SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2006
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
---------------------------------------------------------------------
(Exact name of Registrant as specified in its Articles)
P-7 73-1367186
Oklahoma P-8 73-1378683
---------------------------- -------------------------------
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or Number)
organization)
Two West Second Street, Tulsa, Oklahoma 74103
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(918) 583-1791
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
-1-
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act (check
one):
Large accelerated filer
--------
Accelerated filer
--------
X Non-accelerated filer
--------
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange 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.
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-7
BALANCE SHEETS
(Unaudited)
ASSETS
June 30, December 31,
2006 2005
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $1,222,755 $1,438,955
---------- ----------
Total current assets $1,222,755 $1,438,955
NET PROFITS INTERESTS, net, utilizing
the successful efforts method 5,074,127 4,826,981
---------- ----------
$6,296,882 $6,265,936
========== ==========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES:
Accounts payable:
Net Profits $ 25,810 $ 197,298
---------- ----------
Total current liabilities $ 25,810 $ 197,298
PARTNERS' CAPITAL (DEFICIT):
General Partner $ 6,106 ($ 8,941)
Limited Partners, issued and
outstanding, 188,702 units 6,264,966 6,077,579
---------- ----------
Total Partners' capital $6,271,072 $6,068,638
---------- ----------
$6,296,882 $6,265,936
========== ==========
The accompanying condensed notes are an integral part of
these financial statements.
-3-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-7
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2006 AND 2005
(Unaudited)
2006 2005
---------- --------
REVENUES:
Net Profits $1,162,885 $865,786
Interest income 8,201 4,448
---------- --------
$1,171,086 $870,234
COSTS AND EXPENSES:
Depletion of Net Profits
Interests $ 63,667 $ 63,403
General and administrative
(Note 2) 52,760 52,857
---------- --------
$ 116,427 $116,260
---------- --------
NET INCOME $1,054,659 $753,974
========== ========
GENERAL PARTNER - NET INCOME $ 110,376 $ 80,659
========== ========
LIMITED PARTNERS - NET INCOME $ 944,283 $673,315
========== ========
NET INCOME per unit $ 5.00 $ 3.57
========== ========
UNITS OUTSTANDING 188,702 188,702
========== ========
The accompanying condensed notes are an integral part of
these financial statements.
-4-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-7
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(Unaudited)
2006 2005
---------- ----------
REVENUES:
Net Profits $2,246,473 $1,743,370
Interest income 18,435 8,673
---------- ----------
$2,264,908 $1,752,043
COSTS AND EXPENSES:
Depletion of Net Profits
Interests $ 144,029 $ 115,328
General and administrative
(Note 2) 129,205 126,948
---------- ----------
$ 273,234 $ 242,276
---------- ----------
NET INCOME $1,991,674 $1,509,767
========== ==========
GENERAL PARTNER - NET INCOME $ 210,287 $ 160,489
========== ==========
LIMITED PARTNERS - NET INCOME $1,781,387 $1,349,278
========== ==========
NET INCOME per unit $ 9.44 $ 7.15
========== ==========
UNITS OUTSTANDING 188,702 188,702
========== ==========
The accompanying condensed notes are an integral part of
these financial statements.
-5-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-7
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(Unaudited)
2006 2005
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,991,674 $1,509,767
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depletion of Net Profits
Interests 144,029 115,328
Settlement of asset retirement
obligation ( 261) -
Net change in accounts receivable/
accounts payable - Net Profits ( 149,176) ( 236,917)
---------- ----------
Net cash provided by operating
activities $1,986,266 $1,388,178
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ($ 413,226) ($ 605,711)
---------- ----------
Net cash used by investing
activities ($ 413,226) ($ 605,711)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions ($1,789,240) ($ 985,050)
---------- ----------
Net cash used by financing
activities ($1,789,240) ($ 985,050)
---------- ----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS ($ 216,200) ($ 202,583)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,438,955 1,158,634
---------- ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $1,222,755 $ 956,051
========== ==========
The accompanying condensed notes are an integral part of
these financial statements.
-6-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-8
BALANCE SHEETS
(Unaudited)
ASSETS
June 30, December 31,
2006 2005
---------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 795,526 $ 925,925
---------- ----------
Total current assets $ 795,526 $ 925,925
NET PROFITS INTERESTS, net, utilizing
the successful efforts method 3,075,120 2,930,942
---------- ----------
$3,870,646 $3,856,867
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable:
Net Profits $ 72,059 $ 133,524
---------- ----------
Total current liabilities $ 72,059 $ 133,524
PARTNERS' CAPITAL:
General Partner $ 14,335 $ 9,941
Limited Partners, issued and
outstanding, 116,168 units 3,784,252 3,713,402
---------- ----------
Total Partners' capital $3,798,587 $3,723,343
---------- ----------
$3,870,646 $3,856,867
========== ==========
The accompanying condensed notes are an integral part of
these financial statements.
