United States
Securities and Exchange Commission
Washington, D.C. 20549
_________________________________________________________________________
Form 10-Q
_________________________________________________________________________
(Mark One)
| X | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2018
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-55840
_________________________________________________________________________
DGOC SERIES 18(C), L.P.
(Name of small business issuer in its charter)
_________________________________________________________________________
| Delaware | 82-2114425 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| 1100 Corporate Drive | |
| Birmingham, AL | 35242 |
| (Address of principal executive offices) | (zip code) |
Issuer’s telephone number, including area code: (412)-489-0006
_________________________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ☐
Indicate by check mark 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 X No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “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 X | |||
| 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 whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No X
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DGOC SERIES 18(C), L.P.
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
| PAGE | ||
FINANCIAL INFORMATION (Unaudited) | ||
| CERTIFICATIONS | ||
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DGOC SERIES 18(C), L.P.
CONDENSED BALANCE SHEETS
(Unaudited)
| March 31, 2018 | December 31, 2017 | ||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash | $ | — | $ | — | |||
| Accounts receivable trade–affiliate | 1,534,800 | 1,325,700 | |||||
| Total current assets | 1,534,800 | 1,325,700 | |||||
| Natural gas properties, net | 28,273,600 | 28,788,400 | |||||
| Long-term asset retirement receivable-affiliate | 365,200 | 317,800 | |||||
| Total assets | $ | 30,173,600 | $ | 30,431,900 | |||
| LIABILITIES AND PARTNERS’ CAPITAL | |||||||
| Current liabilities: | |||||||
| Accrued liabilities | $ | 29,000 | $ | 28,900 | |||
| Total current liabilities | 29,000 | 28,900 | |||||
| Asset retirement obligations | 2,807,700 | 2,773,200 | |||||
| Commitments and contingencies (Note 4) | |||||||
| Partners’ capital: | |||||||
| Managing general partner’s interest | 2,461,000 | 2,426,400 | |||||
| Limited partners’ interest (22,928.90 units) | 24,875,900 | 25,203,400 | |||||
| Total partners’ capital | 27,336,900 | 27,629,800 | |||||
| Total liabilities and partners’ capital | $ | 30,173,600 | $ | 30,431,900 | |||
See accompanying notes to condensed financial statements.
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DGOC SERIES 18(C), L.P.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended March 31, | |||||||
| 2018 | 2017 | ||||||
| REVENUES | |||||||
| Natural gas | $ | 1,570,700 | $ | 2,012,800 | |||
| Total revenues | 1,570,700 | 2,012,800 | |||||
| COSTS AND EXPENSES | |||||||
| Production | 560,000 | 567,300 | |||||
| Depletion | 514,800 | 537,700 | |||||
| Accretion of asset retirement obligations | 34,500 | 39,100 | |||||
| General and administrative | 40,700 | 32,100 | |||||
| Total costs and expenses | 1,150,000 | 1,176,200 | |||||
| Net income | $ | 420,700 | $ | 836,600 | |||
| Allocation of net income: | |||||||
| Managing general partner | $ | 233,800 | $ | 338,500 | |||
| Limited partners | $ | 186,900 | $ | 498,100 | |||
| Net income per limited partnership unit | $ | 8 | $ | 22 | |||
See accompanying notes to condensed financial statements.
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DGOC SERIES 18(C), L.P.
CONDENSED STATEMENT OF CHANGES IN PARTNERS’ CAPITAL
(Unaudited)
Managing General Partner | Limited Partners | Total | |||||||||
| Balance at December 31, 2017 | $ | 2,426,400 | $ | 25,203,400 | $ | 27,629,800 | |||||
| Participation in revenues, costs and expenses: | |||||||||||
| Net production revenues | 300,200 | 710,500 | 1,010,700 | ||||||||
| Depletion | (45,400 | ) | (469,400 | ) | (514,800 | ) | |||||
| Accretion of asset retirement obligations | (9,600 | ) | (24,900 | ) | (34,500 | ) | |||||
| General and administrative | (11,400 | ) | (29,300 | ) | (40,700 | ) | |||||
| Net income | 233,800 | 186,900 | 420,700 | ||||||||
| Distributions to partners | (199,200 | ) | (514,400 | ) | (713,600 | ) | |||||
| Balance at March 31, 2018 | $ | 2,461,000 | $ | 24,875,900 | $ | 27,336,900 | |||||
See accompanying notes to condensed financial statements.
