U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____ to _____
Commission file number 33-82188
Atlas-Energy for the Nineties-Public #3 Ltd.
(Name of small business issuer in its charter)
Pennsylvania 25-1742594
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
311 Rouser Road, Moon Township, Pennsylvania 15108
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (412) 262-2830
Securities registered under Section 12(b) of the Exchange Act
Title of each class Name of each
exchange on which registered
None None
Securities registered under Section 12(g) of the Exchange Act
None
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No _____
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. [ X ]
State issuer's revenues for its most recent fiscal year. $1,423,319
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant. Not Applicable.
Transitional Small Business Disclosure Format (check one):
Yes X No _____
Page 1 of 30
Exhibit Index on Page 28
PART I
Item 1. Description of Business
Atlas-Energy for the Nineties-Public #3 Ltd. (the "Partnership") was formed
under the Pennsylvania Revised Uniform Limited Partnership Act on June 30,
1994, with Atlas Resources, Inc. ("Atlas") as Managing General Partner.
The Partnership had its initial and final closing on December 31, 1994, and
was funded with subscriptions of $5,800,275 to drill natural gas
development wells. Also, on December 31, 1994, the Managing General
Partner was credited with a total capital contribution of $1,024,029
because of certain expenditures it made on behalf of the Partnership and
certain prospects it contributed to the Partnership.
The Partnership has not filed bankruptcy nor has the Partnership been
involved in any material reclassification, merger, consolidation,
receivership or similar proceeding or purchase or sale of a significant
amount of assets not in the ordinary course of business.
The Partnership was funded to drill natural gas development wells with the
objective being the discovery and production of natural gas in commercially
marketable quantities. Because the initial and final closing date was
December 31, 1994, the Partnership did not conduct any drilling activities
in 1994; however, the Partnership did prepay the drilling and operating
agreement on December 31, 1994, in an amount equal to $5,800,275. In this
regard, on December 31, 1994, the Partnership, which has no employees,
entered into the drilling and operating agreement with Atlas to drill 27
development wells to the Clinton/Medina geological formation. Twenty-six of
the 27 prospects selected by Atlas for drilling are located in Mercer,
Venango and Lawrence Counties, Pennsylvania. The remaining well was
drilled in Mahoning County, Ohio. Atlas and its affiliates' had
sufficient leasehold inventory to provide all of the prospects to be
developed by the Partnership. See "Description of Property".
For the next twelve months management believes that the Partnership has
adequate capital in order to conduct its operations. The Partnership had
sufficient capital resources from the closing to drill and develop
approximately 26.5 net wells of which 25.5 net wells were productive. No
other wells will be drilled and therefore no additional funds will be
required. The payment of operating and maintenance costs did not begin
until the Partnership wells began to generate revenue. Although
management does not anticipate that the Partnership will have to do so, any
additional funds which may be required will be obtained from production
revenues from Partnership wells or from borrowings by the Partnership from
Atlas or its affiliates, although Atlas is not contractually committed to
make such a loan. No borrowings will be obtained from third parties. The
amount that may be borrowed by the Partnership from Atlas and its
affiliates, if any amounts are borrowed, may not at any time exceed 5% of
the Partnership subscription.
With respect to operating and maintenance costs, the Partnership's
commitments pursuant to the drilling and operating agreement are being
fulfilled through revenues generated from the sale of gas and oil. During
producing operations Atlas, as operator, receives a monthly well
supervision fee of $275 (proportionately reduced to the extent less than
100% of the working interest was acquired) for each producing well for
which it has responsibility under the drilling and operating agreement.
The well supervision fee covers all normal and regularly recurring
operating expenses for the production, delivery and sale of gas, such as
well tending, routine maintenance and adjustment, reading meters, recording
production, pumping, maintaining appropriate books and records, preparing
reports to the Partnership and to government agencies, and collecting and
disbursing revenues. The well supervision fees do not include costs and
expenses related to the production and sale of oil, purchase of equipment,
materials or third party services, brine disposal, and rebuilding of access
roads, all of which are billed at the invoice cost of materials purchased
or third party services performed. As operator Atlas charges the
Partnership at cost for third party services and materials provided for
each well which has been placed in operation, and a reasonable charge for
services performed directly by Atlas or its affiliates. The drilling and
operating agreement also gives the operator the right at any time after
three years from the date a Partnership well has been placed into
production to retain $200 per month to cover future plugging and
abandonment of such well.
Natural gas and oil produced by the wells developed by the Partnership must
be marketed in order for the Partnership to realize revenues from such
production. The Partnership did not purchase and does not anticipate
selling any producing wells. In recent years natural gas and oil prices
have been volatile. The marketing of natural gas and oil production is
also affected by numerous factors beyond the control of the Partnership and
the effect of which cannot be accurately predicted. These factors include
the availability and proximity of adequate pipeline or other transportation
facilities; the amount of domestic production and foreign imports of oil
and gas; competition from other energy sources such as coal and nuclear
energy; local, state and federal regulations regarding production and the
cost of complying with applicable environmental regulations; and
fluctuating seasonal supply and demand. For example, the demand for
natural gas is greater in the winter months than in the summer months,
which is reflected in a higher spot market price paid for such gas. Also,
increased imports of oil and natural gas have occurred and are expected to
continue, and the free trade agreement between Canada and the United States
has eased restrictions on imports of Canadian gas to the United States. In
the past the reduced demand for natural gas and/or an excess supply of gas
has resulted in a lower price paid for the gas. It has also resulted in
some purchasers curtailing or restricting their purchases of natural gas;
renegotiating existing contracts to reduce both take-or-pay levels and the
price paid for delivered gas; and other difficulties in the marketing of
production.
The Clean Air Act Amendments of 1990 contain incentives for the future
development of "clean alternative fuel," which includes natural gas and
liquefied petroleum gas for "clean-fuel vehicles". The Partnership
believes the amendments ultimately will have a beneficial effect on natural
gas markets and prices.
The Managing General Partner is responsible for selling the Partnership's
gas and oil production. Atlas' policy is to treat all wells in a given
geographic area equally. This reduces certain potential conflicts of
interest among the owners of the various wells, including the Partnership,
concerning to whom and at what price the gas will be sold. Atlas
calculates a weighted average selling price for all of the gas sold in the
geographic area, such as the Mercer County area. To arrive at the average
weighted selling price the money received from the sale of all of the gas
sold to its customers is divided by the volume of all gas sold from the
wells in the area. On occasion, Atlas has reduced the amount of production
it normally sells on the spot market until the spot market price increased.
(See "Properties - Production.")
In the Mercer County area, a portion of the Partnership's gas is
transported through Atlas' own pipeline system and sold directly to
industrial end-users in the area where the wells were drilled. This will
generally result in the Partnership receiving higher prices for the gas
than if the gas were transported a farther distance through interstate
pipelines because of increased transportation charges. The remainder of
the Partnership's gas is transported through Atlas' pipelines to the
interconnection points maintained with Tennessee Gas Transmission Co.,
National Fuel Gas Supply Corporation, National Fuel Gas Distribution
Company, East Ohio Natural Gas Company and Peoples Natural Gas Company.
These delivery points are utilized by Atlas Gas Marketing, Inc. to service
its end-user markets in the northeast United States which include in excess
of 100 customers. Atlas is currently delivering an average 27,000 MCF of
natural gas per day from the Mercer County area to all of the
aforementioned markets and has the capacity of delivering 33,000 MCF per
day from the Mercer County area. Atlas anticipates that Carbide Graphite
will purchase approximately 20% of the Partnership's gas production through
September, 1997, pursuant to a gas contract between Carbide Graphite and an
affiliate of Atlas. Atlas does not believe that any other purchaser of the
Partnership's gas production will account for 10% of the Partnership's gas
sales revenues in 1997. (See "Financial Statements".)
