FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
Commission File Number: P-7: 0-20265 P-8: 0-20264
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME
LIMITED PARTNERSHIP P-7
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME
LIMITED PARTNERSHIP P-8
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(Exact name of Registrant as specified in its Articles)
P-7: 73-1367186
Oklahoma P-8: 73-1378683
- --------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two West Second Street, Tulsa, Oklahoma 74103
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(918) 583-1791
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Depositary Units of Limited Partnership interest
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 the
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Sec. 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
X Disclosure is not contained herein
-----
Disclosure is contained herein
-----
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Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes No X
----- -----
The Depositary Units are not publicly traded, therefore, Registrant cannot
compute the aggregate market value of the voting units held by non-affiliates of
the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE: None
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FORM 10-K
TABLE OF CONTENTS
PART I.......................................................................4
ITEM 1. BUSINESS...................................................4
ITEM 2. PROPERTIES.................................................9
ITEM 3. LEGAL PROCEEDINGS.........................................15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF LIMITED PARTNERS.......15
PART II.....................................................................15
ITEM 5. MARKET FOR UNITS AND RELATED LIMITED PARTNER MATTERS......15
ITEM 6. SELECTED FINANCIAL DATA...................................17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK...............................................31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...............31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.......................31
ITEM 9A. CONTROLS AND PROCEDURES...................................31
ITEM 9B. OTHER INFORMATION.........................................32
PART III....................................................................32
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER...32
ITEM 11. EXECUTIVE COMPENSATION....................................33
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................37
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............38
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES....................39
PART IV.....................................................................40
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES................40
SIGNATURES..................................................................45
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PART I.
ITEM 1. BUSINESS
General
The Geodyne Institutional/Pension Energy Income Limited Partnership P-7
(the "P-7 Partnership") and Geodyne Institutional/Pension Energy Income Limited
Partnership P-8 (the "P-8 Partnership") (collectively, the "Partnerships") are
limited partnerships formed under the Oklahoma Revised Uniform Limited
Partnership Act. Each Partnership is composed of Geodyne Resources, Inc.
("Geodyne" or the "General Partner"), a Delaware corporation, as the general
partner, Geodyne Institutional Depositary Company, a Delaware corporation, as
the sole initial limited partner, and public investors as substitute limited
partners (the "Limited Partners"). The Partnerships commenced operations on
February 28, 1992.
The General Partner currently serves as general partner of 26 limited
partnerships, including the Partnerships. The General Partner is a wholly-owned
subsidiary of Samson Investment Company. Samson Investment Company and its
various corporate subsidiaries, including the General Partner (collectively
"Samson"), are primarily engaged in the production and development of and
exploration for oil and gas reserves and the acquisition and operation of
producing properties. At December 31, 2004 Samson owned interests in
approximately 16,000 oil and gas wells located in 18 states of the United States
and the countries of Canada, Venezuela, and Australia. At December 31, 2004,
Samson operated approximately 5,000 oil and gas wells located in 14 states of
the United States, as well as Canada, Venezuela, and Australia.
The Partnerships are currently engaged in the business of owning net
profits and royalty interests in oil and gas properties located in the
continental United States. Most of the net profits interests acquired by the
Partnerships have been carved out of working interests in oil and gas properties
("Working Interests") which were acquired by affiliated oil and gas investment
programs or other affiliates (the "Affiliated Programs"). Net profits interests
entitle the Partnerships to a share of net revenues from producing properties
measured by a specific percentage of the net profits realized by such Affiliated
Programs on those properties. Except where otherwise noted, references to
certain operational activities of the Partnerships are actually the activities
of the Affiliated Programs. As the holder of a net profits interest, a
Partnership is not liable to pay any amount by which oil and gas operating costs
and expenses exceed revenues for any period, although any deficit, together with
interest, is applied to reduce the amounts payable to the Partnership in
subsequent periods. As used throughout this Annual Report on Form 10-K ("Annual
Report") the
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Partnerships' net profits and royalty interests in oil and gas sales will be
referred to as "Net Profits" and the Partnerships' net profits and royalty
interests in oil and gas properties will be collectively referred to as "Net
Profits Interests."
In order to prudently manage the properties which are burdened by the
Partnerships' Net Profits Interests, it may be appropriate for drilling
operations to be conducted on such properties. Since the Partnerships'
capitalized cost of their Net Profits Interests are calculated after considering
such costs, the Partnerships also indirectly engage in development drilling.
As limited partnerships, the Partnerships have no officers, directors, or
employees. They rely instead on the personnel of the General Partner and Samson.
As of February 15, 2005, Samson employed approximately 1,100 persons. No
employees are covered by collective bargaining agreements, and management
believes that Samson provides a sound employee relations environment. For
information regarding the executive officers of the General Partner, see "Item
10. Directors and Executive Officers of the General Partner."
The General Partner's and the Partnerships' principal place of business is
located at Samson Plaza, Two West Second Street, Tulsa, Oklahoma 74103, and
their telephone number is (918) 583-1791 or (888) 436-3963 [(888) GEODYNE].
The Partnerships were scheduled to terminate on February 28, 2002 in
accordance with the partnership agreement for each Partnership (the "Partnership
Agreement"). However, the General Partner may extend the term of each
Partnership for up to five periods of two years each. The General Partner has
extended the terms of the Partnerships for their second extension thereby
extending their termination date through December 31, 2005. The General Partner
has not determined whether it will further extend the term of either
Partnership.
Funding
Although the Partnership Agreements permit each Partnership to incur a
limited amount of borrowings, operations and expenses are currently funded out
of revenues from each Partnership's Net Profits Interests. The General Partner
may, but is not required to, advance funds to the Partnerships for the same
purposes for which Partnership borrowings are authorized.
Principal Products Produced and Services Rendered
The Partnerships' sole business is the holding of certain Net Profits
Interests. The Partnerships do not refine or otherwise process crude oil and
condensate. The Partnerships do
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not hold any patents, trademarks, licenses, or concessions and are not a party
to any government contracts. The Partnerships have no backlog of orders and do
not participate in research and development activities. The Partnerships are not
presently encountering shortages of oilfield tubular goods, compressors,
production material, or other equipment. However, substantial increases in the
price of steel may increase the costs of any future workover, recompletion or
drilling activities indirectly conducted by the Partnerships.
Competition and Marketing
The primary source of liquidity and Partnership cash distributions comes
from the net revenues generated from the sale of oil and gas produced from the
Partnerships' oil and gas properties. The level of net revenues is highly
dependent upon the total volumes of oil and natural gas sold. Oil and gas
reserves are depleting assets and will experience production declines over time,
thereby likely resulting in reduced net revenues. The level of net revenues is
also highly dependent upon the prices received for oil and gas sales, which
prices have historically been very volatile and may continue to be so.
Additionally, lower oil and natural gas prices may reduce the amount of
oil and gas that is economic to produce and reduce the Partnerships' revenues
and cash flow. Various factors beyond the Partnerships' control will affect
prices for oil and natural gas, such as:
* Worldwide and domestic supplies of oil and natural gas;
* The ability of the members of the Organization of Petroleum Exporting
Countries ("OPEC") to agree upon and maintain oil prices and production
quotas;
* Political instability or armed conflict in oil-producing regions or
around major shipping areas;
* The level of consumer demand and overall economic activity;
* The competitiveness of alternative fuels;
* Weather conditions;
* The availability of pipelines for transportation; and
* Domestic and foreign government regulations and taxes.
It is not possible to predict the future direction of oil or natural gas
prices or whether the above discussed trends will remain. Operating costs,
including General and Administrative Expenses, may not decline over time or may
experience only a gradual decline, thus adversely affecting net revenues as
either production or oil and natural gas prices decline. In any particular
period, net revenues may also be affected by either the receipt of proceeds from
property sales or the incursion of additional costs as a result of well
workovers, recompletions, new well drilling, and other events.
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Significant Customers
The following customers accounted for ten percent or more of the oil and
gas revenues attributable to the Partnerships' Net Profits Interests during the
year ended December 31, 2004:
Partnership Customer Percentage
- ----------- ------------------------------------ ----------
P-7 Occidental Energy Marketing, Inc.
("Occidental") 24.0%
Hunt Oil Company ("Hunt") 18.3%
ExxonMobil Oil Corporation ("Exxon") 11.3%
P-8 Occidental 22.8%
Hunt 16.2%
Exxon 11.5%
In the event of interruption of purchases by one or more of these
significant customers or the cessation or material change in availability of
open access transportation by pipeline transporters, the Partnerships may
encounter difficulty in marketing gas and in maintaining historic sales levels.
Management does not expect any of its open access transporters to seek
authorization to terminate their transportation services. Even if the services
were terminated, management believes that alternatives would be available
whereby the Partnerships would be able to continue to market their gas.
The Partnerships' principal customers for crude oil production are
refiners and other companies which have pipeline facilities near the producing
properties in which the Partnerships own Net Profits Interests. In the event
pipeline facilities are not conveniently available to production areas, crude
oil is usually trucked by purchasers to storage facilities.
Oil, Gas, and Environmental Control Regulations
Regulation of Production Operations -- The production of oil and gas is
subject to extensive federal and state laws and regulations governing a wide
variety of matters, including the drilling and spacing of wells, allowable rates
of production, prevention of waste and pollution, and protection of the
environment. In addition to the direct costs borne in complying with such
regulations, operations and revenues may be impacted to the extent that certain
regulations limit oil and gas production to below economic levels.
Regulation of Sales and Transportation of Oil and Gas -- Sales of crude
oil and condensate are made at market prices and are not subject to price
controls. The sale of gas may be
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subject to both federal and state laws and regulations. The provisions of these
laws and regulations are complex, and affect all who produce, resell, transport,
or purchase gas. Although virtually all of the natural gas production affecting
the Partnerships is not subject to price regulation, other regulations affect
the availability of gas transportation services and the ability of gas consumers
to continue to purchase or use gas at current levels. Accordingly, such
regulations may have a material effect on the Partnerships' Net Profits and
projections of future Net Profits.
Future Legislation -- Legislation affecting the oil and gas industry is
under constant review for amendment or expansion. Because such laws and
regulations are frequently amended or reinterpreted, management is unable to
predict what additional energy legislation may be proposed or enacted or the
future cost and impact of complying with existing or future regulations.
Regulation of the Environment - Oil and gas operations are subject to
numerous laws and regulations governing the discharge of materials into the
environment or otherwise relating to environmental protection. Compliance with
such laws and regulations, together with any penalties resulting from
noncompliance, may decrease the Partnerships' Net Profits. Management
anticipates that various local, state, and federal environmental control
agencies will have an increasing impact on oil and gas operations.
Insurance Coverage
Exploration for and production of oil and gas are subject to many inherent
risks, including blowouts, pollution, fires, and other casualties. The
Partnerships maintain insurance coverage as is customary for entities of a
similar size engaged in similar operations, but losses can occur from
uninsurable risks or in amounts in excess of existing insurance coverage. In
particular, many types of pollution and contamination can exist, undiscovered,
for long periods of time and can result in substantial environmental liabilities
which are not insured. The occurrence of an event which is not fully covered by
insurance could have a material adverse effect on the Partnerships' financial
condition and results of operations in that it could negatively impact the cash
flow received from the Net Profits Interests.
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ITEM 2. PROPERTIES
Well Statistics
The following table sets forth the number of productive wells as of
December, 31, 2004 in which the Partnerships had a Net Profits Interest which
was carved from a working interest.
Number of Wells(1)
-----------------------
P/ship Total Oil Gas
------ ----- --- ---
P-7 1,051 863 188
P-8 1,196 882 314
- -----------
(1) The designation of a well as an oil well or gas well is made by the
General Partner based on the relative amount of oil and gas reserves for
the well. Regardless of a well's oil or gas designation, it may produce
oil, gas, or both oil and gas.
Drilling Activities
During the year ended December 31, 2004, the Partnerships indirectly
participated (through their Net Profits Interests) in the developmental drilling
activities described below.
P-7 Partnership
- ---------------
Revenue
Well Name County St. Interest Type Status
- --------------- ------ --- -------- ---- ---------
Red 6 #1 Texas OK .0019 N/A Dry Hole
Headlee Unit Ector TX .0045 Gas Producing
(1 new well)
Robertson North
Unit (37 new Gaines TX .0223 Oil Producing
wells)
P-8 Partnership
- ---------------
Revenue
Well Name County St. Interest Type Status
- --------------- ------ --- -------- ---- ---------
Red 6 #1 Texas OK .0009 N/A Dry Hole
Headlee Unit Ector TX .0023 Gas Producing
(1 new well)
Robertson North
Unit (37 new Gaines TX .0138 Oil Producing
wells)
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Oil and Gas Production, Revenue, and Price History
The following tables set forth certain historical information concerning
the oil (including condensates) and gas production attributable to the
Partnerships' Net Profits Interests, revenues attributable to such production,
and certain price information.
Net Production Data
P-7 Partnership
---------------
Year ended December 31,
-------------------------------------------
2004 2003 2002
---------- ---------- ----------
Production:
Oil (Bbls) 74,393 82,711 89,957
Gas (Mcf) 405,100 338,742 377,169
Oil and gas sales(1):
Oil $2,849,057 $2,407,893 $2,144,085
Gas 1,870,375 1,453,901 1,044,230
--------- --------- ---------
Total $4,719,432 $3,861,794 $3,188,315
========= ========= =========
Average sales price:
Per barrel of oil $38.30 $29.11 $23.83
Per Mcf of gas 4.62 4.29 2.77
- -------------------
(1) These amounts differ from the Net Profits included in the P-7
Partnership's financial statements because they do not reflect the offset
of $1,645,946, $1,650,013, and $1,214,321, respectively, of production
expenses incurred by the Affiliated Programs.
