FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2007
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 Charter)
P-7 73-1367186
Oklahoma P-8 73-1378683
---------------------------- -------------------------------
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or No.)
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
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-7
STATEMENT OF NET ASSETS OF PARTNERSHIP IN LIQUIDATION
(Unaudited)
MARCH 31,
2007
-----------
NET ASSETS OF PARTNERSHIP IN LIQUIDATION,
at fair value $19,194,213
===========
PARTNERS' CAPITAL:
General Partner $ 1,481,134
Limited Partners, issued and
outstanding, 188,702 units 17,713,079
-----------
Total Partners' capital $19,194,213
===========
The accompanying condensed notes are an integral part of these
unaudited financial statements.
-3-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-7
STATEMENT OF CHANGES IN NET ASSETS OF PARTNERSHIP
IN LIQUIDATION
(Unaudited)
PERIOD FROM
FEBRUARY 5,
TO MARCH 31,
2007
------------
Total Partners' capital at February 4, 2007 5,677,609
Adjust assets to fair value, net of
estimated selling costs 13,526,705
Partners' distributions from February 5, 2007
to March 31, 2007 ( 519,858)
Revenues from February 5, 2007 to March 31, 2007 579,627
Operating expenses incurred from
February 5, 2007 to March 31, 2007 ( 69,870)
-----------
Net assets of partnership in liquidation
at March 31, 2007 $19,194,213
===========
The accompanying condensed notes are an integral part of these
unaudited financial statements.
-4-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-7
BALANCE SHEET
(GOING CONCERN BASIS)
(Unaudited)
ASSETS
DECEMBER 31,
2006
------------
CURRENT ASSETS:
Cash and cash equivalents $ 934,103
Assets held for sale (Note 3) 3,060,721
----------
Total current assets $3,994,824
NET PROFITS INTERESTS, net, utilizing
the successful efforts method 1,712,781
----------
$5,707,605
==========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES:
Accounts payable:
Net Profits $ 195,808
----------
Total current liabilities $ 195,808
PARTNERS' CAPITAL (DEFICIT):
General Partner ($ 49,973)
Limited Partners, issued and
outstanding, 188,702 units 5,561,770
----------
Total Partners' capital $5,511,797
----------
$5,707,605
==========
The accompanying condensed notes are an integral part of these
unaudited financial statements.
-5-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-7
STATEMENTS OF OPERATIONS
(GOING CONCERN BASIS)
(Unaudited)
PERIOD FROM THREE MONTHS
JANUARY 1, TO ENDED
FEBRUARY 4, MARCH 31,
2007 2006
------------- ------------
REVENUES:
Net Profits $ 84,930 $645,282
Interest income 2,508 10,234
-------- --------
$ 87,438 $655,516
COSTS AND EXPENSES:
Depletion of Net Profits
Interests $ 13,193 $ 49,224
General and administrative
(Note 2) 19,632 76,445
-------- --------
$ 32,825 $125,669
-------- --------
INCOME FROM CONTINUING OPERATIONS $ 54,613 $529,847
DISCONTINUED OPERATIONS:
Income from discontinued operations
(Note 3) 136,032 407,168
-------- --------
NET INCOME $190,645 $937,015
======== ========
GENERAL PARTNER:
Net income from continuing
operations $ 6,398 $ 56,391
Net income from discontinued
operations 13,763 43,519
-------- --------
NET INCOME $ 20,161 $ 99,910
======== ========
-6-
LIMITED PARTNERS:
Net income from continuing
operations $ 48,215 $473,456
Net income from discontinued
operations 122,269 363,649
-------- --------
NET INCOME $170,484 $837,105
======== ========
NET INCOME FROM CONTINUING
OPERATIONS PER UNIT $ 0.26 $ 2.51
NET INCOME FROM DISCONTINUED
OPERATIONS PER UNIT 0.65 1.93
-------- --------
NET INCOME PER UNIT $ 0.91 $ 4.44
======== ========
UNITS OUTSTANDING 188,702 188,702
The accompanying condensed notes are an integral part of these
unaudited financial statements.