In order to optimize the price it receives for the sale of natural gas,
Atlas markets portions of the gas through long term contracts, short term
contracts, and monthly spot sales. The marketing of natural gas production
has been influenced by the availability of certain financial instruments,
such as gas futures contracts, options and swaps which, when properly
utilized as hedge instruments, provide producers or consumers of gas with
the ability to lock in the price which will ultimately be paid for the
future deliveries of gas. Atlas is utilizing financial instruments to
hedge the price risks of the Partnership's gas production. To assure that
the financial instruments will be used solely for hedging price risks and
not for speculative purposes, Atlas has established an Energy Price Risk
Committee comprised of the President, General Counsel, Chief Financial
Officer (chairperson) and Director of Marketing, whose responsibility will
be to ascertain that all financial trading is done in compliance with
hedging policies and procedures. Atlas does not intend to contract for
positions that it cannot offset with actual production.
Crude oil produced from the wells will flow directly into storage tanks
where it will be picked up by the oil company, a common carrier or pipeline
companies acting for the oil company which is purchasing the crude oil.
Crude oil usually does not present any transportation problem. Atlas
anticipates selling any oil produced by the wells to Quaker State Oil
Refining Company in spot sales. (See "Properties - Production.")
There are many companies, partnerships and individuals engaged in natural
gas exploration, development and operations in the areas where the
Partnership is conducting its activities. The industry is highly
competitive in all of its phases, including the marketing of natural gas
and oil. With respect to the marketing of the Partnership's gas and oil
the Partnership should, through the use of Atlas' distribution system and
Atlas' experienced marketing staff, be able to sell the Partnership's gas.
The Partnership has not and will not devote any funds to research and
development activities. There are no new products or services and the
Partnership does not have any patents, trademarks, licenses, franchises,
concessions, royalty agreements or labor contracts.
Oil and gas operations are regulated in Pennsylvania by the Department of
Environmental Resources, Division of Oil and Gas and in Ohio by the Ohio
Department of Natural Resources, Division of Oil and Gas which impose a
comprehensive statutory and regulatory scheme with respect to oil and gas
operations. Among other things, such regulations involve (a) new well
permit and well registration requirements, procedures and fees, (b)
minimum well spacing requirements, (c) restrictions on well locations and
underground gas storage, (d) certain well site restoration, groundwater
protection and safety measures, (e) landowner notification requirements,
(f) certain bonding or other security measures, (g) various reporting
requirements, (h) well plugging standards and procedures, and (i) broad
enforcement powers. Generally, the regulatory agency in the state where a
producing natural gas well is located supervises production activities and
the transportation of natural gas sold intrastate. Atlas does not expect
that such regulations will have a material adverse impact upon the
operations of the Partnership, and the Partnership believes it has complied
in all material respects with applicable state regulations and will
continue to do so.
The Federal Energy Regulatory Commission ("FERC") regulates the interstate
transportation of natural gas and the pricing of natural gas sold for
resale interstate; and under the Natural Gas Policy Act of 1978 ("NGPA"),
the price of intrastate gas. However, price controls for natural gas
production from new wells were deregulated on December 31, 1992, and such
deregulated gas production may be sold at market prices determined by
supply, demand, BTU content, pressure, location of the wells, and other
factors
Although the transportation and sale of gas in interstate commerce remains
heavily regulated, FERC has sought to promote greater competition in
natural gas markets by encouraging open access transportation by interstate
pipelines, with the goal of expanding opportunities for producers to
contract directly with local distribution companies and end-users. FERC
Order 636 which became effective May 18, 1992, requires gas pipeline
companies to, among other things, separate their sales services from their
transportation services; and provide an open access transportation service
that is comparable in quality for all gas suppliers. The premise behind
FERC Order 636 was that the gas pipeline companies had an unfair advantage
over other gas suppliers because they could bundle their sales and
transportation services together. FERC Order 636 is designed to create a
regulatory environment in which no gas seller has a competitive advantage
over another gas seller because it also provides transportation services
which should provide a benefit to the Partnership.
The price of oil is not regulated and is subject only to supply, demand,
competitive factors, the gravity of the crude oil, sulfur content
differentials and other factors. The Partnership expects to sell only
small quantities of oil.
From time to time there are a number of proposals being considered in
Congress and in the legislatures and agencies of various states that if
enacted would significantly and adversely affect the oil and natural gas
industry. Such proposals involve, among other things, the imposition of
new taxes on natural gas and limiting the disposal of waste water from
wells. At the present time, it is impossible to accurately predict what
proposals, if any, will be enacted by Congress or the legislatures and
agencies of various states and what effect any proposals which are enacted
will have on the activities of the Partnership.
Various federal, state and local laws and regulations covering the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, may affect the Partnership's operations and
costs as a result of their effect on oil and gas exploration, development
and production activities. The Partnership may generally be liable for
cleanup costs to the United States Government under the Federal Clean Water
Act for oil or hazardous substance pollution and under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA" or
Superfund) for hazardous substance contamination. Such liability is
unlimited in cases of willful negligence or misconduct, and there is no
limit on liability for environmental cleanup costs or damages with respect
to claims by the state or private persons or entities. In addition, the
Environmental Protection Agency will require the Partnership to prepare and
implement spill prevention control and countermeasure plans relating to the
possible discharge of oil into navigable waters and will further require
permits to authorize the discharge of pollutants into navigable waters.
State and local permits or approvals will also be needed with respect to
wastewater discharges and air pollutant emissions. Violations of
environment-related lease conditions or environmental permits can result in
substantial civil and criminal penalties as well as potential court
injunctions curtailing operations. Such enforcement liabilities can result
from either government or citizen prosecution. Compliance with these
statutes and regulations may cause delays in producing natural gas and oil
from the wells and may increase substantially the cost of producing such
natural gas and oil. However, such laws and regulations are constantly
being revised and changed, and the Partnership is unable to predict the
ultimate costs of complying with present and future environmental laws and
regulations, although it does not believe such costs will be substantial.
The Partnership is unable to obtain insurance to protect against many
environmental claims.
Item 2: Properties
Drilling Activity. The Partnership drilled 26.5 net wells, of which 25.5
net wells were productive and one was a dry hole. All of the wells were
drilled and completed by the Partnership as of March 23, 1995. No further
drilling activities will be undertaken.
The following table summarizes the Partnership's drilling activity since
its formation. All of the wells drilled were development wells which means
a well drilled within the proved area of an oil or gas reservoir to the
depth of a stratigraphic horizon known to be productive. A "dry hole" is
an exploratory or a development well found to be incapable of producing
either oil or gas in sufficient quantities to justify completion as an oil
or gas well. A "productive well" is an exploratory or a development well
that is not a dry well.
Year Ended December 31,
1994 1995 1996
Gross Net Gross Net Gross Net
Development Wells:
Oil 0 0 0 0 0 0
Gas 0 0 26.0 25.5 26.0 25.5
Dry 0 0 1.0 1.0 1.0 1.0
=========================================================================
Total 0 0 27.0 26.5 27.0 26.5
A "gross" well is a well in which the Partnership has a working
interest. A "net" well is deemed to exist when the sum of the fractional
ownership working interests owned by the Partnership in gross wells equals
one. The number of net wells is the sum of the fractional working interests
owned in gross wells expressed as whole numbers and fractions thereof.
The Partnership has not participated, and will not participate, in any
exploratory wells which means a well drilled to find commercially
productive hydrocarbons in an unproved area, to find a new commercially
productive horizon in a field previously found to be productive of
hydrocarbons at another horizon, or to significantly extend a known
prospect.
Production. The following table shows the Partnership's net production in
barrels ("Bbls") of crude oil and in thousands of cubic feet ("Mcf") of
natural gas and the costs and weighted average selling prices thereof, for
the periods indicated.
