Mewbourne Energy Partners 02-a 10-Q 2006 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006

Or

¨ TRANSITION REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            

Commission File No. 333-85994

MEWBOURNE ENERGY PARTNERS 02-A, L.P.

Delaware	75-0871949
(State or jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

3901 South Broadway, Tyler, Texas	75701
(Address of principal executive offices)	(Zip code)

Registrant’s Telephone Number, including area code: (903) 561-2900

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ¨    Accelerated filer  ¨    Non-accelerated filer  x

Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Mewbourne Energy Partners 02-A, L.P.

INDEX

		Page No.
Part I -Financial Information
Item 1.	Financial Statements
	Condensed Balance Sheets - September 30, 2006 (Unaudited) and December 31, 2005	3
	Condensed Statements of Operations (Unaudited) - For the three months ended September 30, 2006 and 2005 and the nine months ended September 30, 2006 and 2005	4
	Condensed Statements of Cash Flows (Unaudited) - For the nine months ended September 30, 2006 and 2005	5
	Condensed Statement of Changes In Partners’ Capital (Unaudited) - For the nine months ended September 30, 2006	6
	Notes to Condensed Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	13
Item 4.	Disclosure Controls and Procedures	13
Part II -Other Information
Item 1.	Legal Proceedings	13
Item 6.	Exhibits and Reports on Form 8-K	14

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Mewbourne Energy Partners 02-A, L.P.

Part I – Financial Information

Item 1. Financial Statements

CONDENSED BALANCE SHEETS

September 30, 2006 and December 31, 2005

	September 30, 2006			December 31, 2005
	(Unaudited)
ASSETS
Cash	$	2,780		$	913
Accounts receivable, affiliate		563,511			923,564
Total current assets		566,291			924,477
Oil and gas properties at cost, full cost method		17,162,507			17,050,211
Less accumulated depreciation, depletion, amortization and impairment		(10,982,747	)		(5,346,486	)
		6,179,760			11,703,725
Total assets	$	6,746,051		$	12,628,202
LIABILITIES AND PARTNERS’ CAPITAL
Accounts payable, affiliate	$	231,043		$	134,647
Asset retirement obligation plugging liability		427,674			414,488
Partners’ capital		6,087,334			12,079,067
Total liabilities and partners’ capital	$	6,746,051		$	12,628,202

The accompanying notes are an integral part of the financial statements.

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Mewbourne Energy Partners 02-A, L.P.

CONDENSED STATEMENTS OF OPERATIONS

For the three months ended September 30, 2006 and 2005 and

the nine months ended September 30, 2006 and 2005

(Unaudited)

	Three Months Ended September 30,					Nine months Ended September 30,
	2006			2005		2006			2005
Revenues and other income:
Oil and gas sales	$	826,843		$	1,272,683	$	2,676,005		$	3,499,755
Interest income		518			372		1,984			1,462
Total revenues and other income		827,361			1,273,055		2,677,989			3,501,217
Expenses:
Lease operating expense		158,357			111,184		380,795			325,863
Production taxes		67,251			102,801		211,490			282,104
Administrative and general expense		39,300			43,655		155,626			152,431
Depreciation, depletion, and amortization		231,654			277,396		740,749			897,891
Cost ceiling write-down		3,605,887			—		4,895,512			—
Asset retirement obligation accretion		4,395			4,217		13,186			12,650
Net income (loss)	$	(3,279,483	)	$	733,802	$	(3,719,369	)	$	1,830,278
Basic and diluted net income (loss)per limited partner interest (16,072 interests outstanding)	$	(204.05	)	$	45.66	$	(231.42	)	$	113.88

The accompanying notes are an integral part of the financial statements.

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Mewbourne Energy Partners 02-A, L.P.