-7-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-8
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2006 AND 2005
(Unaudited)
2006 2005
-------- --------
REVENUES:
Net Profits $730,882 $548,755
Interest income 5,559 2,813
-------- --------
$736,441 $551,568
COSTS AND EXPENSES:
Depletion of Net Profits
Interests $ 39,029 $ 37,260
General and administrative
(Note 2) 32,858 33,023
-------- --------
$ 71,887 $ 70,283
-------- --------
NET INCOME $664,554 $481,285
======== ========
GENERAL PARTNER - NET INCOME $ 69,412 $ 51,200
======== ========
LIMITED PARTNERS - NET INCOME $595,142 $430,085
======== ========
NET INCOME per unit $ 5.12 $ 3.70
======== ========
UNITS OUTSTANDING 116,168 116,168
======== ========
The accompanying condensed notes are an integral part of
these financial statements.
-8-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-8
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(Unaudited)
2006 2005
---------- ----------
REVENUES:
Net Profits $1,405,651 $1,078,139
Interest income 12,198 5,497
---------- ----------
$1,417,849 $1,083,636
COSTS AND EXPENSES:
Depletion of Net Profits
Interests $ 87,133 $ 68,278
General and administrative
(Note 2) 89,080 87,049
---------- ----------
$ 176,213 $ 155,327
---------- ----------
NET INCOME $1,241,636 $ 928,309
========== ==========
GENERAL PARTNER - NET INCOME $ 130,786 $ 98,426
========== ==========
LIMITED PARTNERS - NET INCOME $1,110,850 $ 829,883
========== ==========
NET INCOME per unit $ 9.56 $ 7.14
========== ==========
UNITS OUTSTANDING 116,168 116,168
========== ==========
The accompanying condensed notes are an integral part of
these financial statements.
-9-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-8
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005
(Unaudited)
2006 2005
------------ ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,241,636 $928,309
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depletion of Net Profits
Interests 87,133 68,278
Settlement of asset retirement
obligation ( 161) -
Net change in accounts receivable/
accounts payable - Net Profits ( 51,751) ( 129,534)
---------- --------
Net cash provided by operating
activities $1,276,857 $867,053
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ($ 240,864) ($349,923)
---------- --------
Net cash used by investing
activities ($ 240,864) ($349,923)
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions ($1,166,392) ($636,959)
---------- --------
Net cash used by financing
activities ($1,166,392) ($636,959)
---------- --------
NET DECREASE IN CASH AND CASH
EQUIVALENTS ($ 130,399) ($119,829)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 925,925 745,323
---------- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 795,526 $625,494
========== ========
The accompanying condensed notes are an integral part of
these financial statements.
-10-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME PROGRAM II LIMITED PARTNERSHIPS
CONDENSED NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2006
(Unaudited)
1. ACCOUNTING POLICIES
-------------------
The balance sheets as of June 30, 2006, statements of operations for the
three and six months ended June 30, 2006 and 2005, and statements of cash
flows for the six months ended June 30, 2006 and 2005 have been prepared
by Geodyne Resources, Inc., the General Partner (the "General Partner") of
the Geodyne Institutional/Pension Energy Income Program II Limited
Partnerships (individually, the "P-7 Partnership" or the "P-8
Partnership", as the case may be, or, collectively, the "Partnerships"),
without audit. In the opinion of management the financial statements
referred to above include all necessary adjustments, consisting of normal
recurring adjustments, to present fairly the financial position at June
30, 2006, the results of operations for the three and six months ended
June 30, 2006 and 2005, and the cash flows for the six months ended June
30, 2006 and 2005.
Information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The accompanying interim
financial statements should be read in conjunction with the Partnerships'
Annual Report on Form 10-K filed for the year ended December 31, 2005. The
results of operations for the period ended June 30, 2006 are not
necessarily indicative of the results to be expected for the full year.
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 working
interests from which the Partnerships' Net Profits Interests are carved
are referred to as "Working Interests".
The Limited Partners' net income or loss per unit is based upon each $100
initial capital contribution.