Year Ended December 31,
1994 1995 1996
Production (1):
Oil (Bbls) 0 586 247
Natural Gas (Mcf) 0 496,710 541,403
Total (Equivalent Barrels) (2) 0 83,371 90,481
Average Sales Price:
Per Equivalent Barrel (2)(3) 0 $11.57 $13.79
Average Production Cost (lifting cost):
Per Equivalent Barrel (2)(4) 0 $1.23 $1.19
(1) The production shown in the table is determined by multiplying the
gross production of properties in which the Partnership has an interest by
the percentage of the leasehold interest owned by the Partnership less the
royalty interests of others. The properties owned by the Partnership are
subject to a 12.5% landowner's royalty and the Partnership has an 87.5% net
revenue interest.
(2) The ratio of energy content of oil and gas (six Mcf of gas equals one
barrel of oil) was used to convert natural gas production into equivalent
barrels of oil.
(3) The average sales price per barrel of oil sold by the Partnership was
$14.65 in 1995 and $19.50 in 1996. The average sales price per Mcf of gas
sold by the Partnership was $2.01 in 1995 and $2.29 in 1996, after
deducting all expenses, including transportation expenses.
(4) Production costs represent oil and gas operating expenses as reflected
in the financial statements of the Partnership plus depreciation of support
equipment and facilities.
Summary of Productive Wells. The table below gives the number of the
Partnership's productive gross and net wells at December 31, 1996.
Gas Wells Oil Wells Total
Location Gross Net Gross Net Gross Net
Ohio 1 .5 0 0 1 .5
Pennsylvania 25 25.0 0 0 25 25.0
=============================================================================
Total 26 25.5 0 0 26 25.5
"Productive wells" are producing wells and wells capable of production.
Oil and Gas Reserves. All of the Partnership's oil and gas reserves are
located in the United States. Estimates of the Partnership's net proved
developed and undeveloped oil and gas reserves as of December 31, 1996, and
the present value (discounted at 10%) of estimated future net revenue
before income tax from those reserves are set forth in the following table.
This information is derived from the engineering report dated July 31,
1996.
As of December 31,1996 Present Value
Net Proved Reserves of Future
Net Revenues
Oil Gas Total (in thousands)
(Bbls) (McF) (BOE)
Proved Developed 2,268 3,501,040 585,775 $2,636
Proved Undeveloped 0 0 0 0
=============================================================================
Total 2,268 3,501,040 585,775 $2,636
Estimated future net revenues represent estimated future gross revenues
from the production of proved reserves, net of estimated production and
future development costs, using prices and costs in effect as of December
31, 1996. These prices were held constant throughout the life of the
properties except where different prices were fixed and determinable from
applicable contracts. These price assumptions resulted in weighted average
prices of $18 per barrel for oil and $2.13 per Mcf for gas over the life of
the properties. The amounts shown do not reflect non-property related
costs, such as general and administrative expenses, and future income tax
expense, or depreciation, depletion and amortization. The present value of
estimated future net revenues is calculated by discounting estimated future
net revenues by 10% annually. Prices used in calculating the estimated
future net revenues attributable to proved reserves do not necessarily
reflect market prices for oil and gas production subsequent to December 31,
1996. There can be no assurance that all of the proved reserves will be
produced and sold within the periods assumed, that the assumed prices will
actually be realized for such production, or that existing contracts will
be honored. The values expressed are estimates only, and may not reflect
realizable values or fair market values of the oil and gas ultimately
extracted and recovered. The standardized measure of discounted future net
cash flows may not accurately reflect proceeds of production to be received
in the future from the sale of oil and gas currently owned and does not
necessarily reflect the actual costs that would be incurred to acquire
equivalent oil and gas reserves. For additional information concerning oil
and gas reserves and activities, see Note 9 to the Financial Statements.
"Proved reserves" means the estimated quantities of crude oil, natural gas,
and natural gas liquids which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions, i.e., prices
and costs as of the date the estimate is made. Prices include
consideration of changes in existing prices provided only by contractual
arrangements, but not on escalations based upon future conditions.
(i) Reservoirs are considered proved if economic producibility is
supported by either actual production or conclusive formation test. The
area of a reservoir considered proved includes (a) that portion delineated
by drilling and defined by gas-oil and/or oil-water contacts, if any; and
(b) the immediately adjoining portions not yet drilled, but which can be
reasonably judged as economically productive on the basis of available
geological and engineering data. In the absence of information on fluid
contacts, the lowest known structural occurrence of hydrocarbons controls
the lower proved limit of the reservoir.
(ii) Reserves which can be produced economically through application of
improved recovery techniques (such as fluid injection) are included in the
"proved" classification when successful testing by a pilot project, or the
operation of an installed program in the reservoir, provides support for
the engineering analysis on which the project or program was based.
(iii) Estimates of proved reserves do not include the following: (a)
oil that may become available from known reservoirs but is classified
separately as "indicated additional reserves"; (b) crude oil, natural gas,
and natural gas liquids, the recovery of which is subject to reasonable
doubt because of uncertainty as to geology, reservoir characteristics, or
economic factors; (c) crude oil, natural gas, and natural gas liquids, that
may occur in undrilled prospects; and (d) crude oil, natural gas, and
natural gas liquids, that may be recovered from oil shales, coal, gilsonite
and other such sources.
"Proved developed oil and gas reserves" means reserves that can be expected
to be recovered through existing wells with existing equipment and
operating methods. Additional oil and gas expected to be obtained through
the application of fluid injection or other improved recovery techniques
for supplementing the natural forces and mechanisms of primary recovery
should be included as "proved developed reserves" only after testing by a
pilot project or after the operation of an installed program has confirmed
through production response that increased recovery will be achieved.
The Partnership does not have any proved undeveloped reserves. "Proved
undeveloped reserves" are reserves that are expected to be recovered from
new wells on undrilled acreage, or from existing wells where a relatively
major expenditure is required for recompletion. Reserves on undrilled
acreage are limited to those drilling units offsetting productive units
that are reasonably certain of production when drilled. Proved reserves
for other undrilled units can be claimed only where it can be demonstrated
with certainty that there is continuity of production from the existing
productive formation. Under no circumstances should estimates for proved
undeveloped reserves be attributable to any acreage for which an
application of fluid injection or other improved recovery technique is
contemplated, unless such techniques have been proved effective by actual
tests in the area and in the same reservoir.
No major discovery or other favorable or adverse event which would cause a
significant change in estimated reserves is believed by the Company to have
occurred since December 31, 1996. Reserves cannot be measured exactly as
reserve estimates involve subjective judgment. The estimates must be
reviewed periodically and adjusted to reflect additional information gained
from reservoir performance, new geological and geophysical data and
economic changes. The Partnership has not filed any estimates (on a
consolidated basis) of its oil and gas reserves with, nor were such
estimates included in any reports to, any Federal or foreign governmental
agency other than the Securities and Exchange Commission within the 12
months prior to the date of this filing.
Acreage. The following table sets forth, as of December 31, 1996, the
acres of developed and undeveloped oil and gas acreage in which the
Partnership had an interest, listed alphabetically by state.
Developed Acreage Undeveloped Acreage Total
Location Gross Net Gross Net Gross Net
Ohio 40.00 40.00 0 0 40.00 40.00
Pennsylvania 1142.77 1142.77 0 0 1142.77 1142.77
=============================================================================
Total 1182.77 1182.77 0 0 1182.77 1182.77
A "gross" acre is an acre in which the Partnership owns a working interest.
A "net" acre is deemed to exist when the sum of the fractional ownership
working interests owned by the Partnership in gross acres equals one. The
number of net acres is the sum of the fractional working interests owned in
gross acres expressed as whole numbers and fractions thereof. "Undeveloped
acreage" is those lease acres on which wells have not been drilled or
completed to a point that would permit the production of commercial
quantities of oil and gas regardless of whether or not such acreage
contains proved reserves.