-7-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-7
STATEMENTS OF CASH FLOWS
(GOING CONCERN BASIS)
(Unaudited)
PERIOD FROM THREE MONTHS
JANUARY 1, TO ENDED
FEBRUARY 4, MARCH 31,
2007 2006
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 190,645 $ 937,015
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depletion of Net Profits
interests 14,972 80,362
Settlement of asset retirement
obligation ( 5,177) -
Net change in accounts receivable/
accounts payable - Net
Profits 33,229 (26,664)
---------- ----------
Net cash provided by operating
activities $ 233,669 $990,713
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ($ 44,552) ($270,154)
---------- ----------
Net cash used by investing
activities ($ 44,552) ($270,154)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions ($ 24,833) ($978,328)
---------- ----------
Net cash used by financing
activities ($ 24,833) ($978,328)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ 164,284 ($257,769)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 934,103 1,438,955
---------- ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $1,098,387 $1,181,186
========== ==========
The accompanying condensed notes are an integral part of these
unaudited financial statements.
-8-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-8
STATEMENT OF NET ASSETS OF PARTNERSHIP IN LIQUIDATION
(Unaudited)
MARCH 31,
2007
-----------
NET ASSETS OF PARTNERSHIP IN LIQUIDATION,
at fair value $12,132,034
===========
PARTNERS' CAPITAL:
General Partner $ 948,302
Limited Partners, issued and
outstanding, 116,168 units 11,183,732
-----------
Total Partners' capital $12,132,034
===========
The accompanying condensed notes are an integral part of these
unaudited financial statements.
-9-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-8
STATEMENT OF CHANGES IN NET ASSETS OF PARTNERSHIP
IN LIQUIDATION
(Unaudited)
PERIOD FROM
FEBRUARY 5,
TO MARCH 31,
2007
------------
Total Partners' capital at February 4, 2007 $ 3,496,796
Adjust assets to fair value, net of
estimated selling costs 8,658,231
Partners' distributions from February 5, 2007
to March 31, 2007 ( 334,778)
Revenues from February 5, 2007 to March 31, 2007 365,285
Operating expenses incurred from
February 5, 2007 to March 31, 2007 ( 53,500)
-----------
Net assets of partnership in liquidation
at March 31, 2007 $12,132,034
===========
The accompanying condensed notes are an integral part of these
unaudited financial statements.
-10-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-8
BALANCE SHEET
(GOING CONCERN BASIS)
(Unaudited)
ASSETS
DECEMBER 31,
2006
------------
CURRENT ASSETS:
Cash and cash equivalents $ 621,916
Assets held for sale (Note 3) 1,915,943
----------
Total current assets $2,537,859
NET PROFITS INTERESTS, net, utilizing
the successful efforts method 1,024,712
----------
$3,562,571
==========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES:
Accounts payable:
Net Profits $ 172,325
----------
Total current liabilities $ 172,325
PARTNERS' CAPITAL (DEFICIT):
General Partner ($ 17,672)
Limited Partners, issued and
outstanding, 116,168 units 3,407,918
----------
Total Partners' capital $3,390,246
----------
$3,562,571
==========
The accompanying condensed notes are an integral part of these
unaudited financial statements.