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DGOC SERIES 18(C), L.P.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| Three Months Ended March 31, | |||||||
| 2018 | 2017 | ||||||
| Cash flows from operating activities: | |||||||
| Net income | $ | 420,700 | $ | 836,600 | |||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
| Depletion | 514,800 | 537,700 | |||||
| Accretion of asset retirement obligations | 34,500 | 39,100 | |||||
| Changes in operating assets and liabilities: | |||||||
| Increase in accounts receivable trade-affiliate | (209,100 | ) | (592,900 | ) | |||
| Increase in asset retirement receivable-affiliate | (47,400 | ) | (15,600 | ) | |||
| Increase (decrease) in accrued liabilities | 100 | (5,400 | ) | ||||
| Net cash provided by operating activities | 713,600 | 799,500 | |||||
| Cash flows from investing activities: | |||||||
| Net cash provided by investing activities | — | — | |||||
| Cash flows from financing activities: | |||||||
| Distributions to partners | (713,600 | ) | (582,200 | ) | |||
| Net cash used in financing activities | (713,600 | ) | (582,200 | ) | |||
| Net change in cash | — | 217,300 | |||||
| Cash at beginning of period | — | 249,000 | |||||
| Cash at end of period | $ | — | $ | 466,300 | |||
See accompanying notes to condensed financial statements.
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DGOC SERIES 18(C), L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS
DGOC Series 18(C), L.P. (the "Partnership") is a Delaware limited partnership, formed on July 6, 2017 and includes the Appalachian-based assets that were previously included within Atlas Resources Public 18-2009(C), L.P. ("Predecessor Partnership") that was formed on June 9, 2009 and was then managed by Atlas Resources, LLC ("Atlas" or "Previous MGP"). DGOC Partnership Holdings, LLC now serves as its Managing General Partner (“DGOC Holdings” or the “MGP”) and certain affiliates of the MGP serving as our Operator ("Operator"). DGOC Holdings is an indirect subsidiary of Diversified Gas & Oil, PLC (“Diversified”; AIM: DGOC). Unless the context otherwise requires, references below to “the Partnership,” “we,” “us,” “our” and “our company”, refer to DGOC Series 18(C), L.P.
The Partnership has drilled and currently operates wells located in Pennsylvania and Tennessee. We have no employees and rely on our MGP to staff and manage our operations, which in turn, relied on Atlas Energy Group, LLC, Titan’s parent company, for administrative services through a Transition Services Agreement ("TSA") effective through December 31, 2017. Since the expiration of the TSA, staffing is provided by an affiliate of Diversified.
The Partnership’s operating cash flows are generated from its wells, which produce natural gas. Produced natural gas is then delivered to market through third-party gas gathering systems. The Partnership intends to produce its wells until they are sold, depleted or become uneconomical to produce, at which time they will be plugged and abandoned. The Partnership does not expect to drill additional wells and expects no additional funds will be required for drilling.
The economic viability of the Partnership’s production is based on a variety of factors including proved developed reserves that it can expect to recover through existing wells with existing equipment and operating methods or in which the cost of additional required extraction equipment is relatively minor compared to the cost of a new well; and through currently installed extraction equipment and related infrastructure which is operational at the time of the reserves estimate (if the extraction is by means not involving drilling, completing or reworking a well). There are numerous uncertainties inherent in estimating quantities of proven reserves and in projecting future net revenues.
