reserves at March
31, 1997 and $788,563 was related to the writing-off of the Net Profits
Interests in unproved properties. These unproved properties were written off
based on the General Partner's determination that it was unlikely that such
properties would be developed due to low oil and gas prices and Partnership
Agreement provisions which limit the P-7 Partnership's level of permissible
indirect drilling activity through its Affiliated Programs. No similar charges
were necessary in 1996.
General and administrative expenses remained relatively constant in 1997
as compared to 1996. As a percentage of Net Profits, these expenses also
remained relatively constant at 10.9% in 1997 and 10.3% in 1996.
P-8 Partnership
---------------
Year Ended December 31, 1998 Compared
to Year Ended December 31, 1997
-------------------------------------
Total Net Profits decreased $720,970 (46.4%) in 1998 as compared to 1997.
Of this decrease, approximately $245,000 and $194,000, respectively, were
related to decreases in the volumes of oil and gas sold and approximately
$391,000 and $154,000, respectively, were related to decreases in the average
prices of oil and gas sold. The decrease in Net Profits related to decreased oil
and gas sales was partially offset by a decrease of approximately $263,000 in
production expenses incurred by the owners of the Working Interests. Volumes of
oil and gas sold decreased 12,700 barrels and 86,814 Mcf, respectively, in 1998
as compared to 1997. The decrease in volumes of oil sold resulted primarily from
positive prior period volume adjustments made by the purchasers on two
significant wells during 1997. The decrease in volumes of gas sold resulted
primarily from (i) the curtailment of sales during 1998 on one significant well
due to the P-8 Partnership's overproduced position in that well, (ii) the sale
of several wells during 1998, and (iii) the normal decline in production. The
decrease in production expenses resulted primarily from (i) a decrease in
production taxes
25
<PAGE>
associated with the decrease in Net Profits, (ii) workover expenses incurred on
several significant wells during 1997, and (iii) a decrease in lease operating
expenses associated with the decreases in volumes of oil and gas sold. Average
oil and gas prices decreased to $12.57 per barrel and $1.81 per Mcf,
respectively, in 1998 from $19.27 per barrel and $2.23 per Mcf, respectively, in
1997.
As discussed in "Liquidity and Capital Resources" below, the P-8
Partnership sold certain Net Profits Interests during 1998 and recognized a
$102,195 gain on such sales. Sales of Net Profits Interests during 1997 resulted
in the P-8 Partnership recognizing similar gains totaling $124,010.
Depletion of Net Profits Interests increased $266,845 (64.3%) in 1998 as
compared to 1997. This increase resulted primarily from a significant downward
revision in the estimate of remaining oil reserves at December 31, 1998. As a
percentage of Net Profits, this expense increased to 82.0% in 1998 from 26.7% in
1997. This percentage increase was primarily due to (i) the decrease in Net
Profits and (ii) the dollar increase in depletion of Net Profits Interests.
The P-8 Partnership recognized a non-cash charge against earnings of
$798,075 in the fourth quarter of 1998. This charge was related to the decline
in oil and gas prices used to determine future cash flows from the P-8
Partnership's Net Profits Interests in proved oil and gas reserves at December
31, 1998. In the first quarter of 1997, a non-cash charge of $1,052,542 was also
recognized. Of this amount, $650,465 was related to the decline in oil and gas
prices used to determine future cash flows from the P-8 Partnership's Net
Profits Interests in proved oil and gas reserves at March 31, 1997 and $402,077
was related to the writing-off of Net Profits Interests in unproved properties.
These unproved properties were written off based on the General Partner's
determination that it was unlikely that such properties would be developed due
to low oil and gas prices and Partnership Agreement provisions which limit the
P-8 Partnership's level of permissible indirect drilling activity through its
Affiliated Programs.
General and administrative expenses decreased $2,836 (2.0%) in 1998 as
compared to 1997. As a percentage of Net Profits, these expenses increased to
16.4% in 1998 from 9.0% in 1997, primarily due to the decrease in Net Profits.
Cumulative cash distributions to the Limited Partners through December 31,
1998 were $6,762,583 or 58.21% of the Limited Partners' capital contributions.
26
<PAGE>
Year Ended December 31, 1997 Compared
to Year Ended December 31, 1996
-------------------------------------
Total Net Profits increased $230,232 (17.4%) in 1997 as compared to 1996.
Of this increase, approximately $516,000 was related to a decrease in production
expenses incurred by the owners of the Working Interests and approximately
$63,000 was related to an increase in the average price of gas sold, which
increases were partially offset by decreases of (i) approximately $189,000 and
$100,000, respectively, related to decreases in volumes of oil and gas sold and
(ii) approximately $62,000 related to a decrease in the average price of oil
sold. Volumes of oil and gas sold decreased 9,360 barrels and 47,681 Mcf,
respectively, in 1997 as compared to 1996. The decrease in production expenses
resulted primarily from (i) the decreases in volumes of oil and gas sold in
1997, (ii) a decrease in general repair and maintenance expenses incurred on one
significant well in 1997 as compared to 1996, and (iii) workover expenses
incurred on one significant well in 1996 in order to increase production
capabilities. Average oil prices decreased to $19.27 per barrel in 1997 from
$20.14 per barrel in 1996. Average gas prices increased to $2.23 per Mcf in 1997
from $2.09 per Mcf in 1996.
Depletion of Net Profits Interests decreased $343,961 (45.3%) in 1997 as
compared to 1996. This decrease resulted primarily from (i) a lower depletable
base caused by significant write-downs of oil and gas properties in 1997, (ii)
an upward revision in the estimate of remaining gas reserves at December 31,
1997, and (iii) the decreases in volumes of oil and gas sold in 1997. As a
percentage of Net Profits, this expense decreased to 26.7% in 1997 from 57.4% in
1996. This percentage decrease was primarily due to the dollar decrease in
depletion of Net Profits Interests and the increase in the average price of gas
sold in 1997.
The P-8 Partnership recognized a non-cash charge against earnings of
$1,052,542 in the first quarter of 1997. Of this amount, $650,465 was related to
the decline in oil and gas prices used to determine future cash flows from the
P-8 Partnership's Net Profits Interests in proved oil and gas reserves at March
31, 1997 and $402,077 was related to the writing-off of Net Profits Interests in
unproved properties. These unproved properties were written off based on the
General Partner's determination that it was unlikely that such properties would
be developed due to low oil and gas prices and Partnership Agreement provisions
which limit the P-8 Partnership's level of permissible drilling activities
through its Affiliated Programs. No similar charges were necessary in 1996.
General and administrative expenses remained relatively constant in 1997 as
compared to 1996. As a percentage of Net
27
<PAGE>
Profits, these expenses decreased to 9.0% in 1997 from 10.5% in 1996. This
percentage decrease was primarily due to the increase in Net Profits discussed
above.
Average Proceeds and Units of Production
The following tables are comparisons of the annual equivalent units of
production (one barrel of oil or six Mcf of gas) and the average proceeds
received per equivalent unit of production for the oil and gas sales
attributable to the Partnerships' Net Profits Interest for the years ended
December 31, 1998, 1997, and 1996. These factors comprise the change in oil and
gas sales discussed in the "Results of Operations" section above.
1998 Compared to 1997
---------------------
Equivalent Units Average Proceeds
of Production per Equivalent Unit
-------------------------- ----------------------
P/ship 1998 1997 % Change 1998 1997 % Change
- ------ ------- ------- -------- ----- ----- --------
P-7 184,035 227,137 (19%) $7.87 $ 9.12 (14%)
P-8 119,250 146,419 (19%) 6.97 10.60 (34%)
1997 Compared to 1996
---------------------
Equivalent Units Average Proceeds
of Production per Equivalent Unit
-------------------------- ----------------------
P/ship 1997 1996 % Change 1997 1996 % Change
- ------ ------- ------- -------- ----- ----- --------
P-7 227,137 255,207 (11%) $ 9.12 $8.58 6%
P-8 146,419 163,726 (11%) 10.60 8.08 31%
Liquidity and Capital Resources
Net proceeds from operations less necessary operating capital are
distributed to the Limited Partners on a quarterly basis. See "Item 5. Market
for Units and Related Limited Partner Matters." The net proceeds from the Net
Profits Interests are not reinvested in productive assets. Assuming 1998
production levels for future years, the P-7 and P-8 Partnerships' proved reserve
quantities at December 31, 1998 would have remaining
28
<PAGE>
lives of approximately 5.3 and 5.1 years, respectively, for oil reserves and 7.3
and 7.2 years, respectively, for gas reserves.
