January 29, 1996 RE: 1995 YEAR-END ESTIMATED VALUATION
Dear Geodyne Energy Income Program Unit Holder:
As in past years, Geodyne is providing you with the following
information relating to 1995 year-end estimated valuations for your
Geodyne Energy Income Programs. Enclosed with this letter is a
schedule showing your Geodyne partnership investments, your investment
amount, the current estimated valuation, 1995 cash distributions and
cumulative cash distributions to date.
REQUIREMENTS FOR A YEAR-END VALUATION
As you know, the Geodyne Energy Income Programs are partnerships
designed for long-term holding. Since the units are not traded on any
organized stock exchange, only a limited number of interests in the
programs change hands during the year. The values for securities
other than partnerships are generally obtained by looking at secondary
market trading prices as quoted on the stock exchanges. Limited
partnerships are generally illiquid and were never intended to, and do
not, trade regularly or in any established market. As a result,
prices obtained in isolated secondary market transactions may not be a
reliable indicator of the value of this investment.
While noting this valuation difficulty, under the regulations of the
Internal Revenue Service (the "IRS Regulations"), IRA custodians are
required to provide year-end values for all securities held in their
clients' IRAs. Given the obligations under the IRS Regulations and
certain provisions of the Partnership prospectuses, Geodyne is
providing to you and requesting brokerage firms and other custodians a
December 31, 1995, estimated value for each partnership. The
estimates are based upon the methodology explained below. While
independent engineers have reviewed the properties associated with at
least 80% of the estimated value of the proved producing reserves in
each partnership, the estimated valuations were not prepared by a
third party appraiser.
Please note that your brokerage firm or other custodian may be relying
on the estimates herein or estimates determined by some other party to
meet any IRS reporting requirements, which estimates may differ from
the estimates reported herein. You should discuss with your custodian
(not Geodyne) any questions you have about estimates communicated by
that custodian.
CALCULATING THE ESTIMATED VALUATION
The main component of the estimated valuation is the present value of
the future cash flow estimated to be received from producing the
remaining proved oil and natural gas reserves. Present value means
discounting future cash flow to today to recognize that a dollar
received in the future is worth less than a dollar received today. In
addition, the estimated valuation includes any material balance sheet
items (cash on hand and gas balancing liabilities). The estimate also
includes two other reserve categories, probables and possibles. The
probable and possible reserves are included separately using 25% and
40% adjustments, respectively, for the inherent additional risks
associated with estimating future cash flow from such reserves. The
valuation does not include a deduction for future partnership general
and administrative expenses.
As previously reported to investors in Partnerships II-A through II-E,
those partnerships were recently successful in winning an arbitration
award against Texaco, Inc. relative to a contract dispute. However,
as Texaco has appealed the award, collection is uncertain and
therefore the amount of the award is not included in the values for
those respective programs.
1995 YEAR-END ESTIMATED VALUATIONS JANUARY 29, 1996 PAGE 2
For determining the present value of future cash flow, pricing
guidelines and time value discount rates set forth by the Securities
and Exchange Commission for financial reporting purposes ("SECPV10")
were used. Under these guidelines, year-end prices received for oil
and gas are used for the life of the production. Therefore, there is
no escalation for prices or production costs, except for assured
contractual gas pricing escalations (which are insignificant for the
Geodyne partnerships). The December 31, 1995, calculations are based
on estimated average prices of $18.50 per barrel of oil and $2.00 per
thousand cubic feet of gas. (This compares to $16.50 per barrel and
$1.60 per thousand cubic feet of gas used for the 1994 Year-End
Estimates.) Future net cash flow is then discounted to a present
value at a 10% annual rate. The Securities and Exchange Commission
guidelines provide for the reporting of only proved reserves, while
the Geodyne estimates include the adjusted values for probable and
possible reserves.