The prices at which the Partnership’s natural gas will be sold are uncertain and the Partnership is not guaranteed a specific price for the sale of its production. Changes in natural gas prices have a significant impact on the Partnership’s cash flow and the value of its reserves. Lower natural gas prices may, in addition to decreasing the Partnership’s revenues, also reduce the amount of natural gas that the Partnership can produce economically.
Liquidity and Capital Resources
The Partnership is generally limited to the amount of funds generated by the cash flow from its operations to fund its obligations and make distributions, if any, to its partners. Prices for natural gas began to decline significantly during the fourth quarter of 2014 and continue to remain low, on a relative basis, in 2018. These lower commodity prices negatively impact the Partnership’s revenues, earnings and cash flows. In addition, low commodity prices place downward pressure on the Partnership’s proved natural gas reserves as some volumes in the later years of the life of the well become uneconomic to produce at the lower prices. The MGP continues to implement various cost saving measures to reduce the Partnership’s operating and general and administrative costs, including renegotiating contracts with contractors, suppliers and service providers, and deferring and/or eliminating discretionary costs. The MGP will continue to be strategic in managing the Partnership’s cost structure and, in turn, liquidity to meet its operating needs. To the extent commodity prices remain low or decline further, or the Partnership experiences other disruptions in the industry, the Partnership’s ability to fund its operations and make distributions may be further impacted, and could result in the liquidation of the Partnership’s operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These condensed financial statements are unaudited, but in the opinion of management, reflect all adjustments necessary for a fair presentation of results for the interim periods presented. All adjustments are of a normal recurring nature unless disclosed otherwise. Interim period results are not necessarily indicative of results to be expected for the full year. These condensed financial statements have been prepared in accordance with rules of the Securities and Exchange Commission (“SEC”) and do not include all the information and disclosures required by accounting principles generally accepted in the United States (“GAAP”) for complete financial statements. They should be read in conjunction with the financial statements for the year ended December 31, 2017 and notes thereto included in our 2017 Annual Report on Form 10-K, which include a summary of the significant accounting policies.
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Use of Estimates
The preparation of the Partnership’s condensed financial statements in conformity with U.S. GAAP requires the MGP to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities that exist at the date of the Partnership’s condensed financial statements, as well as the reported amounts of revenues and costs and expenses during the reporting periods. The Partnership’s condensed financial statements are based on a number of significant estimates, including the revenue and expense accruals, depletion, impairments and the probability of forecasted transactions. The natural gas industry principally conducts its business by processing actual transactions as many as 60 days after the month of delivery. Consequently, the most recent two months’ financial results were recorded using estimated volumes and contract market prices. Actual results could differ from those estimates.
Natural Gas Properties
The following is a summary of natural gas properties at the dates indicated:
| March 31, | December 31, | Change | ||||||||||||
| 2018 | 2017 | $ | % | |||||||||||
| Proved properties: | ||||||||||||||
| Leasehold interests | $ | 1,660,400 | $ | 1,660,400 | $ | — | — | % | ||||||
| Wells and related equipment | 210,127,800 | 210,127,800 | — | — | % | |||||||||
| Total natural gas properties | 211,788,200 | 211,788,200 | — | — | % | |||||||||
| Accumulated depletion and impairment | (183,514,600 | ) | (182,999,800 | ) | (514,800 | ) | — | % | ||||||
| Natural gas properties, net | $ | 28,273,600 | $ | 28,788,400 | $ | (514,800 | ) | (2 | )% | |||||
We review our natural gas producing properties for impairment whenever events or changes in circumstances indicate that the carrying amount of such properties may not be recoverable. The review of the Partnership’s natural gas properties is done on a field-by-field basis by determining if the historical cost of proved properties less the applicable accumulated depletion and impairment is less than the estimated expected undiscounted future cash flows including salvage. If the carrying value exceeds the expected future cash flows, an impairment loss is recognized for the difference between the estimated fair market value and the carrying value of the assets. Events or changes in circumstances that would indicate the need for impairment testing include, among other factors: operating losses; unused capacity; market value declines; technological developments resulting in obsolescence; changes in demand for products manufactured by others utilizing our services or for our products; changes in competition and competitive practices; uncertainties associated with the United States and world economies; changes in the expected level of environmental capital, operating or remediation expenditures; and changes in governmental regulations or actions. There was no triggering event in the first quarter of 2018 that would cause us to believe the value of natural gas producing properties should be impaired.
