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, 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 September 30, 1998 and
December 31, 1997........................................ 3
Statements of Operations for the three and nine
months ended September 30, 1998 and 1997.................. 4
Statement of Partners' Capital for the nine months
ended September 30, 1998.................................. 5
Statements of Cash Flows for the nine months ended
September 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............................ 12
27.1 Financial Data Schedule
Signatures.................................................. 13
2
PARKER & PARSLEY 86-A, LTD.
(A Texas Limited Partnership)
Part I. Financial Information
Item 1. Financial Statements
BALANCE SHEETS
September 30, December 31,
1998 1997
------------ -----------
(Unaudited)
ASSETS
Current assets:
Cash $ 61,300 $ 118,873
Accounts receivable - oil and gas sales 62,071 79,774
---------- ----------
Total current assets 123,371 198,647
---------- ----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 7,116,893 7,095,382
Accumulated depletion (6,461,110) (6,293,605)
---------- ----------
Net oil and gas properties 655,783 801,777
---------- ----------
$ 779,154 $ 1,000,424
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable - affiliate $ 18,681 $ 21,145
Partners' capital:
Managing general partner 6,299 8,487
Limited partners (10,131 interests) 754,174 970,792
---------- ----------
760,473 979,279
---------- ----------
$ 779,154 $ 1,000,424
========== ==========
The financial information included as of September 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 Nine months ended
September 30, September 30,
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
Revenues:
Oil and gas $ 108,231 $ 135,437 $ 324,543 $ 439,462
Interest 949 1,839 3,728 6,590
-------- -------- -------- --------
109,180 137,276 328,271 446,052
-------- -------- -------- --------
Costs and expenses:
Oil and gas production 71,729 105,015 288,648 314,983
General and administrative 3,247 4,063 9,736 13,184
Depletion 106,881 41,170 167,505 124,143
-------- -------- -------- --------
181,857 150,248 465,889 452,310
-------- -------- -------- --------
Net loss $ (72,677) $ (12,972) $(137,618) $ (6,258)
======== ======== ======== ========
Allocation of net loss:
Managing general partner $ (727) $ (130) $ (1,376) $ (63)
======== ======== ======== ========
Limited partners $ (71,950) $ (12,842) $(136,242) $ (6,195)
======== ======== ======== ========
Net loss per limited
partnership interest $ (7.10) $ (1.27) $ (13.45) $ (.61)
======== ======== ======== ========
Distributions per limited
partnership interest $ 1.01 $ 4.83 $ 7.93 $ 22.93
======== ======== ======== ========
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 (812) (80,376) (81,188)
Net loss (1,376) (136,242) (137,618)
-------- --------- ---------
Balance at September 30, 1998 $ 6,299 $ 754,174 $ 760,473
======== ========= =========
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)
Nine months ended
September 30,
-------------------------
1998 1997
--------- ----------
Cash flows from operating activities:
Net loss $(137,618) $ (6,258)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depletion 167,505 124,143
Changes in assets and liabilities:
Accounts receivable 17,703 55,882
Accounts payable (2,464) (56,079)
-------- --------
Net cash provided by operating
activities 45,126 117,688
-------- --------
Cash flows from investing activities:
Additions to oil and gas properties (21,511) (9,851)
Cash flows from financing activities:
Cash distributions to partners (81,188) (234,686)
-------- --------
Net decrease in cash (57,573) (126,849)
Cash at beginning of period 118,873 232,139
-------- --------
Cash at end of period $ 61,300 $ 105,290
======== ========
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
September 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 September 30, 1998 and for the three and nine months ended
September 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.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (1)
Results of Operations
Nine months ended September 30, 1998 compared with nine months ended September
30, 1997
Revenues:
The Partnership's oil and gas revenues decreased 26% to $324,543 from $439,462
for the nine months ended September 30, 1998 and 1997, respectively. The
decrease in revenues resulted from lower average prices received, offset by an
increase in production. For the nine months ended September 30, 1998, 15,543
barrels of oil, 8,486 barrels of natural gas liquids ("NGLs") and 37,697 mcf of
7
gas were sold, or 30,312 barrel of oil equivalents ("BOEs"). For the nine months
ended September 30, 1997, 15,268 barrels of oil and 61,398 mcf of gas were sold,
or 25,501 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 nine months ended September
30, 1998 is the price received for dry residue gas and the price per mcf for
natural gas for the three and nine months ended September 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 $6.13, or 31%, from
$19.78 for the nine months ended September 30, 1997 to $13.65 for the same
period in 1998. The average price received per barrel of NGLs during the nine
months ended September 30, 1998 was $6.70. The average price received per mcf of
gas decreased 34% from $2.24 for the nine months ended September 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 nine months ended September 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 October 30, 1998,
the market price for West Texas intermediate crude was $13.33 per barrel. A
continuation of the oil price environment experienced during the first three
quarters 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 increased to $465,889 for the nine months ended
September 30, 1998 as compared to $452,310 for the same period in 1997, an
increase of $13,579, or 3%. This increase was due to an increase in depletion,
offset by decreases in production costs and general and administrative expenses
("G&A").