The Partnerships' available capital from the Limited Partners'
subscriptions has been spent on Net Profits Interests and there should be no
further material capital resource commitments in the future. The Partnerships
have no debt commitments.
Occasional expenditures by the Affiliated Programs for new wells or well
recompletions or workovers, however, may reduce or eliminate cash available for
a particular quarterly cash distribution. In 1998, capital expenditures
affecting the P-7 and P-8 Partnerships' Net Profits Interests totaled $202,852
and $118,875, respectively. These costs were indirectly incurred as a result of
(i) drilling activities associated with a large unitized property and (ii) the
successful recompletion of two wells. In 1997, capital expenditures affecting
the P-7 and P-8 Partnerships' Net Profits Interests totaled $258,702 and
$147,601, respectively. These costs were indirectly incurred as a result of (i)
drilling activities associated with a large unitized property and (ii) the
successful recompletion of one well.
The Partnerships sold certain Net Profits Interests during 1997 and 1998.
These sales were made by the General Partner after giving due consideration to
both the offer price and the General Partner's estimate of the underlying
property's remaining proved reserves and future operating costs. Net proceeds
from the sales were distributed to the Partnerships and included in the
calculation of the Partnerships' cash distributions for the quarter immediately
following the Partnerships' receipt of the proceeds. Such proceeds to the P-7
and P-8 Partnerships in 1998 were $181,197 and $119,285, respectively, while
such proceeds to the P-7 and P-8 Partnerships in 1997 were $311,726 and
$199,176, respectively. The General Partner believes that the sale of these Net
Profits Interests will be beneficial to the Partnerships since the properties
sold generally had a higher ratio of future operating expenses as compared to
reserves than the properties not sold.
There can be no assurance as to the amount of the Partnerships' future
cash distributions. The Partnerships' ability to make cash distributions depends
primarily upon the level of available cash flow generated by the Partnerships'
Net Profits Interests, which will be affected (either positively or negatively)
by many factors beyond the control of the Partnerships, including the price of
and demand for oil and gas and other market and economic conditions. Even if
prices and costs remain stable, the amount of cash available for distributions
will decline over time (as the volume of production from producing properties
declines) since the Partnerships are not replacing production through
acquisitions of Net Profits Interests. The Partnerships' quantity of proved
reserves has
29
<PAGE>
been reduced by the sale of Net Profits Interests; therefore, it is possible
that the Partnerships' future cash distributions will decline as a result of a
reduction of the Partnerships' reserve base.
The Partnerships will terminate on February 28, 2002 in accordance with
the Partnership Agreement. However, the General Partner may extend the term of
each partnership for up to five periods of two years each. As the date of this
Annual Report the General Partner has not determined whether to extend the term
of any Partnership.
Inflation and Changing Prices
Prices obtained for oil and gas production depend upon numerous factors,
including the extent of domestic and foreign production, foreign imports of oil,
market demand, domestic and foreign economic conditions in general, and
governmental regulations and tax laws. The general level of inflation in the
economy did not have a material effect on the operations of the Partnerships in
1998. Oil and gas prices have fluctuated during recent years and generally have
not followed the same pattern as inflation. See "Item 2. Properties - Oil and
Gas Production, Revenue, and Price History."
Year 2000
In General
The Year 2000 Issue ("Y2K") refers to the inability of computer and other
information technology systems to properly process date and time information,
stemming from the earlier programming practice of using two digits rather than
four to represent the year in a date. For example, computer programs and
imbedded chips that are date sensitive may recognize a date using (00) as the
year 1900 rather than the year 2000. The consequence of Y2K is that computer and
imbedded processing systems may be at risk of malfunctioning, particularly
during the transition from 1999 to 2000.
The effects of Y2K are exacerbated by the interdependence of computer and
telecommunication systems throughout the world. This interdependence also exists
among the Partnerships, Samson, and their vendors, customers, and business
partners, as well as with regulators. The potential risks associated with Y2K
for an oil and gas production company fall into three general areas: (i)
financial, leasehold and administrative computer systems, (ii) imbedded systems
in field process control units, and (iii) third party exposures. As discussed
below, the General Partner does
30
<PAGE>
not believe that these risks will be material to the Partnerships' operations.
The Partnerships' business is producing oil and gas. The day-to-day
production of the Partnerships' oil and gas is not dependent on computers or
equipment with imbedded chips. As further discussed below, management
anticipates that the Partnerships' daily business activities will not be
materially affected by Y2K.
The Partnerships rely on Samson to provide all of its operational and
administrative services on either a direct or indirect basis. Samson is
addressing each of the three Y2K areas discussed above through a readiness
process that seeks to:
1. increase the awareness of the issue among key employees;
2. identify areas of potential risk;
3. assess the relative impact of these risks and Samson's
ability to manage them; and
4. remediate these risks on a priority basis wherever possible.
Samson Investment Company's Chief Financial Officer is responsible for
communicating to its Board of Directors Y2K actions and for the ultimate
implementation of its Y2K plan. He has delegated to Samson Investment Company's
Senior Vice President-Technology and Administrative Services principal
responsibility for ensuring Y2K compliance within Samson.
Samson has been planning for the impact of Y2K on its information
technology systems since 1993. As of February 1, 1999, Samson is in the final
stages of implementation of a Y2K plan, as summarized below:
Financial and Administrative Systems
1. Awareness. Samson has alerted its officers, managers and supervisors of
Y2K issues and asked them to have their employees participate in the
identification of potential Y2K risks which might otherwise go unnoticed by
higher level employees and officers. As a result, awareness of the issue is
considered high.
2. Risk Identification. Samson's most significant financial and
administrative systems exposure is the Y2K status of the accounting and land
administration system used to collect and manage data for internal management
decision making and for external accounts receivable, revenue, lease operating
expense, and accounts payable purposes. Other concerns include network hardware
and software, desktop computing hardware and software, telecommunications, and
office space readiness.
31
<PAGE>
3. Risk Assessment. The failure to identify and correct a material Y2K
problem could result in inaccurate or untimely financial information for
management decision-making or cash flow and payment purposes, including
maintaining oil and gas leases.
4. Remediation. Since 1993, Samson has been upgrading its accounting and
land administration software. Substantially all of the Y2K upgrades have been
completed, with the remainder scheduled to be completed during the 1st quarter
of 1999. In addition, in 1997 and 1998 Samson replaced or applied software
patches to substantially all of its network and desktop software applications
and believes them to be generally Y2K compliant. Additional patches or software
upgrades will be applied no later than March 31, 1999 to complete this process.
The costs of all such risk assessments and remediation are not expected to be
material to the Partnerships.
5. Contingency Planning. Notwithstanding the foregoing, should there be
significant unanticipated disruptions in Samson's financial and administrative
systems, all of the accounting processes that are currently automated will need
to be performed manually. Samson will consider in the second half of 1999 its
options with respect to contingency arrangements for temporary staffing to
accommodate such situations.
Imbedded Systems
1. Awareness. Samson's Y2K program has involved all levels of field
personnel from production foremen and higher. Employees at all levels of the
organization have been asked to participate in the identification of potential
Y2K risks, which might otherwise go unnoticed by higher level employees and
officers of Samson, and as a result, awareness of the issue is considered high.
2. Risk Identification. Samson has inventoried all possible exposures to
imbedded chips and systems. Such exposures can be classified as either (i) oil
and gas production and processing equipment or (ii) office machines such as
faxes, copiers, phones, etc.
With respect to oil and gas production and processing equipment, neither
Samson nor the Partnerships operate offshore wells, significant processing
plants, or wells with older electronic monitoring systems. As a result, Samson's
inventory identified less than 10 applications using imbedded chips. All of
these are in the process of being tested by the respective vendors and are
expected to be Y2K compliant or replaced no later than May 30, 1999. Oil and gas
production related to such equipment is very minor with respect to the entire
Samson group, and, in fact, the Partnerships' production may not use such
equipment at all.
32
<PAGE>
Office machines are currently being tested by Samson and vendors. It is
expected that such machines will be made compliant or replaced no later than
March 31, 1999.