Delivery Commitments.
The Partnership is not obligated to provide any determinable quantity of
gas under any existing contracts or agreements. The majority of the
Partnership's gas production from the wells was sold pursuant to short term
contracts, which are term contracts for a period of less than one year,
with the remainder of the Partnership gas production sold on the spot
market and long term contracts, which are term contracts for a period
longer than one year.
Item 3 . Directors, Executive Officers and Significant Employees
Responsibilities of Atlas. The Partnership has no employees and relies on
Atlas as Managing General Partner of the Partnership. Atlas also serves as
driller/operator of the wells. Atlas has complete and exclusive discretion
and control over the operations and activities of the Partnership and will
make all of the Partnership's decisions affecting the wells developed by
the Partnership. Atlas will provide continuing review and analysis of all
wells developed by the Partnership and will monitor all expenditures and
commitments made on behalf of the Partnership. In addition, Atlas will
perform administrative services relating to the funding and operation of
the Partnership, Participant reporting, financial budgeting and
recordkeeping.
Business of Atlas. Atlas, a Pennsylvania corporation, was incorporated in
1979 and Atlas Energy Group, Inc. ("Atlas Energy"), an Ohio corporation,
was incorporated in 1973. Atlas and Atlas Energy are wholly owned
subsidiaries of AIC, Inc., a corporation formed in July, 1995, which is a
wholly owned subsidiary of The Atlas Group, Inc., ("Atlas Group") that was
formerly known as AEG Holdings, Inc., a corporation which was also formed
in July, 1995. As of December 31, 1996, Atlas and its affiliates operated
approximately 1,172 natural gas wells located in Ohio and Pennsylvania.
Atlas and Atlas Energy have acted as operator with respect to the drilling
of a total of approximately 1,611 natural gas wells, approximately 1,562 of
which were capable of production in commercial quantities. Atlas' primary
offices are located at 311 Rouser Road, Moon Township, Pennsylvania 15108.
Atlas and its affiliates employ a total of approximately ninety-nine
persons, consisting of three geologists, five landmen, five engineers,
thirty-three operations staff, eight accounting, one legal, eight gas
marketing, and eighteen administrative personnel. The balance of the
personnel are engineering, pipeline and field supervisors.
The other subsidiaries of AIC, Inc. are: (i) Atlas Gas Marketing, Inc., a
gas marketing company; (ii) Mercer Gas Gathering, Inc., a gas gathering
company which gathers gas from wells in Mercer County, Pennsylvania, and
delivers such gas directly to industrial end-users or to interstate
pipelines and local distribution companies; (iii) Pennsylvania Industrial
Energy, Inc., which sells natural gas to industrial end-users in
Pennsylvania; (iv) Transatco, Inc., which owns a 50% interest in Topico
which operates a pipeline in Ohio; (v) Atlas Energy Corporation, which
serves as managing general partner of exploratory programs and driller and
operator; and (vi) Anthem Securities, Inc., which is registering as a
broker-dealer and becoming a member firm of the NASD. In addition, Atlas
is the sole owner of ARD Investments, Inc., a corporation formed in July,
1995, and Atlas Energy is the sole owner of AED Investments, Inc., a
corporation formed in July, 1995. Prior to July, 1995, all of the Atlas
companies were wholly owned by Atlas Energy. The purpose of forming Atlas
Group, AIC, Inc., ARD Investments, Inc. and AED Investments, Inc. was to
achieve more efficient concentration of funds of the Atlas group of
companies, thereby minimizing transaction costs and maximizing returns on
investment vehicles.
Atlas and its affiliates have constructed for their use over 600 miles of
gas transmission lines and produce in excess of twelve billion cubic feet
of natural gas annually from wells they operate. In addition, Atlas Gas
Marketing, Inc. (an affiliate) purchases for resale an additional nine
billion cubic feet of natural gas annually from third party producers
locally and in the south/southwest United States which is marketed as
described in "Description of Business."
ORGANIZATIONAL DIAGRAM
The Atlas Group, Inc.
|
|
AIC, Inc.
|
- -------------------------------------|
|
|
|--Atlas Resources, Inc. (Managing General Partner of Development Drilling
| Programs, Driller and Operator in Pennsylvania)
| |
| ARD Investments, Inc.
|
|--Mercer Gas Gathering, Inc. (Gas Gathering Company)
|
|--Pennsylvania Industrial Energy, Inc. ("PIE") (Sells Gas to Pennsylvania
| Industry)
|
|--Atlas Energy Corporation (Managing General Partner of Exploratory
| Drilling Programs and Driller and Operator)
|
|--Transatco, Inc., which owns 50% of Topico (Operates Pipeline in Ohio)
|
|--Atlas Gas Marketing, Inc. (Markets Natural Gas)
|
|--Anthem Securities Inc. (In the Process of Registering as a Broker-Dealer)
|
|--Atlas Energy Group, Inc. (Driller and Operator in Ohio)
|
AED Investments, Inc.
Directors, Executive Officers and Significant Employees of Atlas. The
executive officers, directors and significant employees of Atlas who are
also officers, directors and significant employees of Atlas Group and Atlas
Energy are as follows:
Name Age Positions or Office
Charles T. Koval 63 Chairman of the Board and a Director
James R. O'Mara 53 President, Chief Executive Officer and a Director
Bruce M. Wolf 48 General Counsel, Secretary and a Director
James J. Kritzo 62 Vice President of the Land Department
Donald P. Wagner 55 Vice President of Operations
Frank P. Carolas 37 Vice President of Geology
Tony C. Banks 42 Vice President of Finance and Chief
Financial Officer
Barbara J. Krasnicki 52 Vice President of Administration
Jacqueline B. Poloka 46 Controller
John A. Ranieri 37 Director of Gas Marketing
Joseph R. Sadowski 66 Director
Charles T. Koval. Chairman of the Board and a director. He co-founded
Atlas Energy. Mr. Koval is serving and has served as a director of
Imperial Harbors since 1980.
James R. O'Mara. President, chief executive officer and a director. Mr.
O'Mara joined Atlas Energy in 1975. He is the President of Mercer Gas
Gathering, Inc.
Bruce M. Wolf. General Counsel, Secretary and a director. Mr. Wolf
joined Atlas Energy in January, 1980. Mr. Wolf is the President of Atlas
Gas Marketing, Inc., AIC, Inc., ARD Investments, Inc. and AED Investments,
Inc.
James J. Kritzo. Vice President of the Land Department. Mr. Kritzo joined
the Land Department of Atlas Energy in 1979.
Donald P. Wagner. Vice President of Operations. Mr. Wagner joined Atlas
Energy in 1979.
Frank P. Carolas. Vice President of Geology. Mr. Carolas joined Atlas
Energy in 1981.
Tony C. Banks. Vice President of Finance and Chief Financial Officer. Mr.
Banks joined Atlas in December, 1994. Prior to Mr. Banks joining Atlas he
had been with affiliates of Consolidated Natural Gas Company ("CNG") since
1974. Mr. Banks started as an accounting clerk with CNG's parent company
in 1974 and progressed through various positions with CNG's Appalachian
producer, northeast gas marketer and southwest producer to his last
position as Treasurer of CNG's national energy marketing subsidiary.
Barbara J. Krasnicki. Vice President of Administration, Ms. Krasnicki has
been with Atlas Energy since its inception in 1971.
Jacqueline B. Poloka. Controller. Ms. Poloka joined Atlas Energy in 1980.
John A. Ranieri. Director of Gas Marketing for Atlas Gas Marketing, Inc.
Mr. Ranieri was promoted to Gas Procurement Manager of Columbia Gas of
Pennsylvania in 1984 and remained with that organization until joining
Atlas in July, 1990.