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Net Production Data
P-8 Partnership
---------------
Year ended December 31,
--------------------------------------------
2004 2003 2002
---------- ---------- ----------
Production:
Oil (Bbls) 45,339 49,766 54,657
Gas (Mcf) 270,536 257,786 300,937
Oil and gas sales(1):
Oil $1,731,505 $1,448,496 $1,301,208
Gas 1,262,260 1,104,661 820,315
--------- --------- ---------
Total $2,993,765 $2,553,157 $2,121,523
========= ========= =========
Average sales price:
Per barrel of oil $38.19 $29.11 $23.81
Per Mcf of gas 4.67 4.29 2.73
- -------------------
(1) These amounts differ from the Net Profits included in the P-8
Partnership's financial statements because they do not reflect the offset
of $992,567, $1,004,748, $765,606, respectively, of production expenses
incurred by the Affiliated Programs.
Proved Reserves and Net Present Value
The following table sets forth each Partnership's estimated proved oil and
gas reserves and net present value therefrom as of December 31, 2004 which were
attributable to the Partnerships' Net Profits Interests. The schedule of
quantities of proved oil and gas reserves was prepared by the General Partner in
accordance with the rules prescribed by the Securities and Exchange Commission
(the "SEC"). Certain reserve information was reviewed by Ryder Scott Company,
L.P. ("Ryder Scott"), an independent petroleum engineering firm. As used
throughout this Annual Report, "proved reserves" refers to those estimated
quantities of crude oil, gas, and gas liquids which geological and engineering
data demonstrate with reasonable certainty to be recoverable in future years
from known oil and gas reservoirs under existing economic and operating
conditions.
Net present value represents estimated future gross cash flow from the
production and sale of proved reserves, net of estimated oil and gas production
costs (including production taxes, ad valorem taxes, and operating expenses) and
estimated future development costs, discounted at 10% per annum. Net present
value attributable to the Partnerships' proved reserves
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was calculated on the basis of current costs and prices at December 31, 2004.
Such prices were not escalated except in certain circumstances where escalations
were fixed and readily determinable in accordance with applicable contract
provisions. Oil and gas prices at December 31, 2004 ($43.36 per barrel and $6.02
per Mcf, respectively) were higher than the prices in effect on December 31,
2003 ($29.25 per barrel and $5.77 per Mcf, respectively). This increase in oil
and gas prices has caused the estimates of remaining economically recoverable
reserves, as well as the values placed on said reserves, at December 31, 2004 to
be higher than such estimates and values at December 31, 2003. The prices used
in calculating the net present value attributable to the Partnerships' proved
reserves do not necessarily reflect market prices for oil and gas production
subsequent to December 31, 2004. There can be no assurance that the prices used
in calculating the net present value of the Partnerships' proved reserves at
December 31, 2004 will actually be realized for such production.
The process of estimating oil and gas reserves is complex, requiring
significant subjective decisions in the evaluation of available geological,
engineering, and economic data for each reservoir. The data for a given
reservoir may change substantially over time as a result of, among other things,
additional development activity, production history, and viability of production
under varying economic conditions; consequently, it is reasonably possible that
material revisions to existing reserve estimates may occur in the near future.
Although every reasonable effort has been made to ensure that these reserve
estimates represent the most accurate assessment possible, the significance of
the subjective decisions required and variances in available data for various
reservoirs make these estimates generally less precise than other estimates
presented in connection with financial statement disclosures.
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Proved Reserves and
Net Present Values
From Proved Reserves
As of December 31, 2004(1)
P-7 Partnership:
- ---------------
Estimated proved reserves:
Gas (Mcf) 5,480,079
Oil and liquids (Bbls) 1,520,139
Net present value (discounted at 10% per annum) $22,479,398
P-8 Partnership:
- ---------------
Estimated proved reserves:
Gas (Mcf) 3,525,893
Oil and liquids (Bbls) 897,719
Net present value (discounted at 10% per annum) $14,013,719
- ----------
(1) Includes certain gas balancing adjustments which cause the gas volumes and
net present values to differ from the reserve reports which were prepared
by the General Partner and reviewed by Ryder Scott.
No estimates of the proved reserves of the Partnerships comparable to
those included herein have been included in reports to any federal agency other
than the SEC. Additional information relating to the Partnerships' proved
reserves is contained in Note 4 to the Partnerships' financial statements,
included in Item 8 of this Annual Report.
Significant Properties
As of December 31, 2004, affiliates of the Partnerships operated 24 (2%)
and 27 (2%), respectively, of the P-7 and P-8 Partnerships' wells. The following
table sets forth certain well and reserve information for the basins in which
the Partnerships own a significant amount of Net Profits Interests. The table
contains the following information for each significant basin: (i) the number of
wells in which a Net Profits Interest is owned, (ii) the number and percentage
of wells operated by the Partnership's affiliates, (iii) estimated proved oil
reserves, (iv) estimated proved gas reserves, and (v) the present value
(discounted at 10% per annum) of estimated future net cash flow.
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The Anadarko Basin is located in western Oklahoma and the Texas panhandle,
while the Permian Basin is located in west Texas and southeast New Mexico.
Significant Properties as of December 31, 2004
----------------------------------------------
Wells
Operated by
Affiliates Oil Gas
Total ------------ Reserves Reserves Present
Basin Wells Number %(1) (Bbl) (Mcf) Value
- ----------- ----- ------ --- --------- --------- -----------
P-7 P/ship:
Permian 933 9 1% 1,463,841 3,739,764 $19,204,844
Anadarko 22 14 64% 29,261 1,673,167 2,902,428
P-8 P/ship:
Permian 1,339 9 1% 867,169 2,393,888 $11,682,557
Anadarko 31 17 55% 15,439 1,099,784 2,083,991
- ------------------
(1) Percent of the Partnership's total wells in the basin which are operated by
affiliates of the Partnerships.
Following is a description of those oil and gas properties whose revisions
in the estimated proved reserves (based on equivalent barrels of oil) as of
December 31, 2004 as compared to December 31, 2003, were significant to the
Partnerships.
The P-7 and P-8 Partnerships' estimated proved reserves increased
approximately 366,000 and 210,000 barrels of oil equivalent, respectively, in
the Pecos Val (5400 Dev Ut) located in Pecos County, Texas from December 31,
2003 to December 31, 2004. This increase was primarily due to a revised forecast
in reserves based on actual production experience.
The P-7 and P-8 Partnerships' estimated proved reserves increased
approximately 228,000 and 140,000 barrels of oil equivalent, respectively, in
the Robertson North Unit located in Gaines County, Texas from December 31, 2003
to December 31, 2004. This increase was primarily due to the completion of
several new wells in 2004 and a revised forecast in reserves based on actual
production experience.
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Title to Oil and Gas Properties
Management believes that the Partnerships have satisfactory title to their
Net Profits Interests. Record title to all of the properties subject to the
Partnerships' Net Profits Interests is held by either the Partnerships or
Geodyne Nominee Corporation, an affiliate of the General Partner.
Title to the Partnerships' Net Profits Interests is subject to customary
royalty, overriding royalty, carried, working, and other similar interests and
contractual arrangements customary in the oil and gas industry, to liens for
current taxes not yet due, and to other encumbrances. Management believes that
such burdens do not materially detract from the value of such properties or from
the Partnerships' Net Profits Interests therein or materially interfere with
their use in the operation of the Partnerships' business.
ITEM 3. LEGAL PROCEEDINGS
To the knowledge of the General Partner, neither the General Partner nor
the Partnerships or their properties are subject to any litigation, the results
of which would have a material effect on the Partnerships' or the General
Partner's financial condition or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF LIMITED PARTNERS
There were no matters submitted to a vote of the Limited Partners of
either Partnership during 2004.
PART II.
ITEM 5. MARKET FOR UNITS AND RELATED LIMITED PARTNER MATTERS
As of February 28, 2005, the number of Units outstanding and the
approximate number of Limited Partners of record in the Partnerships were as
follows:
Number of Number of
Partnership Units Limited Partners
----------- --------- ----------------
P-7 188,702 970
P-8 116,168 850
Units were initially sold for a price of $100. The Units are not traded on
any exchange and there is no public trading market for them. The General Partner
is aware of certain transfers of Units between unrelated parties, some of which
are facilitated by secondary trading firms and matching services. In
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addition, as further described below, the General Partner is aware of certain
"4.9% tender offers" which have been made for the Units. The General Partner
believes that the transfers between unrelated parties have been limited and
sporadic in number and volume. Other than trades facilitated by certain
secondary trading firms and matching services, no organized trading market for
Units exists and none is expected to develop. Due to the nature of these
transactions, the General Partner has no verifiable information regarding prices
at which Units have been transferred. Further, a transferee may not become a
substitute Limited Partner without the consent of the General Partner.
Pursuant to the terms of the Partnership Agreements, the General Partner
is obligated to annually issue a repurchase offer based on the estimated future
net revenues from the Partnerships' reserves and is calculated pursuant to the
terms of the Partnership Agreements. Such repurchase offer is recalculated
monthly in order to reflect cash distributions to the Limited Partners and
extraordinary events. The following table sets forth the General Partner's
repurchase offer per Unit as of the periods indicated. For purposes of this
Annual Report, a Unit represents an initial subscription of $100 to the
Partnership.
Repurchase Offer Prices
-----------------------
2003 2004 2005
-------------------------- -------------------------- ----
1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st
P/ship Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr.
- ------ ---- ---- ---- ---- ---- ---- ---- ---- ----
P-7 $27 $26 $34 $31 $29 $27 $37 $34 $32
P-8 28 27 38 32 29 27 38 34 32
In addition to this repurchase offer, the Partnerships have been subject
to "4.9% tender offers" from several third parties. The General Partner does not
know the terms of these offers or the prices received by the Limited Partners
who accepted these offers.
Cash Distributions
Cash distributions are primarily dependent upon a Partnership's cash
receipts from its Net Profits Interests and cash requirements of the
Partnership. Distributable cash is determined by the General Partner at the end
of each calendar quarter and distributed to the Limited Partners within 45 days
after the end of the quarter. Distributions are restricted to cash on hand less
amounts required to be retained out of such cash as determined in the sole
judgment of the General Partner to pay costs, expenses, or other Partnership
obligations whether accrued or anticipated to accrue. In certain instances, the
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General Partner may not distribute the full amount of cash receipts which might
otherwise be available for distribution in an effort to equalize or stabilize
the amounts of quarterly distributions. Any available amounts not distributed
are invested and the interest or income thereon is for the accounts of the
Limited Partners.
The following is a summary of cash distributions paid to the Limited
Partners during 2003 and 2004 and the first quarter of 2005:
Cash Distributions
------------------
2003
-----------------------------------------
1st 2nd 3rd 4th
P/ship Qtr. Qtr. Qtr. Qtr.
------ ----- ----- ----- -----
P-7 $2.37 $ .82 $1.79 $3.66
P-8 2.77 1.19 2.35 6.24
2004 2005
----------------------------------------- -----
1st 2nd 3rd 4th 1st
P/ship Qtr. Qtr. Qtr. Qtr. Qtr.
------ ----- ----- ----- ----- -----
P-7 $1.30 $2.32 $2.00 $2.87 $1.94
P-8 1.77 2.50 1.85 3.12 2.20
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data for the Partnerships.
This data should be read in conjunction with the financial statements of the
Partnerships, and the respective notes thereto, included elsewhere in this
Annual Report. See "Item 8. Financial Statements and Supplementary Data."
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Selected Financial Data
P-7 Partnership
---------------
2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ ------------
Net Profits $3,073,486 $2,211,781 $1,973,994 $2,042,635 $2,925,780
Net Income:
Limited Partners 2,358,687 2,003,873 1,401,864 1,478,593 2,725,533
General Partner 257,252 118,037 84,673 88,256 154,148
Total 2,615,939 2,121,910 1,486,537 1,566,849 2,879,681
Limited Partners' Net
Income per Unit 12.50 10.62 7.43 7.84 14.44
Limited Partners' Cash
Distributions per Unit 8.49 8.64 4.65 10.18 11.51
Total Assets 4,885,661 4,239,795 3,657,798 3,112,532 3,571,495
Partners' Capital (Deficit)
Limited Partners 4,893,106 4,135,419 3,760,546 3,235,682 3,676,089
General Partner ( 44,682) ( 103,881) ( 102,748) ( 123,150) ( 104,594)
Number of Units
Outstanding 188,702 188,702 188,702 188,702 188,702
-18-
Selected Financial Data
P-8 Partnership
---------------
2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ ------------
Net Profits $2,001,198 $1,548,409 $1,355,917 $1,478,510 $1,940,837
Net Income:
Limited Partners 1,536,003 1,668,506 991,477 1,117,968 1,776,728
General Partner 183,768 108,749 58,819 65,041 99,956
Total 1,719,771 1,777,255 1,050,296 1,183,009 1,876,684
Limited Partners' Net
Income per Unit 13.22 14.36 8.53 9.62 15.29
Limited Partners' Cash
Distributions per Unit 9.24 12.55 5.54 12.43 11.82
Total Assets 2,991,015 2,631,433 2,278,951 1,919,291 2,258,820
Partners' Capital (Deficit)
Limited Partners 2,995,093 2,533,090 2,322,584 1,976,107 2,303,139
General Partner ( 13,891) ( 29,971) ( 43,633) ( 56,816) ( 44,319)
Number of Units
Outstanding 116,168 116,168 116,168 116,168 116,168
-19-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Use of Forward-Looking Statements and Estimates
This Annual Report contains certain forward-looking statements. The words
"anticipate," "believe," "expect," "plan," "intend," "estimate," "project,"
"could," "may," and similar expressions are intended to identify forward-looking
statements. Such statements reflect management's current views with respect to
future events and financial performance. This Annual Report also includes
certain information which is, or is based upon, estimates and assumptions. Such
estimates and assumptions are management's efforts to accurately reflect the
condition and operation of the Partnerships.
