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 March 31, 1998
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 / /
PARKER & PARSLEY 86-A, LTD.
TABLE OF CONTENTS
Page
Part I. Financial Information
Item 1. Financial Statements
Balance Sheets as of March 31, 1998 and
December 31, 1997 ...................................... 3
Statements of Operations for the three months
ended March 31, 1998 and 1997.............................. 4
Statement of Partners' Capital for the three months
ended March 31, 1998....................................... 5
Statements of Cash Flows for the three months
ended March 31, 1998 and 1997.............................. 6
Notes to Financial Statements................................ 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K............................. 10
27.1 Financial Data Schedule
Signatures................................................... 11
2
PARKER & PARSLEY 86-A, LTD.
(A Texas Limited Partnership)
Part I. Financial Information
Item 1. Financial Statements
BALANCE SHEETS
March 31, December 31,
1998 1997
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents, including interest
bearing deposits of $78,487 at March 31
and $118,756 at December 31 $ 78,603 $ 118,873
Accounts receivable - oil and gas sales 51,044 79,774
---------- ----------
Total current assets 129,647 198,647
---------- ----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 7,103,581 7,095,382
Accumulated depletion (6,323,472) (6,293,605)
---------- ----------
Net oil and gas properties 780,109 801,777
---------- ----------
$ 909,756 $ 1,000,424
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable - affiliate $ 19,653 $ 21,145
Partners' capital:
Managing general partner 7,595 8,487
Limited partners (10,131 interests) 882,508 970,792
---------- ----------
890,103 979,279
---------- ----------
$ 909,756 $ 1,000,424
========== ==========
The financial information included as of March 31, 1998 has been prepared by
management without audit by independent public accountants.
The accompanying notes are an integral part of these financial statements.
3
PARKER & PARSLEY 86-A, LTD.
(A Texas Limited Partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
March 31,
------------------------
1998 1997
--------- ---------
Revenues:
Oil and gas $ 111,908 $ 172,398
Interest 1,630 2,416
-------- --------
113,538 174,814
-------- --------
Costs and expenses:
Oil and gas production 110,382 104,951
General and administrative 3,357 5,172
Depletion 29,867 42,612
-------- --------
143,606 152,735
-------- --------
Net income (loss) $ (30,068) $ 22,079
======== ========
Allocation of net income (loss):
Managing general partner $ (301) $ 221
======== ========
Limited partners $ (29,767) $ 21,858
======== ========
Net income (loss) per limited partnership interest $ (2.94) $ 2.16
======== ========
Distributions per limited partnership interest $ 5.78 $ 11.68
======== ========
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 financial statements.
4
PARKER & PARSLEY 86-A, LTD.
(A Texas Limited Partnership)
STATEMENT OF PARTNERS' CAPITAL
(Unaudited)
Managing
general Limited
partner partners Total
--------- ---------- ----------
Balance at January 1, 1998 $ 8,487 $ 970,792 $ 979,279
Distributions (591) (58,517) (59,108)
Net loss (301) (29,767) (30,068)
-------- --------- ---------
Balance at March 31, 1998 $ 7,595 $ 882,508 $ 890,103
======== ========= =========
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 financial statements.
5
PARKER & PARSLEY 86-A, LTD.
(A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
March 31,
-----------------------
1998 1997
---------- ---------
Cash flows from operating activities:
Net income (loss) $ (30,068) $ 22,079
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depletion 29,867 42,612
Changes in assets and liabilities:
Accounts receivable 28,730 36,766
Accounts payable (1,492) 13,394
--------- --------
Net cash provided by operating activities 27,037 114,851
--------- --------
Cash flows from investing activities:
Additions to oil and gas properties (8,199) (3,263)
Proceeds from asset dispositions - (34,787)
--------- --------
Net cash used in investing activities (8,199) (38,050)
Cash flows used in financing activities:
Cash distributions to partners (59,108) (119,535)
--------- --------
Net decrease in cash and cash equivalents (40,270) (42,734)
Cash and cash equivalents at beginning of period 118,873 232,139
--------- --------
Cash and cash equivalents at end of period $ 78,603 $ 189,405
========= ========
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 financial statements.
6
PARKER & PARSLEY 86-A, LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
Note 1. Organization and nature of operations
Parker & Parsley 86-A, Ltd. (the "Partnership") is a limited partnership
organized in 1986 under the laws of the State of Texas.
The Partnership engages primarily in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
Note 2. Basis of presentation
In the opinion of management, the unaudited financial statements as of March 31,
1998 of the Partnership 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, these interim results are not
necessarily indicative of results for a full year.
The financial statements should be read in conjunction with the financial
statements and the notes thereto contained in the Partnership's Report on Form
10-K for the year ended December 31, 1997, as filed with the Securities and
Exchange Commission, a copy of which is available upon request by writing to
Rich Dealy, Vice President and Chief Accounting Officer, 5205 North O'Connor
Boulevard, 1400 Williams Square West, Irving, Texas 75039-3746.
Certain reclassifications have been made to the 1997 financial statements to
conform to the 1998 financial statement presentation.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (1)
Results of Operations
Revenues:
The Partnership's oil and gas revenues decreased 35% to $111,908 from $172,398
for the three months ended March 31, 1998 and 1997, respectively. The decrease
in revenues resulted from lower average prices received, offset by an increase
in production. For the three months ended March 31, 1998, 5,023 barrels of oil,
2,534 barrels of natural gas liquids ("NGLs") and 12,597 mcf of gas were sold,
or 9,657 barrel of oil equivalents ("BOEs"). For the three months ended March
31, 1997, 5,543 barrels of oil and 18,961 mcf of gas were sold, or 8,703 BOEs.