Joseph R. Sadowski. A director. He co-founded Atlas Energy. Mr. Sadowski
has served as a director of Dixon Ticonderoga since 1987.
Item 4. Remuneration of Directors and Officers
The Partnership, as previously stated, has no employees. The following
table, however, sets forth all cash compensation paid by Atlas (which has
complete and exclusive discretion and control over the operations and
activities of the Partnership) during Atlas' fiscal year ended July 31,
1996, to the three most highly compensated persons who are executive
officers or directors and to all executive officers and directors of Atlas
as a group, for services in all capacities while acting as executive
officers or directors of Atlas:
Name of individual
or identity of Capacities in which Cash
group (3) remuneration was received(4) Compensation(1)(2)
James R. O'Mara President, Chief Executive Officer $305,300
and a Director
Charles T. Koval Chairman of the Board $296,500
and a Director
Bruce M. Wolf General Counsel, Secretary $217,150
and a Director
Executive Officers $1,383,530
as a Group
(8 persons)
(1) The amounts indicated were composed of salaries and all cash bonuses
for services rendered to Atlas and its affiliates during the last fiscal
year, including compensation that would have been paid in cash but for the
fact the payment of such compensation was deferred.
(2) Atlas has an "ESOP" retirement plan, described below, and has a 401(K)
plan which allowed employees to contribute the lesser of 15% of their
compensation or $9,500 for the calendar year 1996 or $9,240 for the
calendar year 1995. Atlas contributed an amount equal to 50% and 30% of
each employee's contribution for the calendar years July 31, 1996 and 1995,
respectively.
(3) There were no stock options granted or exercised during the fiscal
year ended July 31, 1996, to the above individuals.
(4) During the fiscal year ended July 31, 1996, each director was paid a
director's fee of $12,000 for the year. There are no other arrangements for
remuneration of directors.
Item 5. Security Ownership of Management and Certain Securityholders
As of December 31, 1996, the Partnership had issued and outstanding 581.5
Units. No officer or director of Atlas owns any Units, and no partner
beneficially owns more than 10% of the outstanding Units of the
Partnership.
Atlas Group owns 100% of the common stock of AIC, Inc. which owns 100% of
the common stock of Atlas and Atlas Energy. The following table sets
forth, as of December 31, 1996, information as to the beneficial ownership
of common stock of Atlas Group by each person known to Atlas Group to own
beneficially 5% or more of the outstanding common stock of Atlas Group, by
directors and nominees, naming them individually, and by all directors and
officers of Atlas Group as a group:
Shares of Common Percent of Class
Charles T. Koval . . . . . . . 109,391 26.445%
Joseph R. Sadowski . . . . . . 109,142 26.384%
James R. O'Mara . . . . . . . 95,164 (1) 23.005%
Bruce M. Wolf . . . . . . . . . . 44,710 (2) 10.808%
Directors and Officers as Group 377,654 (1)(2) 91.344%
(9 Persons)
(1) Includes 22,164 shares of Atlas Group issuable upon the exercise of
stock options held by Mr. O'Mara.
(2) Includes 14,210 shares of Atlas Group issuable upon the exercise of
stock options held by Mr. Wolf.
Atlas Group has adopted Atlas Energy's existing Employee Stock Ownership
Plan ("ESOP") for the benefit of its employees, other than Messrs. Koval
and Sadowski, to which it will contribute annually approximately 6% of
annual compensation in the form of shares of Atlas Group. Atlas Group
anticipates that it will contribute approximately 3,000 shares of its stock
to the ESOP each year.
Pursuant to agreements entered into between Atlas Group and its
shareholders to accommodate the desire of Messrs. Sadowski and Koval to
gradually liquidate a majority of their stock ownership in Atlas Group in
preparation for their respective retirement from Atlas Group it is
anticipated that by the year 2003 the stock ownership of Atlas Group by
Messrs. Koval and Sadowski will be reduced through a series of stock
redemptions to approximately 15% each; the stock ownership of certain of
the remaining officers will be increased to approximately 60%, in the
aggregate; and the stock ownership of the ESOP will be approximately 10%.
The stock redemptions require Atlas Group to execute promissory notes, from
time to time, in favor of Messrs. Koval and Sadowski, the first of which,
in the original principal amount of $4,974,340 each, plus interest at
13.5% were executed by Atlas Energy and were assumed by Atlas Group. These
promissory notes are totally subordinated to Atlas Group's obligations to
banks, the ESOP and any and all other debts or obligations of Atlas Group,
including its indemnification obligations and Atlas' drilling obligation to
the Partnership. If Atlas Group defaults on a promissory note, Messrs.
Koval and Sadowski are entitled to purchase up to approximately an
additional 1,500,000 shares of Atlas Group to regain management control.
Atlas views the transactions discussed above as a natural transition which
will have no adverse effect on the operations or activities of Atlas or the
Partnership. In 1990, Messrs. Koval and Sadowski entered into five year
employment agreements with Atlas Energy which agreements have been
transferred to Atlas Group, renewable for an additional five year term and
on an annual basis after the first ten years. In this regard, Mr. Sadowski
retired other than as a director in 1996. The terms and provisions of the
employment agreement with Mr. Koval are subject to negotiation at the time
of each renewal and currently such agreement does not provide for any
severance payments. Also, during the terms of the promissory notes Messrs.
Koval and Sadowski have the right to serve as directors of Atlas Group and
as one of the two trustees of the ESOP.
On November 8, 1990, Atlas Energy entered into a Stock Option Agreement
which established a management employee stock option plan to provide
incentive compensation for certain of its key employees to acquire up to
47,578 shares of common stock of Atlas Energy. Pursuant to the plan,
Messrs. O'Mara and Wolf were granted stock options for 22,164 and 14,210
shares, respectively. The options are 100% vested with an option price of
$1.00 per share and may be exercised when the promissory notes to Messrs.
Koval and Sadowski have been satisfied and will terminate on August 15,
2012. The issuance of future options will be determined at a later date.
On November 14, 1990, Atlas Energy granted 92,098 shares of restricted
common stock to certain management investors of the company, which was
valued at the time by Atlas Energy at $2,695,708. The restrictions lapsed
with respect to 25% of the shares on November 14, 1990, 1991, 1992 and
1993. The Stock Option Agreement and the outstanding stock options have
been converted from Atlas Energy to Atlas Group. The shareholders are also
subject to a Shareholders Agreement which provides, among other things,
that such shareholders may not transfer their shares in Atlas Group unless
the shares have first been offered to Atlas Group and the other
shareholders.
Item 6. Interest of Management and Others in Certain Transactions
Oil and Gas Revenues. The Managing General Partner is allocated 25% of the
oil and gas revenues of the Partnership in return for paying organization
and offering costs equal to 15% of the Partnership Subscription, 1% of
drilling and completion costs and contributing all leases to the
Partnership. During the calendar year ending December 31, 1996, the
Managing General Partner received $285,006 from the Partnership's oil and
gas revenues.
Leases. The Managing General Partner initially contributed (at the lower
of fair market value or the Managing General Partner's cost of such
prospects) 27 undeveloped prospects to the Partnership to drill
approximately 26.5 net wells. With respect to the 27 prospects contributed
for these wells, Atlas received a credit in the amount of $95,400. During
1996, the Managing General Partner did not enter into any further lease
transactions and none are anticipated.
Administrative Costs. The Managing General Partner and its affiliates
receive an unaccountable, fixed payment reimbursement for their
administrative costs determined by the Managing General Partner to be an
amount equal to $75 per well per month, proportionately reduced if less
than 100% of the working interest in a well is acquired. With respect to
the 25.5 net productive wells, during the calendar year ending December 31,
1996, the Managing General Partner received $21,704 .