Recently Adopted Accounting Standards
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). The standard requires an entity to identify all customer contracts and their corresponding performance obligations, determine the transaction price and its allocation, at the entity level, and to recognize revenue upon fulfillment of the performance obligation. ASU 2014-09 replaces most of the existing revenue recognition requirements in GAAP. The Partnership adopted the standard on January 1, 2018 using the modified retrospective method as of the adoption date. The new standard did not have a material impact on the Partnership's Financial Statements other than requiring new disclosures.
Revenue Recognition
The Partnership sells natural gas under multiple purchaser contracts. The Partnership’s performance obligation, to the customer, includes the production and sale of natural gas at multiple delivery points. The sales contracts are based on blended rate pricing provisions with fixed and variable components. The fixed component is well defined, under each purchaser contract, and is tied to base production levels. The variable component is generally tied to a regional market index and is received for anything in excess of the base production levels outlined under each customer contract. Under certain agreements, the Partnership’s natural gas sales are delivered to midstream processing entities and DGOC Partnership Holdings, LLC is in control of the gas asset at all points of sale to the purchaser(s). The gathering fees charged, by the midstream processing agents, are paid at the gross rate, by
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the Partnership as production costs which is consistent with prior reporting periods. The Partnership recognizes revenue and related accounts receivable in the month the performance obligation has been met. However; the settlement statements may not be received from the purchaser for 30-90 days after the production is delivered. As a result, DGOC Partnership Holdings, LLC is required to estimate and accrue for the current month’s revenue using well defined processes that have historically demonstrated close proximities to actual payments. The current revenue accruals have existing internal controls and are evaluated, for accuracy, on a regular basis. Revenues from the production of natural gas, in which the Partnership has an interest with other producers, are recognized on the basis of its percentage ownership of working interest and/or overriding royalty. The MGP and its affiliates perform all administrative and management functions for the Partnership, including billing revenues and paying expenses.
NOTE 3 - CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The Partnership has entered into the following significant transactions with the MGP and its affiliates as provided under its Partnership Agreement. Administrative costs, which are included in general and administrative expenses in the Partnership’s condensed statements of operations, are payable at $75 per well per month. Monthly well supervision fees, which are included in production expenses in the Partnership’s condensed statements of operations, are payable at $975 per well per month for Marcellus wells and for all other wells a fee of $392 is charged per well per month for operating and maintaining the wells. Well supervision fees are proportionately reduced to the extent the Partnership does not acquire 100% of the working interest in a well. Transportation fees are included in production expenses in the Partnership’s condensed statements of operations and are generally payable at 16% of the natural gas sales price or $0.35 per Mcf, whichever is greater. Direct costs, which are included in production and general administrative expenses in the Partnership’s condensed statements of operations, are payable to the MGP and its affiliates as reimbursement for all costs expended on the Partnership’s behalf.
The following table provides information with respect to these costs and the periods incurred:
| Three Months Ended March 31, | Change | |||||||||||||
| 2018 | 2017* | $ | % | |||||||||||
| Administrative fees | $ | 13,600 | $ | 13,600 | $ | — | — | % | ||||||
| Supervision fees | 177,400 | 177,400 | $ | — | — | % | ||||||||
| Transportation fees | 255,500 | 274,900 | $ | (19,400 | ) | (7 | )% | |||||||
| Direct costs | 154,200 | 133,500 | $ | 20,700 | 16 | % | ||||||||
| Total | $ | 600,700 | $ | 599,400 | $ | 1,300 | — | % | ||||||
* Amounts paid to the Previous MGP.