CONDENSED STATEMENTS OF CASH FLOWS

For the nine months ended September 30, 2006 and 2005

(Unaudited)

	2006			2005
Cash flows from operating activities:
Net income (loss)	$	(3,719,369	)	$	1,830,278
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion, and amortization		740,749			897,891
Cost ceiling write-down		4,895,512			—
Asset retirement obligation accretion		13,186			12,650
Changes in operating assets and liabilities:
Accounts receivable, affiliate		360,053			35,460
Accounts payable, affiliate		96,396			46,113
Net cash provided by operating activities		2,386,527			2,822,392
Cash flows from investing activities:
Purchase and development of oil and gas properties		(112,296	)		(14,193	)
Net cash used in investing activities		(112,296	)		(14,193	)
Cash flows from financing activities:
Cash distributions to partners		(2,272,364	)		(2,779,518	)
Net cash used in financing activities		(2,272,364	)		(2,779,518	)
Net increase in cash		1,867			28,681
Cash, beginning of period		913			707
Cash, end of period	$	2,780		$	29,388

The accompanying notes are an integral part of the financial statements.

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Mewbourne Energy Partners 02-A, L.P.

CONDENSED STATEMENT OF CHANGES IN PARTNERS’ CAPITAL

For the nine months ended September 30, 2006

(Unaudited)

	Partners’ Capital
Balance at December 31, 2005	$	12,079,067
Cash distributions		(2,272,364	)
Net loss		(3,719,369	)
Balance at September 30, 2006	$	6,087,334

The accompanying notes are an integral part of the financial statements.

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Mewbourne Energy Partners 02-A, L.P.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1. Accounting Policies

Reference is hereby made to the Registrant’s Annual Report on Form 10-K for 2005, which contains a summary of significant accounting policies followed by the partnership in the preparation of its financial statements. These policies are also followed in preparing the quarterly report included herein.

In the opinion of management, the accompanying unaudited financial statements contain all adjustments of a normal recurring nature necessary to present fairly our financial position, results of operations, cash flows and partners’ capital for the periods presented. The results of operations for the interim periods are not necessarily indicative of the final results expected for the full year.

2. Accounting for Oil and Gas Producing Activities

Mewbourne Energy Partners 02-A, L.P., (the “Registrant” or the “Partnership”), a Delaware limited partnership is engaged primarily in oil and gas development and production in Texas, Oklahoma, and New Mexico, and was organized on February 27, 2002. The offering of limited and general partnership interests began June 26, 2002 as a part of an offering registered under the name Mewbourne Energy Partners 02-03 Drilling Programs and concluded October 10, 2002, with total investor contributions of $16,072,000 originally being sold to 647 subscribers of which $14,667,000 were sold to 597 subscribers as general partner interests and $1,405,000 were sold to 50 subscribers as limited partner interests. During 2004 all general partner interests, other than the managing general partner, were converted to limited partner interests and accordingly all partnership interests have been reflected in the accompanying financial statements as limited partner interests.

The Partnership follows the full-cost method of accounting for its oil and gas activities. Under the full-cost method, all productive and non-productive costs incurred in the acquisition, exploration and development of oil and gas properties are capitalized. Depreciation, depletion and amortization of oil and gas properties subject to amortization is computed on the units-of-production method based on the proved reserves underlying the oil and gas properties. At September 30, 2006 and 2005 all capitalized costs were subject to amortization. Proceeds from the sale or other disposition of properties are credited to the full cost pool. Gains and losses on the sale or other disposition of properties are not recognized unless such adjustments would significantly alter the relationship between capitalized costs and the proved oil and gas reserves. Capitalized costs are subject to a quarterly ceiling test that limits such costs to the aggregate of the present value of future net cash flows of proved reserves and the lower of cost or fair value of unproved properties. There was a cost ceiling write-down of $4,895,512 for the nine month period ended September 30, 2006. The cost ceiling write-down was principally caused by lower gas prices at September 30, 2006.

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3. Asset Retirement Obligations

In accordance with Financial Accounting Standards Board Statement No. 143, “Accounting for Asset Retirement Obligations,” the Partnership has recognized an estimated liability for future plugging and abandonment costs. The estimated liability is based on historical experience and estimated well life. The liability is discounted using the credit-adjusted risk-free rate. Revisions to the liability could occur due to changes in well plugging and abandonment costs or well useful lives, or if federal or state regulators enact new well restoration requirements. The Partnership recognizes accretion expense in connection with the discounted liability over the remaining life of the well.

