UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2023
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________to ________
Commission File No. 000-54370
MEWBOURNE ENERGY PARTNERS 10-A, L.P.
| Delaware | | 27-1903816 |
| (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) |
Securities registered pursuant to Section 12(b) of the Exchange Act: None
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company, “and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer | ☐ |
| Non-accelerated filer ☒ | Smaller reporting company | ☒ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
MEWBOURNE ENERGY PARTNERS 10-A, L.P.
MEWBOURNE ENERGY PARTNERS 10-A, L.P.
Part I - Financial Information
Item 1. Financial Statements
CONDENSED BALANCE SHEETS
| | | June 30, 2023 | | | December 31, 2022 | |
| | | (Unaudited) | | | | |
| ASSETS | | | | | | |
| | | | | | | |
| Cash | | $ | 57,019 | | | $ | 134,804 | |
| Accounts receivable, affiliate | | | 1,852,002 | | | | 705,494 | |
| Prepaid state taxes | | | 14,128 | | | | 8,154 | |
| Total current assets | | | 1,923,149 | | | | 848,452 | |
| | | | | | | | | |
| Oil and gas properties at cost, full-cost method | | | 69,545,324 | | | | 69,584,926 | |
| Less accumulated depreciation, depletion, amortization and cost ceiling write-downs | | | (67,052,305 | ) | | | (66,933,389 | ) |
| Assets, Noncurrent | | | 2,493,019 | | | | 2,651,537 | |
| | | | | | | | | |
| Total assets | | $ | 4,416,168 | | | $ | 3,499,989 | |
| | | | | | | | | |
| LIABILITIES AND PARTNERS’ CAPITAL | | | | | | | | |
| | | | | | | | | |
| Accounts payable, affiliate | | $ | 364,289 | | | $ | 171,177 | |
| Total current liabilities | | | 364,289 | | | | 171,177 | |
| | | | | | | | | |
| Asset retirement obligation | | | 1,004,573 | | | | 992,432 | |
| Total liabilities | | | 1,368,862 | | | | 1,163,609 | |
| | | | | | | | | |
| Partners’ capital | | | 3,047,306 | | | | 2,336,380 | |
| | | | | | | | | |
| Total liabilities and partners’ capital | | $ | 4,416,168 | | | $ | 3,499,989 | |
The accompanying notes are an integral part of the financial statements.
MEWBOURNE ENERGY PARTNERS 10-A, L.P.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| | | | | | | | | | | | | | | | | |
| | | For the
Three Months Ended
June 30, | | | For the
Six Months Ended
June 30, | |
| | | 2023 | | | 2022 | | | 2023 | | | 2022 | |
| Revenues: | | | | | | | | | | | | |
| Oil sales | | $ | 1,986,589 | | | $ | 1,134,310 | | | $ | 2,791,235 | | | $ | 2,190,622 | |
| Natural gas sales | | | 407,186 | | | | 544,535 | | | | 636,141 | | | | 1,025,274 | |
| Total revenues | | | 2,393,775 | | | | 1,678,845 | | | | 3,427,376 | | | | 3,215,896 | |
| | | | | | | | | | | | | | | | | |
| Expenses: | | | | | | | | | | | | | | | | |
| Lease operating expense | | | 381,521 | | | | 262,461 | | | | 704,884 | | | | 489,817 | |
| Production taxes | | | 202,208 | | | | 130,862 | | | | 282,254 | | | | 253,812 | |
| Administrative and general expense | | | 99,967 | | | | 78,290 | | | | 176,945 | | | | 173,046 | |
| Depreciation, depletion, and amortization | | | 89,718 | | | | 48,507 | | | | 131,898 | | | | 104,639 | |
| Asset retirement obligation accretion | | | 10,503 | | | | 10,308 | | | | 20,992 | | | | 20,608 | |
| Total expenses | | | 783,917 | | | | 530,428 | | | | 1,316,973 | | | | 1,041,922 | |
| | | | | | | | | | | | | | | | | |
| Net income | | $ | 1,609,858 | | | $ | 1,148,417 | | | $ | 2,110,403 | | | $ | 2,173,974 | |
The accompanying notes are an integral part of the financial statements.