-11-
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. Property acquisition costs
include costs incurred by the Partnerships or the General Partner to
acquire a net profits interest or other non-operating interest in
producing properties, 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 acquisition cost to
the Partnerships of Net Profits Interests acquired by the General Partner
is adjusted to reflect the net cash results of operations, including
interest incurred to finance the acquisition, for the period of time the
properties are held by the General Partner prior to their transfer to the
Partnerships.
Depletion of the costs of Net Profits Interests is computed on the
unit-of-production method. The Partnerships' calculation of depletion of
its Net Profits Interests includes estimated dismantlement and abandonment
costs and estimated salvage value of the equipment.
The Partnerships do not directly bear capital costs. However, the
Partnerships indirectly bear certain capital costs incurred by the owners
of the Working Interests 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 only, such
capital costs are reported as capital expenditures in the Partnerships'
Statements of Cash Flows.
ASSET RETIREMENT OBLIGATIONS
----------------------------
The Partnerships' wells must be properly plugged and abandoned after their
oil and gas reserves are exhausted. The Partnerships follow FAS No. 143,
"Accounting for Asset Retirement Obligations" in accounting for the future
expenditures that will be necessary to plug and abandon these wells. FAS
No. 143 requires the estimated plugging and abandonment obligations to be
(i) recognized in the period in which they are incurred (i.e. when the
well is drilled or acquired) if a reasonable estimate of fair value can be
made and (ii) capitalized as part of the carrying amount of the well.
Estimated abandonment dates will be revised based on changes to related
economic lives, which vary with product prices and production costs.
Estimated plugging costs may also be adjusted to reflect changing industry
experience. During the year ended December 31, 2005, the Partnerships'
asset retirement obligations were revised upward due to increases in both
labor and rig costs
-12-
associated with plugging wells. Cash flows will not be affected until
wells are actually plugged and abandoned.
The asset retirement obligation is adjusted upwards each quarter in order
to recognize accretion of the time-related discount factor. For the six
months ended June 30, 2006, the P-7 and P-8 Partnerships recognized
$31,000 and $23,000, 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 three
and six months ended June 30, 2006 and 2005 are as shown below.
P-7 Partnership
---------------
Three Months Three Months
Ended Ended
6/30/2006 6/30/2005
------------ ------------
Total Asset Retirement
Obligation, April 1 $673,466 $334,805
Revisions 54,936 -
Settlements and disposals ( 261) -
Accretion expense 9,925 3,867
-------- --------
Total Asset Retirement
Obligation, End of Quarter $738,066 $338,672
======== ========
Six Months Six Months
Ended Ended
6/30/2006 6/30/2005
------------ ------------
Total Asset Retirement
Obligation, January 1 $664,885 $326,907
Additions - 4,033
Revisions 54,936 -
Settlements and disposals ( 261) -
Accretion expense 18,506 7,732
-------- --------
Total Asset Retirement
Obligation, End of Period $738,066 $338,672
======== ========
-13-
P-8 Partnership
---------------
Three Months Three Months
Ended Ended
6/30/2006 6/30/2005
------------ ------------
Total Asset Retirement
Obligation, April 1 $496,880 $245,288
Additions - 268
Revisions 33,853 -
Settlements and disposals ( 161) -
Accretion expense 7,205 2,887
-------- --------
Total Asset Retirement
Obligation, End of Quarter $537,777 $248,443
======== ========
Six Months Six Months
Ended Ended
6/30/2006 6/30/2005
------------ ------------
Total Asset Retirement
Obligation, January 1 $490,496 $239,986
Additions - 2,697
Revisions 33,853 -
Settlements and disposals ( 161) -
Accretion expense 13,589 5,760
-------- --------
Total Asset Retirement
Obligation, End of Period $537,777 $248,443
======== ========
2. TRANSACTIONS WITH RELATED PARTIES
---------------------------------
The Partnerships' partnership agreements (the "Partnership Agreements")
provide for reimbursement to the General Partner for all direct general
and administrative expenses and for the general and administrative
overhead applicable to the Partnerships based on an allocation of actual
costs incurred. During the three months ended June 30, 2006, the following
payments were made to the General Partner or its affiliates by the
Partnerships:
Direct General Administrative
Partnership and Administrative Overhead
----------- ------------------- ---------------
P-7 $ 3,101 $49,659
P-8 2,288 30,570
-14-
During the six months ended June 30, 2006, the following payments were
made to the General Partner or its affiliates by the Partnerships:
Direct General Administrative
Partnership and Administrative Overhead
----------- ------------------- ---------------
P-7 $29,887 $99,318
P-8 27,940 61,140
Affiliates of the Partnerships operate certain of the Partnerships'
properties and their policy is to bill the Partnerships for all customary
charges and cost reimbursements associated with their activities.