The MGP and its affiliates perform all administrative and management functions for the Partnership, including billing revenues and paying expenses. Accounts receivable trade-affiliate on the Partnership’s balance sheets includes the net production revenues due from the MGP.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
General Commitments
Subject to certain conditions, investor partners may present their interests for purchase by the MGP. The purchase price is calculated by the MGP in accordance with the terms of the partnership agreement. The MGP is not obligated to purchase more than 5% of the total outstanding units in any calendar year. In the event that the MGP is unable to obtain the necessary funds, it may suspend its purchase obligation.
Beginning one year after each of the Partnership’s wells has been placed into production, the MGP, as Operator, may retain $200 per month per well to cover estimated future plugging and abandonment costs. As of March 31, 2018, the Operator has withheld $365,200 of net production revenue for future plugging and abandonment costs.
Environmental risk is inherent to natural gas operations, and we and our affiliates may be, at times, subject to potential environmental remediation liability. We manage this environmental risk through appropriate environmental policies and practices to minimize any impact our operations may have on the environment. To the extent that we are unable to recover payment for environmental liabilities from insurance or other potentially responsible parties, we will be responsible for payment of liabilities arising from environmental incidents associated with the operating activities of our natural gas operations.
9
Legal Proceedings
The Partnership and affiliates of the MGP and their subsidiaries are party to various routine legal proceedings arising out of the ordinary course of its business. The MGP believes that none of these actions, individually or in the aggregate, will have a material adverse effect on the Partnership’s or the MGP’s financial condition or results of operations.
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| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) |
Forward-Looking Statements
This Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 (the “Securities Act”), as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements in this Form 10-Q by words such as “anticipate,” “project,” “intend,” “estimate,” “expect,” “believe,” “predict,” “budget,” “projection,” “goal,” “plan,” “forecast,” “target” or similar expressions. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly release the results of any revisions to forward-looking statements which we may make to reflect events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events.
The Partnership cautions you that the forward-looking statements contained in this Form 10-Q are subject to all of the risks and uncertainties, many of which are beyond its control, incident to the production and sale of natural gas. These risks include, but are not limited to, the risks described in our Annual Report on Form 10-K for the year ended December 31, 2017 (the "2017 Annual Report on Form 10-K"), including under the heading entitled “Forward-Looking Statements,” and all quarterly reports on Form 10-Q filed subsequently thereto. Should one or more of the risks or uncertainties described herein or in our 2017 Annual Report on Form 10-K occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. We specifically disclaim all responsibility to publicly update any information contained in a forward-looking statement or any forward-looking statement in its entirety and therefore disclaim any resulting liability for potentially related damages.
General
See Note 1 to our condensed financial statements for a description of our business. Comparisons to financial results for periods prior to July 2017 reflect the results of the Predecessor Partnership.
Overview
The following discussion provides information to assist in understanding our financial condition and results of operations. Our operating cash flows are generated from our wells, which produce primarily natural gas. Our produced natural gas is then delivered to market through affiliated and/or third-party gas gathering systems.
Our ongoing operating and maintenance costs have been and are expected to be fulfilled through revenues from the sale of our natural gas production. Our results of operations are dependent upon the difference between prices received for our natural gas production and the costs to find and produce such natural gas. Natural gas prices have been volatile and subject to fluctuations based on a number of factors beyond our control.
Beginning in the third quarter of 2014, the global prices for oil and natural gas began a dramatic decline, and while improved, prices remain low on a relative basis. Current prices remain significantly less than they were in the several years prior to mid-2014. A decline in oil and natural gas prices and a sustained period of oil and natural gas prices at depressed levels could have a material adverse effect on our financial condition. We currently do not have any derivative contracts to hedge against declines in commodity prices.