3. Risk Assessment and Remediation. The failure to identify and correct a
material Y2K problem in an imbedded system could result in outcomes ranging from
errors in data reporting to curtailments or shutdowns in production. As noted
above, Samson has identified less than 10 imbedded system applications that may
have a Y2K problem. None of these applications are believed to be material to
Samson or the Partnerships. Once identified, assessed and prioritized, Samson
intends to test and upgrade imbedded components and systems in field process
control units deemed to pose the greatest risk of significant non-compliance and
capable of testing. Samson believes that sufficient manual processes are
available to minimize any such field level risk and that there will be no
material impact on the Partnerships with respect to these applications.
4. Contingency Planning. Should material production disruptions occur as a
result of Y2K failures in field operations, Samson will utilize its existing
field personnel in an attempt to avoid any material impact on operating cash
flow. Samson is not able to quantify any potential exposure in the event of
systems failure or inadequate manual alternatives.
Third Party Exposures
1. Awareness. Samson is considering Y2K implications with its outside
vendors, customers, and business partners. Samson is in the process of
identifying potential third party Y2K risks and, as a result, awareness of the
issue is considered high.
2. Risk Identification. Samson's most significant third party Y2K exposure
is its dependence on third parties for the receipt of revenues from oil and gas
sales. However, virtually all of these purchasers are very large and
sophisticated companies. Other Y2K concerns include the availability of electric
power to Samson's field operations, the integrity of telecommunication systems,
and the readiness of commercial banks to execute electronic fund transfers.
3. Risk Assessment. Because of the high awareness of the Y2K problem in
the U.S., Samson has not undertaken and does not plan to undertake a formal
company wide plan to make inquiries of third parties on the subject of Y2K
readiness. If it did so, Samson has no ability to require responses to such
inquiries or to independently verify their accuracy. Samson has, however,
received oral assurances from its significant oil and gas purchasers of Y2K
compliance. If significant disruptions from major purchasers were to occur,
however, there could be a material and adverse impact on the Partnerships'
results of operations, liquidity, and financial conditions.
33
<PAGE>
It is important to note that third party oil and gas purchasers have
significant incentives to avoid disruptions arising from a Y2K failure. For
example, most of these parties are under contractual obligations to purchase oil
and gas or disperse revenues to Samson and other producers. The failure to do so
will result in contractual and statutory penalties. Therefore, the General
Partner believes that it is unlikely that there will be material third party
non-compliance with purchase and remittance obligations as a result of Y2K
issues.
4. Remediation. Where Samson perceives significant risk of Y2K
non-compliance that may have a material impact on it, and where the relationship
between Samson and a vendor, customer, or business partner permits, joint
testing may be undertaken during 1999 to further identify these risks.
5. Contingency Planning. In the unlikely event that material production
disruptions occur as a result of Y2K failures of third parties, the
Partnerships' operating cash flow could be impacted. This contingency will be
factored into deliberations on the level of quarterly cash distributions paid
out during any such period of cash flow disruption.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Partnerships do not hold any market risk sensitive instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are indexed in Item 14
hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER
The Partnerships have no directors or executive officers. The following
individuals are directors and executive officers of the General Partner. The
business address of such director and executive officers is Two West Second
Street, Tulsa, Oklahoma 74103.
34
<PAGE>
Name Age Position with Geodyne
---------------- --- --------------------------------
Dennis R. Neill 46 President and Director
Judy K. Fox 47 Secretary
The director will hold office until the next annual meeting of shareholders of
Geodyne and until his successor has been duly elected and qualified. All
executive officers serve at the discretion of the Board of Directors.
Dennis R. Neill joined Samson in 1981, was named Senior Vice President and
Director of Geodyne on March 3, 1993, and was named President of Geodyne and its
subsidiaries on June 30, 1996. Prior to joining Samson, he was associated with a
Tulsa law firm, Conner and Winters, where his principal practice was in the
securities area. He received a Bachelor of Arts degree in political science from
Oklahoma State University and a Juris Doctorate degree from the University of
Texas. Mr. Neill also serves as Senior Vice President of Samson Investment
Company and as President and Director of Samson Properties Incorporated, Samson
Hydrocarbons Company, Dyco Petroleum Corporation, Berry Gas Company, Circle L
Drilling Company, Snyder Exploration Company, and Compression, Inc.
Judy K. Fox joined Samson in 1990 and was named Secretary of Geodyne and
its subsidiaries on June 30, 1996. Prior to joining Samson, she served as Gas
Contract Manager for Ely Energy Company. Ms. Fox is also Secretary of Berry Gas
Company, Circle L Drilling Company, Compression, Inc., Dyco Petroleum
Corporation, Samson Hydrocarbons Company, Snyder Exploration Company, and Samson
Properties Incorporated.
Section 16(a) Beneficial Ownership Reporting Compliance
To the best knowledge of the Partnerships and the General Partner, there
were no officers, directors, or ten percent owners who were delinquent filers
during 1998 of reports required under Section 16 of the Securities Exchange Act
of 1934.
35
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The General Partner and its affiliates are reimbursed for actual general
and administrative costs and operating costs incurred and attributable to the
conduct of the business affairs and operations of the Partnerships, computed on
a cost basis, determined in accordance with generally accepted accounting
principles. Such reimbursed costs and expenses allocated to the Partnerships
include office rent, secretarial, employee compensation and benefits, travel and
communication costs, fees for professional services, and other items generally
classified as general or administrative expense. The amount of general and
administrative expense allocated to the General Partner and its affiliates and
charged to each Partnership during 1998, 1997, and 1996 is set forth in the
table below. Although the actual costs incurred by the General Partner and its
affiliates have fluctuated during the three years presented, the amounts charged
to the Partnerships have not fluctuated due to expense limitations imposed by
the Partnership Agreements.
Partnership 1998 1997 1996
----------- -------- -------- --------
P-7 $198,636 $198,636 $198,636
P-8 $122,280 $122,280 $122,280
None of the officers or directors of the General Partner receive
compensation directly from the Partnerships. The Partnerships reimburse the
General Partner or its affiliates for that portion of such officers' and
directors' salaries and expenses attributable to time devoted by such
individuals to the Partnerships' activities. The following tables indicate the
approximate amount of general and administrative expense reimbursement
attributable to the salaries of the directors, officers, and employees of the
General Partner and its affiliates during 1998, 1997, and 1996:
36
<PAGE>
<TABLE>
<CAPTION>
Salary Reimbursements
P-7 Partnership
---------------
Long Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
------------------------- --------------------- -------
Securi-
Other ties All
Name Annual Restricted Under- Other
and Compen- Stock lying LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) ($) ($) SARs(#) ($) ($)
- --------------- ---- ------- ------- ------- ---------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
C. Philip
Tholen,
President,
Chief Executive
Officer(1)(2) 1996 - - - - - - -
Dennis R. Neill,
President(2)(3) 1996 - - - - - - -
1997 - - - - - - -
1998 - - - - - - -
All Executive
Officers,
Directors,
and Employees
as a group(4) 1996 $116,202 - - - - - -
1997 $118,665 - - - - - -
1998 $117,553 - - - - - -
- ----------
(1) Mr. Tholen served as President and Chief Executive Officer of Geodyne until July 1 1996.
(2) The general and administrative expenses paid by the P-7 Partnership and
attributable to salary reimbursements do not include any salary or other
compensation attributable to Mr. Tholen or Mr. Neill.
(3) Mr. Neill became President of Geodyne on July 1 1996.
(4) No officer or director of Geodyne or its affiliates provides full-time
services to the P-7 Partnership and no individual's salary or other
compensation reimbursement from the P-7 Partnership equals or exceeds
$100,000 per annum.
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Salary Reimbursements
P-8 Partnership
---------------
Long Term Compensation
-------------------------------
Annual Compensation Awards Payouts
------------------------- --------------------- -------
Securi-
Other ties All
Name Annual Restricted Under- Other
and Compen- Stock lying LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) ($) ($) SARs(#) ($) ($)
- --------------- ---- ------- ------- ------- ---------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
C. Philip
Tholen,
President,
Chief Executive
Officer(1)(2) 1996 - - - - - - -
Dennis R. Neill,
President(2)(3) 1996 - - - - - - -
1997 - - - - - - -
1998 - - - - - - -
All Executive
Officers,
Directors,
and Employees
as a group(4) 1996 $71,534 - - - - - -
1997 $73,050 - - - - - -
1998 $72,365 - - - - - -
- ----------
(1) Mr. Tholen served as President and Chief Executive Officer of Geodyne until July 1 1996.
