January 28, 2002 RE: 2001 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 the 2001 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, 2001 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, 2001, 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 valuation
does not include a deduction for future partnership general and administrative
expenses.
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For determining the present value of future cash flow, pricing guidelines and a
time value discount rate 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, 2001, calculations are based on
estimated average prices of $16.75 per barrel of oil and $2.65 per thousand
cubic feet of gas. (This compares to $27.52 per barrel and $6.03 per thousand
cubic feet of gas used for the 2000 Year-End Estimates.) Future net cash flow is
then discounted to a present value at a 10% annual rate.
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.
REASONS FOR YEAR TO YEAR CHANGES IN ESTIMATES
In all of the Geodyne Programs, 2001 year-end estimated valuations are
signficantly lower than the 2000 year-end estimates. This is primarily due to
the significantly lower natural gas and crude oil prices in effect on December
31, 2001 compared to December 31, 2000. Actual future prices received by the
Programs will likely be different from the prices in effect on December 31,
2001.
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 estimates of future cash flow.
* 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
President
Geodyne Resources, Inc.
Enclosure
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