Production costs were $288,648 for the nine months ended September 30, 1998 and
$314,983 for the same period in 1997 resulting in a $26,335 decrease, or 8%.
This decrease was primarily the result of a reduction in well maintenance costs
and a decline 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, 26% from $13,184 for the nine months ended September
30, 1997 to $9,736 for the same period in 1998.
8
Depletion was $167,505 for the nine months ended September 30, 1998 compared to
$124,143 for the same period in 1997, representing an increase of $43,362, or
35%. This increase was primarily attributable to a decrease in oil reserves
during the period ended September 30, 1998 as a result of lower commodity prices
and an increase in oil production of 275 barrels for the period ended September
30, 1998 compared to the same period in 1997, offset by 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.
Three months ended September 30, 1998 compared with three months ended September
30, 1997
Revenues:
The Partnership's oil and gas revenues decreased 20% to $108,231 from $135,437
for the three months ended September 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 September 30, 1998, 5,397
barrels of oil, 3,343 barrels of NGLs and 13,827 mcf of gas were sold, or 11,045
BOEs. For the three months ended September 30, 1997, 5,045 barrels of oil and
20,931 mcf of gas were sold, or 8,534 BOEs.
The average price received per barrel of oil decreased $5.86, or 32%, from
$18.35 for the three months ended September 30, 1997 to $12.49 for the same
period in 1998. The average price received per barrel of NGLs during the three
months ended September 30, 1998 was $6.14. The average price received per mcf of
gas decreased 28% from $2.05 for the three months ended September 30, 1997 to
$1.47 in 1998.
Costs and Expenses:
Total costs and expenses increased to $181,857 for the three months ended
September 30, 1998 as compared to $150,248 for the same period in 1997, an
increase of $31,609, or 21%. This increase was due to an increase in depletion,
offset by declines in production costs and G&A.
Production costs were $71,729 for the three months ended September 30, 1998 and
$105,015 for the same period in 1997 resulting in a $33,286 decrease, or 32%.
This decrease was primarily due to lower well maintenance costs and 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, 20% from $4,063 for the three months ended September
30, 1997 to $3,247 for the same period in 1998.
Depletion was $106,881 for the three months ended September 30, 1998 compared to
$41,170 for the same period in 1997, representing an increase of $65,711. This
increase was primarily attributable to a decrease in oil reserves during the
period ended September 30, 1998 as a result of lower commodity prices and an
9
increase in oil production of 352 barrels for the period ended September 30,
1998 compared to the same period in 1997, offset by a reduction in the
Partnership's net depletable basis from charges taken in accordance with SFAS
121 during the fourth quarter of 1997.
Liquidity and Capital Resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $72,562 during the nine
months ended September 30, 1998 from the same period ended September 30, 1997.
This decrease was primarily due to a decrease 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 investing activities during the nine months ended September
30, 1998 and 1997 included expenditures related to equipment replacement on
various oil and gas properties.