(2) The general and administrative expenses paid by the P-8 Partnership and
attributable to salary reimbursements do not include any salary or other
compensation attributable to Mr. Tholen or Mr. Neill.
(3) Mr. Neill became President of Geodyne on July 1 1996.
(4) No officer or director of Geodyne or its affiliates provides full-time
services to the P-8 Partnership and no individual's salary or other
compensation reimbursement from the P-8 Partnership equals or exceeds
$100,000 per annum.
</TABLE>
38
<PAGE>
Affiliates of the Partnerships serve as operator of some of the wells in
which the Partnerships own a Net Profits Interest. The owners of the working
interests in these wells contract with such affiliates for services as operator
of the wells. As operator, such affiliates are compensated at rates provided in
the operating agreements in effect and charged to all parties to such agreement.
Such compensation may occur both prior and subsequent to the commencement of
commercial marketing of production of oil or gas. The dollar amount of such
compensation which burdens the Partnerships' Net Profits Interests is impossible
to quantify as of the date of this Annual Report.
Samson maintains necessary inventories of new and used field equipment.
Samson may have provided some of this equipment for wells in which the
Partnerships have a Net Profits Interest. This equipment was provided at prices
or rates equal to or less than those normally charged in the same or comparable
geographic area by unaffiliated persons or companies dealing at arm's length.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information as to the beneficial ownership of
the Units as of February 1, 1999 by (i) each beneficial owner of more than five
percent of the issued and outstanding Units, (ii) the director and officers of
the General Partner, and (iii) the General Partner and its affiliates. The
address of the General Partner, its officers and director, and Samson Resources
Company is Samson Plaza, Two West Second Street, Tulsa, Oklahoma 74103.
Number of Units
Beneficially
Owned (Percent
Beneficial Owner of Outstanding)
- ------------------------------------------ -------------------
P-7 Partnership:
- ---------------
Samson Resources Company 16,158 ( 8.6%)
ATL, Inc. 54,896 (29.1%)
1200 Harbor Boulevard, 5th Floor
Weehawken, NJ 07087
All affiliates, directors, and officers of
the General Partner as a group and the
General Partner (4 persons) 16,158 ( 8.6%)
39
<PAGE>
P-8 Partnership:
- ---------------
Samson Resources Company 18,920 (16.3%)
All affiliates, directors, and officers of
the General Partner as a group and the
General Partner (4 persons) 18,920 (16.3%)
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The General Partner and certain of its affiliates engage in oil and gas
activities independently of the Partnerships which result in conflicts of
interest that cannot be totally eliminated. The allocation of acquisition
opportunities and the nature of the compensation arrangements between the
Partnerships and the General Partner also create potential conflicts of
interest. An affiliate of the Partnerships owns some of the Partnerships' Units
and therefore has an identity of interest with other Limited Partners with
respect to the operations of the Partnerships.
In order to attempt to assure limited liability for the Limited Partners
as well as an orderly conduct of business, management of the Partnerships is
exercised solely by the General Partner. The Partnership Agreements grant the
General Partner broad discretionary authority with respect to the Partnerships'
expenditure and control of funds, including borrowings. These provisions are
similar to those contained in prospectuses and partnership agreements for other
public oil and gas partnerships. Broad discretion as to general management of
the Partnerships involves circumstances where the General Partner has conflicts
of interest and where it must allocate costs and expenses, or opportunities,
among the Partnerships and other competing interests.
The General Partner does not devote all of its time, efforts, and
personnel exclusively to the Partnerships. Furthermore, the Partnerships do not
have any employees, but instead rely on the personnel of Samson. The
Partnerships thus compete with Samson (including other oil and gas partnerships)
for the time and resources of such personnel. Samson devotes such time and
personnel to the management of the Partnerships as are indicated by the
circumstances and as are consistent with the General Partner's fiduciary duties.
Affiliates of the Partnerships operate certain wells in which the
Partnerships have a Net Profits Interest and are compensated for such services
at rates comparable to charges of unaffiliated third parties for services in the
same geographic area. These costs are charged to the owners of the working
interest of such wells and are considered when calculating the
40
<PAGE>
Net Profits Interest payable to the Partnerships. These costs are thus
indirectly borne by the Partnership.
Affiliates of the Partnerships are solely responsible for the negotiation,
administration, and enforcement of oil and gas sales agreements covering the
leasehold interests in which the Partnerships hold net profits or royalty
interests. Because affiliates of the Partnerships who provide services to the
owners of the Working Interests have fiduciary or other duties to other members
of Samson, contract amendments and negotiating positions taken by them in their
effort to enforce contracts with purchasers may not necessarily represent the
positions that the owners of such Working Interests would take if they were to
administer their own contracts without involvement with other members of Samson.
On the other hand, management believes that the negotiating strength and
contractual positions of the owners of such Working Interests have been enhanced
by virtue of their affiliation with Samson.
41
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules, and Exhibits:
(1) Financial Statements: The following financial statements for the
Geodyne Institutional/Pension Energy Income Limited Partnership
P-7 and the Geodyne Institutional/Pension Energy Income Limited
Partnership P-8 as of December 31, 1998 and 1997 and for the
three years ended December 31, 1998 are filed as part of this
report:
Report of Independent Accountants
Balance Sheets
Statements of Operations
Statements of Changes in Partners'
Capital (Deficit)
Statements of Cash Flows
Notes to Financial Statements
(2) Financial Statement Schedules:
None.
(3) Exhibits:
4.1 The Certificate and Agreements of Limited Partnership for
the following Partnerships have been previously filed with
the SEC as an Exhibit to Form 8-A filed by each Partnership
on the dates shown below and are hereby incorporated by
reference.
Partnership Filing Date File No.
----------- ----------- --------
P-7 June 1, 1992 0-20265
P-8 June 1, 1992 0-20264
4.2 Second Amendment to Agreement of Limited Partnership of
Geodyne Institutional/Pension Energy Income Limited
Partnership P-7, filed as Exhibit 4.1 to Registrants'
Current Report on Form 8-K dated August 2, 1993 filed with
the SEC on August 10, 1993 and is hereby incorporated by
reference.
42
<PAGE>
4.3 Second Amendment to Agreement of Limited Partnership of
Geodyne Institutional/Pension Energy Income Limited
Partnership P-8, filed as Exhibit 4.2 to Registrants'
Current Report on Form 8-K dated August 2, 1993 filed with
the SEC on August 10, 1993 and is hereby incorporated by
reference.
4.4 Third Amendment to Agreement of Limited Partnership of
Geodyne Institutional/Pension Energy Income Limited
Partnership P-7, filed as Exhibit 4.5 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995
filed with the SEC on April 1, 1996 and is hereby
incorporated by reference.
4.5 Third Amendment to Agreement of Limited Partnership of
Geodyne Institutional/Pension Energy Income Limited
Partnership P-8, filed as Exhibit 4.6 to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1995
filed with the SEC on April 1, 1996 and is hereby
incorporated by reference.
* 23.1 Consent of Ryder Scott Company, Petroleum Engineers for the
Geodyne Institutional/ Pension Energy Income Limited
Partnership P-7.
* 23.2 Consent of Ryder Scott Company, Petroleum Engineers for the
Geodyne Institutional/ Pension Energy Income Limited
Partnership P-8.
* 27.1 Financial Data Schedule containing summary financial
information extracted from the Geodyne Institutional /
Pension Energy Income Limited Partnership P-7's financial
statements as of December 31, 1998 and for the year ended
December 31. 1998.
* 27.2 Financial Data Schedule containing summary financial
information extracted from the Geodyne Institutional /
Pension Energy Income Limited Partnership P-8's financial
statements as of December 31, 1998 and for the year ended
December 31. 1998.
All other Exhibits are omitted as inapplicable.
----------
*Filed herewith.
43
<PAGE>
(b) Reports on Form 8-K filed during the fourth quarter of 1998:
None.
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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 organized.
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-7
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-8
By: GEODYNE RESOURCES, INC.
General Partner
February 19, 1999
By: /s/Dennis R. Neill
------------------------------
Dennis R. Neill
President
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 on the dates indicated.
