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 June 30, 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 June 30, 1998 and
December 31, 1997 ...................................... 3
Statements of Operations for the three and six
months ended June 30, 1998 and 1997....................... 4
Statement of Partners' Capital for the six months
ended June 30, 1998....................................... 5
Statements of Cash Flows for the six months
ended June 30, 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............................ 11
27.1 Financial Data Schedule
Signatures.................................................. 12
2
PARKER & PARSLEY 86-A, LTD.
(A Texas Limited Partnership)
Part I. Financial Information
Item 1. Financial Statements
BALANCE SHEETS
June 30, December 31,
1998 1997
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents, including interest
bearing deposits of $58,992 at June 30
and $118,756 at December 31 $ 59,109 $ 118,873
Accounts receivable - oil and gas sales 51,822 79,774
---------- ----------
Total current assets 110,931 198,647
---------- ----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 7,108,970 7,095,382
Accumulated depletion (6,354,229) (6,293,605)
---------- ----------
Net oil and gas properties 754,741 801,777
---------- ----------
$ 865,672 $ 1,000,424
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable - affiliate $ 22,098 $ 21,145
Partners' capital:
Managing general partner 7,130 8,487
Limited partners (10,131 interests) 836,444 970,792
---------- ----------
843,574 979,279
---------- ----------
$ 865,672 $ 1,000,424
========== ==========
The financial information included as of June 30, 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 Six months ended
June 30, June 30,
--------------------- ---------------------
1998 1997 1998 1997
--------- --------- --------- ---------
Revenues:
Oil and gas $ 104,404 $ 131,627 $ 216,312 $ 304,025
Interest 1,149 2,335 2,779 4,751
-------- -------- -------- --------
105,553 133,962 219,091 308,776
-------- -------- -------- --------
Costs and expenses:
Oil and gas production 106,537 105,017 216,919 209,968
General and administrative 3,132 3,949 6,489 9,121
Depletion 30,757 40,361 60,624 82,973
-------- -------- -------- --------
140,426 149,327 284,032 302,062
-------- -------- -------- --------
Net income (loss) $ (34,873) $ (15,365) $ (64,941) $ 6,714
======== ======== ======== ========
Allocation of net income (loss):
Managing general partner $ (348) $ (154) $ (649) $ 67
======== ======== ======== ========
Limited partners $ (34,525) $ (15,211) $ (64,292) $ 6,647
======== ======== ======== ========
Net income (loss) per limited
partnership interest $ (3.41) $ (1.50) $ (6.35) $ .66
======== ======== ======== ========
Distributions per limited
partnership interest $ 1.14 $ 6.42 $ 6.92 $ 18.10
======== ======== ======== ========
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 (708) (70,056) (70,764)
Net loss (649) (64,292) (64,941)
-------- --------- ---------
Balance at June 30, 1998 $ 7,130 $ 836,444 $ 843,574
======== ========= =========
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)
Six months ended
June 30,
----------------------
1998 1997
--------- ---------
Cash flows from operating activities:
Net income (loss) $ (64,941) $ 6,714
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depletion 60,624 82,973
Changes in assets and liabilities:
Accounts receivable 27,952 63,219
Accounts payable 953 (23,790)
-------- --------
Net cash provided by operating activities 24,588 129,116
-------- --------
Cash flows from investing activities:
Additions to oil and gas properties (13,588) (3,263)
Proceeds from asset dispositions - (34,787)
-------- --------
Net cash used in investing activities (13,588) (38,050)
-------- --------
Cash flows from financing activities:
Cash distributions to partners (70,764) (185,198)
-------- --------
Net decrease in cash and cash equivalents (59,764) (94,132)
Cash and cash equivalents at beginning of period 118,873 232,139
-------- --------
Cash and cash equivalents at end of period $ 59,109 $ 138,007
======== ========
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
June 30, 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 of the
Partnership as of June 30, 1998 and for the three and six months ended June 30,
1998 and 1997 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. These interim results are not necessarily
indicative of results for a full year.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted in this Form 10-Q pursuant to the rules and
regulations of the Securities and Exchange Commission. 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
Six months ended June 30, 1998 compared with six months ended
June 30, 1997
Revenues:
The Partnership's oil and gas revenues decreased 29% to $216,312 from $304,025
for the six months ended June 30, 1998 and 1997, respectively. The decrease in
revenues resulted from lower average prices received, offset by an increase in
7
production. For the six months ended June 30, 1998, 10,146 barrels of oil, 5,143
barrels of natural gas liquids ("NGLs") and 23,870 mcf of gas were sold, or
19,267 barrel of oil equivalents ("BOEs"). For the six months ended June 30,
1997, 10,223 barrels of oil and 40,467 mcf of gas were sold, or 16,968 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 to periods prior
to September 30, 1997. Also, prices for gas products will not be comparable as
the price per mcf for natural gas for the three and six months ended June 30,
1998 is the price received for dry residue gas and the price per mcf for natural
gas for the three and six months ended June 30, 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 $6.22, or 30%, from
$20.48 for the six months ended June 30, 1997 to $14.26 for the same period in
1998. The average price received per barrel of NGLs during the six months ended
June 30, 1998 was $7.06. The average price received per mcf of gas decreased
from $2.34 during the six months ended June 30, 1997 to $1.48 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 six months ended
June 30, 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 1998. On July 29, 1998,
the market price for West Texas intermediate crude was $11.58 per barrel. A
continuation of the oil price environment experienced during the first half 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 $284,032 for the six months ended June 30,
1998 as compared to $302,062 for the same period in 1997, a decrease of $18,030,
or 6%. This decrease was due to declines in depletion and general and
administrative expenses ("G&A"), offset by an increase in production costs.