Use of forward-looking statements and estimates and assumptions involve
risks and uncertainties which include, but are not limited to, the volatility of
oil and gas prices, the uncertainty of reserve information, the operating risk
associated with oil and gas properties (including the risk of personal injury,
death, property damage, damage to the well or producing reservoir, environmental
contamination, and other operating risks), the prospect of changing tax and
regulatory laws, the availability and capacity of processing and transportation
facilities, the general economic climate, the supply and price of foreign
imports of oil and gas, the level of consumer product demand, and the price and
availability of alternative fuels. Should one or more of these risks or
uncertainties occur or should estimates or underlying assumptions prove
incorrect, actual conditions or results may vary materially and adversely from
those stated, anticipated, believed, estimated, or otherwise indicated.
General Discussion
The following general discussion should be read in conjunction with the
analysis of results of operations provided below. The primary source of
liquidity and Partnership cash distributions comes from the net revenues
generated from the sale of oil and gas produced from the Partnerships' oil and
gas properties. The level of net revenues is highly dependent upon the prices
received for oil and gas sales, which prices have historically been very
volatile and may continue to be so. Additionally, lower oil and natural gas
prices may reduce the amount of oil and gas that is economic to produce and
reduce the Partnerships' revenues and cash flow. Various factors beyond the
Partnerships' control will affect prices for oil and natural gas, such as:
-20-
* Worldwide and domestic supplies of oil and natural gas;
* The ability of the members of the Organization of Petroleum Exporting
Countries ("OPEC") to agree upon and maintain oil prices and production
quotas;
* Political instability or armed conflict in oil-producing region or
around major shipping areas;
* The level of consumer demand and overall economic activity;
* The competitiveness of alternative fuels;
* Weather conditions;
* The availability of pipelines for transportation; and
* Domestic and foreign government regulations and taxes.
It is not possible to predict the future direction of oil or natural gas
prices or whether the above discussed trends will remain. Operating costs,
including General and Administrative Expenses, may not decline over time or may
experience only a gradual decline, thus adversely affecting net revenues as
either production or oil and natural gas prices decline. In any particular
period, net revenues may also be affected by either the receipt of proceeds from
property sales or the incursion of additional costs as a result of well
workovers, recompletions, new well drilling, and other events.
In addition to pricing, the level of net revenues is also highly dependent
upon the total volumes of oil and natural gas sold. Oil and gas reserves are
depleting assets and will experience production declines over time, thereby
likely resulting in reduced net revenues. Despite this general trend of
declining production, several factors can cause the volumes of oil and gas sold
to increase or decrease at an even greater rate over a given period. These
factors include, but are not limited to, (i) geophysical conditions which cause
an acceleration of the decline in production, (ii) the shutting in of wells (or
the opening of previously shut-in wells) due to low oil and gas prices (or high
oil and gas prices), mechanical difficulties, loss of a market or
transportation, or performance of workovers, recompletions, or other operations
in the well, (iii) prior period volume adjustments (either positive or negative)
made by purchasers of the production, (iv) ownership adjustments in accordance
with agreements governing the operation or ownership of the well (such as
adjustments that occur at payout), and (v) completion of enhanced recovery
projects which increase production for the well. Many of these factors are very
significant as related to a single well or as related to many wells over a short
period of time. However, due to the large number of wells owned by the
Partnerships, these factors are generally not material as compared to the normal
decline in production experienced on all remaining wells.
-21-
Results of Operations
An analysis of the change in net oil and gas operations (oil and gas
sales, less lease operating expenses and production taxes), is presented in the
tables following "Results of Operations" under the heading "Average Proceeds and
Units of Production." Following is a discussion of each Partnership's results of
operations for the year ended December 31, 2004 as compared to the year ended
December 31, 2003 and for the year ended December 31, 2003 as compared to the
year ended December 31, 2002.
P-7 Partnership
---------------
Year Ended December 31, 2004 Compared
to Year Ended December 31, 2003
-------------------------------------
Total Net Profits increased $861,705 (39.0%) in 2004 as compared to 2003.
Of this increase, approximately (i) $683,000 and $132,000, respectively, were
related to increases in the average prices of oil and gas sold, (ii) $285,000
was related to an increase in volumes of gas sold, and (iii) $4,000 was related
to a decrease in production expenses. These increases were partially offset by a
decrease of approximately $242,000 related to a decrease in volumes of oil sold.
Volumes of oil sold decreased 8,318 barrels, while volumes of gas sold increased
66,358 Mcf in 2004 as compared to 2003. The decrease in volumes of oil sold was
primarily due to (i) normal declines in production and (ii) the sale of several
wells in late 2003. The increase in volumes of gas sold was primarily due to (i)
an increase in production on several wells following the successful workovers of
those wells during 2003 and 2004 and (ii) a positive prior period volume
adjustment made by the operator on one significant well in 2004. These increases
were partially offset by (i) normal declines in production, (ii) the sale of
several wells in mid 2003, and (iii) a positive prior period volume adjustment
on another significant well in 2003. The decrease in production expenses was
primarily due to (i) workover expenses incurred on several wells during 2003 and
(ii) the sale of several wells during late 2003. These decreases were
substantially offset by (i) workover expenses incurred on several wells during
2004 and (ii) an increase in production taxes associated with the increase in
oil and gas sales. Average oil and gas prices increased to $38.30 per barrel and
$4.62 per Mcf, respectively, in 2004 from $29.11 per barrel and $4.29 per Mcf,
respectively, in 2003.
As discussed in "Liquidity and Capital Resources" below, the P-7
Partnership sold certain oil and gas properties during 2003 and recognized a
$440,609 gain on such sales. No such sales occurred during 2004.
-22-
Depletion of Net Profits Interests decreased $70,828 (23.2%) in 2004 as
compared to 2003. This decrease was primarily due to (i) upward revisions in the
estimates of remaining oil and gas reserves during 2004 and (ii) one significant
well becoming substantially depleted in 2003 due to the lack of remaining
reserves. As a percentage of Net Profits, this expense decreased to 7.6% in 2004
from 13.8% in 2003. This percentage decrease was primarily due to (i) the
increases in the average prices of oil and gas sold and (ii) the dollar decrease
in depletion of Net Profits Interests.
General and administrative expenses remained relatively constant in 2004
and 2003. As a percentage of Net Profits, these expenses decreased to 7.5% in
2004 from 10.4% in 2003. This percentage decrease was primarily due to the
increase in Net Profits.
The P-7 Partnership achieved payout during the second quarter of 2004.
After payout, operations and revenues for the P-7 Partnership have been and will
be allocated using after payout percentages. After payout percentages allocate
operating income and expenses 10% to the General Partner and 90% to the Limited
Partners. Before payout, operating income and expenses were allocated 5% to the
General Partner and 95% to the Limited Partners.
Cumulative cash distributions to the Limited Partners through December 31,
2004 were $19,800,916 or 104.93% of Limited Partners' capital contributions.
Year Ended December 31, 2003 Compared
to Year Ended December 31, 2002
-------------------------------------
Total Net Profits increased $237,787 (12.0%) in 2003 as compared to 2002.
Of this increase, approximately $437,000 and $516,000, respectively, were
related to increases in the average prices of oil and gas sold. These increases
were partially offset by decreases of approximately (i) $173,000 and $106,000,
respectively, related to decreases in volumes of oil and gas sold and (ii)
$436,000 related to an increase in production expenses. Volumes of oil and gas
sold decreased 7,246 barrels and 38,427 Mcf, respectively, in 2003 as compared
to 2002. The decrease in volumes of gas sold was primarily due to (i) normal
declines in production and (ii) the sale of several wells in mid 2003. These
decreases were partially offset by a positive prior period volume adjustment on
one significant well in 2003. The increase in production expenses was primarily
due to (i) workover expenses incurred on several wells during 2003, (ii) a
negative prior period lease operating expense adjustment on one significant well
in 2002, and (iii) an increase in production taxes associated with the increase
in oil and gas sales. Average oil and gas
-23-
prices increased to $29.11 per barrel and $4.29 per Mcf, respectively, in 2003
from $23.83 per barrel and $2.77 per Mcf, respectively, in 2002.
As discussed in "Liquidity and Capital Resources" below, the P-7
Partnership sold certain oil and gas properties during 2003 and recognized a
$440,609 gain on such sales. No such sales occurred during 2002.
Depletion of Net Profits Interests increased $42,642 (16.2%) in 2003 as
compared to 2002. This increase was primarily due to (i) an increase in
depletable Net Profits Interests primarily due to developmental drilling on one
large unitized property in 2003 and (ii) one significant well being
substantially depleted in 2003 due to the lack of remaining economically
recoverable reserves. These increases were partially offset by the decreases in
volumes of oil and gas sold. As a percentage of Net Profits, this expense
increased to 13.8% in 2003 from 13.3% in 2002.
General and administrative expenses increased $2,660 (1.2%) in 2003 as
compared to 2002. As a percentage of Net Profits, these expenses decreased to
10.4% in 2003 from 11.5% in 2002. This percentage decrease was primarily due to
the increase in Net Profits.
P-8 Partnership
---------------
Year Ended December 31, 2004 Compared
to Year Ended December 31, 2003
-------------------------------------
Total Net Profits increased $452,789 (29.2%) in 2004 as compared to 2003.
Of this increase, approximately (i) $412,000 and $103,000, respectively, were
related to increases in the average prices of oil and gas sold, (ii) $55,000 was
related to an increase in volumes of gas sold, and (iii) $12,000 was related to
a decrease in production expenses. These increases were partially offset by a
decrease of approximately $129,000 related to a decrease in volumes of oil sold.
Volumes of oil sold decreased 4,427 barrels, while volumes of gas sold increased
12,750 Mcf in 2004 as compared to 2003. The decrease in volumes of oil sold was
primarily due to (i) normal declines in production and (ii) the sale of several
wells in late 2003. The increase in volumes of gas sold was primarily due to (i)
an increase in production on several wells following successful workovers during
2003 and 2004 and (ii) a positive prior period volume adjustment made by the
operator on one significant well in 2004. These increases were partially offset
by (i) normal declines in production, (ii) the sale of several wells in mid
2003, and (iii) a positive prior period volume adjustment on another significant
well in 2003. The decrease in production expenses was primarily due to (i)
workover expenses incurred on
-24-
several wells during 2003 and (ii) the sale of several wells during late 2003.
These decreases were partially offset by (i) workover expenses incurred on
several wells during 2004 and (ii) an increase in production taxes associated
with the increase in oil and gas sales. Average oil and gas prices increased to
$38.19 per barrel and $4.67 per Mcf, respectively, in 2004 from $29.11 per
barrel and $4.29 per Mcf, respectively, in 2003.
As discussed in "Liquidity and Capital Resources" below, the P-8
Partnership sold certain oil and gas properties during 2003 and recognized a
$555,967 gain on such sales. No such sales occurred during 2004.
Depletion of Net Profits Interests decreased $50,433 (27.0%) in 2004 as
compared to 2003. This decrease was primarily due to (i) upward revisions in the
estimates of remaining oil and gas reserves during 2004 and (ii) one significant
well becoming substantially depleted in 2003 due to the lack of remaining
reserves. As a percentage of Net Profits, this expense decreased to 6.8% in 2004
from 12.1% in 2003. This percentage decrease was primarily due to (i) the dollar
decrease in depletion of Net Profits Interests and (ii) the increases in the
average prices of oil and gas sold.
General and administrative expenses remained relatively constant in 2004
and 2003. As a percentage of Net Profits, these expenses decreased to 7.5% in
2004 from 9.7% in 2003. This percentage decrease was primarily due to the
increase in Net Profits.
Cumulative cash distributions to the Limited Partners through December 31,
2004 were $13,263,583 or 114.18% of Limited Partners' capital contributions.
Year Ended December 31, 2003 Compared
to Year Ended December 31, 2002
-------------------------------------
Total Net Profits increased $192,492 (14.2%) in 2003 as compared to 2002.
Of this increase, approximately $264,000 and $402,000, respectively, were
related to increases in the average prices of oil and gas sold. These increases
were partially offset by decreases of approximately (i) $117,000 and $118,000,
respectively, related to decreases in volumes of oil and gas sold and (ii)
$239,000 related to an increase in production expenses. Volumes of oil and gas
sold decreased 4,891 barrels and 43,151 Mcf, respectively, in 2003 as compared
to 2002. The decrease in volumes of gas sold was primarily due to (i) normal
declines in production and (ii) the sale of several wells in mid 2003. These
decreases were partially offset by a positive prior period volume adjustment on
one significant well in 2003. The increase in production expenses was primarily
due to (i) workover expenses incurred on several wells during 2003, (ii) an
increase in
-25-
production taxes associated with the increase in oil and gas sales, and (iii)
negative prior period lease operating expense adjustments on two significant
wells in 2002. Average oil and gas prices increased to $29.11 per barrel and
$4.29 per Mcf, respectively, in 2003 from $23.81 per barrel and $2.73 per Mcf,
respectively, in 2002.
As discussed in "Liquidity and Capital Resources" below, the P-8
Partnership sold certain oil and gas properties during 2003 and recognized a
$555,967 gain on such sales. No such sales occurred during 2002.
Depletion of Net Profits Interests increased $25,308 (15.7%) in 2003 as
compared to 2002. This increase was primarily due to (i) an increase in
depletable Net Profits Interests primarily due to developmental drilling on one
large unitized property in 2003 and (ii) one significant well being
substantially depleted in 2003 due to the lack of remaining economically
recoverable reserves. These increases were partially offset by the decreases in
volumes of oil and gas sold. As a percentage of Net Profits, this expense
increased to 12.1% in 2003 from 11.9% in 2002.
General and administrative expenses increased $2,333 (1.6%) in 2003 as
compared to 2002. As a percentage of Net Profits, these expenses decreased to
9.7% in 2003 from 10.9% in 2002. This percentage decrease was primarily due to
the increase in Net Profits.
The P-8 Partnership achieved payout during the fourth quarter of 2003.
After payout, operations and revenues for the P-8 Partnership have been and will
be allocated using after payout percentages. After payout percentages allocate
operating income and expenses 10% to the General Partner and 90% to the Limited
Partners. Before payout, operating income and expenses were allocated 5% to the
General Partner and 95% to the Limited Partners.