By: /s/Dennis R. Neill President and February 19, 1999
------------------- Director (Principal
Dennis R. Neill Executive Officer)
/s/Patrick M. Hall (Principal February 19, 1999
------------------- Financial and
Patrick M. Hall Accounting Officer)
/s/Judy K. Fox Secretary February 19, 1999
-------------------
Judy K. Fox
45
<PAGE>
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE PARTNERS
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-7
In our opinion, the accompanying balance sheets and the related statements
of operations, changes in partners' capital (deficit) and cash flows present
fairly, in all material respects, the financial position of the Geodyne
Institutional/Pension Energy Income Limited Partnership P-7, an Oklahoma limited
partnership, at December 31, 1998 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles. 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 of these financial statements in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Tulsa, Oklahoma
February 5, 1999
F-1
<PAGE>
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-7
Balance Sheets
December 31, 1998 and 1997
ASSETS
------
1998 1997
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 222,925 $ 517,144
Accounts receivable:
Net Profits 270,901 -
--------- ---------
Total current assets $ 493,826 $ 517,144
NET PROFITS INTERESTS, net, utilizing
the successful efforts method 2,383,851 5,190,377
--------- ---------
$2,877,677 $5,707,521
========= =========
PARTNERS' CAPITAL (DEFICIT)
---------------------------
CURRENT LIABILITIES
Accounts Payable -
Net Profits $ - $ 6,697
PARTNERS' CAPITAL (DEFICIT):
General Partner ($ 129,429) ($ 119,241)
Limited Partners, issued and
outstanding 188,702 Units 3,007,106 5,820,065
--------- ---------
Total Partners' capital $2,877,677 $5,700,824
--------- ---------
$2,877,677 $5,707,521
========= =========
The accompanying notes are an integral
part of these financial statements
F-2
<PAGE>
<TABLE>
<CAPTION>
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-7
Statements of Operations
For the Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Net Profits $1,447,786 $2,071,410 $2,189,073
Interest and other income 11,228 20,672 16,123
Gain on sale of
Net Profits Interests 148,737 190,985 192,767
--------- --------- ---------
$1,607,751 $2,283,067 $2,397,963
COSTS AND EXPENSES:
Depletion of Net
Profits Interests $1,312,317 $ 793,864 $1,071,822
Impairment provision 1,664,601 1,474,823 -
General and administrative 221,826 226,583 226,523
--------- --------- ---------
$3,198,744 $2,495,270 $1,298,345
--------- --------- ---------
NET INCOME (LOSS) ($1,590,993) ($ 212,203) $1,099,618
========= ========= =========
GENERAL PARTNER - NET INCOME $ 38,966 $ 79,104 $ 97,048
========= ========= =========
LIMITED PARTNERS - NET
INCOME (LOSS) ($1,629,959) ($ 291,307) $1,002,570
========= ========= =========
NET INCOME (LOSS) per Unit ($ 8.64) ($ 1.54) $ 5.31
========= ========= =========
UNITS OUTSTANDING 188,702 188,702 188,702
========= ========= =========
The accompanying notes are an integral
part of these financial statements
</TABLE>
F-3
<PAGE>
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-7
Statements of Changes in Partners' Capital (Deficit)
For the Years Ended December 31, 1998, 1997 and 1996
Limited General
Partners Partner Total
------------- ---------- -------------
Balance, Dec. 31, 1995 $ 9,020,802 ($ 45,524) $ 8,975,278
Net income 1,002,570 97,048 1,099,618
Cash distributions ( 1,602,000) ( 143,766) ( 1,745,766)
---------- ------- ----------
Balance, Dec. 31, 1996 $ 8,421,372 ($ 92,242) $ 8,329,130
Net income (loss) ( 291,307) 79,104 ( 212,203)
Cash distributions ( 2,310,000) ( 106,103) ( 2,416,103)
---------- ------- ----------
Balance, Dec. 31, 1997 $ 5,820,065 ($119,241) $ 5,700,824
Net income (loss) ( 1,629,959) 38,966 ( 1,590,993)
Cash distributions ( 1,183,000) ( 49,154) ( 1,232,154)
---------- ------- ----------
Balance, Dec. 31, 1998 $ 3,007,106 ($129,429) $ 2,877,677
========== ======= ==========
The accompanying notes are an integral
part of these financial statements
F-4
<PAGE>
<TABLE>
<CAPTION>
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-7
Statements of Cash Flows
For the Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) ($1,590,993) ($ 212,203) $1,099,618
Adjustments to reconcile
net income (loss) to net
cash provided by operating
activities:
Depletion of Net
Profits Interests 1,312,317 793,864 1,071,822
Impairment provision 1,664,601 1,474,823 -
Gain on sale of
Net Profits Interests ( 148,737) ( 190,985) ( 192,767)
(Increase) decrease in
accounts receivable ( 270,901) 364,612 ( 55,168)
Increase (decrease) in
accounts payable ( 6,697) 6,697 -
--------- --------- ---------
Net cash provided by
operating activities $ 959,590 $2,236,808 $1,923,505
--------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures ($ 202,852) ($ 258,702) ($ 254,128)
Proceeds from sale of
Net Profits Interests 181,197 311,726 449,686
--------- --------- ---------
Net cash provided (used) by
investing activities ($ 21,655) $ 53,024 $ 195,558
--------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Cash distributions ($1,232,154) ($2,416,103) ($1,745,766)
--------- --------- ---------
Net cash used by
financing activities ($1,232,154) ($2,416,103) ($1,745,766)
--------- --------- ---------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS ($ 294,219) ($ 126,271) $ 373,297
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 517,144 643,415 270,118
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 222,925 $ 517,144 $ 643,415
========= ========= =========
The accompanying notes are an integral
part of these financial statements
</TABLE>
F-5
<PAGE>
F-6
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE PARTNERS
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-8
In our opinion, the accompanying balance sheets and the related statements
of operations, changes in partners' capital (deficit) and cash flows present
fairly, in all material respects, the financial position of the Geodyne
Institutional/Pension Energy Income Limited Partnership P-8, an Oklahoma limited
partnership, at December 31, 1998 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Partnerships' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Tulsa, Oklahoma
February 5, 1999
F-6
<PAGE>
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-8
Balance Sheets
December 31, 1998 and 1997
ASSETS
------
1998 1997
------------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 180,865 $ 382,448
Accounts receivable:
Net Profits 116,632 57,019
--------- ---------
Total current assets $ 297,497 $ 439,467
NET PROFITS INTERESTS, net, utilizing
the successful efforts method 1,377,939 2,756,057
--------- ---------
$1,675,436 $3,195,524
========= =========
PARTNERS' CAPITAL (DEFICIT)
---------------------------
PARTNERS' CAPITAL (DEFICIT):
General Partner ($ 64,852) ($ 56,764)
Limited Partners, issued and
outstanding 116,168 Units 1,740,288 3,252,288
--------- ---------
Total Partners' capital $1,675,436 $3,195,524
========= =========
The accompanying notes are an integral
part of these financial statements
F-7
<PAGE>
<TABLE>
<CAPTION>
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-8
Statements of Operations
For the Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996
------------ ----------- ------------
<S> <C> <C> <C>
REVENUES:
Net Profits $ 831,611 $1,552,581 $1,322,349
Interest and other income 9,731 16,056 9,693
Gain on sale of
Net Profits Interests 102,195 124,010 75,987
--------- --------- ---------
$ 943,537 $1,692,647 $1,408,029
COSTS AND EXPENSES:
Depletion of Net
Profits Interests $ 681,828 $ 414,983 $ 758,944
Impairment provision 798,075 1,052,542 -
General and administrative 136,571 139,407 139,503
--------- --------- ---------
$1,616,474 $1,606,932 $ 898,447
--------- --------- ---------
NET INCOME (LOSS) ($ 672,937) $ 85,715 $ 509,582
========= ========= =========
GENERAL PARTNER -
NET INCOME $ 25,063 $ 62,184 $ 55,352
========= ========= =========
LIMITED PARTNERS - NET INCOME
(LOSS) ($ 698,000) $ 23,531 $ 454,230
========= ========= =========
NET INCOME (LOSS) per Unit ($ 6.01) $ .20 $ 3.91
========= ========= =========
UNITS OUTSTANDING 116,168 116,168 116,168
========= ========= =========
The accompanying notes are an integral
part of these financial statements
</TABLE>
F-8
<PAGE>
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-8
Statements of Changes in Partners' Capital (Deficit)
For the Years Ended December 31, 1998, 1997 and 1996
Limited General
Partners Partner Total
------------- ---------- ------------
Balance, Dec. 31, 1995 $5,293,527 ($20,601) $5,272,926