MEWBOURNE ENERGY PARTNERS 10-A, L.P.
CONDENSED STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL
(Unaudited)
| | | | | | | | | | | | | | | | | |
| | | For the
Three Months Ended
June 30, | | | For the
Six Months Ended
June 30, | |
| | | 2023 | | | 2022 | | | 2023 | | | 2022 | |
| Beginning balance | | $ | 2,120,185 | | | $ | 2,755,901 | | | $ | 2,336,380 | | | $ | 2,821,371 | |
| | | | | | | | | | | | | | | | | |
| Cash distributions | | | (682,737 | ) | | | (1,250,000 | ) | | | (1,399,477 | ) | | | (2,341,027 | ) |
| Net income | | | 1,609,858 | | | | 1,148,417 | | | | 2,110,403 | | | | 2,173,974 | |
| | | | | | | | | | | | | | | | | |
| Ending balance | | $ | 3,047,306 | | | $ | 2,654,318 | | | $ | 3,047,306 | | | $ | 2,654,318 | |
The accompanying notes are an integral part of the financial statements.
MEWBOURNE ENERGY PARTNERS 10-A, L.P.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | | |
| | | Six Months Ended
June 30, | |
| | | 2023 | | | 2022 | |
| Cash flows from operating activities: | | | | | | | | |
| Net income | | $ | 2,110,403 | | | $ | 2,173,974 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | |
| Depreciation, depletion, and amortization | | | 131,898 | | | | 104,639 | |
| Asset retirement obligation accretion | | | 20,992 | | | | 20,608 | |
| Plugging and abandonment cost paid from asset retirement obligation | | | (18,328 | ) | | | — | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Accounts receivable, affiliate | | | (1,146,508 | ) | | | 38,868 | |
| Prepaid state taxes | | | (5,974 | ) | | | (3,051 | ) |
| Accounts payable, affiliate | | | 182,992 | | | | (1,157 | ) |
| Net cash provided by operating activities | | | 1,275,475 | | | | 2,333,881 | |
| | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
| Operator credit received for oil and gas properties | | | 46,920 | | | | — | |
| Development of oil and gas properties | | | (703 | ) | | | (20,249 | ) |
| Net cash provided by (used in) investing activities | | | 46,217 | | | | (20,249 | ) |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Cash distributions to partners | | | (1,399,477 | ) | | | (2,341,027 | ) |
| Net cash used in financing activities | | | (1,399,477 | ) | | | (2,341,027 | ) |
| | | | | | | | | |
| Net decrease in cash | | | (77,785 | ) | | | (27,395 | ) |
| Cash, beginning of period | | | 134,804 | | | | 116,521 | |
| | | | | | | | | |
| Cash, end of period | | $ | 57,019 | | | $ | 89,126 | |
| | | | | | | | | |
| Supplemental Cash Flow Information: | | | | | | | | |
| Change to net oil & gas properties related to asset retirement obligation liabilities | | $ | 9,477 | | | $ | 7,467 | |
| | | | | | | | | |
| Changes to oil and gas properties included in payable, affiliate | | $ | 10,120 | | | $ | 94 | |
The accompanying notes are an integral part of the financial statements.
MEWBOURNE ENERGY PARTNERS 10-A, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
| 1. | Description of Business |
Mewbourne Energy Partners 10-A, L.P., (the “Registrant” or the “Partnership”), a Delaware limited partnership engaged primarily in oil and natural gas development and production in Texas, Oklahoma, and New Mexico, was organized on February 9, 2010. During 2012, all general partner equity interests were converted to limited partner equity interests. In accordance with the laws of the State of Delaware, Mewbourne Development Corporation (“MD”), a Delaware Corporation, has been appointed as the Partnership’s managing general partner. MD has no significant equity interest in the Partnership.
| 2. | Summary of Significant Accounting Policies |
Reference is hereby made to the financial statements within the Registrant’s Annual Report on Form 10-K for 2022, 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 these financial statements within 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. In preparing these financial statements, the Partnership has evaluated subsequent events for potential recognition and disclosure through the date the financial statements were issued.