Average Proceeds and Units of Production
The following tables are comparisons of the annual barrels of oil
equivalent (one barrel of oil or six Mcf of gas) and the average proceeds (oil
and gas sales, less lease operating expenses and production taxes) received per
barrel of oil equivalent attributable to the Partnerships' Net Profits Interest
for the years ended December 31, 2004, 2003, and 2002.
-26-
2004 Compared to 2003
---------------------
Barrel of Oil Average Proceeds per
Equivalent Barrel of Oil Equivalent
----------------------------- --------------------------
P/ship 2004 2003 % Change 2004 2003 % Change
- ------ ------- ------- -------- ------ ------ --------
P-7 141,910 139,168 2% $21.66 $15.89 36%
P-8 90,428 92,730 (2%) 22.13 16.70 33%
2003 Compared to 2002
---------------------
Barrel of Oil Average Proceeds per
Equivalent Barrel of Oil Equivalent
----------------------------- --------------------------
P/ship 2003 2002 % Change 2003 2002 % Change
- ------ ------- ------- -------- ------ ------ --------
P-7 139,168 152,819 (9%) $15.89 $12.92 23%
P-8 92,730 104,813 (12%) 16.70 12.94 29%
Liquidity and Capital Resources
Net proceeds from operations less necessary operating capital are
distributed to the Limited Partners on a quarterly basis. See "Item 5. Market
for Units and Related Limited Partner Matters." The net proceeds from the Net
Profits Interests are generally not reinvested in productive assets. Assuming
2004 production levels for future years, the P-7 and P-8 Partnerships' proved
reserve quantities at December 31, 2004 would have remaining lives of
approximately 20.4 and 19.8 years, respectively, for oil reserves and 13.5 and
13.0 years, respectively, for gas reserves. These life of reserves estimates are
based on the current estimates of remaining oil and gas reserves. See "Item 2.
Properties" for a discussion of these reserve estimates. Any increase or
decrease from the oil and gas prices at December 31, 2004 may cause an increase
or decrease in the estimated life of said reserves. As discussed below, the
Partnerships must terminate no later than December 31, 2011 (seven years from
December 31, 2004).
The Partnerships' available capital from the Limited Partners'
subscriptions has been spent on Net Profits Interests and there should be no
further material capital resource commitments in the future. The Partnerships
have no debt commitments.
-27-
Expenditures by the Affiliated Programs for new wells or well
recompletions or workovers, however, may reduce or eliminate cash available for
a particular quarterly cash distribution. During 2004, 2003, and 2002, capital
expenditures affecting the P-7 Partnership's Net Profits Interests totaled
$686,894, $691,049, and $241,187, respectively. During 2004, 2003, and 2002,
capital expenditures affecting the P-8 Partnership's Net Profits Interests
totaled $420,275, $420,686, and $147,528, respectively. These costs were
indirectly incurred as a result of drilling activities associated with several
large unitized properties.
The Partnerships sold certain Net Profits Interests during 2003. No such
sales occurred during 2004. These sales were made by the General Partner after
giving due consideration to both the offer price and the General Partner's
estimate of the underlying property's remaining proved reserves and future
operating costs. Net proceeds from the sales were distributed to the
Partnerships and included in the calculation of the Partnerships' cash
distributions for the quarter immediately following the Partnerships' receipt of
the proceeds. During 2003, such proceeds to the P-7 Partnership were $489,541,
while such proceeds to the P-8 Partnership were $602,905.
Over the years, as part of the normal course of business, some of the
Partnerships' interests in wells have been sold, generally at oil and gas
auctions. Given the generally favorable current environment for oil and gas
dispositions, it is possible that the number of and value of properties
considered for sale may increase. In the event of sales, any net proceeds are
distributed as soon as possible after the disposition. Future production, costs,
and cash flow will be reduced as properties are sold.
There can be no assurance as to the amount of the Partnerships' future
cash distributions. The Partnerships' ability to make cash distributions depends
primarily upon the level of available cash flow generated by the Partnerships'
Net Profits Interests, which will be affected (either positively or negatively)
by many factors beyond the control of the Partnerships, including the price of
and demand for oil and gas and other market and economic conditions. Even if
prices and costs remain stable, the amount of cash available for distributions
will decline over time (as the volume of production from producing properties
declines) since the Partnerships are not generally replacing production.
The General Partner expects general and administrative expenses to
increase substantially during 2005 and 2006 due to costs required to comply with
Section 404 of the Sarbanes-Oxley Act of 2002. Such anticipated increase will
reduce cash available for distribution. The General Partner expects at least a
portion of this anticipated increase in general and administrative expenses to
continue in years beyond 2006.
-28-
The Partnerships were scheduled to terminate on February 28, 2002 in
accordance with the Partnership Agreements. However, the General Partner may
extend the term of each partnership for up to five periods of two years each.
The General Partner has extended the terms of the Partnerships for their second
extension thereby extending their termination date to December 31, 2005.
Off-Balance Sheet Arrangements
The Partnerships do not have any off-balance sheet arrangements.
Tabular Disclosure of Contractual Obligations
The partnerships do not have any contractual obligations of the type
required to be disclosed under this heading.
Critical Accounting Policies
The Partnerships follow the successful efforts method of accounting for
their Net Profits Interests. Under the successful efforts method, the
Partnerships capitalize all acquisition costs. Such acquisition costs include
costs incurred by the Partnerships or the General Partner to acquire a Net
Profits Interest, including related title insurance or examination costs,
commissions, engineering, legal and accounting fees, and similar costs directly
related to the acquisitions plus an allocated portion of the General Partner's
property screening costs. The net acquisition cost to the Partnerships of the
Net Profits Interests in properties acquired by the General Partner consists of
the cost of acquiring the underlying properties adjusted for the net cash
results of operations, including any interest incurred to finance the
acquisition, for the period of time the properties are held by the General
Partner.
Depletion of the cost of Net Profits Interests is computed on the
units-of-production method. The Partnerships' calculation of depletion of its
Net Profits Interests includes estimated dismantlement and abandonment costs,
net of estimated salvage values related to the underlying properties in which
the Partnership has a Net Profits Interest.
The Partnerships evaluate the recoverability of the carrying costs of
their Net Profits Interests in proved oil and gas properties for each oil and
gas field (rather than separately for each well). If the unamortized costs of a
Net Profits Interest within a field exceeds the expected undiscounted future
cash flows from such Net Profits Interest, the cost of the Net Profits Interest
is written down to fair value, which is determined by
-29-
using the discounted future cash flows from the Net Profits Interest.
Accounts Receivable (Accounts Payable) - Net Profits
Revenues from a Net Profits Interest consist of a share of the oil and gas
sales of the property, less operating and production expenses. The Partnerships
accrue for oil and gas revenues less expenses from the Net Profits Interests.
Sales of gas applicable to the Net Profits Interests are recorded as revenue
when the gas is metered and title transferred pursuant to the gas sales
contracts. During such times as sales of gas exceed a Partnership's pro rata Net
Profits Interest in a well, such sales are recorded as revenue unless total
sales from the well have exceeded the Partnership's share of estimated total gas
reserves attributable to the underlying property, at which time such excess is
recorded as a liability. The rates per Mcf used to calculate this liability are
based on the average gas price for which the Partnerships are currently settling
this liability. This liability is recorded as a reduction of accounts
receivable.
Also included in accounts receivable(payable)-Net Profits are amounts
which represent costs deferred or accrued for Net Profits relating to lease
operating expenses incurred in connection with the net underproduced or
overproduced gas imbalance positions. The rate used in calculating the deferred
charge or accrued liability is the annual average production costs per Mcf.
In July 2001, the FASB issued FAS No. 143, "Accounting for Asset
Retirement Obligations", which is effective for fiscal years beginning after
June 15, 2002 (January 1, 2003 for the Partnerships). On January 1, 2003, the
Partnerships adopted FAS No. 143 and recorded an increase in Net Profits
Interests, an increase in net income for the cumulative effect of the change in
accounting principle, and an asset retirement obligation, resulting in a
decrease of accounts receivable - Net Profits, in the following approximate
amounts for each Partnership:
Increase in
Net Income for
Increase in the Change in Asset
Net Profits Accounting Retirement
Partnership Interests Principle Obligation
- ----------- ----------- -------------- ----------
P-7 $311,000 $ 400 $311,000
P-8 234,000 5,000 229,000
The asset retirement obligation is adjusted upwards each quarter in order
to recognize accretion of the time-related discount factor. For the year ended
December 31, 2004, the P-7 and P-8 Partnerships recognized approximately $16,000
and
-30-
$10,000, respectively, of an increase in depletion of Net Profits Interests,
which was comprised of accretion of the asset retirement obligation and
depletion of the increase in Net Profits Interests.
New Accounting Pronouncements
The Partnerships are not aware of any recently issued accounting
pronouncements that would have an impact on the Partnerships' future results of
operations and financial position.
Inflation and Changing Prices
Prices obtained for oil and gas production depend upon numerous factors,
including the extent of domestic and foreign production, foreign imports of oil,
market demand, domestic and foreign economic conditions in general, and
governmental regulations and tax laws. The general level of inflation in the
economy did not have a material effect on the operations of the Partnerships in
2004. Oil and gas prices have fluctuated during recent years and generally have
not followed the same pattern as inflation. See "Item 2. Properties - Oil and
Gas Production, Revenue, and Price History."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Partnerships do not hold any market risk sensitive instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are indexed in Item 15
hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the principal
executive officer and principal financial officer conducted an evaluation of the
Partnerships' disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) under the Securities and Exchange Act of 1934). Based on this
evaluation, such officers concluded that the Partnerships'
-31-
disclosure controls and procedures are effective to ensure that information
required to be disclosed by the Partnerships in reports filed under the Exchange
Act is recorded, processed, summarized, and reported accurately and within the
time periods specified in the Securities and Exchange Commission rules and
forms.
ITEM 9B. OTHER INFORMATION
The General Partner is not aware of any information required to be
reported on Form 8-K during the fourth quarter of 2004 but which was not so
reported.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER
The Partnerships have no directors or executive officers. The following
individuals are directors and executive officers of the General Partner. The
business address of such director and executive officers is Two West Second
Street, Tulsa, Oklahoma 74103.
Name Age Position with Geodyne
---------------- --- -----------------------
Dennis R. Neill 53 President and Director
Judy K. Fox 54 Secretary
The director will hold office until the next annual meeting of shareholders of
Geodyne or until his successor has been duly elected and qualified. All
executive officers serve at the discretion of the Board of Directors.
Dennis R. Neill joined Samson in 1981, was named Senior Vice President and
Director of Geodyne on March 3, 1993, and was named President of Geodyne and its
subsidiaries on June 30, 1996. Prior to joining Samson, he was associated with a
Tulsa law firm, Conner and Winters, where his principal practice was in the
securities area. He received a Bachelor of Arts degree in political science from
Oklahoma State University and a Juris Doctorate degree from the University of
Texas. Mr. Neill also serves as Senior Vice President of Samson Investment
Company and as President and Director of Samson Properties Incorporated, Samson
Hydrocarbons Company, Dyco Petroleum Corporation, Berry Gas Company, Circle L
Drilling Company, Snyder Exploration Company, and Compression, Inc.
Judy K. Fox joined Samson in 1990 and was named Secretary of Geodyne and
its subsidiaries on June 30, 1996. Prior to joining
-32-
Samson, she served as Gas Contract Manager for Ely Energy Company. Ms. Fox is
also Secretary of Berry Gas Company, Circle L Drilling Company, Compression,
Inc., Dyco Petroleum Corporation, Samson Hydrocarbons Company, Snyder
Exploration Company, and Samson Properties Incorporated.
Section 16(a) Beneficial Ownership Reporting Compliance
To the best knowledge of the Partnerships and the General Partner, there
were no officers, directors, or ten percent owners who were delinquent filers
during 2004 of reports required under Section 16 of the Securities Exchange Act
of 1934.
Audit Committee Financial Expert
The Partnerships are not required by SEC regulations or otherwise to
maintain an audit committee. The board of directors of the General Partner
consists of one person and therefore serves as its audit committee. There is not
an audit committee financial expert, as defined in the SEC regulations, serving
on the General Partner's board of directors.
Code of Ethics
The General Partner has adopted a Code of Ethics which applies to all of
its executive officers, including those persons who perform the functions of
principal executive officer, principal financial officer, and principal
accounting officer. The Partnerships will provide, free of charge, a copy of
this Code of Ethics to any person upon receipt of a written request mailed to
Geodyne Resources, Inc., Samson Plaza, Two West 2nd Street, Tulsa, Oklahoma
74103. Such request must include the address to which the Code of Ethics should
be mailed.
ITEM 11. EXECUTIVE COMPENSATION
The General Partner and its affiliates are reimbursed for actual general
and administrative costs and operating costs incurred and attributable to the
conduct of the business affairs and operations of the Partnerships, computed on
a cost basis, determined in accordance with generally accepted accounting
principles. Such reimbursed costs and expenses allocated to the Partnerships
include office rent, secretarial, employee compensation and benefits, travel and
communication costs, fees for professional services, and other items generally
classified as general or administrative expense. When actual costs incurred
benefit other Partnerships and affiliates, the allocation of costs is based on
the relationship of the Partnerships' reserves to the total reserves owned by
all Partnerships and affiliates. The amount of general and administrative
expense allocated to the
-33-
General Partner and its affiliates and charged to each Partnership during 2004,
2003, and 2002, is set forth in the table below. Although the actual costs
incurred by the General Partner and its affiliates have fluctuated during the
three years presented, the amounts charged to the Partnerships have not
fluctuated due to expense limitations imposed by the Partnership Agreements.
