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, 1995, 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. 33-3353A
PARKER & PARSLEY 86-A, LTD.
(Exact name of Registrant as specified in its charter)
Texas 75-2124884
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
303 West Wall, Suite 101,
Midland, Texas 79701
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code: (915)683-4768
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 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 / /
Page 1 of 15 pages.
There are no exhibits.
PARKER & PARSLEY 86-A, LTD.
(A Texas Limited Partnership)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
September 30, December 31,
1995 1994
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents, including
interest bearing deposits of $76,415
at September 30 and $24,892 at
December 31 $ 76,446 $ 25,005
Accounts receivable - oil and gas sales 70,477 95,300
----------- -----------
Total current assets 146,923 120,305
Oil and gas properties - at cost, based on
the successful efforts accounting method 8,008,212 7,992,878
Accumulated depletion (5,541,266) (5,321,457)
----------- -----------
Net oil and gas properties 2,466,946 2,671,421
----------- -----------
$ 2,613,869 $ 2,791,726
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable - affiliate $ 79,980 $ 48,563
Partners' capital:
Limited partners (10,131 interests) 2,509,856 2,717,034
Managing general partner 24,033 26,129
----------- -----------
2,533,889 2,743,163
----------- -----------
$ 2,613,869 $ 2,791,726
=========== ===========
The financial information included as of September 30, 1995 has been
prepared by management without audit by independent public accountants.
The accompanying notes are an integral part of these statements.
2
PARKER & PARSLEY 86-A, LTD.
(A Texas Limited Partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
Revenues:
Oil and gas sales $ 173,349 $ 204,765 $ 587,487 $ 591,716
Interest income 1,282 691 2,900 1,452
Salvage income from
equipment disposals - - 6,734 223
--------- --------- --------- ---------
Total revenues 174,631 205,456 597,121 593,391
Costs and expenses:
Production costs 109,012 119,430 367,939 365,144
General and adminis-
trative expenses 5,201 6,084 17,625 17,693
Depletion 64,483 57,631 219,809 215,968
--------- --------- --------- ---------
Total costs and expenses 178,696 183,145 605,373 598,805
--------- --------- --------- ---------
Net income (loss) $ (4,065) $ 22,311 $ (8,252) $ (5,414)
========= ========= ========= =========
Allocation of net income
(loss):
Managing general
partner $ (41) $ 223 $ (83) $ (54)
========= ========= ========= =========
Limited partners $ (4,024) $ 22,088 $ (8,169) $ (5,360)
========= ========= ========= =========
Net income (loss) per
limited partnership
interest $ (.40) $ 2.18 $ (.81) $ (.53)
========= ========= ========= =========
Distributions per limited
partnership interest $ 6.45 $ 8.21 $ 19.64 $ 21.95
========= ========= ========= =========
The financial information included herein has been prepared by
management without audit by independent public accountants.
The accompanying notes are an integral part of these statements.
3
PARKER & PARSLEY 86-A, LTD.
(A Texas Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
(Unaudited)
Managing
general Limited
partner partners Total
----------- ----------- -----------
Balance at January 1, 1994 $ 29,203 $ 3,021,366 $ 3,050,569
Distributions (2,248) (222,408) (224,656)
Net loss (54) (5,360) (5,414)
---------- ---------- ----------
Balance at September 30, 1994 $ 26,901 $ 2,793,598 $ 2,820,499
========== ========== ==========
Balance at January 1, 1995 $ 26,129 $ 2,717,034 $ 2,743,163
Distributions (2,013) (199,009) (201,022)
Net loss (83) (8,169) (8,252)
---------- ---------- ----------
Balance at September 30, 1995 $ 24,033 $ 2,509,856 $ 2,533,889
========== ========== ==========
The financial information included herein has been prepared by
management without audit by independent public accountants.
The accompanying notes are an integral part of these statements.
4
PARKER & PARSLEY 86-A, LTD.
(A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
September 30,
1995 1994
---------- ----------
Cash flows from operating activities:
Net loss $ (8,252) $ (5,414)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depletion 219,809 215,968
Salvage income from equipment disposals (6,734) (223)
Changes in assets and liabilities:
Decrease in accounts receivable 24,823 2,690
Increase in accounts payable 31,711 11,441
--------- ---------
Net cash provided by operating activities 261,357 224,462
Cash flows from investing activities:
Additions to oil and gas properties (15,628) (5,843)
Proceeds from salvage income on
equipment disposals 6,734 223
--------- ---------
Net cash used in investing activities (8,894) (5,620)
Cash flows from financing activities:
Cash distributions to partners (201,022) (224,656)
--------- ---------
Net increase (decrease) in cash and cash
equivalents 51,441 (5,814)
Cash and cash equivalents at beginning
of period 25,005 45,214
--------- ---------
Cash and cash equivalents at end of period $ 76,446 $ 39,400
========= =========
The financial information included herein has been prepared by
management without audit by independent public accountants.