Full Cost Accounting
The Partnership follows the full-cost method of accounting for its oil and natural gas activities. Under the full-cost method, all productive and non-productive costs incurred in the acquisition, exploration and development of oil and natural gas properties are capitalized. Depreciation, depletion and amortization of oil and natural gas properties subject to amortization is computed on the units-of-production method based on the proved reserves underlying the oil and natural gas properties. At June 30, 2023 and 2022, 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 are not recognized unless such adjustments would significantly alter the relationship between capitalized costs and the proved oil and natural gas reserves. Capitalized costs are subject to a quarterly ceiling test that limits such costs to the aggregate of the present value of estimated future net cash flows of proved reserves, computed using the 12-month unweighted average of first-day-of the-month oil and natural gas prices, adjusted by a pricing differential associated with the particular property discounted at 10%, and the lower of cost or fair value of unproved properties. If unamortized costs capitalized exceed the ceiling, the excess is charged to expense in the period the excess occurs. There were no cost ceiling write-downs during the six months ended June 30, 2023 or 2022.
New Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments. The standard changes how entities will measure credit losses for most financial assets, including accounts and notes receivables. The new standard replaces the existing incurred loss impairment methodology with a methodology that requires consideration of a broader range of reasonable and supportable forward-looking information to estimate all expected credit losses. The updated guidance is effective for the Partnership for annual and quarterly reporting periods beginning after December 15, 2022. The adoption of this guidance did not have a material impact on the Partnership’s financial statements or disclosures.
| 3. | Asset Retirement Obligations |
The Partnership has recognized an estimated asset retirement obligation liability (“ARO”) for future plugging and abandonment costs. A liability for the estimated fair value of the future plugging and abandonment costs is recorded with a corresponding increase in the full cost pool at the time a new well is drilled. Accretion expense associated with estimated plugging and abandonment costs is recognized in accordance with the full cost methodology.
The Partnership estimates a liability for plugging and abandonment costs 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 as of and for the three months ended June 30, 2023 and the year ended December 31, 2022 is as follows:
| | | 2023 | | | 2022 | |
| Balance, beginning of period | | $ | 992,432 | | | $ | 958,662 | |
| Liabilities incurred | | | 914 | | | | 7,590 | |
| Liabilities reduced due to settlements and plugging and abandonments | | | (9,765 | ) | | | (14,536 | ) |
| Accretion expense | | | 20,992 | | | | 40,716 | |
| Balance, end of period | | $ | 1,004,573 | | | $ | 992,432 | |
| 4. | Oil and Natural Gas Sales |
The Partnership’s oil and condensate production is sold and revenue recognized at or near the Partnership’s wells under short-term purchase contracts at prevailing prices in accordance with arrangements which are customary in the oil industry. Sales of natural gas applicable to the Partnership’s interest are recorded as revenue when the natural gas is metered and title transferred pursuant to the natural gas sales contracts covering the Partnership’s interest in natural gas reserves.
Substantially all the Partnership’s accounts receivable result from oil and natural gas sales by Mewbourne Oil Company (“MOC”) to third parties in the oil and natural gas industry. This concentration of customers may impact the Partnership’s overall credit risk in that these entities may be similarly affected by changes in economic and other conditions. Historically, the Partnership has not experienced significant credit losses on such receivables. No bad debt expense was recorded for the six months ended June 30, 2023 or 2022. The Partnership cannot ensure that such losses will not occur in the future.
The Partnership has only non-operated working interests in oil and natural gas wells and receives monthly net revenue checks from the operator of these oil and natural gas wells. Each unit of oil and natural gas is accounted for as a separate performance obligation. It recognizes revenue for oil and condensate when control transfers to the purchaser at a contractually specified delivery point at or near the wellhead at market prices in accordance with the contractual arrangement. Sales of natural gas applicable to the Partnership’s interest are recorded as revenue when the natural gas is metered and control is transferred pursuant to the natural gas sales contracts covering the Partnership’s interest in natural gas reserves.