Net Cash Used in Financing Activities
Cash was sufficient for the nine months ended September 30, 1998 to cover
distributions to the partners of $81,188 of which $812 was distributed to the
managing general partner and $80,376 to the limited partners. For the same
period ended September 30, 1997, cash was sufficient for distributions to the
partners of $234,686 of which $2,346 was distributed to the managing general
partner and $232,340 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.
Year 2000 Project Readiness
Historically, many computer programs have been developed that use only the last
two digits in a date to refer to a year. As the year 2000 nears, the inability
of such computer programs and embedded technologies to distinguish between
"1900" and "2000" has given rise to the "Year 2000" problem. Theoretically, such
computer programs and related technology could fail outright, or communicate
inaccurate data, if not remediated or replaced. With the proliferation of
electronic data interchange, the Year 2000 problem represents a significant
exposure to the entire global community, the full extent of which cannot be
accurately assessed.
In proactive response to the Year 2000 problem, the managing general partner
established a "Year 2000" project to assess, to the extent possible, the
Partnership's and the managing general partner's internal Year 2000 problem; to
take remedial actions necessary to minimize the Year 2000 risk exposure to the
managing general partner and significant third parties with whom it has data
10
interchange; and, to test its systems and processes once remedial actions have
been taken. The managing general partner has contracted with IBM Global Services
to perform the assessment and remedial phases of its Year 2000 project.
The assessment phase of the managing general partner's Year 2000 project is 85%
complete and has included, but is not limited to, the following procedures:
o the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
o the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
o the initiation of inquiry and dialogue with significant third party
business partners, customers and suppliers in an effort to understand and
assess their Year 2000 problems, readiness and potential impact on the
managing general partner and its Year 2000 problem;
o the implementation of processes designed to reduce the risk of
reintroduction of Year 2000 problems into the managing general partner's
systems and business processes; and,
o the formulation of contingency plans for mission-critical information
technology systems.
The managing general partner expects to complete the assessment phase of its
Year 2000 project by the end of the first quarter of 1999 but is being delayed
by limited responses received on inquiries made of third party businesses. To
date, the managing general partner has distributed Year 2000 problem inquiries
to over 500 entities and has received responses on approximately 10% of those
inquiries.
The remedial phase of the managing general partner's Year 2000 project is
approximately 40% complete, subject to the results of the third party inquiry
assessments and the testing phase. The remedial phase has included the upgrade
and/or replacement of certain application and hardware systems. The managing
general partner has upgraded its Artesia general ledger accounting systems
through remedial coding and is currently testing this system for Year 2000
compliance. The remediation of non-information technology is expected to be
completed by mid-1999. The managing general partner's Year 2000 remedial actions
have not delayed other information technology projects or upgrades.
The testing phase of the managing general partner's Year 2000 project is on
schedule. The managing general partner expects to complete the testing of the
Artesia system upgrades by March 1999 and all other information technology
systems by May 1999. The testing of the non-information technology remediation
is scheduled to be completed by the end of September 1999.
The managing general partner expects that its total costs related to the Year
2000 problem will approximate $3.5 million, of which approximately $500 thousand
will have been incurred to replace non-compliant information technology systems.
11
As of September 30, 1998, the managing general partner's total costs incurred on
the Year 2000 problem were $1.5 million, of which $200 thousand were incurred to
replace non-compliant systems. 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
and such allocation should not be significant to the Partnership.
The risks associated with the Year 2000 problem are significant. A failure to
remedy a critical Year 2000 problem could have a materially adverse affect on
the Partnership's results of operations and financial condition. The problems
which may be encountered as a result of a Year 2000 problem could include
information and non-information system failures, the receipt or transmission of
erroneous data, lost data or a combination of similar problems of a magnitude
that cannot be accurately assessed at this time. In the assessment phase of the
managing general partner's Year 2000 project, contingency plans are being
designed to mitigate the exposures noted above. However, given the uncertainties
regarding the scope of the Year 2000 problem and the compliance of significant
third parties, there can be no assurance that contingency plans will have
anticipated all Year 2000 scenarios.
- ---------------
(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
12
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: November 10, 1998 By: /s/ Rich Dealy
-------------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
13