The accompanying notes are an integral part of these statements.
5
PARKER & PARSLEY 86-A, LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
(Unaudited)
NOTE 1.
In the opinion of management, the unaudited financial statements as of
September 30, 1995 of Parker & Parsley 86-A, Ltd. (the "Registrant")
include all adjustments and accruals consisting only of normal recurring
accrual adjustments which are necessary for a fair presentation of the
results for the interim period. However, the results of operations for
the nine months ended September 30, 1995 are not necessarily indicative
of the results for the full year ending December 31, 1995.
The financial statements should be read in conjunction with the
financial statements and the notes thereto contained in the Registrant's
Report on Form 10-K for the year ended December 31, 1994, as filed with
the Securities and Exchange Commission, a copy of which is available
upon request by writing to Steven L. Beal, Senior Vice President, 303
West Wall, Suite 101, Midland, Texas 79701.
NOTE 2.
On May 25, 1993, a final settlement agreement was negotiated, drafted
and finally executed, ending litigation which had begun on September 5,
1989, when the Registrant filed suit along with other parties against
Dresser Industries, Inc.; Titan Services, Inc.; BJ-Titan Services
Company; BJ-Hughes Holding Company; Hughes Tool Company; Baker Hughes
Production Tools, Inc.; and Baker Hughes Incorporated alleging that the
defendants had intentionally failed to provide the materials and
services ordered and paid for by the Registrant and other parties in
connection with the fracturing and acidizing of 523 wells, and then
fraudulently concealed the shorting practice from the managing general
partner, Parker & Parsley Development L.P. ("PPDLP") (see Item 2). The
May 25, 1993 settlement agreement called for a payment of $115 million
in cash by the defendants. The managing general partner received the
funds, deducted incurred legal expenses, accrued interest, determined
the general partner's portion of the funds and calculated any
inter-partnership allocations. A distribution of $91,000,000 was made
6
to the working interest owners, including the Registrant, on July 30, 1993.
The limited partners received their distribution of $2,882,376, or
$284.51 per limited partnership interest, in September 1993.
On May 3, 1993, Jack N. Price, the attorney who represented Gary G.
"Zeke" Lancaster in the Federal Court lawsuit, filed suit in State Court
in Beaumont against all of the plaintiff partnerships, including the
Registrant and others, alleging his entitlement to 12% of the settlement
proceeds. Price's lawsuit claim for approximately $13.8 million is
predicated on a purported contract entered into with Southmark
Corporation in August 1988, in which he allegedly binds the Registrant
and the other defendants, as well as Southmark. On September 20, 1995,
the Beaumont trial judge entered a summary judgment against Southmark
for the $13,790,000 contingent fee sought by Price, together with
prejudgment interest, and also awarded Price an additional $5,498,525 in
attorneys' fees. Southmark intends to vigorously pursue appeal of the
judgment. The summary judgment did not give Price any relief against
the Registrant, and although PPDLP believes the lawsuit is without merit
and intends to vigorously defend it, PPDLP is holding in reserve
approximately 12.5% of the total settlement pending final resolution of
the litigation by the court. Trial against the Registrant is currently
scheduled for April 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Registrant was formed July 23, 1986. The managing general partner
of the Registrant at December 31, 1994 was Parker & Parsley Development
Company ("PPDC") which was merged into PPDLP on January 1, 1995. On
January 1, 1995, PPDLP, a Texas limited partnership, became the sole
managing general partner of the Registrant, by acquiring the rights and
assuming the obligations of PPDC. PPDLP acquired PPDC's rights and
obligations as managing general partner of the Registrant in connection
with the merger of PPDC, P&P Producing, Inc. and Spraberry Development
Corporation into MidPar LP., which survived the merger with a change of
name to PPDLP. The sole general partner of PPDLP is Parker & Parsley
Petroleum USA, Inc. PPDLP has the power and authority to manage,
control and administer all Registrant affairs. The limited partners
contributed $10,131,000 representing 10,131 interests ($1,000 per
interest) sold to a total of 952 limited partners.
Since its formation, the Registrant invested $8,419,756 in various
prospects that were drilled in Texas. At September 30, 1995, the
Registrant had 30 producing oil and gas wells. One well was abandoned
in 1992 and one well was sold during 1990.