Production costs were $216,919 for the six months ended June 30, 1998 and
$209,968 for the same period in 1997 resulting in a $6,951 increase, or 3%. This
increase was primarily the result of an increase in well maintenance costs
incurred in an effort to stimulate well production, offset by a decrease in
production taxes.
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, 29% from $9,121 for the six months ended June 30, 1997
to $6,489 for the same period in 1998.
8
Depletion was $60,624 for the six months ended June 30, 1998 compared to $82,973
for the same period in 1997. This represented a decrease in depletion of
$22,349, or 27%. 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 77 barrels for the period ended June 30, 1998 compared to the same period in
1997, offset by a decrease in oil reserves during the six months ended June 30,
1998 as a result of lower commodity prices.
Three months ended June 30, 1998 compared with three months ended
June 30, 1997
Revenues:
The Partnership's oil and gas revenues decreased 21% to $104,404 from $131,627
for the three months ended June 30, 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 June 30, 1998, 5,122 barrels of oil,
2,609 barrels of NGLs and 11,273 mcf of gas were sold, or 9,610 BOEs. For the
three months ended June 30, 1997, 4,680 barrels of oil and 21,506 mcf of gas
were sold, or 8,264 BOEs.
The average price received per barrel of oil decreased $5.43, or 29%, from
$18.92 for the three months ended June 30, 1997 to $13.49 for the same period in
1998. The average price received per barrel of NGLs during the three months
ended June 30, 1998 was $7.16. The average price received per mcf of gas
decreased 27% from $2.00 during the three months ended June 30, 1997 to $1.47 in
1998.
Costs and Expenses:
Total costs and expenses decreased to $140,426 for the three months ended June
30, 1998 as compared to $149,327 for the same period in 1997, a decrease of
$8,901, or 6%. This decrease was due to declines in depletion and G&A, offset by
an increase in production costs.
Production costs were $106,537 for the three months ended June 30, 1998 and
$105,017 for the same period in 1997 resulting in a $1,520 increase. This
increase was primarily the result of an increase in well maintenance costs,
offset by a decrease in production taxes.
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, 21% from $3,949 for the three months ended June 30,
1997 to $3,132 for the same period in 1998.
Depletion was $30,757 for the three months ended June 30, 1998 compared to
$40,361 for the same period in 1997. This represented a decrease in depletion of
$9,604, or 24%. This decrease was primarily attributable to a reduction in the
Partnership's net depletable basis from charges taken in accordance with SFAS
9
121 during the fourth quarter of 1997, offset by a decrease in oil reserves
during the three months ended June 30, 1998 as a result of lower commodity
prices.
Liquidity and Capital Resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $104,528 during the six
months ended June 30, 1998 from the same period ended June 30, 1997. This
decrease was primarily due to a decline in oil and gas sales receipts, offset by
declines in production costs and G&A expenses paid.
Net Cash Used in Investing Activities
The Partnership's principal investing activities for the six months ended June
30, 1998 and 1997 included expenditures related to equipment replacement on
various oil and gas properties.
Proceeds from asset dispositions during 1997 resulted from the final post
closing adjustment of $34,787 from the 1996 sale of properties.
Net Cash Used in Financing Activities
Cash was sufficient for the six months ended June 30, 1998 to cover
distributions to the partners of $70,764 of which $708 was distributed to the
managing general partner and $70,056 to the limited partners. For the same
period ended June 30, 1997, cash was sufficient for distributions to the
partners of $185,198 of which $1,851 was distributed to the managing general
partner and $183,347 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 June
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.
10
- ---------------
(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.
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K - none
11
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: August 5, 1998 By: /s/ Rich Dealy
------------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
12