Net income 454,230 55,352 509,582
Cash distributions ( 966,000) ( 89,066) ( 1,055,066)
--------- ------ ---------
Balance, Dec. 31, 1996 $4,781,757 ($54,315) $4,727,442
Net income 23,531 62,184 85,715
Cash distributions ( 1,553,000) ( 64,633) ( 1,617,633)
--------- ------ ---------
Balance, Dec. 31, 1997 $3,252,288 ($56,764) $3,195,524
Net income (loss) ( 698,000) 25,063 ( 672,937)
Cash distributions ( 814,000) ( 33,151) ( 847,151)
--------- ------ ---------
Balance, Dec. 31, 1998 $1,740,288 ($64,852) $1,675,436
========= ====== =========
The accompanying notes are an integral
part of these financial statements
F-9
<PAGE>
<TABLE>
<CAPTION>
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-8
Statements of Cash Flows
For the Years Ended December 31, 1998, 1997, and 1996
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) ($672,937) $ 85,715 $ 509,582
Adjustments to reconcile
net income (loss) to net
cash provided by operating
activities:
Depletion of Net
Profits Interests 681,828 414,983 758,944
Impairment provision 798,075 1,052,542 -
Gain on sale of
Net Profits Interests ( 102,195) ( 124,010) ( 75,987)
(Increase) decrease in
accounts receivable ( 59,613) 31,213 48,645
------- --------- ---------
Net cash provided by
operating activities $645,158 $1,460,443 $1,241,184
------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures ($118,875) ($ 147,601) ($ 138,834)
Proceeds from sale of
Net Profits Interests 119,285 199,176 232,460
------- --------- ---------
Net cash provided by
investing activities $ 410 $ 51,575 $ 93,626
------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Cash distributions ($847,151) ($1,617,633) ($1,055,066)
------- --------- ---------
Net cash used by
financing activities ($847,151) ($1,617,633) ($1,055,066)
------- --------- ---------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS ($201,583) ($ 105,615) $ 279,744
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 382,448 488,063 208,319
------- --------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $180,865 $ 382,448 $ 488,063
======= ========= =========
The accompanying notes are an integral
part of these financial statements
</TABLE>
F-10
<PAGE>
GEODYNE INSTITUTIONAL/PENSION
ENERGY INCOME PROGRAM II LIMITED PARTNERSHIPS
Notes to the Financial Statements
For the Years Ended December 31, 1998, 1997 and 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
The Geodyne Institutional/Pension Energy Income Limited Partnerships (the
"Partnerships") were formed pursuant to a public offering of depositary units
("Units"). Upon formation, investors became limited partners (the "Limited
Partners") and held Units issued by each Partnership. Geodyne Resources, Inc.
("Geodyne") is the general partner of each of the Partnerships. Limited
Partners' capital contributions were invested in net profits interests, royalty
interests, and other nonoperating interests in producing oil and gas properties.
Most of the net profits interests acquired by the Partnerships have been carved
out of working interests in producing properties, located in the continental
United States, which were acquired by affiliated oil and gas investment programs
or other affiliates (the "Affiliated Programs").
Net profits interests entitle the Partnerships to a share of net revenues
from producing properties measured by a specific percentage of the net profits
realized by such Affiliated Programs as owners of the working interests in the
producing properties. Except where otherwise noted, references to certain
operational activities of the Partnerships are actually the activities of the
Affiliated Programs. As the holder of a net profits interest, a Partnership is
not liable to pay any amount by which oil and gas operating costs and expenses
exceed revenues for any period, although any deficit, together with interest, is
applied to reduce the amounts payable to the Partnership in subsequent periods.
As used in these financial statements, the Partnerships' net profits and royalty
interests in oil and gas sales are referred to as "Net Profits" and the
Partnerships' net profits and royalty interests in oil and gas properties are
referred to as "Net Profits Interests." The Partnerships do not directly bear
capital costs. However, the Partnerships indirectly bear certain capital costs
incurred by the Affiliated Programs to the extent such capital costs are charged
against the applicable oil and gas revenues in calculating the net profits
payable to the Partnerships. For financial reporting purposes only, such capital
costs are reported as capital expenditures in the Partnerships' Statements of
Cash Flows.
The P-7 and P-8 Partnerships were activated February 28, 1992 with Limited
Partner capital contributions of $18,870,200 and $11,616,800 respectively. The
Partnerships will terminate on February 28, 2002 in accordance with the
partnership agreement for each Partnership (the "Partnership Agreement").
However, the
F-11
<PAGE>
General Partner may extend the term of each Partnership for up to five periods
of two years each. As of the date of these financial statements, the General
Partner has not determined whether to extend the term of any Partnership.
An affiliate of the General Partner owned 16,158 (8.6%) and 18,920 (16.3%)
of the P-7 and P-8 Partnerships' Units, respectively, at December 31, 1998.
The Partnerships' sole business is owning Net Profits Interests in oil and
gas properties. Substantially all of the gas reserves attributable to the
Partnerships' Net Profits Interests are being sold regionally on the "spot
market." Due to the highly competitive nature of the spot market, prices on the
spot market are subject to wide seasonal and regional pricing fluctuations. In
addition, such spot market sales are generally short-term in nature and are
dependent upon the obtaining of transportation services provided by pipelines.
The Partnerships' oil is sold at or near the Partnerships' wells under
short-term purchase contracts at prevailing arrangements which are customary in
the oil industry. The prices received for the Partnerships' oil and gas are
subject to influences such as global consumption and supply trends. In 1998, the
price of oil decreased to historically low levels. If the price of oil remains
low, or if it decreases further, there may be a significant impact on the
Partnerships' near-term results of operations and cash flows.
Allocation of Costs and Revenues
Each Partnership Agreement allocates costs and income between the Limited
Partners and General Partner as follows:
Before Payout(1) After Payout(1)
----------------- -----------------
General Limited General Limited
Partner Partners Partner Partners
------- -------- ------- --------
Costs
- -------------------------
Sales commissions, payment
for organization and
offering costs and
acquisition fee 1% 99% - -
Property Acquisition Costs 1% 99% 1% 99%
General and administrative
costs and direct
administrative costs(2) 5% 95% 15% 85%
F-12
<PAGE>
Income
- -------------------------
Temporary investments of
Limited Partners'
Subscriptions 1% 99% 1% 99%
Income from oil and
gas production(2) 5% 95% 15% 85%
Gain on sale of Net Profits
Interests(2) 5% 95% 15% 85%
All other income(2) 5% 95% 15% 85%
- ----------
(1) Payout occurs when total distributions to Limited Partners equal total
original Limited Partner subscriptions.
(2) If, at payout, the total distributions received by the Limited Partners
from the commencement of the property investment period have averaged on
an annualized basis an amount that is less than 12% of the Limited
Partners' subscriptions, the percentage of income, and costs which are
shared in the same proportions as income, allocated to the General Partner
will increase to only 10% and the Limited Partners will be allocated 90%
thereof until such time, if ever, that the distributions to the Limited
Partners from the commencement of the property investment period reaches a
yearly average equal to at least 12% of the Limited Partners'
subscriptions. Thereafter, income, and costs shared in the same
proportions as income, will be allocated 15% to the General Partner and
85% to the Limited Partners.
Cash and Cash Equivalents
The Partnerships consider all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash equivalents are
not insured, which cause the Partnerships to be subject to risk.
Credit Risk
Accrued oil and gas sales, which are included in the Partnerships'
accounts receivable-Net Profits, are due from a variety of oil and gas
purchasers and, therefore, indirectly subject the Partnerships to a
concentration of credit risk. Some of these purchasers are discussed in Note 3 -
Major Customers.