-15-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
USE OF FORWARD-LOOKING STATEMENTS AND ESTIMATES
- -----------------------------------------------
This Quarterly 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
Quarterly 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, and otherwise indicated.
GENERAL
- -------
The Partnerships were formed for the purpose of acquiring Net Profits
Interests located in the continental United States. In general, each
Partnership acquired passive interests in producing properties and does
not directly engage in development drilling or enhanced recovery projects.
Therefore, the economic life of each Partnership is limited to the period
of time required to fully produce its acquired oil and gas reserves. A Net
Profits Interest entitles the Partnerships to a portion of the oil and gas
sales less operating and production expenses and development costs
generated by the owner of the underlying Working Interests. The net
proceeds from the oil and gas operations are distributed to the Limited
Partners and General Partner in accordance with the terms of the
Partnership Agreements.
-16-
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Partnerships began operations and investors were assigned their rights
as Limited Partners, having made capital contributions in the amounts and
on the dates set forth below:
Limited
Date of Partner Capital
Partnership Activation Contributions
----------- ------------------ ---------------
P-7 February 28, 1992 $18,870,200
P-8 February 28, 1992 11,616,800
In general, the amount of funds available for acquisition of producing
properties was equal to the capital contributions of the Limited Partners,
less 15% for sales commissions and organization and management fees. All
of the Partnerships have fully invested their capital contributions.
Net proceeds from the Partnerships' Net Profits Interests less necessary
operating capital are distributed to the Limited Partners on a quarterly
basis. Revenues and net proceeds of a Partnership are largely dependent
upon the volumes of oil and gas sold and the prices received for such oil
and gas. While the General Partner cannot predict future pricing trends,
it believes the working capital available as of June 30, 2006 and the net
revenue generated from future operations will provide sufficient working
capital to meet current and future obligations.
Occasional expenditures by the Affiliated Programs for new wells, well
recompletions, or workovers may reduce or eliminate cash available for a
particular quarterly cash distribution. During the six months ended June
30, 2006, capital expenditures affecting the P-7 and P-8 Partnerships' Net
Profits Interests totaled $318,000 and $184,000, respectively. These costs
were indirectly incurred primarily as a result of (i) drilling activities
on a large unitized property, the Robertson North Unit located in Gaines
County, Texas and (ii) recompletion activities on the Fed 11-20S-34E #2
well located in Lea County, New Mexico. As of the date of this Quarterly
Report, these activities are still in progress.
During the six months ended June 30, 2005, capital expenditures affecting
the P-7 and P-8 Partnerships' Net Profits Interests totaled $485,000 and
$274,000, respectively. These costs were indirectly incurred primarily as
a result of (i) drilling activities on a large unitized property, the
Robertson North Unit described above and (ii) recompletion activities on
the Fed. 11-20S-34E #3 well located in Lea County, New Mexico.
-17-
Any other capital expenditures incurred by the Partnerships during the six
months ended June 30, 2006 and 2005 were not significant to the
Partnerships' cash flows.
Pursuant to the terms of the Partnership Agreements, the Partnerships were
scheduled to terminate on February 28, 2002. However, the Partnership
Agreements provide that 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 third extension
thereby extending their termination date to December 31, 2007. As of the
date of this Quarterly Report, the General Partner has not determined
whether it will further extend the term of either Partnership.
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
unit-of-production method. The Partnerships' calculation of depletion of
their Net Profits Interests includes estimated dismantlement and
abandonment costs and estimated salvage value of the equipment.
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
cost 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 estimated discounted future cash flows from the
Net Profits Interest.
-18-
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 share of estimated total gas reserves
attributable to the underlying property, 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.
Included in accounts receivable (payable) - Net Profits are 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. Also included in
accounts receivable (payable) - Net Profits is the asset retirement
obligation described below.
ASSET RETIREMENT OBLIGATIONS
- ----------------------------
The Partnerships' wells must be properly plugged and abandoned after their
oil and gas reserves are exhausted. The Partnerships follow FAS No. 143,
"Accounting for Asset Retirement Obligations" in accounting for the future
expenditures that will be necessary to plug and abandon these wells. FAS
No. 143 requires the estimated plugging and abandonment obligations to be
(i) recognized in the period in which they are incurred (i.e. when the
well is drilled or acquired) if a reasonable estimate of fair value can be
made and (ii) capitalized as part of the carrying amount of the well.