7
RESULTS OF OPERATIONS
Nine months ended September 30, 1995 compared with nine months ended
September 30, 1994
REVENUES:
The Registrant's oil and gas revenues decreased to $587,487 from
$591,716 for the nine months ended September 30, 1995 and 1994,
respectively. The decrease in revenues resulted from an 11% decrease in
barrels of oil produced and sold and a decline in the average price
received per mcf of gas, offset by an 8% increase in mcf of gas produced
and sold and an increase in the average price received per barrel of
oil. For the nine months ended September 30, 1995, 23,790 barrels of
oil were sold compared to 26,777 for the same period in 1994, a decrease
of 2,987 barrels. For the nine months ended September 30, 1995, 113,698
mcf of gas were sold compared to 105,317 for the same period in 1994, an
increase of 8,381 mcf. The decrease in oil production volumes was due
to the decline characteristics of the Registrant's oil and gas
properties. The increase in gas production volumes was attributable to
operational changes on several wells. Management expects a certain
amount of decline in production in the future until the Registrant's
economically recoverable reserves are fully depleted.
The average price received per barrel of oil increased $1.49, or 9%,
from $15.76 for the nine months ended September 30, 1994 to $17.25 for
the same period in 1995 while the average price received per mcf of gas
decreased 3% from $1.61 for the nine months ended September 30, 1994 to
$1.56 in 1995. The market price for oil and gas has been extremely
volatile in the past decade, and management expects a certain amount of
volatility to continue in the foreseeable future. The Registrant may
therefore sell its future oil and gas production at average prices lower
or higher than that received during the nine months ended September 30,
1995.
Salvage income of $6,734 from equipment disposals for the nine months
ended September 30, 1995 was derived from equipment credits received on
one fully depleted well. Salvage income of $223 received during the same
period ended September 30, 1994 was from the sale of equipment on one
well plugged and abandoned in a prior year.
COSTS AND EXPENSES:
Total costs and expenses increased to $605,373 for the nine months ended
September 30, 1995 as compared to $598,805 for the same period in 1994,
an increase of $6,568. This increase was due to increases in production
8
costs and depletion, offset by a decline in general and administrative
expenses ("G&A").
Production costs were $367,939 for the nine months ended September 30,
1995 and $365,144 for the same period in 1994 resulting in a $2,795
increase. This increase was primarily the result of an increase in well
repair and maintenance costs incurred in an effort to stimulate well
production.
G&A's components are independent accounting and engineering fees,
computer services, postage and managing general partner personnel costs.
During this period, G&A decreased, in aggregate, from $17,693 for the
nine months ended September 30, 1994 to $17,625 for the same period in
1995. The Partnership agreement limits G&A to 3% of gross oil and gas
revenues.
Depletion was $219,809 for the nine months ended September 30, 1995
compared to $215,968 for the same period in 1994. This represented an
increase in depletion of $3,841, or 2%. Depletion was calculated
quarterly on a property-by-property basis utilizing the unit-of-production
method based upon the dominant mineral produced, generally
oil. Oil production decreased 2,987 barrels for the nine months ended
September 30, 1995 from the same period in 1994. Depletion expense for
the nine months ended September 30, 1995 was calculated based on
reserves computed utilizing an oil price of $16.32 per barrel.
Comparatively, depletion expense for the three months ended September
30, 1994 and June 30, 1994 was calculated based on reserves computed
utilizing an oil price of $18.26 per barrel while depletion expense for
the three months ended March 31, 1994 was calculated based on reserves
computed utilizing an oil price of $12.76 per barrel.
On May 25, 1993, a final settlement agreement was negotiated, drafted
and finally executed, ending litigation which had begun on September 5,
1989, when the Registrant filed suit along with other parties against
Dresser Industries, Inc.; Titan Services, Inc.; BJ-Titan Services
Company; BJ-Hughes Holding Company; Hughes Tool Company; Baker Hughes
Production Tools, Inc.; and Baker Hughes Incorporated alleging that the
defendants had intentionally failed to provide the materials and
services ordered and paid for by the Registrant and other parties in
connection with the fracturing and acidizing of 523 wells, and then
fraudulently concealed the shorting practice from PPDLP. The May 25,
1993 settlement agreement called for a payment of $115 million in cash
by the defendants. The managing general partner received the funds,
deducted incurred legal expenses, accrued interest, determined the
general partners' portion of the funds and calculated any
9
inter-partnership allocations. A distribution of $91,000,000 was made
to the working interest owners, including the Registrant, on July 30,
1993. The limited partners received their distribution of $2,882,376,
or $284.51 per limited partnership interest, in September 1993.