Direct Costs. The Managing General Partner and its affiliates are
reimbursed for all direct costs expended on behalf of the Partnership.
With respect to the 25.5 net productive wells, during the calendar year
ending December 31, 1996, the Managing General Partner received $9,207.
Drilling Contracts. On December 31, 1994, the Partnership entered into a
drilling contract with Atlas to drill and complete 26.5 net wells. The
Partnership paid Atlas for drilling and completing the 25.5 net productive
Partnership wells an amount equal to $34.78 per foot to the depth of the
well at its deepest penetration, proportionately reduced if less than 100%
of the working interest in a well was acquired. The Partnership paid Atlas
for drilling the one net dry hole an amount equal to $20.22 per foot to the
depth of the well at its deepest penetration, proportionately reduced if
less than 100% of the working interest in the well was acquired. With
respect to the 26.5 net wells the total amount received by Atlas was
$5,800,275. During 1996, the Partnership did not enter into any further
drilling transactions and none are anticipated.
Per Well Charges. With respect to the 25.5 net productive wells, Atlas, as
operator, is reimbursed at actual cost for all direct expenses incurred on
behalf of the Partnership and receives well supervision fees for operating
and maintaining the wells during producing operations in the amount of $275
per well per month subject to an annual adjustment for inflation. With
respect to the 25.5 net wells, during the calendar year ending December 31,
1996, the Managing General Partner received $98,559. The well supervision
fees are proportionately reduced to the extent the Partnership acquires
less than 100% of the Working Interest in a well.
As operator Atlas charges the Partnership at cost for third party services
and materials provided for each well which has been placed in operation.
Transportation and Marketing Fees. The Partnership pays a combined
transportation and marketing charge at a competitive rate, which is
currently 29 cents per MCF, to affiliates of Atlas, with respect to natural
gas produced by the Partnership.
Other Compensation. Atlas or an affiliate will be reimbursed by the
Partnership for any loan Atlas or an affiliate may make to or on behalf of
the Partnership and Atlas or the affiliate will have the right to charge a
competitive rate of interest on any such loan. If Atlas provides
equipment, supplies and other services to the Partnership it may do so at
competitive industry rates. For the calendar year ending December 31,
1996, Atlas did not advance any funds nor did it provide any equipment,
supplies or other services.
The following discussion relates solely to certain relationships and
related transactions with respect to Atlas and does not relate to the
Partnership. The following discussion has been included because Atlas has
been granted by the Partnership Agreement and the drilling and operating
agreement the exclusive right, power and authority to control the
operations and activities of the Partnership.
Atlas, its officers, directors and affiliates have in the past invested,
and may in the future invest, as participants in oil and gas programs
sponsored by Atlas on the same terms as unrelated investors. Atlas, its
officers, directors and affiliates have also participated in the past, and
may in the future participate, as working interest owners in wells in which
Atlas or its oil and gas programs have an interest. Frequently, such
participation has been on more favorable terms than the terms which were
available to unrelated investors and Atlas Group has loaned to its officers
and directors amounts in excess of $60,000 from time to as necessary for
participation in such wells. Prior to 1996 such loans were either non-
interest bearing or accrued interest at variable rates, but since 1995 all
new loans for such purposes are required to bear interest. Currently no
such loans are outstanding.
PART II
Item 7. Market for Registrant's Common Equity and Related Stockholder
Matters
Market Information. There is no established public trading market for
the Investor General Partner interests or the Limited Partner interests and
it is not anticipated that such a market will develop. The Partnership
interests may be transferred only in accordance with the provisions of
Article 6 of the Partnership Agreement. The principal restrictions on
transferability are as follows:
(1) no transfer may be made which would result in materially adverse tax
consequences to the Partnership or the violation of federal or state
securities laws; and
(2) the consent of the Managing General Partner is required.
An assignee may become a substituted Limited Partner or Investor General
Partner only upon meeting certain further conditions, which include:
(1) the assignor gives the assignee such right;
(2) the Managing General Partner consents to such substitution, which
consent shall be in the Managing General Partner's absolute discretion;
(3) the assignee pays to the Partnership all costs and expenses incurred
in connection with such substitution; and
(4) the assignee executes and delivers such instruments, in form and
substance satisfactory to the Managing General Partner, necessary or
desirable to effect such substitution and to confirm the agreement of the
assignee to be bound by all terms and provisions of the Partnership
Agreement.
A substitute Limited Partner or Investor General Partner is entitled to all
rights attributable to full ownership of the assigned Units, including the
right to vote.
Holders. As of December 31, 1996, there were 391 investors.
Dividends. The Managing General Partner will review the accounts of the
Partnership at least quarterly to determine whether cash distributions are
appropriate and the amount to be distributed, if any. The Partnership will
distribute funds to the Managing General Partner and the Participants
allocated to their accounts which the Managing General Partner deems
unnecessary to be retained by the Partnership. In no event, however, will
funds be advanced or borrowed for purposes of distributions, if the amount
of such distributions would exceed the Partnership's accrued and received
revenues for the previous four quarters, less paid and accrued operating
costs with respect to such revenues. The determination of such revenues
and costs shall be made in accordance with generally accepted accounting
principles, consistently applied. Cash distributions from the Partnership
to the Managing General Partner may only be made in conjunction with
distributions to Participants and only out of funds properly allocated to
the Managing General Partner's account.
During the calendar year ending December 31, 1996, the Partnership
distributed $914,851 to the Participants and $305,083 to the Managing
General Partner.
Item 8. Legal Proceedings
None.
Item 9. Changes in and Disagreements on Accounting and Financial
Disclosure
None.
Item 10. Submission of Matters to a Vote of Securities Holders
None.
Item 11. Compliance with Section 16(a) of the Exchange Act
There are no equity securities registered pursuant to Section 12 of the
Exchange Act.
Item 12. Reports on Form 8-K
The registrant filed no reports on Form 8-K during the last quarter of the
period covered by this report.
PART F/S
Item 13. Financial Statements
The Partnership's Financial Statements for the period January 1, 1996, to
December 31, 1996, together with the opinion of the accountants thereon,
are on pages 20 through 27 hereof.
PART III
Item 14. Exhibits
(a) Exhibits
See Exhibit Index on page 28.
EXHIBIT INDEX
Description Location
4(a) Certificate of Limited Partnership for Previously filed in the
Atlas-Energy for the Nineties-Public #3 Form 10-KSB for the
period ending
December 31, 1994 and
received on March 31, 1995.
4(b) Amended and Restated Certificate Previously filed in the Form
and Agreement of Limited Partnership 10-KSB for the period ending
for Atlas-Energy for the Nineties-Public December 31, 1994 and
#3 Ltd. dated December 31, 1994 received on March 31, 1995.
10(a) Drilling and Operating Agreement with Previously filed in the Form
10-KSB for the period ending
December 31, 1995 and
received on April 12, 1996.
23(a) Consent of McLaughlin & Courson Page 30
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Atlas-Energy for the Nineties-Public #3 Ltd.
By: (Signature and Title): Atlas Resources, Inc., Managing General
Partner
By (Signature and Title):
James R. O'Mara, President, Chief Executive
Officer and a Director
Date: March 27, 1997
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By (Signature and Title):
Charles T. Koval, Chairman of the Board
and a Director
Date: March 27, 1997
By (Signature and Title):
James R. O'Mara, President, Chief
Executive Officer and a Director
Date: March 27, 1997
By (Signature and Title):
Bruce M. Wolf, General Counsel,
Secretary and a Director
Date: March 27, 1997
By (Signature and Title):
Tony C. Banks, Vice President of Finance
and Chief Financial Officer
Date: March 27, 1997
Supplemental information to be Furnished
With Reports Filed Pursuant to Section 15(d)
of the Exchange Act by Non-reporting Issuers
An annual report will be furnished to security holders subsequent to the
filing of this report.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Atlas-Energy for the Nineties-Public #3 Ltd.