Partnership 2004 2003 2002
----------- -------- -------- --------
P-7 $198,636 $198,636 $198,636
P-8 122,280 122,280 122,280
None of the officers or directors of the General Partner receive
compensation directly from the Partnerships. The Partnerships reimburse the
General Partner or its affiliates for that portion of such officers' and
directors' salaries and expenses attributable to time devoted by such
individuals to the Partnerships' activities based on the allocation method
described above. The following tables indicate the approximate amount of general
and administrative expense reimbursement attributable to the salaries of the
directors, officers, and employees of the General Partner and its affiliates
during 2004, 2003, and 2002:
-34-
Salary Reimbursements
P-7 Partnership
---------------
Three Years Ended December 31, 2004
Long Term Compensation
-------------------------------
Annual Compensation Awards Payouts
------------------------- --------------------- -------
Securi-
Other ties All
Name Annual Restricted Under- Other
and Compen- Stock lying LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) ($) ($) SARs(#) ($) ($)
- --------------- ---- -------- ------- ------- ---------- -------- ------- -------
<s> <c> <c> <c>
Dennis R. Neill,
President(1)(2) 2002 - - - - - - -
2003 - - - - - - -
2004 - - - - - - -
All Executive
Officers,
Directors,
and Employees
as a group(2) 2002 $106,072 - - - - - -
2003 $107,814 - - - - - -
2004 $115,517 - - - - - -
- ----------
(1) The general and administrative expenses paid by the P-7 Partnership and
attributable to salary reimbursements do not include any salary or other
compensation attributable to Mr. Neill.
(2) No officer or director of Geodyne or its affiliates provides full-time
services to the P-7 Partnership and no individual's salary or other
compensation reimbursement from the P-7 Partnership equals or exceeds
$100,000 per annum.
-35-
Salary Reimbursements
P-8 Partnership
---------------
Three Years Ended December 31, 2004
Long Term Compensation
-------------------------------
Annual Compensation Awards Payouts
------------------------- --------------------- -------
Securi-
Other ties All
Name Annual Restricted Under- Other
and Compen- Stock lying LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) ($) ($) SARs(#) ($) ($)
- --------------- ---- ------- ------- ------- ---------- -------- ------- -------
Dennis R. Neill,
President(1)(2) 2002 - - - - - - -
2003 - - - - - - -
2004 - - - - - - -
All Executive
Officers,
Directors,
and Employees
as a group(2) 2002 $65,298 - - - - - -
2003 $66,370 - - - - - -
2004 $71,112 - - - - - -
- ----------
(1) The general and administrative expenses paid by the P-8 Partnership and
attributable to salary reimbursements do not include any salary or other
compensation attributable to Mr. Neill.
(2) No officer or director of Geodyne or its affiliates provides full-time
services to the P-8 Partnership and no individual's salary or other
compensation reimbursement from the P-8 Partnership equals or exceeds
$100,000 per annum.
-36-
Affiliates of the Partnerships serve as operator of some of the wells in
which the Partnerships own a Net Profits Interest. The owners of the working
interests in these wells contract with such affiliates for services as operator
of the wells. As operator, such affiliates are compensated at rates provided in
the operating agreements in effect and charged to all parties to such agreement.
Such compensation may occur both prior and subsequent to the commencement of
commercial marketing of production of oil or gas. The dollar amount of such
compensation which burdens the Partnerships' Net Profits Interests is impossible
to quantify as of the date of this Annual Report.
Samson maintains necessary inventories of new and used field equipment.
Samson may have provided some of this equipment for wells in which the
Partnerships have a Net Profits Interest. This equipment was provided at prices
or rates equal to or less than those normally charged in the same or comparable
geographic area by unaffiliated persons or companies dealing at arm's length.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information as to the beneficial ownership of
the Units as of the date of filing this Annual Report by (i) each beneficial
owner of more than five percent of the issued and outstanding Units, (ii) the
director and officers of the General Partner, and (iii) the General Partner and
its affiliates. The address of the General Partner, its officers and director,
and Samson Resources Company is Samson Plaza, Two West Second Street, Tulsa,
Oklahoma 74103.
-37-
Number of Units
Beneficially
Owned (Percent
Beneficial Owner of Outstanding)
- ------------------------------------------ ----------------
P-7 Partnership:
- ---------------
Samson Resources Company 40,496 (21.5%)
ATL, Inc. 54,896 (29.1%)
1200 Harbor Boulevard, 5th Floor
Weehawken, NJ 07087
All affiliates, directors, and officers of 40,496 (21.5%)
the General Partner as a group and the
General Partner (4 persons)
P-8 Partnership:
- ---------------
Samson Resources Company 34,535 (29.7%)
All affiliates, directors, and officers of 34,535 (29.7%)
the General Partner as a group and the
General Partner (4 persons)
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The General Partner and certain of its affiliates engage in oil and gas
activities independently of the Partnerships which result in conflicts of
interest that cannot be totally eliminated. The allocation of acquisition
opportunities and the nature of the compensation arrangements between the
Partnerships and the General Partner also create potential conflicts of
interest. An affiliate of the Partnerships owns some of the Partnerships' Units
and therefore has an identity of interest with other Limited Partners with
respect to the operations of the Partnerships.
In order to attempt to assure limited liability for the Limited Partners
as well as an orderly conduct of business, management of the Partnerships is
exercised solely by the General Partner. The Partnership Agreements grant the
General Partner broad discretionary authority with respect to the Partnerships'
expenditure and control of funds, including borrowings. These provisions are
similar to those contained in prospectuses and partnership agreements for other
public oil and gas partnerships. Broad discretion as to general management of
the Partnerships involves circumstances where the General Partner has conflicts
of interest and where it must allocate costs and expenses, or opportunities,
among the Partnerships and other competing interests.
-38-
The General Partner does not devote all of its time, efforts, and
personnel exclusively to the Partnerships. Furthermore, the Partnerships do not
have any employees, but instead rely on the personnel of Samson. The
Partnerships thus compete with Samson (including other oil and gas partnerships)
for the time and resources of such personnel. Samson devotes such time and
personnel to the management of the Partnerships as are indicated by the
circumstances and as are consistent with the General Partner's fiduciary duties.
Affiliates of the Partnerships operate certain wells in which the
Partnerships have a Net Profits Interest and are compensated for such services
at rates comparable to charges of unaffiliated third parties for services in the
same geographic area. These costs are charged to the owners of the working
interest of such wells and are considered when calculating the Net Profits
Interest payable to the Partnerships. These costs are thus indirectly borne by
the Partnership.
Affiliates of the Partnerships are solely responsible for the negotiation,
administration, and enforcement of oil and gas sales agreements covering the
leasehold interests in which the Partnerships hold net profits or royalty
interests. Because affiliates of the Partnerships who provide services to the
owners of the Working Interests have fiduciary or other duties to other members
of Samson, contract amendments and negotiating positions taken by them in their
effort to enforce contracts with purchasers may not necessarily represent the
positions that the owners of such Working Interests would take if they were to
administer their own contracts without involvement with other members of Samson.
On the other hand, management believes that the negotiating strength and
contractual positions of the owners of such Working Interests have been enhanced
by virtue of their affiliation with Samson.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
During 2004 and 2003, each Partnership paid the following audit fees:
2004 2003
------- -------
Year-end audit per engagement letter $21,560 $19,250
1st quarter 10-Q review 825 750
2nd quarter 10-Q review 825 750
3rd quarter 10-Q review 825 750
-39-
Audit-Related Fees
During 2004 and 2003 the Partnerships did not pay any audit-related fees
of the type required by the SEC to be disclosed in this Annual Report under this
heading.
Tax Fees
During 2004 and 2003 the Partnerships did not pay any tax compliance, tax
advice, or tax planning fees of the type required by the SEC to be disclosed in
this Annual Report under this heading.
All Other Fees
During 2004 and 2003 the Partnerships did not pay any other fees of the
type required by the SEC to be disclosed in this Annual Report under this
heading.
Audit Approval
The Partnerships do not have audit committee pre-approval policies and
procedures as described in paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X.
The Partnerships did not receive any services of the type described in Items
9(e)(2) through 9(e)(4) of Schedule 14A.
Audit and Related Fees Paid by Affiliates
The Partnerships' accountants received compensation from other related
partnerships managed by the General Partner and from other entities affiliated
with the General Partner. This compensation is for audit services, tax related
services, and other accounting-related services. The General Partner does not
believe this arrangement creates a conflict of interest or impairs the auditors'
independence.
PART IV.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements, Financial Statement Schedules, and Exhibits:
(1) Financial Statements: The following financial statements for the
Geodyne Institutional/Pension Energy Income Limited Partnership P-7
and the Geodyne Institutional/Pension Energy Income Limited
Partnership P-8 as of December 31, 2004 and 2003 and for the three
-40-
years ended December 31, 2004 are filed as part of this report:
Report of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Operations
Statements of Changes in Partners'
Capital (Deficit)
Statements of Cash Flows
Notes to Financial Statements
(2) Financial Statement Schedules:
None.
(3) Exhibits:
Exh.
No. Exhibit
- --- -------
4.1 Certificate of Limited Partnership dated February 28, 1992, for the
Geodyne Institutional/Pension Energy Income Limited Partnership P-7,
filed with the Securities and Exchange Commission on February 26, 2002,
as Exhibit 4.1 to Annual Report on Form 10K-405 for period ended
December 31, 2001 and is hereby incorporated by reference.
4.2 Agreement of Limited Partnership dated February 28, 1992, for the
Geodyne Institutional/Pension Energy Income Limited Partnership P-7,
filed with the Securities and Exchange Commission on February 26, 2002,
as Exhibit 4.2 to Annual Report on Form 10K-405 for period ended
December 31, 2001 and is hereby incorporated by reference.
4.3 First Amendment to Certificate of Limited Partnership and First
Amendment to Agreement of Limited Partnership dated February 25, 1993,
for the Geodyne Institutional/Pension Energy Income Limited Partnership
P-7, filed with the Securities and Exchange Commission on February 26,
2002, as Exhibit 4.3 to Annual Report on Form 10K-405 for period ended
December 31, 2001 and is hereby incorporated by reference.
4.4 Second Amendment to Certificate of Limited Partnership dated August 4,
1993, for the Geodyne Institutional/Pension Energy Income Limited
Partnership P-7, filed with the Securities and Exchange Commission on
February 26, 2002, as Exhibit 4.4 to Annual Report on Form 10K-405 for
period ended December 31, 2001 and is hereby incorporated by reference.
4.5 Second Amendment to Agreement of Limited Partnership dated August 4,
1993, for the Geodyne Institutional/Pension Energy Income Limited
Partnership P-7, filed with the Securities and Exchange Commission on
February 26, 2002, as Exhibit 4.5 to Annual Report on Form 10K-405 for
period
-41-
ended December 31, 2001 and is hereby incorporated by reference.
4.6 Third Amendment to Agreement of Limited Partnership dated August 31,
1995, for the Geodyne Institutional/Pension Energy Income Limited
Partnership P-7, filed with the Securities and Exchange Commission on
February 26, 2002, as Exhibit 4.6 to Annual Report on Form 10K-405 for
period ended December 31, 2001 and is hereby incorporated by reference.
4.7 Fourth Amendment to Agreement of Limited Partnership dated July 1, 1996,
for the Geodyne Institutional/Pension Energy Income Limited Partnership
P-7, filed with the Securities and Exchange Commission on February 26,
2002, as Exhibit 4.7 to Annual Report on Form 10K-405 for period ended
December 31, 2001 and is hereby incorporated by reference.
4.8 Fifth Amendment to Agreement of Limited Partnership dated November 14,
2001, for the Geodyne Institutional/Pension Energy Income Limited
Partnership P-7, filed with the Securities and Exchange Commission on
February 26, 2002, as Exhibit 4.8 to Annual Report on Form 10K-405 for
period ended December 31, 2001 and is hereby incorporated by reference.
4.9 Sixth Amendment to Agreement of Limited Partnership dated January 22,
2004, for the Geodyne Institutional/Pension Energy Income Limited
Partnership P-7, filed with the Securities and Exchange Commission on
March 26, 2004, as Exhibit 4.9 to Annual Report on Form 10-K for period
ended December 31, 2003, and is hereby incorporated by reference.
4.10 Certificate of Limited Partnership dated February 28, 1992, for the
Geodyne Institutional/Pension Energy Income Limited Partnership P-8,
filed with the Securities and Exchange Commission on February 26, 2002,
as Exhibit 4.9 to Annual Report on Form 10K-405 for period ended
December 31, 2001 and is hereby incorporated by reference.
4.11 Agreement of Limited Partnership dated February 28 , 1992, for the
Geodyne Institutional/Pension Energy Income Limited Partnership P-8,
filed with the Securities and Exchange Commission on February 26, 2002,
as Exhibit 4.10 to Annual Report on Form 10K-405 for period ended
December 31, 2001 and is hereby incorporated by reference.
4.12 First Amendment to Certificate of Limited Partnership and First
Amendment to Agreement of Limited Partnership dated February 25, 1993,
for the Geodyne Institutional/Pension Energy Income Limited Partnership
P-8, filed with the Securities and Exchange Commission on February 26,
2002, as Exhibit 4.11 to Annual Report on Form 10K-405 for period ended
December 31, 2001 and is hereby incorporated by reference.
-42-
4.13 Second Amendment to Certificate of Limited Partnership dated August 4,
1993, for the Geodyne Institutional/Pension Energy Income Limited
Partnership P-8, filed with the Securities and Exchange Commission on
February 26, 2002, as Exhibit 4.12 to Annual Report on Form 10K-405 for
period ended December 31, 2001 and is hereby incorporated by reference.
4.14 Second Amendment to Agreement of Limited Partnership dated August 4,
1993, for the Geodyne Institutional/Pension Energy Income Limited
Partnership P-8, filed with the Securities and Exchange Commission on
February 26, 2002, as Exhibit 4.13 to Annual Report on Form 10K-405 for
period ended December 31, 2001 and is hereby incorporated by reference.