On May 3, 1993, Jack N. Price, the attorney who represented Gary G.
"Zeke" Lancaster in the Federal Court lawsuit, filed suit in State Court
in Beaumont against all of the plaintiff partnerships, including the
Registrant and others, alleging his entitlement to 12% of the settlement
proceeds. Price's lawsuit claim for approximately $13.8 million is
predicated on a purported contract entered into with Southmark
Corporation in August 1988, in which he allegedly binds the Registrant
and the other defendants, as well as Southmark. On September 20, 1995,
the Beaumont trial judge entered a summary judgment against Southmark
for the $13,790,000 contingent fee sought by Price, together with
prejudgment interest, and also awarded Price an additional $5,498,525 in
attorneys' fees. Southmark intends to vigorously pursue appeal of the
judgment. The summary judgment did not give Price any relief against
the Registrant, and although PPDLP believes the lawsuit is without merit
and intends to vigorously defend it, PPDLP is holding in reserve
approximately 12.5% of the total settlement pending final resolution of
the litigation by the court. Trial against the Registrant is currently
scheduled for April 1996.
Three months ended September 30, 1995 compared with three months ended
September 30, 1994
REVENUES:
The Registrant's oil and gas revenues decreased to $173,349 from
$204,765 for the three months ended September 30, 1995 and 1994,
respectively, a decrease of 15%. The decrease in revenues resulted from
a 17% decrease in barrels of oil produced and sold and decreases in the
average prices received per barrel of oil and mcf of gas, offset by a 5%
increase in the mcf of gas produced and sold. For the three months
ended September 30, 1995, 7,213 barrels of oil were sold compared to
8,729 for the same period in 1994, a decrease of 1,516 barrels. For the
three months ended September 30, 1995, 37,752 mcf of gas were sold
compared to 36,029 for the same period in 1994, an increase of 1,723
mcf. The decrease in oil production volumes was due to the decline
characteristics of the Registrant's oil and gas properties. The
increase in gas production volumes was due to operational changes on
several wells.
10
The average price received per barrel of oil decreased $.95, or 5%, from
$17.38 for the three months ended September 30, 1994 to $16.43 for the
same period in 1995 while the average price received per mcf of gas
decreased from $1.47 for the three months ended September 30, 1994 to
$1.45 in 1995.
COSTS AND EXPENSES:
Total costs and expenses decreased to $178,696 for the three months
ended September 30, 1995 as compared to $183,145 for the same period in
1994, a decrease of $4,449, or 2%. This decrease was due to declines in
production costs and G&A, offset by an increase in depletion.
Production costs were $109,012 for the three months ended September 30,
1995 and $119,430 for the same period in 1994 resulting in a $10,418
decrease, or 9%. This decrease was primarily due to a decline in well
repair and maintenance costs.
G&A's components are independent accounting and engineering fees,
computer services, postage and managing general partner personnel costs.
During this period, G&A decreased, in aggregate, 15% from $6,084 for the
three months ended September 30, 1994 to $5,201 for the same period in
1995.
Depletion was $64,483 for the three months ended September 30, 1995
compared to $57,631 for the same period in 1994. This represented an
increase in depletion of $6,852, or 12%. Depletion was calculated on a
property-by-property basis utilizing the unit-of-production method based
upon the dominant mineral produced, generally oil. Oil production
decreased 1,516 barrels for the three months ended September 30, 1995
from the same period in 1994. Depletion expense for the three months
ended September 30, 1995 was calculated based on reserves computed
utilizing an oil price of $16.32 per barrel. Comparatively, depletion
expense for the three months ended September 30, 1994 was calculated
based on reserves computed utilizing an oil price of $18.26 per barrel.
LIQUIDITY AND CAPITAL RESOURCES
NET CASH PROVIDED BY OPERATING ACTIVITIES
Net cash provided by operating activities increased to $261,357 during
the nine months ended September 30, 1995, a $36,895 increase from the
same period ended September 30, 1994. This increase was due to an
increase in oil and gas sales and a decrease in production costs. The
increase in oil and gas sales was due to an increase in mcf of gas
11
produced and sold and an increase in the average price received per
barrel of oil, offset by a decline in barrels of oil produced and sold
and a decrease in the average price received per mcf of gas. The
decline in production costs was due to decreases in well repair and
maintenance costs.
NET CASH USED IN INVESTING ACTIVITIES
The Registrant's principal investing activities during the nine months
ended September 30, 1995 and 1994, respectively, included $15,628 and
$5,843 for expenditures related to repair and maintenance activity on
various oil and gas properties.