Disaggregation of Revenue
The Partnership has identified two material revenue streams in its business: oil sales and natural gas sales. Revenue attributable to each of the Partnership’s identified revenue streams is disaggregated in the Statements of Operations.
Principal versus agent
In the case of the non-operating agreements, the operator is responsible for providing the goods due to its contractual obligations with the purchaser. Based on the joint operating and marketing agreement arrangements between the Partnership and operator, the Partnership does not take title to the product prior to the operator’s ultimate sale to a customer. The operator is responsible for fulfilling promises to provide specified goods and remitting proceeds back to the Partnership for the Partnership’s proportionate share of the total product sold. MOC, rather than the Partnership, is primarily responsible for fulfilling promises to provide specified goods. MOC, as the operator, enters the sales contract with the third-party customers and directs all activities from the wellhead to the delivery point that make the commodity available to the customer; there is no agreement between the Partnership and the customers. In the event a production delay occurs because of, for example, well-equipment failure, MOC is responsible for correcting the issues preventing fulfillment of its promises to deliver product to its customers.
Accounts Receivable, affiliate
Under the Partnership’s joint operating and marketing agreements, the Partnership is entitled to consideration as production occurs at the wellhead and the value of such consideration is an estimate. Final amounts are only determined upon sale by the operator to the ultimate third-party customer, and recorded in “Accounts receivable, affiliate” in its balance sheet.
| 5. | Related Party Transactions |
In accordance with the laws of the State of Delaware, MD has been appointed as the Partnership’s managing general partner. MD has no significant equity interest in the Partnership. MOC is operator of oil and natural 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.
The Partnership participates in oil and natural gas activities through a Drilling Program Agreement (the “Program”). In the ordinary course of business, MOC will incur certain costs that will be passed on to owners of the well for which the costs were incurred. The Partnership will receive its portion of these costs based upon its ownership in each well incurring the costs. These costs are referred to as operator charges and are standard and customary in the oil and natural gas industry. Operator charges include recovery of natural gas marketing costs, fixed rate overhead, supervision, pumping, and equipment furnished by the operator, some of which will be included in the full cost pool pursuant to Rule 4-10(c)(2) of Regulation S-X. Services and operator charges are billed in accordance with the Program and Partnership agreements.
In accordance with the Partnership agreement, during any 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 0.25% of the capital contributions of limited and general partners.
The Partnership participates in oil and natural gas activities through the Program. The Partnership and MD are the parties to the Program, and the costs and revenues are allocated between them as follows:
| | | Partnership | | | MD (1) | |
| Revenues: | | | | | | |
| Proceeds from disposition of depreciable and depletable properties | | 75 | % | | 25 | % |
| All other revenues | | 75 | % | | 25 | % |
| Costs and expenses: | | | | | | |
| Organization and offering costs (1) | | 0 | % | | 100 | % |
| Lease acquisition costs (1) | | 0 | % | | 100 | % |
| Tangible and intangible drilling costs (1) | | 100 | % | | 0 | % |
| Reporting and legal expenses | | 100 | % | | 0 | % |
| Operating costs, general and administrative expenses (except for reporting and legal expenses) and all other costs | | 75 | % | | 25 | % |
| (1) | As noted above, pursuant to the Program, MD must contribute 100% of organization and offering costs and lease acquisition costs which should approximate 15% of total capital costs. To the extent that organization and offering costs and lease acquisition costs are less than 15% of total capital costs, MD is responsible for tangible drilling costs until its share of the Program’s total capital costs reaches approximately 15%. The Partnership’s financial statements reflect its respective proportionate interest in the Program. |
| 6. | Risks and Uncertainties |
Oil, natural gas, and natural gas liquids prices are determined by many factors outside of the Partnership’s control. Historically, world-wide oil and natural gas prices and markets have been subject to significant change and may continue to be in the future. Global macroeconomic factors contributing to uncertainty within the industry include real or perceived geopolitical risks in oil-producing regions of the world, particularly the Middle East; forecasted levels of global economic growth combined with forecasted global supply; supply levels of oil and natural gas due to exploration and development activities in the United States; environmental and climate change regulation; actions taken by OPEC; and the strength of the U.S. dollar in international currency markets.