4.15 Third Amendment to Agreement of Limited Partnership dated August 31,
1995, for the Geodyne Institutional/Pension Energy Income Limited
Partnership P-8, filed with the Securities and Exchange Commission on
February 26, 2002, as Exhibit 4.14 to Annual Report on Form 10K-405 for
period ended December 31, 2001 and is hereby incorporated by reference.
4.16 Fourth Amendment to Agreement of Limited Partnership dated July 1, 1996,
for the Geodyne Institutional/Pension Energy Income Limited Partnership
P-8, filed with the Securities and Exchange Commission on February 26,
2002, as Exhibit 4.15 to Annual Report on Form 10K-405 for period ended
December 31, 2001 and is hereby incorporated by reference.
4.17 Fifth Amendment to Agreement of Limited Partnership dated November 14,
2001, for the Geodyne Institutional/Pension Energy Income Limited
Partnership P-8, filed with the Securities and Exchange Commission on
February 26, 2002, as Exhibit 4.16 to Annual Report on Form 10K-405 for
period ended December 31, 2001 and is hereby incorporated by reference.
4.18 Sixth Amendment to Agreement of Limited Partnership dated January 22,
2004, for the Geodyne Institutional/Pension Energy Income Limited
Partnership P-8 filed with the Securities and Exchange Commission on
March 26, 2004, as Exhibit 4.17 to Annual Report on Form 10-K for period
ended December 31, 2003, and is hereby incorporated by reference.
*23.1 Consent of Ryder Scott Company, L.P. for the Geodyne Institutional/
Pension Energy Income Limited Partnership P-7.
*23.2 Consent of Ryder Scott Company, L.P. for the Geodyne Institutional/
Pension Energy Income Limited Partnership P-8.
*31.1 Certification by Dennis R. Neill required by Rule 13a-14(a)/15d-14(a)
for the Geodyne Institutional/Pension Energy Income Limited Partnership
P-7.
-43-
*31.2 Certification by Craig D. Loseke required by Rule 13a-14(a)/15d-14(a)
for the Geodyne Institutional/Pension Energy Income Limited Partnership
P-7.
*31.3 Certification by Dennis R. Neill required by Rule 13a-14(a)/15d-14(a)
for the Geodyne Institutional/Pension Energy Income Limited Partnership
P-8.
*31.4 Certification by Craig D. Loseke required by Rule 13a-14(a)/15d-14(a)
for the Geodyne Institutional/Pension Energy Income Limited Partnership
P-8.
*32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 for the Geodyne
Institutional/Pension Energy Income Limited Partnership P-7.
*32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 for the Geodyne
Institutional/Pension Energy Income Limited Partnership P-8.
All other Exhibits are omitted as inapplicable.
----------
*Filed herewith.
-44-
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) 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 organized.
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-7
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-8
By: GEODYNE RESOURCES, INC.
General Partner
March 30, 2005
By: //s// Dennis R. Neill
------------------------------
Dennis R. Neill
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities on the dates indicated.
By: //s//Dennis R. Neill President and March 30, 2005
------------------- Director (Principal
Dennis R. Neill Executive Officer)
//s//Craig D. Loseke Chief Accounting March 30, 2005
------------------- Officer (Principal
Craig D. Loseke Accounting and
Financial Officer)
//s//Judy K. Fox Secretary March 30, 2005
-------------------
Judy K. Fox
-45-
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE PARTNERS
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-7
In our opinion, the accompanying balance sheets and the related statements
of operations, changes in partners' capital (deficit) and cash flows present
fairly, in all material respects, the financial position of the Geodyne
Institutional/Pension Energy Income Limited Partnership P-7, an Oklahoma limited
partnership, at December 31, 2004 and 2003, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2004, in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Pubic Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 of Notes to the Financial Statements under the
heading "Asset Retirement Obligation," effective January 1, 2003 the
Partnerships changed the manner in which they account for asset retirement
obligations.
PricewaterhouseCoopers LLP
Tulsa, Oklahoma
March 30, 2005
F-1
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-7
Balance Sheets
December 31, 2004 and 2003
ASSETS
------
2004 2003
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $1,158,634 $ 973,753
--------- ---------
Total current assets $1,158,634 $ 973,753
NET PROFITS INTERESTS, net, utilizing
the successful efforts method 3,727,027 3,266,042
--------- ---------
$4,885,661 $4,239,795
========= =========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
-------------------------------------------
CURRENT LIABILITIES:
Accounts payable:
Net Profits $ 37,237 $ 208,257
--------- ---------
Total current liabilities $ 37,237 $ 208,257
PARTNERS' CAPITAL (DEFICIT):
General Partner ($ 44,682) ($ 103,881)
Limited Partners, issued and
outstanding 188,702 Units 4,893,106 4,135,419
--------- ---------
Total Partners' capital $4,848,424 $4,031,538
--------- ---------
$4,885,661 $4,239,795
========= =========
The accompanying notes are an integral
part of these financial statements
F-2
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-7
Statements of Operations
For the Years Ended December 31, 2004, 2003, and 2002
2004 2003 2002
---------- ---------- ----------
REVENUES:
Net Profits $3,073,486 $2,211,781 $1,973,994
Interest income 7,354 5,591 3,712
Gain on sale of
Net Profits Interests - 440,609 -
--------- --------- ---------
$3,080,840 $2,657,981 $1,977,706
COSTS AND EXPENSES:
Depletion of Net
Profits Interests $ 235,103 $ 305,931 $ 263,289
General and administrative 229,798 230,540 227,880
--------- --------- ---------
$ 464,901 $ 536,471 $ 491,169
--------- --------- ---------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $2,615,939 $2,121,510 $1,486,537
Cumulative effect of change
in accounting for asset
retirement obligations
(Note 1) - 400 -
--------- --------- ---------
NET INCOME $2,615,939 $2,121,910 $1,486,537
========= ========= =========
GENERAL PARTNER - NET INCOME $ 257,252 $ 118,037 $ 84,673
========= ========= =========
LIMITED PARTNERS - NET INCOME $2,358,687 $2,003,873 $1,401,864
========= ========= =========
NET INCOME per Unit $ 12.50 $ 10.62 $ 7.43
========= ========= =========
UNITS OUTSTANDING 188,702 188,702 188,702
========= ========= =========
The accompanying notes are an integral
part of these financial statements
F-3
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-7
Statements of Changes in Partners' Capital (Deficit)
For the Years Ended December 31, 2004, 2003, and 2002
Limited General
Partners Partner Total
------------ ---------- ------------
Balance, Dec. 31, 2001 $3,235,682 ($123,150) $3,112,532
Net income 1,401,864 84,673 1,486,537
Cash distributions ( 877,000) ( 64,271) ( 941,271)
--------- ------- ---------
Balance, Dec. 31, 2002 $3,760,546 ($102,748) $3,657,798
Net income 2,003,873 118,037 2,121,910
Cash distributions ( 1,629,000) ( 119,170) ( 1,748,170)
--------- ------- ---------
Balance, Dec. 31, 2003 $4,135,419 ($103,881) $4,031,538
Net income 2,358,687 257,252 2,615,939
Cash distributions ( 1,601,000) ( 198,053) ( 1,799,053)
--------- ------- ---------
Balance, Dec. 31, 2004 $4,893,106 ($ 44,682) $4,848,424
========= ======= =========
The accompanying notes are an integral
part of these financial statements
F-4
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-7
Statements of Cash Flows
For the Years Ended December 31, 2004, 2003, and 2002
2004 2003 2002
------------ ------------ ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $2,615,939 $2,121,910 $1,486,537
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Cumulative effect of change
in accounting for asset
retirement obligations
(Note 1) - ( 400) -
Depletion of Net
Profits Interests 235,103 305,931 263,289
Gain on sale of
Net Profits Interests - ( 440,609) -
Net change in accounts
receivable (accounts
payable) - Net Profits ( 315,881) 79,513 ( 60,019)
--------- --------- ---------
Net cash provided by
operating activities $2,535,161 $2,066,345 $1,689,807
--------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures ($ 551,227) ($ 691,049) ($ 241,187)
Proceeds from sale of
Net Profits Interests - 489,541 -
--------- --------- ---------
Net cash used by
investing activities ($ 551,227) ($ 201,508) ($ 241,187)
--------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Cash distributions ($1,799,053) ($1,748,170) ($ 941,271)
--------- --------- ---------
Net cash used by
financing activities ($1,799,053) ($1,748,170) ($ 941,271)
--------- --------- ---------
NET INCREASE IN CASH
AND CASH EQUIVALENTS $ 184,881 $ 116,667 $ 507,349
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 973,753 857,086 349,737
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $1,158,634 $ 973,753 $ 857,086
========= ========= =========
The accompanying notes are an integral
part of these financial statements
F-5
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE PARTNERS
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-8
In our opinion, the accompanying balance sheets and the related statements
of operations, changes in partners' capital (deficit) and cash flows present
fairly, in all material respects, the financial position of the Geodyne
Institutional/Pension Energy Income Limited Partnership P-8, an Oklahoma limited
partnership, at December 31, 2004 and 2003, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2004, in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Partnerships' management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note 1 of Notes to the Financial Statements under the
heading "Asset Retirement Obligation," effective January 1, 2003 the
Partnerships changed the manner in which they account for asset retirement
obligations.
PricewaterhouseCoopers LLP
Tulsa, Oklahoma
March 30, 2005
F-6
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-8
Balance Sheets
December 31, 2004 and 2003
ASSETS
------
2004 2003
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 745,323 $ 675,203
--------- ---------
Total current assets $ 745,323 $ 675,203
NET PROFITS INTERESTS, net, utilizing
the successful efforts method 2,245,692 1,956,230
--------- ---------
$2,991,015 $2,631,433
========= =========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
-------------------------------------------
CURRENT LIABILITIES:
Accounts payable:
Net Profits $ 9,813 $ 128,314
--------- ---------
Total current liabilities $ 9,813 $ 128,314
PARTNERS' CAPITAL (DEFICIT):
General Partner ($ 13,891) ($ 29,971)
Limited Partners, issued and
outstanding 116,168 Units 2,995,093 2,533,090
--------- ---------
Total Partners' capital $2,981,202 $2,503,119
--------- ---------
$2,991,015 $2,631,433
========= =========
The accompanying notes are an integral
part of these financial statements
F-7
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-8
Statements of Operations
For the Years Ended December 31, 2004, 2003, and 2002
2004 2003 2002
---------- ---------- ----------
REVENUES:
Net Profits $2,001,198 $1,548,409 $1,355,917
Interest income 4,735 4,316 3,037
Gain on sale of Net
Profits Interests - 555,967 -
--------- --------- ---------
$2,005,933 $2,108,692 $1,358,954
COSTS AND EXPENSES:
Depletion of Net
Profits Interests $ 136,275 $ 186,708 $ 161,400
General and administrative 149,887 149,591 147,258
--------- --------- ---------
$ 286,162 $ 336,299 $ 308,658
--------- --------- ---------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $1,719,771 $1,772,393 $1,050,296
Cumulative effect of change in
accounting for asset
retirement obligations
(Note 1) - 4,862 -
--------- --------- ---------
NET INCOME $1,719,771 $1,777,255 $1,050,296
========= ========= =========
GENERAL PARTNER - NET INCOME $ 183,768 $ 108,749 $ 58,819
========= ========= =========
LIMITED PARTNERS - NET INCOME $1,536,003 $1,668,506 $ 991,477
========= ========= =========
NET INCOME per Unit $ 13.22 $ 14.36 $ 8.53
========= ========= =========
UNITS OUTSTANDING 116,168 116,168 116,168
========= ========= =========
The accompanying notes are an integral
part of these financial statements
F-8
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-8
Statements of Changes in Partners' Capital (Deficit)
For the Years Ended December 31, 2004, 2003, and 2002
Limited General
Partners Partner Total
------------ ---------- ------------
Balance, Dec. 31, 2001 $1,976,107 ($ 56,816) $1,919,291
Net income 991,477 58,819 1,050,296
Cash distributions ( 645,000) ( 45,636) ( 690,636)
--------- ------- ---------
Balance, Dec. 31, 2002 $2,322,584 ($ 43,633) $2,278,951
Net income 1,668,506 108,749 1,777,255
Cash distributions ( 1,458,000) ( 95,087) ( 1,553,087)
--------- ------- ---------
Balance, Dec. 31, 2003 $2,533,090 ($ 29,971) $2,503,119
Net income 1,536,003 183,768 1,719,771
Cash distributions ( 1,074,000) ( 167,688) ( 1,241,688)
--------- ------- ---------
Balance, Dec. 31, 2004 $2,995,093 ($ 13,891) $2,981,202
========= ======= =========
The accompanying notes are an integral
part of these financial statements
F-9
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-8
Statements of Cash Flows
For the Years Ended December 31, 2004, 2003, and 2002
2004 2003 2002
------------ ------------ ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $1,719,771 $1,777,255 $1,050,296
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Cumulative effect of change
in accounting for asset
retirement obligations
(Note 1) - ( 4,862) -
Depletion of Net
Profits Interests 136,275 186,708 161,400
Gain on sale of Net
Profits Interests - ( 555,967) -
Net change in accounts
receivable (accounts
payable) - Net Profits ( 206,993) 31,639 ( 42,650)
--------- --------- ---------
Net cash provided by
operating activities $1,649,053 $1,434,773 $1,169,046
--------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures ($ 337,245) ($ 420,686) ($ 147,528)
Proceeds from sale of
Net Profits Interests - 602,905 -
--------- --------- ---------
Net cash provided (used) by
investing activities ($ 337,245) $ 182,219 ($ 147,528)
--------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Cash distributions ($1,241,688) ($1,553,087) ($ 690,636)
--------- --------- ---------
Net cash used by
financing activities ($1,241,688) ($1,553,087) ($ 690,636)
--------- --------- ---------
NET INCREASE IN CASH
AND CASH EQUIVALENTS $ 70,120 $ 63,905 $ 330,882
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 675,203 611,298 280,416
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 745,323 $ 675,203 $ 611,298
========= ========= =========
The accompanying notes are an integral
part of these financial statements
F-10
GEODYNE INSTITUTIONAL/PENSION
ENERGY INCOME PROGRAM II LIMITED PARTNERSHIPS
Notes to the Financial Statements
For the Years Ended December 31, 2004, 2003, and 2002
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
The Geodyne Institutional/Pension Energy Income Limited Partnerships (the
"Partnerships") were formed pursuant to a public offering of depositary units
("Units"). Upon formation, investors became limited partners (the "Limited
Partners") and held Units issued by each Partnership. Geodyne Resources, Inc.