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
The Partnerships are not aware of any recently issued accounting
pronouncements that will impact the Partnerships' future results of
operations and financial position.
-19-
PROVED RESERVES AND NET PRESENT VALUE
- -------------------------------------
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 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.
The following tables summarize changes in net quantities of the
Partnerships' proved reserves, 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, and are
annually reviewed by an independent engineering firm. "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. The following
information includes certain gas balancing adjustments which cause the gas
volumes to differ from the reserve reports prepared by the General
Partner.
-20-
P-7 Partnership
---------------
Crude Natural
Oil Gas
(Barrels) (Mcf)
----------- ------------
Proved reserves, Dec. 31, 2005 1,635,489 5,883,535
Production ( 17,511) ( 80,798)
Extensions and discoveries 13,399 7,198
Revisions of previous
estimates 1,085 ( 66,983)
--------- ---------
Proved reserves, March 31, 2006 1,632,462 5,742,952
Production ( 16,651) ( 79,335)
Extensions and discoveries 29,022 21,892
Revisions of previous
estimates ( 38,939) ( 135,916)
--------- ---------
Proved reserves, June 30, 2006 1,605,894 5,549,593
========= =========
P-8 Partnership
---------------
Crude Natural
Oil Gas
(Barrels) (Mcf)
---------- -----------
Proved reserves, Dec. 31, 2005 977,087 3,752,229
Production ( 10,530) ( 55,497)
Extensions and discoveries 8,459 4,556
Revisions of previous
estimates 13 ( 54,016)
------- ---------
Proved reserves, March 31, 2006 975,029 3,647,272
Production ( 9,941) ( 53,208)
Extensions and discoveries 17,626 11,519
Revisions of previous
estimates ( 25,310) ( 65,662)
------- ---------
Proved reserves, June 30, 2006 957,404 3,539,921
======= =========
-21-
The net present value of the Partnerships' reserves may change
dramatically as oil and gas prices change or as volumes change for the
reasons described above. 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.
The following table indicates the estimated net present value of the
Partnerships' proved reserves as of June 30, 2006, March 31, 2006, and
December 31, 2005. Net present value attributable to the Partnerships'
proved reserves was calculated on the basis of current costs and prices as
of the date of estimation. Such prices were not escalated except in
certain circumstances where escalations were fixed and readily
determinable in accordance with applicable contract provisions. The table
also indicates the oil and gas prices in effect on the dates corresponding
to the reserve valuations. Changes in oil and gas prices cause the
estimates of remaining economically recoverable reserves, as well as the
values placed on said reserves, to fluctuate. 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 June 30, 2006. There can be no assurance that the
prices used in calculating the net present value of the Partnerships'
proved reserves at June 30, 2006 will actually be realized for such
production.
Net Present Value of Reserves
---------------------------------------------
Partnership 6/30/06 3/31/06 12/31/05
----------- ----------- ----------- -----------
P-7 $33,128,913 $31,962,444 $34,146,848
P-8 20,204,131 19,626,079 21,333,357
Oil and Gas Prices
---------------------------------------------
Pricing 6/30/06 3/31/06 12/31/05
----------- ----------- ----------- -----------
Oil (Bbl) $ 73.94 $ 66.25 $ 61.06
Gas (Mcf) 6.09 7.18 10.08
RESULTS OF OPERATIONS
- ---------------------
GENERAL DISCUSSION
The following general discussion should be read in conjunction with the
analysis of results of operations provided below.
-22-
The primary source of liquidity and Partnership cash distributions comes
from the net revenues generated from the sale of oil and gas. 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 are very volatile.
Additionally, lower 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 to 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 and the impact of weather-related events;
* The availability of pipelines for transportation;
* Domestic and foreign government regulations and taxes; and
* Market expectations.
It is not possible to predict the future direction of oil or natural gas
prices or whether the above discussed trends will continue. Operating
costs, including General and Administrative Expenses, may not decline over
time, may increase, or may experience only a gradual decline, thus
adversely affecting net revenues. Net revenues may also be affected by
proceeds from property sales or additional costs resulting from well
workovers, recompletions, new well drilling, and other events.