A reconciliation of the Partnership’s liability for well plugging and abandonment costs for the nine months ended September 30, 2006, is as follows:

Balance, beginning of period	$	414,488
Accretion expense		13,186
Balance, end of period	$	427,674

4. Related Party Transactions

Mewbourne Development Corporation (“MD”) is managing general partner and Mewbourne Oil Company (“MOC”) is operator of oil and gas properties owned by the Partnership. Mewbourne Holdings, Inc. is the parent of both MD and MOC. Substantially all transactions are with MD and MOC.

In the ordinary course of business, MOC will incur certain costs that will be passed on to well owners of the well for which the costs were incurred. The Partnership will receive their portion of these costs based upon their ownership in each well incurring the costs. These costs are referred to as operator charges and are standard and customary in the oil and gas industry. Operator charges include recovery of gas marketing costs, fixed rate overhead, supervision, pumping, and equipment furnished by the operator. Services and operator charges are billed in accordance with the program and partnership agreements.

In general, during any particular calendar year the total amount of administrative expenses allocated to the Partnership by MOC shall not exceed the greater of (a) 3.5% of the Partnership’s gross revenue from the sale of oil and natural gas production during each year (calculated without any deduction for operating costs or other costs and expenses) or (b) the sum of $50,000 plus .25% of the capital contributions of limited and general partners.

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The Partnership participates in oil and gas activities through a Drilling Program Agreement (the “Program”). The Partnership and MD are parties to the Program. The costs and revenues of the Program are allocated to MD and the Partnership as follows:

	Partnership		MD
Revenues:
Proceeds from disposition of depreciable and depletable properties	60	%	40	%
All other revenues	60	%	40	%
Costs and expenses:
Organization and offering costs (1)	0	%	100	%
Lease acquisition costs (1)	0	%	100	%
Tangible and intangible drilling costs (1)	100	%	0	%
Operating costs, reporting and legal expenses, general and administrative expenses and all other costs	60	%	40	%

(1) As noted above, pursuant to the Program, MD must contribute 100% of organization and offering costs and lease acquisition costs which approximate 30% of total capital costs. To the extent that organization and offering costs and lease acquisition costs are less than 30% of total capital costs, MD is responsible for tangible drilling costs until its share of the Program’s total capital costs reaches approximately 30%.

The Partnership’s financial statements reflect its respective proportionate interest in the Program.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and Capital Resources

Mewbourne Energy Partners 02-A, L.P. was formed February 27, 2002. The offering of limited and general partnership interests began June 26, 2002 and concluded October 10, 2002, with total investor contributions of $16,072,000. During 2004, all general partner interests were converted to limited partner interests and accordingly all partnership interests have been reflected in the accompanying financial statements as limited partner interests.

The Partnership has acquired interests in oil and gas prospects for the purpose of development drilling. The Partnership participated in the drilling of 44 wells. 39 wells were productive and 5 wells were abandoned.

Future capital requirements and operations will be conducted with available funds generated from oil and gas activities. No bank borrowing is anticipated. The Partnership had net working capital of $335,248 at September 30, 2006.

During the nine months ended September 30, 2006, the Partnership made cash distributions to the investor partners in the amount of $2,272,364 as compared to $2,779,518 for the nine months ended September 30, 2005. The Partnership expects that cash distributions will continue during 2006 as additional oil and gas revenues are sufficient to produce cash flows from operations.

The sale of crude oil and natural gas produced by the Partnership will be affected by a number of factors that are beyond the Partnership’s control. These factors include the price of crude oil and natural gas, the fluctuating supply of and demand for these products, competitive fuels, refining, transportation, extensive federal and state regulations governing the production and sale of crude oil and natural gas, and other competitive conditions. It is impossible to predict with any certainty the future effect of these factors on the Partnership.

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Results of Operations

Three months ended September 30, 2006 as compared to the three months ended September 30, 2005.

Oil and gas revenues.