THESE ESTIMATES DO NOT REFLECT CASH DISTRIBUTIONS RECEIVED TO
DATE. ESTIMATED VALUATIONS ARE NOT INDICATIVE OF WHAT FUTURE CASH
DISTRIBUTIONS TO UNIT HOLDERS WILL BE. THE ESTIMATES DO NOT
NECESSARILY REFLECT WHAT COULD BE RECEIVED SHOULD A UNIT HOLDER DECIDE
TO SELL HIS OR HER UNITS ON THE SECONDARY MARKET OR IF THE PARTNERSHIP
WAS LIQUIDATED. SINCE THE ESTIMATES ARE BASED UPON ASSUMPTIONS
CONCERNING FUTURE OIL AND GAS PRICES AND REMAINING RESERVE VOLUMES,
THEY ARE NECESSARILY INHERENTLY IMPRECISE. UNIT HOLDERS SHOULD ALSO
NOTE THAT THE ESTIMATED VALUATIONS ARE NOT ADJUSTED DURING THE YEAR
FOR PRODUCTION, PRICING CHANGES, CASH DISTRIBUTIONS, ETC.
To provide some guideposts concerning the estimated valuations, you
might note the following. Generally speaking, publicly traded oil and
gas companies currently trade at a premium to the 1994 SECPV10 pricing
applied to proved reserves. In addition, producing oil and gas
properties have sold in several publicly reported transactions in 1995
in a range of between 80 - 110% of 1994 year-end SECPV10 applied to
proved reserves. Finally, partnership units that are not registered
on a stock exchange (such as the Geodyne Partnerships) trade on the
secondary market at a significant discount to valuations determined by
the SECPV10 methodology.
REASONS FOR YEAR TO YEAR CHANGES IN ESTIMATES
In all of the Geodyne Programs except for the I-C Program, 1995 year-
end estimated valuations are higher than the 1994 year-end estimates.
This is primarily due to the higher oil and natural gas prices in
effect on December 31, 1995 compared to December 31, 1994. ACTUAL
FUTURE PRICES RECEIVED BY THE PROGRAMS WILL LIKELY BE DIFFERENT FROM
(AND MAY BE LOWER THAN) THE PRICES IN EFFECT ON DECEMBER 31, 1995. IN
MANY PAST YEARS, YEAR-END PRICES HAVE TENDED TO BE HIGHER, AND, IN
SOME CASES SIGNIFICANTLY HIGHER, THAN THE YEARLY AVERAGE PRICE
ACTUALLY RECEIVED BY THE PROGRAMS FOR AT LEAST THE YEAR FOLLOWING THE
YEAR-END VALUATION DATE.
Although the vast majority of partnership reserves are proved, and
therefore less likely to fluctuate significantly, all reserves and
evaluations are estimates subject to many judgmental factors.
Additional factors that can result in year to year changes in the
estimates of the remaining oil and natural gas reserve quantities and
the value of such reserves based on a cash flow analysis include:
* Estimates by engineers can vary from year to year, based on the
inherent impreciseness of estimating reserves in the ground.
* Improved oil and gas prices can increase estimates of
economically recoverable reserves while lower prices can
decrease such estimates. Price changes also directly impact
1995 YEAR-END ESTIMATED VALUATIONS JANUARY 29, 1996 PAGE 3
estimates of future cash flow. Crude oil and natural gas prices
were higher at year-end 1995 compared to year-end 1994, which
has increased estimates of future cash flow in the partnerships.
* A longer performance history of wells provides more accurate
data for calculating reserve quantities.
* Mechanical difficulties at the well site can prohibit
production.
* Newly drilled wells near partnership wells can drain reserves
that would otherwise be produced by partnership wells.
* Successful development drilling and enhancement projects can add
to existing reserves.
Please contact Geodyne Investor Services at the letterhead address or
telephone number if you have any questions regarding this letter.
Sincerely,
Dennis R. Neill
Senior Vice President
Geodyne Resources, Inc.