In addition to pricing, 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. Despite this general
trend of declining production, several factors can cause volumes sold to
increase, remain relatively constant, or decrease at an even greater rate
over a given period. These factors include, but are not limited to:
-23-
* Geophysical conditions which cause an acceleration of the
decline in production;
* The shutting-in of wells due to low oil and gas prices (or the
opening of previously shut-in wells due to high oil and gas
prices), mechanical difficulties, loss of a
market/transportation, or performance of workovers,
recompletions, or other operations in the well;
* Prior period volume adjustments made by the operators of
the properties;
* Adjustments in ownership or rights to production (such as
adjustments that occur at payout or due to gas balancing);
and
* Completion of enhanced recovery projects which increase
production for the well.
Many of these factors can be very significant for a single well or for
many wells over a short period of time. Due to the large number of wells
owned by the Partnerships, these factors are generally not material as
compared to the normal declines in production experienced on all remaining
wells.
P-7 PARTNERSHIP
THREE MONTHS ENDED JUNE 30, 2006 COMPARED TO THE THREE MONTHS ENDED JUNE
30, 2005.
Three Months Ended June 30,
---------------------------
2006 2005
---------- --------
Net Profits $1,162,885 $865,786
Barrels produced 16,651 18,453
Mcf produced 79,335 72,165
Average price/Bbl $ 62.06 $ 47.12
Average price/Mcf $ 5.40 $ 5.76
As shown in the table above, total Net Profits increased $297,000 (34.3%)
for the three months ended June 30, 2006 as compared to the three months
ended June 30, 2005. Of this increase (i) $249,000 was related to an
increase in the average price of oil sold, (ii) $120,000 was related to a
decrease in production expenses, and (iii) $41,000 was related to an
increase in volumes of gas sold. These increases were partially offset by
decreases of (i) $85,000 related to a decrease in volumes of oil sold and
(ii) $28,000 related to a decrease in the average price of gas sold.
Volumes of oil sold decreased 1,802 barrels, while volumes of gas sold
increased 7,170 Mcf for the three months ended June 30, 2006 as compared
to the three months ended June 30, 2005. The decrease in volumes of oil
sold was primarily due to normal declines in production. The increase in
volumes of gas sold was primarily due to increases in production on
several wells following their successful workovers during
-24-
mid to late 2005, which increases were partially offset by normal declines
in production.
The decrease in production expenses was primarily due to workover expenses
incurred on several wells during the three months ended June 30, 2005.
This decrease was partially offset by (i) workover expenses incurred on
several other wells during the three months ended June 30, 2006 and (ii)
an increase in production taxes associated with the increase in oil and
gas sales.
Depletion of Net Profits Interests remained relatively constant for the
three months ended June 30, 2006 and 2005. This depletion increased (i)
$5,000 due to additional accretion as a result of the upward revision in
the estimate of the asset retirement obligations during late 2005 and (ii)
$4,000 due to the depletion of additional Net Profits Interests as a
result of the revision in the asset retirement obligations and an increase
in depletable Net Profits Interests during the three months ended June 30,
2006 primarily due to the recompletion of one significant well. However,
these increases were substantially offset by (i) two significant wells
being fully depleted during the three months ended June 30, 2005 due to
the lack of remaining reserves and (ii) the decrease in volumes of oil
sold. As a percentage of Net Profits, this expense decreased to 5.5% for
the three months ended June 30, 2006 from 7.3% for the three months ended
June 30, 2005, primarily due to the increase in the average price of oil
sold.
General and administrative expenses remained relatively constant for the
three months ended June 30, 2006 and 2005. As a percentage of Net Profits,
these expenses decreased to 4.5% for the three months ended June 30, 2006
from 6.1% for the three months ended June 30, 2005, primarily due to the
increase in Net Profits.
SIX MONTHS ENDED JUNE 30, 2006 COMPARED TO THE SIX MONTHS ENDED JUNE 30,
2005.
Six Months Ended June 30,
---------------------------
2006 2005
---------- ----------
Net Profits $2,246,473 $1,743,370
Barrels produced 34,162 36,898
Mcf produced 160,133 163,017
Average price/Bbl $ 59.84 $ 46.86
Average price/Mcf $ 5.57 $ 5.47
As shown in the table above, total Net Profits increased $503,000 (28.9%)
for the six months ended June 30, 2006 as compared to the six months ended
June 30, 2005. Of this increase (i) $443,000 was related to an increase in
the average price of oil sold and (ii) $187,000 was related to a decrease
in production expenses. These increases were
-25-
partially offset by decreases of $128,000 and $16,000 related to
decreases in volumes of oil and gas sold.