By: (Signature and Title): Atlas Resources, Inc., Managing General
Partner
By (Signature and Title): /s/ James R. O'Mara
James R. O'Mara, President, Chief Executive
Officer and a Director
Date: March 27, 1997
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By (Signature and Title): /s/ Charles T. Koval
Charles T. Koval, Chairman of the Board
and a Director
Date: March 27, 1997
By (Signature and Title): /s/ James R. O'Mara
James R. O'Mara, President, Chief Executive
Officer and a Director
Date: March 27, 1997
By (Signature and Title): /s/ Bruce M. Wolf
Bruce M. Wolf, General Counsel,
Secretary and a Director
Date: March 27, 1997
By (Signature and Title): /s/ Tony C. Banks
Tony C. Banks, Vice President of Finance
and Chief Financial Officer
Date: March 27, 1997
Supplemental information to be Furnished
With Reports Filed Pursuant to Section 15(d)
of the Exchange Act by Non-reporting Issuers
An annual report will be furnished to security holders subsequent to the
filing of this report.
============================================================================
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #3 LTD. 12-31-96
AUDITED FINANCIAL STATEMENTS
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #3 LTD.
A PENNSYLVANIA LIMITED PARTNERSHIP
DECEMBER 31, 1996
- -----------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To The Partners
Atlas-Energy for the Nineties-Public #3 Ltd.
A Pennsylvania Limited Partnership
We have audited the accompanying balance sheets of Atlas-Energy for
the Nineties-Public #3 Ltd., A Pennsylvania Limited Partnership as of
December 31, 1996 and 1995 and the related statements of income, changes in
partners' capital accounts and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Atlas-Energy
for the Nineties-Public #3 Ltd., A Pennsylvania Limited Partnership as of
December 31, 1996 and 1995 and the results of its operations, changes in
partners' capital accounts and cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ McLaughlin & Courson
--------------------------
McLaughlin & Courson
Pittsburgh, Pennsylvania
February 11, 1997
- --------------------------------------------------------------------------
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #3 LTD.
A PENNSYLVANIA LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
DECEMBER 31,
1996 1995
Cash $ 59,207 $ 22,996
Accounts receivable 246,001 387,590
Oil and gas wells and leases 5,881,534 5,881,534
Less accumulated depletion and depreciation (1,705,697) (809,590)
----------- ----------
4,175,837 5,071,944
Organizational and syndication costs, net of
accumulated amortization of $252,320 and
$119,761, respectively
617,721 750,280
----------- ----------
$ 5,098,766 $6,232,810
=========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 9,245 $ 8,313
Partners' capital 5,089,521 6,224,497
----------- ----------
$ 5,098,766 $6,232,810
=========== ==========
STATEMENTS OF INCOME
YEAR ENDED
DECEMBER 31
1996 1995
REVENUE
Natural gas sales $ 1,423,319 $1,099,100
Less direct operating costs:
Royalty interests 175,529 134,875
Other 107,766 102,942
---------- ----------
283,295 237,817
---------- ----------
Net production revenues 1,140,024 861,283
Interest income 10,814 3,293
EXPENSES
Depletion and depreciation of oil
and gas wells and leases 896,107 809,590
Amortization of organizational and
syndication costs 132,559 119,761
General and administrative fees 21,704 17,768
Professional fees 14,430 12,592
Loss on disposal of equipment -0- 10,330
Miscellaneous 1,080 3,224
---------- ----------
1,065,880 973,265
---------- ----------
NET INCOME (LOSS) $ 84,958 $ (108,689)
========== ==========
See notes to financial statements
==========================================================================
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #3 LTD.
A PENNSYLVANIA LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL ACCOUNTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
MANAGING
GENERAL OTHER
PARTNER PARTNERS TOTAL
BALANCE AT JANUARY 1, 1995 $1,024,030 $5,810,260 $6,834,290
Participation in revenue and expenses:
Net production revenues 215,321 645,962 861,283
Interest income 622 2,671 3,293
Depletion and depreciation:
Oil and gas wells (7,965) (788,493) (796,458)
Leases (13,132) -0- (13,132)
Amortization (119,761) -0- (119,761)
Loss on disposal of equipment (103) (10,227) (10,330)
Other expenses (8,396) (25,188) (33,584)
---------- ---------- ----------
66,586 (175,275) (108,689)
Distributions (122,710) (378,394) (501,104)
---------- ---------- ----------
BALANCE AT DECEMBER 31, 1995 967,906 5,256,591 6,224,497
Participation in revenue and expenses:
Net production revenues 285,006 855,018 1,140,024
Interest income 2,703 8,111 10,814
Depletion and depreciation:
Oil and gas wells (8,816) (872,756) (881,572)
Leases (14,535) -0- (14,535)
Amortization (132,559) -0- (132,559)
Other expenses (9,303) (27,911) (37,214)
---------- ---------- ----------
122,496 (37,538) 84,958
Distributions (305,083) (914,851) (1,219,934)
---------- ---------- ----------
BALANCE AT DECEMBER 31, 1996 $ 785,319 $4,304,202 $5,089,521
========== ========== ==========
See notes to financial statements
==========================================================================
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #3 LTD.
A PENNSYLVANIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
YEAR ENDING
DECEMBER 31,
1996 1995
Cash flows from operating activities:
Net income (loss) $ 84,958 $(108,689)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depletion and depreciation of oil and gas
wells and leases 896,107 809,590
Amortization 132,559 119,761
Loss on disposal of equipment -0- 10,330
Decrease (increase) in accounts receivable 141,589 (387,590)
Increase in accounts payable 932 8,313
---------- ----------
Net cash provided by operating activities 1,256,145 451,715
Cash flows from investing activities:
Proceeds from disposal of equipment -0- 62,400
Cash flows from financing activities:
Capital distributions (1,219,934) (501,104)
---------- ----------
Net increase in cash 36,211 13,011
Cash at beginning of year 22,996 9,985
---------- ----------
Cash at end of year $ 59,207 $ 22,996
========== ==========
See notes to financial statements
=============================================================================
NOTES TO FINANCIAL STATEMENTS
ATLAS-ENERGY FOR THE NINETIES-PUBLIC #3 LTD.
A PENNSYLVANIA LIMITED PARTNERSHIP
DECEMBER 31, 1996
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Atlas-Energy for the Nineties-Public #3 Ltd. (the "Partnership") is a
Pennsylvania limited partnership which includes Atlas Resources, Inc.
("Atlas") of Pittsburgh, Pennsylvania, as Managing General Partner and
Operator, and 396 other investors as either Investor General Partners or
Limited Partners. The Partnership was funded to drill and operate oil and
gas wells located primarily in southwestern Mercer County, Pennsylvania.
At December 31, 1996 the Partnership has working interests in 25.5 wells.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements are prepared in accordance with generally
accepted accounting principles.
The Partnership uses the successful efforts method of accounting for
oil and gas producing activities. Property acquisition costs are
capitalized when incurred. Development costs, including equipment and
intangible drilling costs related to both producing wells and dry holes,
are capitalized. All capitalized costs including organization and
syndication costs are generally depreciated, depleted and amortized on the
unit-of-production method using estimates of proven reserves. Oil and gas
properties are periodically assessed for impairment of value, and losses
recognized at the time of impairment.
3. FEDERAL INCOME TAXES
The Partnership is not treated as a taxable entity for federal income
tax purposes. Any item of income, gain, loss, deduction or credit flows
through to the partners as though each partner had incurred such item
directly. As a result, each partner must take into account his pro rata
share of all items of partnership income and deductions in computing his
federal income tax liability. Many provisions of the federal income tax
laws are complex and subject to various interpretations.