As of September 30, 1997, the Partnership began accounting for processed natural
gas production as processed natural gas liquids and dry residue gas.
Consequently, separate product volumes will not be comparable for periods prior
to September 30, 1997. Also, prices for gas products will not be comparable as
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the price per mcf for natural gas for the three months ended March 31, 1998 is
the price received for dry residue gas and the price per mcf for natural gas for
the three months ended March 31, 1997 is a price for wet gas (i.e., natural gas
liquids combined with dry residue gas).
The average price received per barrel of oil decreased $6.75, or 31%, from
$21.80 for the three months ended March 31, 1997 to $15.05 for the same period
in 1998. The average price received per barrel of NGLs during the three months
ended March 31, 1998 was $6.95. The average price received per mcf of gas
decreased 46% from $2.72 during the three months ended March 31, 1997 to $1.48
for the same period in 1998. 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 Partnership may therefore
sell its future oil and gas production at average prices lower or higher than
that received during the three months ended March 31, 1998.
During most of 1997, the Partnership benefitted from higher oil prices as
compared to previous years. However, during the fourth quarter of 1997, oil
prices began a downward trend that has continued into March 1998. On April 23,
1998, the market price for West Texas intermediate crude was $13.80 per barrel.
A continuation of the oil price environment experienced during the first quarter
of 1998 will have an adverse effect on the Partnership's revenues and operating
cash flow and could result in additional decreases in the carrying value of the
Partnership's oil and gas properties.
Costs and Expenses:
Total costs and expenses decreased to $143,606 for the three months ended March
31, 1998 as compared to $152,735 for the same period in 1997, a decrease of
$9,129, or 6%. This decrease was due to declines in depletion and general and
administrative expense ("G&A"), offset by an increase in production costs.
Production costs were $110,382 for the three months ended March 31, 1998 and
$104,951 for the same period in 1997 resulting in a $5,431 increase, or 5%. This
increase was the result of an increase in well maintenance costs, offset by a
decrease in production taxes and workover expenses.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A
decreased, in aggregate, 35% from $5,172 for the three months ended March 31,
1997 to $3,357 for the same period in 1998.
Depletion was $29,867 for the three months ended March 31, 1998 compared to
$42,612 for the same period in 1997. This represented a decrease in depletion of
$12,745, or 30%. This decrease was primarily attributable to a reduction in the
Partnership's net depletable basis from charges taken in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS 121") during the fourth quarter of 1997 and a reduction in oil production
of 520 barrels for the period ended March 31, 1998 compared to the same period
in 1997, offset by a decrease in oil reserves during the three months ended
March 31, 1998 as a result of lower commodity prices.
8
Liquidity and Capital Resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $87,814 during the three
months ended March 31, 1998 from the same period in 1997. This decrease was due
primarily to a decline in oil and gas sales receipts and an increase in
production costs paid, offset by a decline in G&A expenses paid.
Net Cash Used in Investing Activities
The Partnership's investing activities during the three months ended March 31,
1998 and 1997 were primarily related to the addition of oil and gas equipment on
active properties.
The final post closing adjustment of $34,787 resulted from the 1996 sale of
properties.
Net Cash Used in Financing Activities
Cash was sufficient for the three months ended March 31, 1998 to cover
distributions to the partners of $59,108 of which $591 was distributed to the
managing general partner and $58,517 to the limited partners. For the same
period ended March 31, 1997, cash was sufficient for distributions to the
partners of $119,535 of which $1,195 was distributed to the managing general
partner and $118,340 to the limited partners.
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.
Information systems for the year 2000
The managing general partner will be required to modify its information systems
in order to accurately process Partnership data referencing the year 2000.
Because of the importance of occurrence dates in the oil and gas industry, the
consequences of not pursuing these modifications could be very significant to
the Partnership's ability to manage and report operating activities. Currently,
the managing general partner plans to contract with third parties to perform the
software programming changes necessary to correct any existing deficiencies.
Such programming changes are anticipated to be completed and tested by March 1,
1999. The managing general partner will allocate a portion of the costs of the
year 2000 programming charges to the Partnership when they are incurred, along
with recurring general and administrative expenses. Although the costs are not
estimable at this time, they should not be significant to the Partnership.
- ---------------
(1) "Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations" contains forward looking statements that involve
risks and uncertainties. Accordingly, no assurances can be given that
the actual events and results will not be materially different than the
anticipated results described in the forward looking statements.
9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedules
(b) Reports on Form 8-K
(1) On April 2, 1998, the Partnership filed a Current Report on Form
8-K dated March 31, 1998, reporting under Item 4 (Changes in
Registrant's Certifying Accountants) the engagement of Ernst &
Young LLP as the Partnership's independent auditors and the
dismissal of KPMG Peat Marwick LLP effective upon the completion of
the audit of the Partnership for the fiscal year ending December
31, 1997.
10
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: Pioneer Natural Resources USA, Inc.
Managing General Partner
Dated: May 5, 1998 By: /s/ Rich Dealy
-------------------------------
Rich Dealy, Vice President
and Chief Accounting Officer
11