Volumes of oil and gas sold decreased 2,736 barrels and 2,884 Mcf for the
six months ended June 30, 2006 as compared to the six months ended June
30, 2005. The decrease in volumes of oil sold was primarily due to normal
declines in production. The decrease in volumes of gas sold was primarily
due to normal declines in production, which decrease was partially offset
by increases in production on several wells following their successful
workovers during mid to late 2005.
The decrease in production expenses was primarily due to workover expenses
incurred on several wells during the six months ended June 30, 2005. This
decrease was partially offset by (i) workover expenses incurred on several
other wells during the six months ended June 30, 2006 and (ii) an increase
in production taxes associated with the increase in oil and gas sales.
Depletion of Net Profits Interests increased $29,000 (24.9%) for the six
months ended June 30, 2006 as compared to the six months ended June 30,
2005. This increase was primarily due to an increase in depletable Net
Profits Interests during the six months ended June 30, 2006 primarily due
to the recompletion of one significant well. Other contributing factors to
the increase were (i) $9,000 due to the depletion of additional Net
Profits Interests as a result of the upward revision in the estimate of
the asset retirement obligations during late 2005 and (ii) $9,000 due to
the accretion of these additional asset retirement obligations. These
increases were partially offset by (i) two significant wells being fully
depleted during the six months ended June 30, 2005 due to the lack of
remaining reserves and (ii) the decreases in volumes of oil and gas sold.
As a percentage of Net Profits, this expense decreased to 6.4% for the six
months ended June 30, 2006 from 6.6% for the six months ended June 30,
2005.
General and administrative expenses increased $2,000 (1.8%) for the six
months ended June 30, 2006 as compared to the six months ended June 30,
2005. As a percentage of Net Profits, these expenses decreased to 5.8% for
the six months ended June 30, 2006 from 7.3% for the six months ended June
30, 2005, primarily due to the increase in Net Profits.
Cumulative cash distributions to the Limited Partners through June 30,
2006 were $23,182,916 or 122.85% of Limited Partners' capital
contributions.
-26-
P-8 PARTNERSHIP
THREE MONTHS ENDED JUNE 30, 2006 COMPARED TO THE THREE MONTHS ENDED JUNE
30, 2005.
Three Months Ended June 30,
---------------------------
2006 2005
-------- --------
Net Profits $730,882 $548,755
Barrels produced 9,941 11,087
Mcf produced 53,208 52,992
Average price/Bbl $ 61.99 $ 46.96
Average price/Mcf $ 5.55 $ 5.65
As shown in the table above, total Net Profits increased $182,000 (33.2%)
for the three months ended June 30, 2006 as compared to the three months
ended June 30, 2005. Of this increase (i) $149,000 was related to an
increase in the average price of oil sold and (ii) $91,000 was related to
a decrease in production expenses. These increases were partially offset
by a decrease of $54,000 related to a decrease in volumes of oil sold.
Volumes of oil sold decreased 1,146 barrels, while volumes of gas sold
increased 216 Mcf for the three months ended June 30, 2006 as compared to
the three months ended June 30, 2005. The decrease in volumes of oil sold
was primarily due to normal declines in production. The increase in
volumes of gas sold was primarily due to increases in production on
several wells following their successful workovers during mid to late
2005, which increases were substantially offset by normal declines in
production.
The decrease in production expenses was primarily due to workover expenses
incurred on several wells during the three months ended June 30, 2005.
This decrease was partially offset by (i) workover expenses incurred on
several other wells during the three months ended June 30, 2006 and (ii)
an increase in production taxes associated with the increase in oil and
gas sales.
Depletion of Net Profits Interests increased $2,000 (4.7%) for the three
months ended June 30, 2006 as compared to the three months ended June 30,
2005. Of this increase (i) $4,000 was due to additional accretion as a
result of the upward revision in the estimate of the asset retirement
obligations during late 2005 and (ii) $3,000 was due to the depletion of
additional Net Profits Interests as a result of the revision in the asset
retirement obligations. Another contributing factor to the increase was an
increase in depletable Net Profits Interests during the three months ended
June 30, 2006 primarily due to the recompletion of one significant well.
These increases were partially offset by (i) two significant wells being
fully depleted during the three months ended June 30, 2005 due to the lack
of remaining reserves and (ii) the decrease in volumes of oil
-27-
sold. As a percentage of Net Profits, this expense decreased to 5.3% for
the three months ended June 30, 2006 from 6.8% for the three months ended
June 30, 2005, primarily due to the increase in the average price of oil
sold.