	Three Months Ended September 30,
	2006		2005
Oil and gas sales	$	826,843	$	1,272,683
Barrels produced		898		1,053
Mcf produced		132,198		161,661
Average price/bbl	$	67.78	$	61.00
Average price/mcf	$	5.79	$	7.48

As shown in the table above, total oil and gas sales decreased $445,840 (35.0%) for the three months ended September 30, 2006 as compared to the three months ended September 30, 2005. Of this decrease, $10,539, $170,022, and $272,423, respectively, were related to decreases in volumes of oil and gas sold and decreases in the average prices of gas sold. Volumes of oil and gas sold decreased 155 bbls of oil and 29,463 mcf of gas for the three months ended September 30, 2006 as compared to the three months ended September 30, 2005. The decrease in volumes of oil sold was primarily due to a substantial decline in the production of two wells. The decrease in volumes of gas sold was primarily due to (i) normal declines in production and (ii) a substantial decline in the production of one well. The wells with a substantial decline in production are not expected to return to previous levels of production. Average gas prices decreased to $5.79 per mcf for the three months ended September 30, 2006 from $7.48 per mcf for the three months ended September 30, 2005. These decreases were partially offset by an increase of $7,144 related to an increase in the average price of oil sold. Average oil prices increased to $67.78 per bbl for the three months ended September 30, 2006 from $61.00 per bbl for the three months ended September 30, 2005.

Lease operations and production taxes. Lease operating expense during the period ended September 30, 2006 totaled $158,357 compared to $111,184 for the period ended September 30, 2005. Production taxes during the period ended September 30, 2006 total $67,251 compared to $102,801 for the period ended September 30, 2005. Lease operating expense increased primarily due to well repair and maintenance expenses for one well in the period ended September 30, 2006. The decrease in production taxes is due to the decrease in oil and gas revenues.

Depreciation, depletion and amortization. Depreciation, depletion and amortization for the three month period ended September 30, 2006 total $231,654 compared to $277,396 for the three month period ended September 30, 2005. The decrease is due to the decline in production volumes.

Cost ceiling write-down. There was a cost ceiling write-down of $3,605,887 for the three month period ended September 30, 2006. The cost ceiling write-down was caused by lower gas prices at September 30, 2006. There was no cost ceiling write-down for the three month period ended September 30, 2005.

Administrative and general expense. Administrative and general expense for the three month period ended September 30, 2006 total $39,300 compared to $43,655 for the period ended September 30, 2005. The overall decrease is due to reduced administrative charges caused by decreased oil and gas revenues since administrative charges are a percentage of gross revenue.

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Nine months ended September 30, 2006 as compared to the nine months ended September 30, 2005.

Oil and gas revenues.

	Nine months Ended September 30,
	2006		2005
Oil and gas sales	$	2,676,005	$	3,499,755
Barrels produced		2,697		3,534
Mcf produced		416,081		533,785
Average price/bbl	$	65.64	$	52.80
Average price/mcf	$	6.01	$	6.21

As shown in the table above, total oil and gas sales decreased $823,750 (23.5%) for the nine months ended September 30, 2006 as compared to the nine months ended September 30, 2005. Of this decrease, $54,947, $709,056, and $105,119, respectively, were related to decreases in volumes of oil and gas sold and decreases in the average prices of gas sold. Volumes of oil and gas sold decreased 837 bbls of oil and 117,704 mcf of gas for the nine months ended September 30, 2006 as compared to the nine months ended September 30, 2005. The decrease in volumes of oil sold was primarily due to a substantial decline in the production of two wells. The decrease in volumes of gas sold was primarily due to (i) normal declines in production and (ii) a substantial decline in the production of one well. The wells with a substantial decline in production are not expected to return to previous levels of production. Average gas prices decreased to $6.01 per mcf for the nine months ended September 30, 2006 from $6.21 per mcf for the nine months ended September 30, 2005. These decreases were partially offset by an increase of $45,372 related to an increase in the average price of oil sold. Average oil prices increased to $65.64 per bbl for the nine months ended September 30, 2006 from $52.80 per bbl for the nine months ended September 30, 2005.