4. PARTICIPATION IN REVENUES AND COSTS
Atlas and the other partners generally participate in revenues and
costs in the following manner:
SUBSCRIBING
ATLAS PARTNERS
---------- --------------
Organization and offering costs 100 % 0 %
Lease costs 100 % 0 %
Revenues 25 % 75 %
Direct operating costs 25 % 75 %
Drilling and completion costs 1 % 99 %
Tax deductions:
Intangible drilling and development
costs 1 % 99 %
Depreciation 1 % 99 %
Depletion allowances 25 % 75 %
5. TRANSACTIONS WITH ATLAS AND ITS AFFILIATES
The Partnership has entered into the following significant
transactions with Atlas and its affiliates.
Drilling contracts to drill and complete Partnership wells at
an anticipated cost of $34.78 per foot on completed wells.
Administrative costs at $75 per well per month
Well supervision fees initially of $275 per well per month plus
the cost of third party materials and services
Gas transportation and marketing charges at competitive rates
which currently is 29 cents per MCF
6. PURCHASE COMMITMENT
Subject to certain conditions, investor partners may present their
interests beginning in 1998 for purchase by Atlas. Atlas is not obligated
to purchase more then 5% of the units in any calendar year.
7. SUBORDINATION OF MANAGING GENERAL PARTNER'S REVENUE SHARE
Atlas will subordinate a part of its partnership revenues in an
amount up to 10% of production revenues of the Partnership net of related
operating costs, administrative costs and well supervision fees to the
receipt by participants of cash distributions from the Partnership equal to
at least 10% of their agreed subscriptions of $5,815,000 determined on a
cumulative basis, in each of the first five years of Partnership
operations, commencing with the first distribution of revenues to the
Participants (June, 1995).
Cash distributions to participants for the subordination year ended
in 1996 amounted to $624,638.
Cash distributions to participants in 1996 for the subordination year
ending in 1997 amounted to $652,274.
8. INDEMNIFICATION
In order to limit the potential liability of the investor general
partners, Atlas and AEG Holdings, Inc. (parent company of Atlas) have
agreed to indemnify each investor general partner from any liability
incurred which exceeds such partner's
share of Partnership assets.
9. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED)
The supplementary information summarized below presents the results
of natural gas and oil activities in accordance with SFAS No. 69,
"Disclosures About Oil and Gas Producing Activities."
No consideration has been given in the following information to the
income tax effect of the activities as the Partnership is not treated as a
taxable entity for income tax purposes.
(1) Production Costs
The following table presents the costs related to natural gas and oil
production activities:
Capitalized costs at December 31: 1996 1995
---------- ----------
Capitalized costs $ 5,881,534 $5,881,534
Accumulated depreciation and depletion (1,705,697) (809,590)
---------- ----------
Net capitalized costs $ 4,175,837 $5,071,944
========== ==========
Costs incurred during the year:
Property acquisition costs - proved
undeveloped properties $ -0- $ -0-
========== ==========
Development costs $ -0- $5,786,134
========== ==========
Property acquisition costs include costs to purchase, lease or
otherwise acquire a property. Development costs include costs to gain
access to and prepare development well locations for drilling, to drill and
equip development wells and to provide facilities to extract, treat, gather
and store oil and gas.
(2) Results of Operations for Producing Activities
The following table presents the results of operations related
to natural gas and oil production for the year ended December 31,
1996 and 1995.
1996 1995
------------ -----------
Revenues $ 1,247,790 $ 964,225
Production costs (107,766) (102,942)
Depreciation and depletion (896,107) (809,590)
------------ -----------
Results of operations from producing
activities $ $243,917 $ 51,693
============ ===========
Depreciation and depletion of natural gas and oil properties
are expensed at unit cost rates calculated annually
based on the estimated volume of recoverable gas and the related
costs.
(3) Reserve Information
The information presented below represents estimates of proved
natural gas and oil reserves. Proved developed reserves represent only
those reserves expected to be recovered from existing wells and support
equipment. Proved undeveloped reserves represent proved reserves expected
to be recovered from new wells after substantial development costs are
incurred. All reserves are located in Eastern Ohio and Western
Pennsylvania.
1996 1995
NATURAL GAS OIL NATURAL GAS OIL
MCF (BARRELS) MCF (BARRELS)
--------------------------------------------------
Proved developed and
undeveloped reserves:
Beginning of period 3,310,827 14,231 -0- -0-
Production (541,403) (247) (496,710) (586)
Revision of previous
estimates 731,616 (11,716) 3,807,537 14,817
---------- ---------- ----------- ------
End of period 3,501,040 2,268 3,310,827 14,231
========== ========== ========== ========
Proved developed reserves:
Beginning of period 3,310,827 14,231 -0- -0-
========= ========== ========== ========
End of period 3,501,040 2,268 3,310,827 14,231
========= ========== ========== ========
9. NATURAL GAS AND OIL PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED)
(4) Standard Measure of Discounted Future Cash Flows
Management cautions that the standard measure of discounted
future cash flows should not be viewed as an indication of the fair market
value of natural gas and oil producing properties, nor of the future cash
flows expected to be generated therefrom. The information presented does
not give recognition to future changes in estimated reserves, selling
prices or costs and has been discounted at an arbitrary rate of 10%.
Estimated future net cash flows from natural gas and oil reserves based on
selling prices and costs at December 31, 1996 and 1995
price levels are as follows:
1996 1995
---------- ----------
Future cash inflows $ 7,490,988 $ 7,676,049
Future production costs (2,521,464) (2,435,934)
Future development costs -0- -0-
---------- ----------
Future net cash flow 4,969,524 5,240,115
10% annual discount for estimated timing
of cash flows (2,333,095) (2,283,480)
---------- ----------
Standardized measure of discounted
future net cash flows
$ 2,636,429 $ 2,956,635
========== ==========
Summary of changes in the standardized measure of discounted future
net cash flows:
Sales of gas and oil produced - net $(1,118,320) $ (830,922)
Development costs incurred -0- 5,881,534
Net purchase of reserves in place -0- (2,093,977)
Net changes in prices, production and
development costs (130,238) -0-
Revisions of previous quantity estimates 550,906 -0-
Accretion of discount 377,446 -0-
----------- ------------
Net (decrease) increase (320,206) 2,956,635
Beginning of period 2,956,635 -0-
----------- ------------
End of period $ 2,636,429 $ 2,956,635
=========== ============
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 59,207
<SECURITIES> 0
<RECEIVABLES> 246,001
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 305,208
<PP&E> 5,881,534
<DEPRECIATION> 1,705,697
<TOTAL-ASSETS> 5,098,766
<CURRENT-LIABILITIES> 9,245
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,098,766
<SALES> 1,423,319
<TOTAL-REVENUES> 1,434,133
<CGS> 1,179,402
<TOTAL-COSTS> 1,179,402
<OTHER-EXPENSES> 169,773
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 84,958
<INCOME-TAX> 0
<INCOME-CONTINUING> 84,958
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,958
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
CONSENT OF INDEPENDENT AUDITOR PRIVATE
FOR ATLAS-ENERGY FOR THE NINETIES-PUBLIC #3 LTD.
The firm, as Independent Certified Public Accountants,
hereby consents to the use of the audit report dated
February 11, 1997 on the balance sheet of Atlas-Energy for
the Nineties-Public #3 Ltd., a Pennsylvania Limited
Partnership as of December 31, 1996, and the related
statements of income, changes in partners' capital accounts
and cash flows for the year then ended, in the U.S.
Securities and Exchange Commission Form 10-KSB and any
amendments thereto for Atlas-Energy for the Nineties-Public
#3 Ltd.
McLaughlin & Courson
Certified Public Accountants
/s/ McLaughlin & Courson
March 25, 1997
Pittsburgh, Pennsylvania