General and administrative expenses remained relatively constant for the
three months ended June 30, 2006 and 2005. As a percentage of Net Profits,
these expenses decreased to 4.5% for the three months ended June 30, 2006
from 6.0% for the three months ended June 30, 2005, primarily due to the
increase in Net Profits.
SIX MONTHS ENDED JUNE 30, 2006 COMPARED TO THE SIX MONTHS ENDED JUNE 30,
2005.
Six Months Ended June 30,
-------------------------
2006 2005
---------- ----------
Net Profits $1,405,651 $1,078,139
Barrels produced 20,471 21,686
Mcf produced 108,705 110,186
Average price/Bbl $ 59.71 $ 46.85
Average price/Mcf $ 5.75 $ 5.57
As shown in the table above, total Net Profits increased $328,000 (30.4%)
for the six months ended June 30, 2006 as compared to the six months ended
June 30, 2005. Of this increase (i) $263,000 was related to an increase in
the average price of oil sold and (ii) $110,000 was related to a decrease
in production expenses. These increases were partially offset by decreases
of $57,000 and $8,000 related to decreases in volumes of oil and gas sold.
Volumes of oil and gas sold decreased 1,215 barrels and 1,481 Mcf for the
six months ended June 30, 2006 as compared to the six months ended June
30, 2005. The decrease in volumes of oil sold was primarily due to normal
declines in production, which decrease was partially offset by a negative
prior period volume adjustment made by the operator on one significant
well during the six months ended June 30, 2005. The decrease in volumes of
gas sold was primarily due to normal declines in production. This decrease
was partially offset by (i) increases in production on several wells
following their successful workovers during mid to late 2005 and (ii) a
negative prior period volume adjustment made by the operator on another
significant well during the six months ended June 30, 2005.
The decrease in production expenses was primarily due to workover expenses
incurred on several wells during the six months ended June 30, 2005. This
decrease was partially offset by (i) workover expenses incurred on several
other wells during the six months ended June 30, 2006 and (ii) an increase
in production taxes associated with the increase in oil and gas sales.
-28-
Depletion of Net Profits Interests increased $19,000 (27.6%) for the six
months ended June 30, 2006 as compared to the six months ended June 30,
2005. This increase was primarily due to an increase in depletable Net
Profits Interests during the six months ended June 30, 2006 primarily due
to the recompletion of one significant well. Other contributing factors to
the increase were (i) $7,000 due to the depletion of additional Net
Profits Interests as a result of the upward revision in the estimate of
the asset retirement obligations during late 2005 and (ii) $7,000 due to
the accretion of these additional asset retirement obligations. These
increases were partially offset by (i) two significant wells being fully
depleted during the six months ended June 30, 2005 due to the lack of
remaining reserves and (ii) the decreases in volumes of oil and gas sold.
As a percentage of Net Profits, this expense decreased to 6.2% for the six
months ended June 30, 2006 from 6.3% for the six months ended June 30,
2005.
General and administrative expenses increased $2,000 (2.3%) for the six
months ended June 30, 2006 as compared to the six months ended June 30,
2005. As a percentage of Net Profits, these expenses decreased to 6.3% for
the six months ended June 30, 2006 from 8.1% for the six months ended June
30, 2005, primarily due to the increase in Net Profits.
Cumulative cash distributions to the Limited Partners through June 30,
2006 were $15,480,583 or 133.26% of Limited Partners' capital
contributions.
-29-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Partnerships do not hold any market risk sensitive instruments.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of this 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' 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.
-30-
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
31.1 Certification by Dennis R. Neill required by Rule
13a-14(a)/15d-14(a) for the P-7 Partnership.
31.2 Certification by Craig D. Loseke required by Rule
13a-14(a)/15d-14(a) for the P-7 Partnership.
31.3 Certification by Dennis R. Neill required by Rule
13a-14(a)/15d-14(a) for the P-8 Partnership.
31.4 Certification by Craig D. Loseke required by Rule
13a-14(a)/15d-14(a) for the P-8 Partnership.
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
P-7 Partnership.
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
P-8 Partnership.
-31-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-7
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-8
(Registrant)
BY: GEODYNE RESOURCES, INC.
General Partner
Date: August 14, 2006 By: /s/Dennis R. Neill
--------------------------------
(Signature)
Dennis R. Neill
President
Date: August 14, 2006 By: /s/Craig D. Loseke
--------------------------------
(Signature)
Craig D. Loseke
Chief Accounting Officer
-32-
INDEX TO EXHIBITS
-----------------
Exh.
No. Exhibit
- ---- -------
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.
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.
-33-