We pay our MGP, as an Operator, a monthly well supervision fee, which covers all normal and regularly recurring operating expenses for the production and sale of natural gas such as:
| • | well tending, routine maintenance and adjustment; |
| • | reading meters, recording production, pumping, maintaining appropriate books and records; and |
| • | preparation of reports for us and government agencies. |
The well supervision fees, however, do not include costs and expenses related to the production and sale of oil, the purchase of certain equipment, materials and brine disposal. If these expenses are incurred, we pay cost for third-party services, materials and a competitive charge for services performed directly by our MGP or its affiliates. Also, beginning one year after each of our wells has been placed into production, our Operators, may retain $200 per month, per well, to cover the estimated future plugging and abandonment costs of the well. As of March 31, 2018, our Operators have withheld $365,200 of net production revenues for this purpose.
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Results of Operations
The following table sets forth information relating to our production revenues, volumes, sales prices, production costs and depletion during the periods indicated:
| Three Months Ended March 31, | Change | ||||||||||||
| 2018 | 2017 | $ | % | ||||||||||
| Production revenues (in thousands): | |||||||||||||
| Gas | $ | 1,571 | $ | 2,013 | (442 | ) | (22 | )% | |||||
| Production volumes: | |||||||||||||
Gas (mcf/day) (1) | 7,058 | 7,672 | (614 | ) | (8 | )% | |||||||
Average sales prices: (2) | |||||||||||||
Gas (per mcf) (1) | $ | 2.47 | $ | 2.92 | (0.45 | ) | (15 | )% | |||||
| Production costs: | |||||||||||||
| As a percent of revenues | 36 | % | 28 | % | 8 | % | 29 | % | |||||
Per mcfe (1) | $ | 0.88 | $ | 0.82 | 0.06 | 7 | % | ||||||
| Depletion per mcfe | $ | 0.81 | $ | 0.78 | 0.03 | 4 | % | ||||||
___________________________________
| (1) | “Mcf” represents thousand cubic feet, “mcfe” represents thousand cubic feet equivalent. |
| (2) | Average sales prices represent accrual basis pricing. |
Revenues
The following tables reconcile the changes in natural gas revenue for the respective periods presented by reflecting the effect of changes in volume and in the underlying commodity prices.
| Three Months Ended March 31, | |||
| Natural gas | |||
| Revenues for the three months ended March 31, 2017 | $ | 2,012,800 | |
| Volume decrease | (161,000 | ) | |
| Price decrease | (281,100 | ) | |
| Net decrease | (442,100 | ) | |
| Revenues for the three months ended March 31, 2018 | $ | 1,570,700 | |
The natural gas volume variances reflected for the periods presented in the tables above relate to (1) wells being temporarily shut-in, (2) which may result in timing differences associated with the production from those wells depending upon when they are placed back into production, and (3) normal and expected declines inherent in the life of a well.
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Costs and expenses
| Three Months Ended March 31, | Change | |||||||||||||
| 2018 | 2017 | $ | % | |||||||||||
| Production | $ | 560,000 | $ | 567,300 | $ | (7,300 | ) | (1 | )% | |||||
| Depletion | 514,800 | 537,700 | (22,900 | ) | (4 | )% | ||||||||
| Accretion of asset retirement obligations | 34,500 | 39,100 | (4,600 | ) | (12 | )% | ||||||||
| General and Administrative | 40,700 | 32,100 | 8,600 | 27 | % | |||||||||
| Total costs and expenses | $ | 1,150,000 | $ | 1,176,200 | $ | (26,200 | ) | (2 | )% | |||||
Production expenses were $560,000 and $567,300 for the three months ended March 31, 2018 and 2017, respectively, a decrease of $7,300 (1%). The decrease for the three months ended March 31, 2018 when compared to the prior year similar period was mainly a result of a decrease in transportation fees and repairs partially offset by an increase in PA Impact fees.
Depletion expense, which is calculated by taking the total capital invested to develop the producing wells divided by the total estimated reserves of the well and is then recognized for each unit of production during the period. For the three month periods ended March 31, 2018 and 2017 a decline in produced volumes was partially offset by a decrease in reserves that produced a higher depletion rate which contributed to a decrease in depletion expense.
General and administrative expenses for the three months ended March 31, 2018 and 2017 were $40,700 and $32,100, respectively, a change of $8,600 (27%). These expenses include third-party costs for services as well as the monthly administrative fees charged by our MGP and vary from period to period due to the costs charged to us and services provided to us.