The Registrant received proceeds of $6,734 during the nine months ended
September 30, 1995 from the disposal of oil and gas equipment on an
active property. Proceeds of $223 received from salvage income during
the same period in 1994 were derived from the sale of equipment on a
property abandoned in a prior year.
NET CASH USED IN FINANCING ACTIVITIES
Cash was sufficient for the nine months ended September 30, 1995 to
cover distributions to the partners of $201,022 of which $199,009 was
distributed to the limited partners and $2,013 to the managing general
partner. For the same period ended September 30, 1994, cash was
sufficient for distributions to the partners of $224,656 of which
$222,408 was distributed to the limited partners and $2,248 to the
managing general partner.
It is expected that future net cash provided by operating activities
will be sufficient for any capital expenditures and any distributions.
As the production from the properties declines, distributions are also
expected to decrease.
ACCOUNTING STANDARD ON IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 - Accounting for Impairment of
Long-lived Assets and for Long-lived Assets to Be Disposed Of ("FAS
121") regarding the impairment of long-lived assets, identifiable
intangibles and goodwill related to those assets. FAS 121 is effective
for financial statements for fiscal years beginning after December 15,
1995, although earlier adoption is encouraged. The application of FAS
121 to oil and gas companies utilizing the successful efforts method
(such as the Registrant) will require periodic determination of whether
12
the book value of long-lived assets exceeds the future cash flows
expected to result from the use of such assets and, if so, will require
reduction of the carrying amount of the "impaired" assets to their
estimated fair values. There is currently a great deal of uncertainty
as to how FAS 121 will apply to oil and gas companies using the
successful efforts method, including uncertainty regarding the
determination of expected future cash flows from the relevant assets
and, if an impairment is determined to exist, their estimated fair
value. There is also uncertainty regarding the level at which the test
might be applied. Given this uncertainty, the Registrant is currently
unable to estimate the effect that FAS 121 will have on the Registrant's
results of operations for the period in which it is adopted.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 25, 1993, a final settlement agreement was negotiated, drafted
and finally executed, ending litigation which had begun on September 5,
1989, when the Registrant filed suit along with other parties against
Dresser Industries, Inc.; Titan Services, Inc.; BJ-Titan Services
Company; BJ-Hughes Holding Company; Hughes Tool Company; Baker Hughes
Production Tools, Inc.; and Baker Hughes Incorporated alleging that the
defendants had intentionally failed to provide the materials and
services ordered and paid for by the Registrant and other parties in
connection with the fracturing and acidizing of 523 wells, and then
fraudulently concealed the shorting practice from PPDLP. The May 25,
1993 settlement agreement called for a payment of $115 million in cash
by the defendants. The managing general partner received the funds,
deducted incurred legal expenses, accrued interest, determined the
general partner's portion of the funds and calculated any
inter-partnership allocations. A distribution of $91,000,000 was made
to the working interest owners, including the Registrant, on July 30,
1993. The limited partners received their distribution of $2,882,376, or
$284.51 per limited partnership interest, in September 1993.
On May 3, 1993, Jack N. Price, the attorney who represented Gary G.
"Zeke" Lancaster in the Federal Court lawsuit, filed suit in State Court
in Beaumont against all of the plaintiff partnerships, including the
Registrant and others, alleging his entitlement to 12% of the settlement
proceeds. Price's lawsuit claim for approximately $13.8 million is
predicated on a purported contract entered into with Southmark
Corporation in August 1988, in which he allegedly binds the Registrant
and the other defendants, as well as Southmark. On September 20, 1995,
13
the Beaumont trial judge entered a summary judgment against Southmark
for the $13,790,000 contingent fee sought by Price, together with
prejudgment interest, and also awarded Price an additional $5,498,525 in
attorneys' fees. Southmark intends to vigorously pursue appeal of the
judgment. The summary judgment did not give Price any relief against
the Registrant, and although PPDLP believes the lawsuit is without merit
and intends to vigorously defend it, PPDLP is holding in reserve
approximately 12.5% of the total settlement pending final resolution of
the litigation by the court. Trial against the Registrant is currently
scheduled for April 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - none
(b) Reports on Form 8-K - none
14
PARKER & PARSLEY 86-A, LTD.
(A Texas Limited Partnership)
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARKER & PARSLEY 86-A, LTD.
By: Parker & Parsley Development L.P.,
Managing General Partner
By: Parker & Parsley Petroleum USA, Inc.
("PPUSA"), General Partner
Dated: November 9, 1995 By: /s/ Steven L. Beal
----------------------------------------
Steven L. Beal, Senior Vice President
and Chief Financial Officer of PPUSA
15