Lease operations and production taxes. Lease operating expense during the period ended September 30, 2006 totaled $380,795 compared to $325,863 for the period ended September 30, 2005. Production taxes during the period ended September 30, 2006 totaled $211,490 as compared to $282,104 for the period ended September 30, 2005. Lease operating expense increased primarily due to well repair and maintenance expenses for one well in the period ended September 30, 2006. The decrease in production taxes is due to the decrease in oil and gas revenues.

Depreciation, depletion and amortization. Depreciation, depletion and amortization for the nine month period ended September 30, 2006 total $740,749 compared to $897,891 for the nine month period ended September 30, 2005. The decrease is due to the decline in production volumes.

Cost ceiling write-down. There was a cost ceiling write-down of $4,895,512 for the nine month period ended September 30, 2006. The cost ceiling write-down was caused by lower gas prices at September 30, 2006. There was no cost ceiling write-down for the nine month period ended September 30, 2005.

Administrative and general expense. Administrative and general expense for the nine month period ended September 30, 2006 total $155,626 compared to $152,431 for the period ended September 30, 2005. The overall increase is due to increased administrative expenses allocated to the partnership by “MOC” and higher general expenses for reporting costs.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

1. Interest Rate Risk

The Partnership Agreement allows borrowings from banks or other financial sources of up to 20% of the total capital contributions to the Partnership without investor approval. Should the Partnership elect to borrow monies for additional development activity on Partnership properties, it will be subject to the interest rate risk inherent in borrowing activities. Changes in interest rates could significantly affect the Partnership’s results of operations and the amount of net cash flow available for partner distributions. Also, to the extent that changes in interest rates affect general economic conditions, the Partnership will be affected by such changes.

2. Commodity Price Risk

The Partnership does not expect to engage in commodity futures trading or hedging activities or enter into derivative financial instrument transactions for trading or other speculative purposes. The Partnership currently expects to sell a vast majority of its production from successful oil and gas wells on a month-to-month basis at market prices. Accordingly, the Partnership is at risk for the volatility in commodity prices inherent in the oil and gas industry, and the level of commodity prices will have a significant impact on the Partnership’s results of operations. For the nine months ended September 30, 2006, a 10% change in the price received for natural gas production would have had an approximate $250,000 impact on our revenue.

3. Exchange Rate Risk

The Partnership currently has no income from foreign sources or operations in foreign countries that would subject it to currency exchange rate risk. The Partnership does not currently expect to purchase any prospects located outside of either the United States or United States coastal waters in the Gulf of Mexico.

Item 4. Disclosure Controls and Procedures

MD maintains a system of controls and procedures designed to provide reasonable assurance as to the reliability of the financial statements and other disclosures included in this report, as well as to safeguard assets from unauthorized use or disposition. MD’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of its disclosure controls and procedures with the assistance and participation of other members of management. Based upon that evaluation, MD’s Chief Executive Officer and Chief Financial Officer concluded that its disclosure controls and procedures are effective for gathering, analyzing and disclosing the information the Partnership is required to disclose in the reports it files under the Securities Exchange Act of 1934 within the time periods specified in the SEC’s rules and forms. There have been no changes in MDC’s internal controls or in other factors which has materially affected, or is reasonable likely to materially affect the internal controls over financial reporting.

Part II – Other Information

Item 1. Legal Proceedings

None.

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Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits filed herewith.

31.1	Certification of CEO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
31.2	Certification of CFO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
32.1	Certification of CEO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
32.2	Certification of CFO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

None.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.

	Mewbourne Energy Partners 02-A, L.P.
	By:	Mewbourne Development Corporation
		Managing General Partner
Date: November 14, 2006
	By:	/s/ Alan Clark
		Alan Clark, Treasurer

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INDEX TO EXHIBITS

EXHIBIT NUMBER	DESCRIPTION
31.1	Certification of CEO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
31.2	Certification of CFO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
32.1	Certification of CEO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
32.2	Certification of CFO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

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