Cash Flows Overview
Cash flows from operating activities were $713,600 and $799,500 for the three months ended March 31, 2018 and 2017, respectively, and include cash receipts and disbursements attributable to our normal monthly operating cycle for gas production, lease operating expenses, gathering, processing and transportation expenses, severance taxes, general and administrative expenses. The decrease in cash flows resulted primarily from decreased revenues driven by lower production and lower realized natural gas prices.
No cash was provided by cash flows from investing activities for the three months ended March 31, 2018 and 2017.
Cash used in financing activities increased $131,400 during the three months ended March 31, 2018 to $713,600 from $582,200 for the three months ended March 31, 2017. This increase was due to an increase in cash distributions to partners, which was primarily driven by higher realized pricing for the periods being distributed.
Liquidity and Capital Resources
See Note 1 to our condensed financial statements for additional information related to liquidity and capital resources.
Critical Accounting Policies
See Note 2 to our condensed financial statements for additional information related to recently issued accounting standards.
For a more complete discussion of the accounting policies and estimates that we have identified as critical in the preparation of our condensed financial statements, please refer to our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.
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| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
The MGP maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, the MGP's Chief Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, the MGP recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Under the supervision of the MGP's Chief Executive Officer and Principal Financial Officer and, the MGP has carried out an evaluation of the effectiveness of its disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, the MGP's Chief Executive Officer and Principal Financial Officer concluded that, as of March 31, 2018, our its disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There have been no changes in the Partnership’s internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS |
The Partnership is a party to various routine legal proceedings arising out of the ordinary course of its business. The MGP believes that none of these actions, individually or in the aggregate, will have a material adverse effect on the Partnership’s financial condition or results of operations.
The MGP's affiliates and their subsidiaries are party to various routine legal proceedings arising in the ordinary course of their respective businesses. The MGP believes that none of these actions, individually or in the aggregate, will have a material adverse effect on the MGP’s financial condition or results of operations.
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| ITEM 6. | EXHIBITS |
EXHIBIT INDEX
| Exhibit No. | Description | |
| 3.1 | Certificate of Limited Partnership for DGOC Series 18(C), L.P. (incorporated by reference to Exhibit 3.1 to the Company's Form 10-12G Registration Statement filed on September 8, 2017) | |
| 3.2 | Certificate and Agreement of Limited Partnership for DGOC Series 18(C), L.P. (incorporated by reference to Exhibit 3.2 to the Company's Form 10-12G Registration Statement filed on September 8, 2017) | |
| (a) | Certification Pursuant to Rule 13a-14/15(d)-14 | |
| (a) | Certification Pursuant to Rule 13a-14/15(d)-14 | |
| (b) | Section 1350 Certification | |
| (b) | Section 1350 Certification | |
| 101 | (c) | Interactive Data File |
| (a) | Filed herewith | |
| (b) | Furnished herewith. Pursuant to SEC Release No. 33-8212, this certification will be treated as "accompanying" this report and not "filed" as part of such report for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of Section 18 of the Exchange Act, and this certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, except to the extent that the registrant specifically incorporates it by reference. | |
| (c) | Pursuant to Rule 406T of Regulation S-T, these interactive data files are being furnished herewith and are not deemed filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability. | |
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SIGNATURES
Pursuant to the requirements of the Securities of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| DGOC SERIES 18(C), L.P. | ||
| By: | DGOC Partnership Holdings, LLC, its | |
| Managing General Partner | ||
| Date: May 15, 2018 | By: | /s/ ROBERT R. HUTSON, JR. |
Robert R. Hutson, Jr., Chief Executive Officer (principal executive officer) of the Managing General Partner | ||
| Date: May 15, 2018 | By: | /s/ BRADLEY G. GRAY |
Bradley G. Gray, Chief Operating Officer (principal financial officer)of the Managing General Partner | ||
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