("Geodyne") is the general partner of each of the Partnerships. Limited
Partners' capital contributions were invested in net profits interests, royalty
interests, and other nonoperating interests in producing oil and gas properties.
Most of the net profits interests acquired by the Partnerships have been carved
out of working interests in producing properties, located in the continental
United States, which were acquired by affiliated oil and gas investment programs
or other affiliates (the "Affiliated Programs").
Net profits interests entitle the Partnerships to a share of net revenues
from producing properties measured by a specific percentage of the net profits
realized by such Affiliated Programs as owners of the working interests in the
producing properties. Except where otherwise noted, references to certain
operational activities of the Partnerships are actually the activities of the
Affiliated Programs. As the holder of a net profits interest, a Partnership is
not liable to pay any amount by which oil and gas operating costs and expenses
exceed revenues for any period, although any deficit, together with interest, is
applied to reduce the amounts payable to the Partnership in subsequent periods.
As used in these financial statements, the Partnerships' net profits and royalty
interests in oil and gas sales are referred to as "Net Profits" and the
Partnerships' net profits and royalty interests in oil and gas properties are
referred to as "Net Profits Interests." The Partnerships do not directly bear
capital costs. However, the Partnerships indirectly bear certain capital costs
incurred by the Affiliated Programs to the extent such capital costs are charged
against the applicable oil and gas revenues in calculating the net profits
payable to the Partnerships. For financial reporting purposes, such capital
costs are reported as capital expenditures in the Partnerships' Statements of
Cash Flows.
The P-7 and P-8 Partnerships were activated February 28, 1992 with Limited
Partner capital contributions of $18,870,200 and $11,616,800 respectively. The
Partnerships were scheduled to terminate on February 28, 2002 in accordance with
the partnership agreement for each Partnership (the "Partnership Agreement").
F-11
However, the General Partner may extend the term of each Partnership for up to
five periods of two years each. The General Partner has extended the terms of
the Partnerships for their second extension thereby extending their termination
date to December 31, 2005. The General Partner has not determined whether it
will further extend the term of either Partnership.
An affiliate of the General Partner owned 40,376 (21.4%) and 33,970
(29.2%) of the P-7 and P-8 Partnerships' Units, respectively, at December 31,
2004.
The Partnerships' sole business is owning Net Profits Interests in oil and
gas properties. Substantially all of the gas reserves attributable to the
Partnerships' Net Profits Interests are being sold regionally on the "spot
market." Due to the highly competitive nature of the spot market, prices on the
spot market are subject to wide seasonal and regional pricing fluctuations. In
addition, such spot market sales are generally short-term in nature and are
dependent upon obtaining transportation services provided by pipelines. The
Partnerships' oil is sold at or near the Partnerships' wells under short-term
purchase contracts at prevailing arrangements which are customary in the oil
industry. The prices received for the Partnerships' oil and gas are subject to
influences such as global consumption and supply trends.
Allocation of Costs and Revenues
Each Partnership Agreement allocates costs and income between the Limited
Partners and General Partner as follows:
Before Payout(1) After Payout(1)
----------------- -----------------
General Limited General Limited
Partner Partners Partner Partners
------- -------- ------- --------
Costs
- -------------------------
Sales commissions, payment
for organization and
offering costs and
acquisition fee 1% 99% - -
Property Acquisition Costs 1% 99% 1% 99%
General and administrative
costs and direct
administrative costs(2) 5% 95% 15% 85%
F-12
Income
- -------------------------
Temporary investments of
Limited Partners'
Subscriptions 1% 99% 1% 99%
Income from oil and
gas production(2) 5% 95% 15% 85%
Gain on sale of Net Profits
Interests(2) 5% 95% 15% 85%
All other income(2) 5% 95% 15% 85%
- ----------
(1) Payout occurs when total distributions to Limited Partners equal total
original Limited Partner subscriptions.
(2) If at payout the total distributions received by the Limited Partners from
the commencement of the property investment period have averaged on an
annualized basis an amount that is less than 12% of the Limited Partners'
subscriptions, the percentage of income, and costs which are shared in the
same proportions as income, allocated to the General Partner will increase
to only 10% and the Limited Partners will be allocated 90% thereof until
such time, if ever, that the distributions to the Limited Partners from
the commencement of the property investment period reaches a yearly
average equal to at least 12% of the Limited Partners' subscriptions.
Thereafter, income, and costs shared in the same proportions as income,
will be allocated 15% to the General Partner and 85% to the Limited
Partners.
The P-7 and P-8 Partnerships achieved payout during the second quarter of
2004 and the fourth quarter of 2003, respectively. After payout, operations and
revenues for the Partnerships have been and will be allocated using the 10%/90%
after payout percentages set forth in Footnote 2 to the table above.
Cash and Cash Equivalents
The Partnerships consider all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash equivalents are
not insured, which cause the Partnerships to be subject to risk.
Credit Risk
Accrued oil and gas sales, which are included in the Partnerships'
accounts receivable (accounts payable) - Net Profits, are due from a variety of
oil and gas purchasers and, therefore, indirectly subject the Partnerships to a
concentration
F-13
of credit risk. Some of these purchasers are discussed in Note 3 - Major
Customers.
Net Profits Interests
The Partnerships follow the successful efforts method of accounting for
their Net Profits Interests. Under the successful efforts method, the
Partnerships capitalize all acquisition costs. Such acquisition costs include
costs incurred by the Partnerships or the General Partner to acquire a Net
Profits Interest, including related title insurance or examination costs,
commissions, engineering, legal and accounting fees, and similar costs directly
related to the acquisitions plus an allocated portion of the General Partner's
property screening costs. The net acquisition cost to the Partnerships of the
Net Profits Interests in properties acquired by the General Partner consists of
the cost of acquiring the underlying properties adjusted for the net cash
results of operations, including any interest incurred to finance the
acquisition, for the period of time the properties are held by the General
Partner.
Depletion of the cost of Net Profits Interests is computed on the
units-of-production method. The Partnerships' calculation of depletion of its
Net Profits Interests includes estimated dismantlement and abandonment costs,
net of estimated salvage values related to the underlying properties in which
the Partnership has a Net Profits Interest. The depletion rates, which include
accretion of the asset retirement obligation, per equivalent barrel of oil
produced during the years ended December 31, 2004, 2003, and 2002 were as
follows:
Partnership 2004 2003 2002
----------- ----- ----- -----
P-7 $1.66 $2.20 $1.72
P-8 1.51 2.01 1.54
The Partnerships evaluate the recoverability of the carrying costs of
their Net Profits Interests in proved oil and gas properties at the field level.
If the unamortized costs of a Net Profits Interest within a field exceeds the
expected undiscounted future cash flows from such Net Profits Interest, the cost
of the Net Profits Interest is written down to fair value, which is determined
by using the discounted future cash flows from the Net Profits Interest. No
impairment provisions were recorded by the Partnerships during the three years
ended December 31, 2004.
Accounts Receivable (Accounts Payable) - Net Profits
Revenues from a Net Profits Interest consist of a share of the oil and gas
sales of the property, less operating and production expenses. The Partnerships
accrue for oil and gas
F-14
revenues less expenses from the Net Profits Interests. Sales of gas applicable
to the Net Profits Interests are recorded as revenue when the gas is metered and
title transferred pursuant to the gas sales contracts. During such times as
sales of gas exceed a Partnership's pro rata Net Profits Interest in a well,
such sales are recorded as revenue unless total sales from the well have
exceeded the Partnership's share of estimated total gas reserves attributable to
the underlying property, at which time such excess is recorded as a liability.
The rates per Mcf used to calculate this liability are based on the average gas
price for which the Partnerships are currently settling this liability. This
liability is recorded as a reduction of accounts receivable.
Also included in accounts receivable (accounts payable)- Net Profits are
the estimated asset retirement obligations (see "Asset Retirement Obligation")
and the amounts which represent costs deferred or accrued for Net Profits
relating to lease operating expenses incurred in connection with the net
underproduced or overproduced gas imbalance positions. The rate used in
calculating the deferred charge or accrued liability is the annual average
production costs per Mcf.
The Partnerships have not entered into any hedging or derivative contracts
in connection with their production of oil and gas.
General and Administrative Overhead
The General Partner and its affiliates are reimbursed for actual general
and administrative costs incurred and attributable to the conduct of the
business affairs and operations of the Partnerships.
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Further,
accounts receivable (accounts payable) - Net Profits includes accrued
liabilities, accrued lease operating expenses, asset retirement obligations, and
deferred lease operating expenses related to gas balancing which involve
estimates that could materially differ from the actual amounts ultimately
realized or incurred in the near term. Oil and gas reserves (see Note 4) also
involve significant estimates which could materially differ from the actual
amounts ultimately realized.
F-15
Income Taxes
Income or loss for income tax purposes is includable in the income tax
returns of the partners. Accordingly, no recognition has been given to income
taxes in these financial statements.
Asset Retirement Obligation
In July 2001, the FASB issued FAS No. 143, "Accounting for Asset
Retirement Obligations", which is effective for fiscal years beginning after
June 15, 2002 (January 1, 2003 for the Partnerships). FAS No. 143 requires the
fair value of a liability for an asset retirement obligation to be recognized in
the period in which it is incurred if a reasonable estimate of fair value can be
made, and that the associated asset retirement costs be capitalized as part of
the carrying amount of the long-lived asset. The Partnerships own interests in
oil and gas properties which require expenditures to plug and abandon the wells
when reserves in the wells are depleted. On January 1, 2003, the Partnerships
adopted FAS No. 143 and recorded an increase in Net Profits Interests, an
increase in net income for the cumulative effect of the change in accounting
principle, and an asset retirement obligation (included in accounts
receivable-Net Profits), resulting in a decrease of accounts receivable - Net
Profits, in the following approximate amounts for each Partnership:
Increase in
Net Income for
Increase in the Change in Asset
Net Profits Accounting Retirement
Partnership Interests Principle Obligation
- ----------- ------------ -------------- ----------
P-7 $311,000 $ 400 $311,000
P-8 234,000 5,000 229,000
The asset retirement obligation is adjusted upwards each quarter in order
to recognize accretion of the time related discount factor. For the year ended
December 31, 2004, the P-7 and P-8 Partnerships recognized approximately $16,000
and $10,000, respectively, of an increase in depletion of Net Profits Interests,
which was comprised of accretion of the asset retirement obligation and
depletion of the increase in Net Profits Interests.
The components of the change in asset retirement obligations for the years
ended December 31, 2004 and 2003 are as shown below.
F-16
P-7 Partnership
---------------
2004 2003
---------- ----------
Total Asset Retirement
Obligation, January 1 $317,713 $311,238
Additions and revisions ( 5,538) -
Settlements and disposals - ( 13,514)
Accretion expense 14,732 19,989
------- -------
Total Asset Retirement
Obligation, December 31 $326,907 $317,713
======= =======
P-8 Partnership
---------------
2004 2003
---------- ----------
Total Asset Retirement
Obligation, January 1 $234,524 $228,506
Additions and revisions ( 5,496) -
Settlements and disposals - ( 10,203)
Accretion expense 10,958 16,221
------- -------
Total Asset Retirement
Obligation, December 31 $239,986 $234,524
======= =======
Had FAS No. 143 been adopted at January 1, 2002 the amount of the asset
retirement obligation at that date and at December 31, 2002 would not have been
materially different from the amount recorded at January 1, 2003. If this
accounting policy had been in effect on January 1, 2002, the pro forma impact
for the P-7 and P-8 Partnerships during the year ended December 31, 2002 would
have been an increase in Depletion of Net Profits Interests of approximately
$26,000 and $18,000, respectively.
2. TRANSACTIONS WITH RELATED PARTIES
The Partnerships reimburse the General Partner for the general and
administrative overhead applicable to the Partnerships based on an allocation of
actual costs incurred by the General Partner. When costs incurred benefit other
Partnerships and affiliates, the allocation of costs is based on the
relationship of the Partnerships' reserves to the total reserves owned by all
Partnerships and affiliates. The General Partner believes this allocation method
is reasonable. Although
F-17
the actual costs incurred by the General Partner and its affiliates have
fluctuated during the three years presented, the amounts charged to the
Partnerships have not fluctuated due to expense limitations imposed by the
Partnership Agreements. The following is a summary of payments made to the
General Partner or its affiliates by the Partnerships for general and
administrative overhead costs for the years ended December 31, 2004, 2003, and
2002:
Partnership 2004 2003 2002
----------- -------- -------- --------
P-7 $198,636 $198,636 $198,636
P-8 122,280 122,280 122,280
Affiliates of the Partnerships operate certain of the properties in which
the Partnerships own a Net Profits Interest and their policy is to bill the
owners of the working interests of such properties for all customary charges and
cost reimbursements associated with these activities, together with any
compressor rentals, consulting, or other services provided.
3. MAJOR CUSTOMERS
The following table sets forth purchasers who individually accounted for
ten percent or more of the combined oil and gas sales attributable to each of
the Partnership's Net Profits Interests during the years ended December 31,
2004, 2003, and 2002:
Partnership Purchaser Percentage
----------- ---------------------- ---------------------
2004 2003 2002
----- ----- -----
P-7 Occidental Energy
Marketing, Inc.