Net Profits Interests
The Partnerships follow the successful efforts method of accounting for
their Net Profits Interests. Under the successful efforts method, the
Partnerships capitalize all acquisition costs. Such acquisition costs include
costs incurred by the
F-13
<PAGE>
Partnerships or the General Partner to acquire a Net Profits Interest, including
related title insurance or examination costs, commissions, engineering, legal
and accounting fees, and similar costs directly related to the acquisitions plus
an allocated portion of the General Partner's property screening costs. The net
acquisition cost to the Partnerships of the Net Profits Interests in properties
acquired by the General Partner consists of the cost of acquiring the underlying
properties adjusted for the net cash results of operations, including any
interest incurred to finance the acquisition, for the period of time the
properties are held by the General Partner. Impairment of Net Profits Interests
in unproved oil and gas properties is recognized based upon an individual
property assessment. Upon discovery of commercial reserves, net profits
interests in unproved properties are transferred to producing properties.
Depletion of the cost of Net Profits Interests is computed on the
units-of-production method. The Partnerships' calculation of depletion of its
Net Profits Interests includes estimated dismantlement and abandonment costs,
net of estimated salvage values related to the underlying properties in which
the Partnership has a Net Profits Interest. The depletion rates per equivalent
barrel of oil produced during the years ended December 31, 1998, 1997, and 1996
were as follows:
Partnership 1998 1997 1996
----------- ----- ----- -----
P-7 $7.13 $3.50 $4.20
P-8 5.72 2.83 4.64
The Partnerships evaluate the recoverability of the carrying costs of
their Net Profits Interests in proved oil and gas properties at the field level.
If the unamortized costs of a Net Profits Interest within a field exceeds the
expected undiscounted future cash flows from such Net Profits Interest, the cost
of the Net Profits Interest is written down to fair value, which is determined
by using the discounted future cash flows from the Net Profits Interest. During
1998, 1997, and 1996, the Partnerships recorded the following non-cash charges
against earnings (impairment provisions):
Partnership 1998 1997 1996
----------- ---------- -------- --------
P-7 $1,664,601 $686,260 $ -
P-8 798,075 650,465 -
The risk that the Partnerships will be required to record similar impairment
provisions in the future increases as oil and gas prices decrease.
F-14
<PAGE>
In addition, during 1997 the General Partner determined that the
Partnerships' Net Profits Interests in unproved properties would be uneconomic
to develop and, therefore, of little or no value. This determination was based
on an evaluation by the General Partner that it was unlikely that the unproved
properties would be developed due to low oil and gas prices and Partnership
Agreement provisions which limit the Partnerships' level of permissible indirect
drilling activity through their Affiliated Programs. As a result, the
Partnerships recorded the following non-cash charges against earnings at March
31, 1997 in order to reflect the writing-off of the Partnerships' Net Profits
Interests in unproved properties:
Partnership Amount
----------- ----------
P-7 $ 788,563
P-8 402,077
Accounts Receivable (Accounts Payable) - Net Profits
Revenues from a Net Profits Interest consist of a share of the oil and gas
sales of the property, less operating and production expenses. The Partnerships
accrue for oil and gas revenues less expenses from the Net Profits Interests.
Sales of gas applicable to the Net Profits Interests are recorded as revenue
when the gas is metered and title transferred pursuant to the gas sales
contracts. During such times as sales of gas exceed a Partnership's pro rata Net
Profits Interest in a well, such sales are recorded as revenue unless total
sales from the well have exceeded the Partnership's share of estimated total gas
reserves attributable to the underlying property, at which time such excess is
recorded as a liability. The rates per Mcf used to calculate this liability are
based on the average gas price received for the volumes at the time the
overproduction occurred. This also approximates the price for which the
Partnerships are currently settling this liability. This liability is recorded
as a reduction of accounts receivable.
Also included in accounts receivable (accounts payable)- Net Profits are
amounts which represent costs deferred or accrued for Net Profits relating to
lease operating expenses incurred in connection with the net underproduced or
overproduced gas imbalance positions. The rate used in calculating the deferred
charge or accrued liability is the average of the annual production costs per
Mcf.
F-15
<PAGE>
General and Administrative Overhead
The General Partner and its affiliates are reimbursed for actual general
and administrative costs incurred and attributable to the conduct of the
business affairs and operations of the Partnerships.
Use of Estimates in Financial Statements
The preparation of 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 reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Further,
accounts receivable (payable) - Net Profits includes accrued liabilities,
accrued lease operating expenses, and deferred lease operating expenses related
to gas balancing which involve estimates that could materially differ from the
actual amounts ultimately realized or incurred in the near term. Oil and gas
reserves (see Note 4) also involve significant estimates which could materially
differ from the actual amounts ultimately realized.
Income Taxes
Income or loss for income tax purposes is includable in the income tax
returns of the partners. Accordingly, no recognition has been given to income
taxes in these financial statements.
2. TRANSACTIONS WITH RELATED PARTIES
The Partnerships reimburse the General Partner for the general and
administrative overhead applicable to the Partnerships based on an allocation of
actual costs incurred by the General Partner. When costs incurred benefit other
Partnerships and affiliates, the allocation of costs is based on the
relationship of the Partnerships' reserves to the total reserves owned by all
Partnerships and affiliates. The General Partner believes this allocation method
is reasonable. Although the actual costs incurred by the General Partner and its
affiliates have fluctuated during the three years presented, the amounts charged
to the Partnerships have not fluctuated due to expense limitations imposed by
the Partnership Agreements. The following is a summary of payments made to the
General Partner or its affiliates by the Partnerships for general and
administrative overhead costs for the years ended December 31, 1998, 1997, and
1996:
F-16
<PAGE>
Partnership 1998 1997 1996
----------- -------- -------- --------
P-7 $198,636 $198,636 $198,636
P-8 122,280 122,280 122,280
Affiliates of the Partnerships operate certain of the properties in which
the Partnerships own a Net Profits Interest and their policy is to bill the
owners of the working interests of such properties for all customary charges and
cost reimbursements associated with these activities, together with any
compressor rentals, consulting, or other services provided. Such charges are
comparable to third party charges in the area where the wells are located and
are the same as charged to other working interest owners in the wells.
3. MAJOR CUSTOMERS
The following table sets forth purchasers who individually accounted for
ten percent or more of the combined oil and gas sales attributable to each of
the Partnership's Net Profits Interests during the years ended December 31,
1998, 1997, and 1996:
Partnership Purchaser Percentage
----------- ---------------------- -------------------
1998 1997 1996
----- ----- -----
P-7 National Cooperative
Refinery Association
("NCRA") 23.3% 27.1% 27.4%
Scurlock Permian Corp.
("Scurlock") 14.4% 15.8% 13.6%
El Paso Energy Marketing
Company ("El Paso") - - % 12.3%
P-8 NCRA 22.2% 25.8% 26.3%
El Paso 13.0% - % 12.5%
Scurlock 11.8% 12.8% 11.4%
In the event of interruption of purchases by one or more of these
significant customers or the cessation or material change in availability of
open access transportation by pipeline transporters, the Partnerships may
encounter difficulty in marketing gas and in maintaining historic sales levels.
Alternative purchasers or transporters may not be readily available.
F-17
<PAGE>
4. SUPPLEMENTAL OIL AND GAS INFORMATION
The following supplemental information regarding the Net Profits Interest
activities of the Partnerships is presented pursuant to the disclosure
requirements promulgated by the SEC.
Capitalized Costs
Capitalized costs and accumulated depletion and valuation allowance at
December 31, 1998 and 1997 were as follows:
P-7 Partnership
---------------
1998 1997
------------- -------------
Net Profits Interests in proved
oil and gas properties $14,492,319 $14,721,121
Accumulated depletion and
valuation allowance ( 12,108,468) ( 9,530,744)
---------- ----------
Net Profits Interests, net $ 2,383,851 $ 5,190,377
========== ==========
P-8 Partnership
---------------
1998 1997
------------ ------------
Net Profits Interests in proved
oil and gas properties $8,685,918 $8,855,139
Accumulated depletion and
valuation allowance ( 7,307,979) ( 6,099,082)
--------- ---------
Net Profits Interests, net $1,377,939 $2,756,057
========= =========
Costs Incurred
The following table sets forth the development costs related to the
Working Interests which are burdened by the Partnerships' Net Profits Interests
during the years ended December 31, 1998, 1997, and 1996. Since these
development costs were charged against the Net Profits payable to the
Partnerships, such development costs were indirectly borne by the Partnerships.
No
F-18
<PAGE>
acquisition or exploration costs were incurred during the same periods.