Additionally, the ongoing conflict and the continuation of, or any increase in the severity of, the conflict between Russia and Ukraine has led and may continue to lead to an increase in the volatility of global oil and natural gas prices.
However, continuing political and social attention to the issue of global climate change has resulted in both existing and pending national, regional, and local legislation and regulatory measures to limit or reduce emissions of so-called greenhouse gases, such as mandates for renewable energy.
The trend in oil and natural gas regulation has been to increase regulatory restrictions and limitations on such activities. Any changes in, or more stringent enforcement of, these laws and regulations may result in delays or restrictions in permitting or development of projects or more stringent or costly construction, drilling, water management or completion activities or waste handling, storage, transport, remediation, or disposal emission or discharge requirements which could have an adverse effect on the Partnership.
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Liquidity and Capital Resources
Mewbourne Energy Partners 10-A, L.P. (“the Partnership”) was formed February 9, 2010, with total investor contributions of $73,000,000. During 2012, all general partner equity interests were converted to limited partner equity interests.
Oil, natural gas, and natural gas liquids prices are determined by many factors outside of the Partnership’s control. Historically, world-wide oil and natural gas prices and markets have been subject to significant change and may continue to be in the future. Global macroeconomic factors contributing to uncertainty within the industry include real or perceived geopolitical risks in oil-producing regions of the world, particularly the Middle East; forecasted levels of global economic growth combined with forecasted global supply; supply levels of oil and natural gas due to exploration and development activities in the United States; environmental and climate change regulation; actions taken by OPEC; and the strength of the U.S. dollar in international currency markets.
Additionally, the ongoing conflict and the continuation of, or any increase in the severity of, the conflict between Russia and Ukraine has led and may continue to lead to an increase in the volatility of global oil and natural gas prices.
Future capital requirements and operations will be conducted with available funds generated from oil and natural gas activities. No bank borrowing is anticipated. The Partnership had net working capital of $1,558,860 at June 30, 2023.
During the six months ended June 30, 2023, the Partnership made cash distributions to the investor partners (including state tax payments for the benefit of investor partners) in the amount of $1,399,477 as compared to $2,341,027 for the six months ended June 30, 2022. Since inception, the Partnership has made distributions of $80,901,150, inclusive of state tax payments.
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.
Results of Operations
For the three months ended June 30, 2023 as compared to the three months ended June 30, 2022:
| | | Three Months Ended June 30, | |
| | | 2023 | | | 2022 | |
| Oil sales | | $ | 1,986,589 | | | $ | 1,134,310 | |
| Barrels produced | | | 27,147 | | | | 10,765 | |
| Average price/bbl | | $ | 73.18 | | | $ | 105.37 | |
| | | | | | | | | |
| Natural gas sales | | $ | 407,186 | | | $ | 544,535 | |
| Mcf produced | | | 129,343 | | | | 70,294 | |
| Average price/mcf | | $ | 3.15 | | | $ | 7.75 | |
Oil and natural gas revenues. Oil and natural gas sales increased by $714,930, an 43% increase, for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022.
Partially offsetting the increase in sales was a decrease of $346,539 and $323,242 in the average price of oil and natural gas sold, respectively. The average price fell to $73.18 from $105.37 per barrel (bbl) of oil and to $3.15 from $7.75 per thousand cubic feet (mcf) of natural gas for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022.
The increase in revenues of $1,198,818 and $185,893 were due to increases in the volumes of oil and natural gas sold, respectively. The volume of oil sold increased by 16,382 bbls and the volume of natural gas sold increased by 59,049 mcf for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022. This was in part due to receiving interests from payouts in four wells during the three months ended June 30, 2023.
Lease operations. Lease operating expense during the three months ended June 30, 2023 increased to $381,521 from $262,461 for the three months ended June 30, 2022 due to more well repairs, workovers, and overhead.