("Occidental") 24.0% - -
Hunt Oil Company ("Hunt") 18.3% 15.9% 16.3%
ExxonMobil Oil
Corporation ("Exxon") 11.3% 33.1% 34.4%
Duke Energy Field
Services, Inc. ("Duke") - 10.2% -
Scurlock Permian Corp. - 10.0% 12.4%
P-8 Occidental 22.8% - -
Hunt 16.2% 13.8% 14.1%
Exxon 11.5% 31.3% 32.6%
Duke - 10.6% -
In the event of interruption of purchases by one or more of these
significant customers or the cessation or material change
F-18
in availability of open access transportation by pipeline transporters, the
Partnerships may encounter difficulty in marketing gas and in maintaining
historic sales levels. Alternative purchasers or transporters may not be readily
available.
4. SUPPLEMENTAL OIL AND GAS INFORMATION
The following supplemental information regarding the Net Profits Interest
activities of the Partnerships is presented pursuant to the disclosure
requirements promulgated by the SEC.
Capitalized Costs
Capitalized costs and accumulated depletion and valuation allowance at
December 31, 2004 and 2003 were as follows:
P-7 Partnership
---------------
2004 2003
------------- -------------
Net Profits Interests in proved
oil and gas properties $16,147,582 $15,460,653
Accumulated depletion and
valuation allowance ( 12,420,555) ( 12,194,611)
---------- ----------
Net Profits Interests, net $ 3,727,027 $ 3,266,042
========== ==========
P-8 Partnership
---------------
2004 2003
------------- -------------
Net Profits Interests in proved
oil and gas properties $ 9,616,334 $ 9,195,977
Accumulated depletion and
valuation allowance ( 7,370,642) ( 7,239,747)
---------- ----------
Net Profits Interests, net $ 2,245,692 $ 1,956,230
========== ==========
F-19
Costs Incurred
The following table sets forth the development costs related to the
Working Interests which are burdened by the Partnerships' Net Profits Interests
during the years ended December 31, 2004, 2003, and 2002. Since these
development costs were charged against the Net Profits payable to the
Partnerships, such development costs were indirectly borne by the Partnerships.
No acquisition or exploration costs were incurred during the same periods.
Partnership 2004 2003(1) 2002
------------ -------- -------- --------
P-7 $686,894 $691,049 $241,187
P-8 420,275 420,686 147,528
------------------
(1) Excludes the estimated asset retirement costs for the P-7 and P-8
Partnerships of approximately $246,000 and $174,000, respectively,
recorded as part of the FAS No. 143 implementation.
Quantities of Proved Oil and Gas Reserves - Unaudited
The following table summarizes changes in net quantities of proved
reserves attributable to the Partnerships' Net Profits Interests, all of which
are located in the United States, for the periods indicated. The proved reserves
were estimated by petroleum engineers employed by affiliates of the
Partnerships. Certain reserve information was reviewed by Ryder Scott Company,
L.P., an independent petroleum engineering firm. The following information
includes certain gas balancing adjustments which cause the gas volumes to differ
from the reserve reports prepared by the General Partner and reviewed by
Ryder Scott.
F-20
P-7 Partnership P-8 Partnership
---------------------------- ----------------------------
Crude Natural Crude Natural
Oil Gas Oil Gas
(Barrels) (Mcf) (Barrels) (Mcf)
----------- ----------- --------- -----------
Proved reserves, December 31, 2001 987,135 4,013,307 581,477 2,812,267
Production ( 89,957) ( 377,169) ( 54,657) ( 300,937)
Extensions and discoveries 25,945 186,465 12,058 105,899
Revisions of previous
estimates 24,102 596,527 17,780 430,247
--------- --------- ------- ---------
Proved reserves, December 31, 2002 947,225 4,419,130 556,658 3,047,476
Production ( 82,711) ( 338,742) ( 49,766) ( 257,786)
Sales of minerals in place ( 19,374) ( 240,703) ( 13,548) ( 332,085)
Extensions and discoveries 107,476 124,665 64,413 71,616
Revisions of previous
estimates 128,096 576,508 77,602 387,756
--------- --------- ------- ---------
Proved reserves, December 31, 2003 1,080,712 4,540,858 635,359 2,916,977
Production ( 74,393) ( 405,100) ( 45,339) ( 270,536)
Extensions and discoveries 225,680 315,285 137,225 173,999
Revisions of previous
estimates 288,140 1,029,036 170,474 705,453
--------- --------- ------- ---------
Proved reserves, December 31, 2004 1,520,139 5,480,079 897,719 3,525,893
========= ========= ======= =========
PROVED DEVELOPED RESERVES:
December 31, 2002 947,225 4,419,130 556,636 3,047,267
========= ========= ======= =========
December 31, 2003 1,080,712 4,540,858 635,337 2,916,770
========= ========= ======= =========
December 31, 2004 1,520,139 5,480,079 897,699 3,525,689
========= ========= ======= =========
F-21
5. QUARTERLY FINANCIAL DATA (Unaudited)
Summarized unaudited quarterly financial data for 2004 and 2003 are as
follows:
P-7 Partnership
---------------
2004
------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Total Revenues $554,506 $892,202 $951,443 $682,689
Gross Profit (1) 488,792 820,405 903,818 632,722
Net Income 430,539 752,757 851,318 581,325
Limited Partners'
Net Income
Per Unit 2.15 3.56 4.04 2.75
2003
-----------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Total Revenues $777,219 $545,573 $960,108 $375,081
Gross Profit (1) 702,805 475,237 880,077 293,931
Net Income 640,872 415,359 823,757 241,922
Limited Partners'
Net Income
Per Unit 3.21 2.08 4.13 1.20
- -------------------------
(1) Total revenues less depletion of Net Profits Interests.
F-22
P-8 Partnership
---------------
2004
------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- --------- -------- --------
Total Revenues $373,067 $572,467 $591,261 $469,138
Gross Profit (1) 334,378 530,776 563,946 440,558
Net Income 296,624 483,348 531,259 408,540
Limited Partners'
Net Income
Per Unit 2.27 3.71 4.10 3.14
2003
------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- --------- -------- --------
Total Revenues $542,335 $387,427 $888,666 $290,264
Gross Profit (1) 498,633 345,101 840,528 237,722
Net Income 461,331 304,905 805,615 205,404
Limited Partners'
Net Income
Per Unit 3.76 2.48 6.57 1.55
- ----------------------
(1) Total revenues less depletion of Net Profits Interests.
F-23
INDEX TO EXHIBITS
-----------------
No. Description
- ---- -----------
4.1 Certificate of Limited Partnership dated February 28, 1992, for the
Geodyne Institutional/Pension Energy Income Limited Partnership P-7,
filed with the Securities and Exchange Commission on February 26, 2002,
as Exhibit 4.1 to Annual Report on Form 10K-405 for period ended
December 31, 2001 and is hereby incorporated by reference.
4.2 Agreement of Limited Partnership dated February 28, 1992, for the
Geodyne Institutional/Pension Energy Income Limited Partnership P-7,
filed with the Securities and Exchange Commission on February 26, 2002,
as Exhibit 4.2 to Annual Report on Form 10K-405 for period ended
December 31, 2001 and is hereby incorporated by reference.
4.3 First Amendment to Certificate of Limited Partnership and First
Amendment to Agreement of Limited Partnership dated February 25, 1993,
for the Geodyne Institutional/Pension Energy Income Limited Partnership
P-7, filed with the Securities and Exchange Commission on February 26,
2002, as Exhibit 4.3 to Annual Report on Form 10K-405 for period ended
December 31, 2001 and is hereby incorporated by reference.
4.4 Second Amendment to Certificate of Limited Partnership dated August 4,
1993, for the Geodyne Institutional/Pension Energy Income Limited
Partnership P-7, filed with the Securities and Exchange Commission on
February 26, 2002, as Exhibit 4.4 to Annual Report on Form 10K-405 for
period ended December 31, 2001 and is hereby incorporated by reference.
4.5 Second Amendment to Agreement of Limited Partnership dated August 4,
1993, for the Geodyne Institutional/Pension Energy Income Limited
Partnership P-7, filed with the Securities and Exchange Commission on
February 26, 2002, as Exhibit 4.5 to Annual Report on Form 10K-405 for
period ended December 31, 2001 and is hereby incorporated by reference.
4.6 Third Amendment to Agreement of Limited Partnership dated August 31,
1995, for the Geodyne Institutional/Pension Energy Income Limited
Partnership P-7, filed with the Securities and Exchange Commission on
February 26, 2002, as Exhibit 4.6 to Annual Report on Form 10K-405 for
period ended December 31, 2001 and is hereby incorporated by reference.
F-24
4.7 Fourth Amendment to Agreement of Limited Partnership dated July 1, 1996,
for the Geodyne Institutional/Pension Energy Income Limited Partnership
P-7, filed with the Securities and Exchange Commission on February 26,
2002, as Exhibit 4.7 to Annual Report on Form 10K-405 for period ended
December 31, 2001 and is hereby incorporated by reference.
4.8 Fifth Amendment to Agreement of Limited Partnership dated November 14,
2001, for the Geodyne Institutional/Pension Energy Income Limited
Partnership P-7, filed with the Securities and Exchange Commission on
February 26, 2002, as Exhibit 4.8 to Annual Report on Form 10K-405 for
period ended December 31, 2001 and is hereby incorporated by reference.
4.9 Sixth Amendment to Agreement of Limited Partnership dated January 22,
2004, for the Geodyne Institutional/Pension Energy Income Limited
Partnership P-7 filed with the Securities and Exchange Commission on
March 26, 2004, as Exhibit 4.9 to Annual Report on Form 10-K for period
ended December 31, 2003, and is hereby incorporated by reference.
4.10 Certificate of Limited Partnership dated February 28, 1992, for the
Geodyne Institutional/Pension Energy Income Limited Partnership P-8,
filed with the Securities and Exchange Commission on February 26, 2002,
as Exhibit 4.9 to Annual Report on Form 10K-405 for period ended
December 31, 2001 and is hereby incorporated by reference.
4.11 Agreement of Limited Partnership dated February 28 , 1992, for the
Geodyne Institutional/Pension Energy Income Limited Partnership P-8,
filed with the Securities and Exchange Commission on February 26, 2002,
as Exhibit 4.10 to Annual Report on Form 10K-405 for period ended
December 31, 2001 and is hereby incorporated by reference.
4.12 First Amendment to Certificate of Limited Partnership and First
Amendment to Agreement of Limited Partnership dated February 25, 1993,
for the Geodyne Institutional/Pension Energy Income Limited Partnership
P-8, filed with the Securities and Exchange Commission on February 26,
2002, as Exhibit 4.11 to Annual Report on Form 10K-405 for period ended
December 31, 2001 and is hereby incorporated by reference.
4.13 Second Amendment to Certificate of Limited Partnership dated August 4,
1993, for the Geodyne Institutional/Pension Energy Income Limited
Partnership P-8, filed with the Securities and Exchange Commission on
February 26, 2002, as Exhibit 4.12 to Annual Report on Form 10K-405 for
period ended December 31, 2001 and is hereby incorporated by reference.
F-25
4.14 Second Amendment to Agreement of Limited Partnership dated August 4,
1993, for the Geodyne Institutional/Pension Energy Income Limited
Partnership P-8, filed with the Securities and Exchange Commission on
February 26, 2002, as Exhibit 4.13 to Annual Report on Form 10K-405 for
period ended December 31, 2001 and is hereby incorporated by reference.
4.15 Third Amendment to Agreement of Limited Partnership dated August 31,
1995, for the Geodyne Institutional/Pension Energy Income Limited
Partnership P-8, filed with the Securities and Exchange Commission on
February 26, 2002, as Exhibit 4.14 to Annual Report on Form 10K-405 for
period ended December 31, 2001 and is hereby incorporated by reference.
4.16 Fourth Amendment to Agreement of Limited Partnership dated July 1, 1996,
for the Geodyne Institutional/Pension Energy Income Limited Partnership
P-8, filed with the Securities and Exchange Commission on February 26,
2002, as Exhibit 4.15 to Annual Report on Form 10K-405 for period ended
December 31, 2001 and is hereby incorporated by reference.
4.17 Fifth Amendment to Agreement of Limited Partnership dated November 14,
2001, for the Geodyne Institutional/Pension Energy Income Limited
Partnership P-8, filed with the Securities and Exchange Commission on
February 26, 2002, as Exhibit 4.16 to Annual Report on Form 10K-405 for
period ended December 31, 2001 and is hereby incorporated by reference.
4.18 Sixth Amendment to Agreement of Limited Partnership dated January 22,
2004, for the Geodyne Institutional/Pension Energy Income Limited
Partnership P-8 filed with the Securities and Exchange Commission on
March 26, 2004, as Exhibit 4.17 to Annual Report on Form 10-K for period
ended December 31, 2003, and is hereby incorporated by reference.
*23.1 Consent of Ryder Scott Company, L.P. for the Geodyne Institutional/
Pension Energy Income Limited Partnership P-7.
*23.2 Consent of Ryder Scott Company, L.P. for the Geodyne Institutional/
Pension Energy Income Limited Partnership P-8.
*31.1 Certification by Dennis R. Neill required by Rule 13a-14(a)/15d-14(a)
for the Geodyne Institutional/Pension Energy Income Limited Partnership
P-7.
*31.2 Certification by Craig D. Loseke required by Rule 13a-14(a)/15d-14(a)
for the Geodyne Institutional/Pension Energy Income Limited Partnership
P-7.
F-26
*31.3 Certification by Dennis R. Neill required by Rule 13a-14(a)/15d-14(a)
for the Geodyne Institutional/Pension Energy Income Limited Partnership
P-8.
*31.4 Certification by Craig D. Loseke required by Rule 13a-14(a)/15d-14(a)
for the Geodyne Institutional/Pension Energy Income Limited Partnership
P-8.
*32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 for the Geodyne
Institutional/Pension Energy Income Limited Partnership P-7.
*32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 for the Geodyne
Institutional/Pension Energy Income Limited Partnership P-8.
All other Exhibits are omitted as inapplicable.
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*Filed herewith.
F-27