Partnership 1998 1997 1996
------------ -------- -------- --------
P-7 $202,852 $258,702 $254,128
P-8 118,875 147,601 138,834
Quantities of Proved Oil and Gas Reserves - Unaudited
The following table summarizes changes in net quantities of proved
reserves attributable to the Partnerships' Net Profits Interests, all of which
are located in the United States, for the periods indicated. The proved reserves
were estimated by petroleum engineers employed by affiliates of the
Partnerships. Certain reserve information was reviewed by Ryder Scott Company
Petroleum Engineers, an independent petroleum engineering firm. The following
information includes certain gas balancing adjustments which cause the gas
volumes to differ from the reserve reports prepared by the General Partner and
reviewed by the Ryder Scott.
F-19
<PAGE>
<TABLE>
<CAPTION>
P-7 Partnership P-8 Partnership
----------------------------- -----------------------------
Crude Natural Crude Natural
Oil Gas Oil Gas
(Barrels) (Mcf) (Barrels) (Mcf)
----------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Proved reserves, December 31, 1995 1,210,363 6,828,961 696,974 4,249,963
Production ( 138,204) ( 702,019) ( 80,477) ( 499,493)
Sales of minerals in place ( 40,408) ( 96,649) ( 20,978) ( 54,473)
Extensions and discoveries 72,711 66,390 39,026 46,308
Revisions of previous
estimates 61,094 (2,227,387) 35,363 (1,204,343)
--------- --------- ------- ---------
Proved reserves, December 31, 1996 1,165,556 3,869,296 669,908 2,537,962
Production ( 120,178) ( 641,756) ( 71,117) ( 451,812)
Sales of minerals in place ( 52,311) ( 144,752) ( 28,285) ( 83,048)
Extensions and discoveries 3,560 8,251 2,248 13,492
Revisions of previous
estimates 3,846 246,436 ( 1,277) 177,504
--------- --------- ------- ---------
Proved reserves, December 31, 1997 1,000,473 3,337,475 571,477 2,194,098
Production ( 98,774) ( 511,563) ( 58,417) ( 364,998)
Sales of minerals in place ( 427) ( 90,022) ( 498) ( 55,433)
Extensions and discoveries 15,177 432,900 9,644 257,165
Revisions of previous
estimates ( 392,952) 550,527 (223,511) 599,114
--------- --------- ------- ---------
Proved reserves, December 31, 1998 523,497 3,719,317 298,695 2,629,946
========= ========= ======= =========
PROVED DEVELOPED RESERVES:
December 31, 1996 1,165,556 3,869,296 669,889 2,537,755
========= ========= ======= =========
December 31, 1997 1,000,473 3,337,475 571,458 2,193,891
========= ========= ======= =========
December 31, 1998 523,497 3,719,317 298,676 2,629,739
========= ========= ======= =========
</TABLE>
F-20
<PAGE>
Standardized Measure of Discounted Future Net Cash Flows of Proved Oil and
Gas Reserves - Unaudited
The following summary sets forth the estimated future net cash flows as of
December 31, 1998 relating to the proved reserves attributable to the
Partnerships' Net Profits Interest based on the standardized measure as
prescribed in SFAS No. 69:
P-7 Partnership P-8 Partnership
--------------- ---------------
Future cash inflows $12,825,053 $ 8,437,465
Future production and
development costs ( 6,198,826) ( 3,842,928)
---------- ----------
Future net cash flows $ 6,626,227 $ 4,594,537
10% discount to reflect
timing of cash flows ( 2,911,540) ( 1,975,869)
---------- ----------
Standardized measure of
discounted future
net cash flows $ 3,714,687 $ 2,618,668
========== ==========
The process of estimating oil and gas reserves is complex, requiring significant
subjective decisions in the evaluation of available geological, engineering, and
economic data for each reservoir. The data for a given reservoir may change
substantially over time as a result of, among other things, additional
development activity, production history, and viability of production under
varying economic conditions; consequently, it is reasonably possible that
material revisions to existing reserve estimates may occur in the near future.
Although every reasonable effort has been made to ensure that the reserve
estimates reported herein represent the most accurate assessment possible, the
significance of the subjective decisions required and variances in available
data for various reservoirs make these estimates generally less precise than
other estimates presented in connection with financial statement disclosures.
The Partnerships' reserves were determined at December 31, 1998 using oil and
gas prices of approximately $9.50 per barrel and $2.03 per Mcf, respectively.
F-21
<PAGE>
INDEX TO EXHIBITS
-----------------
Number Description
- ------ -----------
4.1 The Certificate and Agreements of Limited Partnership for the
following Partnerships have been previously filed with the SEC as an
Exhibit to Form 8-A filed by each Partnership on the dates shown
below and are hereby incorporated by reference.
Partnership Filing Date File No.
----------- ----------- --------
P-7 June 1, 1992 0-20265
P-8 June 1, 1992 0-20264
4.2 Second Amendment to Agreement of Limited Partnership of Geodyne
Institutional/Pension Energy Income Limited Partnership P-7, filed
as Exhibit 4.1 to Registrants' Current Report on Form 8-K dated
August 2, 1993 filed with the SEC on August 10, 1993 and is hereby
incorporated by reference.
4.3 Second Amendment to Agreement of Limited Partnership of Geodyne
Institutional/Pension Energy Income Limited Partnership P-8, filed
as Exhibit 4.2 to Registrants' Current Report on Form 8-K dated
August 2, 1993 filed with the SEC on August 10, 1993 and is hereby
incorporated by reference.
4.4 Third Amendment to Agreement of Limited Partnership of Geodyne
Institutional/Pension Energy Income Limited Partnership P-7, filed
as Exhibit 4.5 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995 filed with the SEC on April 1, 1996 and
is hereby incorporated by reference.
4.5 Third Amendment to Agreement of Limited Partnership of Geodyne
Institutional/Pension Energy Income Limited Partnership P-8, filed
as Exhibit 4.6 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995 filed with the SEC on April 1, 1996 and
is hereby incorporated by reference.
*23.1 Consent of Ryder Scott Company, Petroleum Engineers for the Geodyne
Institutional/Pension Energy Income Limited Partnership P-7.
*23.2 Consent of Ryder Scott Company, Petroleum Engineers for the Geodyne
Institutional/Pension Energy Income Limited Partnership P-8.
F-22
<PAGE>
*27.1 Financial Data Schedule containing summary financial information
extracted from the Geodyne Institutional/ Pension Energy Income
Limited Partnership P-7's financial statements as of December 31,
1998 and for the year ended December 31, 1998.
*27.2 Financial Data Schedule containing summary financial information
extracted from the Geodyne Institutional/ Pension Energy Income
Limited Partnership P-8's financial statements as of December 31,
1998 and for the year ended December 31, 1998.
All other Exhibits are omitted as inapplicable.
-----------------
* Filed herewith.
F-23
RYDER SCOTT COMPANY Fax (713) 651-0849
PETROLEUM ENGINEERS
1100 Louisiana Suite 3800 Houston, Texas 77002-5218 Telephone (713) 651-9191
CONSENT OF PETROLEUM ENGINEERING FIRM
We consent to the reference to our name included in this Annual Report on
Form 10-K for the year ended December 31, 1998 for Geodyne Institutional/Pension
Energy Income Limited Partnership P-7.
//s// Ryder Scott Company
Petroleum Engineers
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Houston, Texas
January 19, 1999
RYDER SCOTT COMPANY Fax (713) 651-0849
PETROLEUM ENGINEERS
1100 Louisiana Suite 3800 Houston, Texas 77002-5218 Telephone (713) 651-9191
CONSENT OF PETROLEUM ENGINEERING FIRM
We consent to the reference to our name included in this Annual Report on
Form 10-K for the year ended December 31, 1998 for Geodyne Institutional/Pension
Energy Income Limited Partnership P-8.
//s// Ryder Scott Company
Petroleum Engineers
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
Houston, Texas
January 19, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000888240
<NAME> GEODYNE ENERGY INCOME LIMITED PTSP P-7
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 222,925
<SECURITIES> 0
<RECEIVABLES> 270,901
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 493,826
<PP&E> 14,492,319
<DEPRECIATION> 12,108,468
<TOTAL-ASSETS> 2,877,677
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,877,677
<TOTAL-LIABILITY-AND-EQUITY> 2,877,677
<SALES> 1,447,786
<TOTAL-REVENUES> 1,607,751
<CGS> 0
<TOTAL-COSTS> 3,198,744
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,590,993)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,590,993)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,590,993)
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