Production taxes. Production taxes increased to $202,208 for the three months ended June 30, 2023 from $130,862 for the three months ended June 30, 2022. This was due to higher overall oil and natural gas revenue.
Administrative and general expense. Administrative and general expense for the three months ended June 30, 2023 rose to $99,967 from $78,290 for the three months ended June 30, 2022 due to increased administrative and general expenses allocable to the Partnership.
Depreciation, depletion, and amortization. Depreciation, depletion, and amortization for the three months ended June 30, 2023 increased to $89,718 from $48,507 for the three months ended June 30, 2022 due to an increase in production.
Results of Operations
For the six months ended June 30, 2023 as compared to the six months ended June 30, 2022:
| | | Six Months Ended June 30, | |
| | | 2023 | | | 2022 | |
| Oil sales | | $ | 2,791,235 | | | $ | 2,190,622 | |
| Barrels produced | | | 38,098 | | | | 22,255 | |
| Average price/bbl | | $ | 73.26 | | | $ | 98.43 | |
| | | | | | | | | |
| Natural gas sales | | $ | 636,141 | | | $ | 1,025,274 | |
| Mcf produced | | | 194,565 | | | | 134,409 | |
| Average price/mcf | | $ | 3.27 | | | $ | 7.63 | |
Oil and natural gas revenues. Oil and natural gas sales increased by $211,480, a 7% increase, for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022.
Offsetting the increase in revenue was a decrease of $560,118 and $585,816 in the average price of oil and natural gas sold, respectively. The average price fell to $73.26 from $98.43 per barrel (bbl) of oil and to $3.27 from $7.63 per thousand cubic feet (mcf) of natural gas for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022.
The increase in revenues of $1,160,731 and $196,683 were due to increases in the volumes of oil and natural gas sold, respectively. The volume of oil sold increased by 15,843 bbls and the volume of natural gas sold increased by 60,156 mcf for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022. This was in part due to receiving interests from payouts in four wells during the six months ended June 30, 2023.
Lease operations. Lease operating expense during the six months ended June 30, 2023 increased to $705,879 from $489,817 for the six months ended June 30, 2022 due to more well repairs, workovers, and overhead.
Production taxes. Production taxes increased to $392,667 for the six months ended June 30, 2023 from $253,812 for the six months ended June 30, 2022. This was due to higher overall oil and natural gas revenue.
Administrative and general expense. Administrative and general expense for the six months ended June 30, 2023 rose to $176,945 from $173,046 for the six months ended June 30, 2022 due to increased administrative and general expenses allocable to the Partnership.
Depreciation, depletion, and amortization. Depreciation, depletion, and amortization for the six months ended June 30, 2023 increased to $131,898 from $104,639 for the six months ended June 30, 2022 due to an increase in production.
| 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 significant amount of its production from successful oil and natural 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 natural gas industry, and the level of commodity prices will have a significant impact on the Partnership’s results of operations. For the six months ended June 30, 2023, a 10% change in the price received for oil and natural gas production would have had an approximate $343,000 impact on 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. For the quarter ended June 30, 2023, there have been no changes in MD’s internal controls or in other factors which have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.
Part II – Other Information
From time to time, the Registrant may be a party to certain legal actions and claims arising in the ordinary course of business. While the outcome of these events cannot be predicted with certainty, the Partnership does not expect these matters to have a material effect on its financial position or results of operations.
| 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. |
| | | |
| | 101 | The following materials from the Partnership’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Balance Sheets, (ii) the Condensed Statements of Operations, (iii) the Condensed Statement of Changes in Partners’ Capital, (iv) the Condensed Statements of Cash Flows, and (v) related notes. |
| | | |
| (b) | Reports on Form 8-K |
| | None. | |
| | | | | |
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 10-A, L.P. |
| | | |
| | | By: | Mewbourne Development Corporation |
| | | | Managing General Partner |
| | | | |
Date: August 14, 2023
| | | |
| | | By: | /s/ J. Roe Buckley |
| | | | J. Roe Buckley |
| | | | Chairman of the Board Executive Vice President Chief Financial Officer |
INDEX TO EXHIBITS