-11-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-8
STATEMENTS OF OPERATIONS
(GOING CONCERN BASIS)
(Unaudited)
PERIOD FROM THREE MONTHS
JANUARY 1, TO ENDED
FEBRUARY 4, MARCH 31,
2007 2006
------------- -----------
REVENUES:
Net Profits $ 54,450 $400,074
Interest income 1,649 6,639
-------- --------
$ 56,099 $406,713
COSTS AND EXPENSES:
Depletion of Net Profits
Interests $ 7,940 $ 28,956
General and administrative
(Note 2) 12,892 56,222
-------- --------
$ 20,832 $ 85,178
-------- --------
INCOME FROM CONTINUING OPERATIONS $ 35,267 $321,535
DISCONTINUED OPERATIONS:
Income from discontinued operations
(Note 3) 85,522 255,547
Gain on disposal of discontinued
operations 1,315 -
-------- --------
NET INCOME $122,104 $577,082
======== ========
GENERAL PARTNER:
Net income from continuing
operations $ 4,076 $ 34,096
Net income from discontinued
operations 8,784 27,278
-------- --------
NET INCOME $ 12,860 $ 61,374
======== ========
-12-
LIMITED PARTNERS:
Net income from continuing
operations $ 31,191 $287,439
Net income from discontinued
operations 78,053 228,269
-------- --------
NET INCOME $109,244 $515,708
======== ========
NET INCOME FROM CONTINUING
OPERATIONS PER UNIT $ 0.27 $ 2.47
NET INCOME FROM DISCONTINUED
OPERATIONS PER UNIT 0.67 1.96
-------- --------
NET INCOME PER UNIT $ 0.94 $ 4.43
======== ========
UNITS OUTSTANDING 116,168 116,168
The accompanying condensed notes are an integral part of these
unaudited financial statements.
-13-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-8
STATEMENTS OF CASH FLOWS
(GOING CONCERN BASIS)
(Unaudited)
PERIOD FROM THREE MONTHS
JANUARY 1, TO ENDED
FEBRUARY 4, MARCH 31,
2007 2006
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $122,104 $577,082
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depletion of Net Profits
interests 9,049 48,104
Gain on disposal of discontinued
operations ( 1,315) -
Settlement of asset retirement
obligation ( 2,648) -
Net change in accounts receivable/
accounts payable - Net
Profits 25,832 11,648
-------- --------
Net cash provided by operating
activities $153,022 $636,834
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ($ 27,939) ($153,843)
-------- --------
Net cash used by investing
activities ($ 27,939) ($153,843)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions ($ 15,554) ($626,730)
-------- --------
Net cash used by financing
activities ($ 15,554) ($626,730)
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $109,529 ($143,739)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 621,916 925,925
-------- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $731,445 $782,186
======== ========
The accompanying condensed notes are an integral part of these
unaudited financial statements.
-14-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME PROGRAM II LIMITED PARTNERSHIPS
CONDENSED NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
MARCH 31, 2007
(Unaudited)
1. BASIS OF PRESENTATION
---------------------
These unaudited financial statements are presented on a going concern
basis as of December 31, 2006 and for the period January 1, 2007 through
February 4, 2007 and the three months ended March 31, 2006. On February 5,
2007, 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")
mailed a notice to the limited partners announcing that the Partnerships
will terminate at the end of their current term, December 31, 2007.
Consequently, the Partnerships adopted the liquidation basis of accounting
effective February 5, 2007. The liquidation basis of accounting reports
the net assets of the Partnerships at their net realizable value.
Adjustments were made to reduce all balance sheet categories into one
line, net assets of Partnership in liquidation, which is an estimate of
the net fair value of all Partnership assets and liabilities. Cash,
accounts receivable, and accounts payable were valued at their historical
cost, which approximates fair value. Oil and gas properties were valued at
their estimated net sales price, which was estimated utilizing discounted
cash flows based on strip pricing as of March 31, 2007 at a discount rate
of 10% for proved developed producing reserves, 18% for proved developed
non-producing reserves and 20% for proved undeveloped reserves. An
adjustment was made to the discounted cash flows for the effects of gas
balancing and asset retirement obligations. A provision was also made to
account for direct expenses that will be incurred related to the sale of
the oil and gas properties. The allocation of the net assets of
Partnership in liquidation to the General Partner and limited partners was
calculated using the current allocation of income and expenses, which may
change.
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 Partnerships' Net Profits Interests are carved are
referred to as "Working Interests".
-15-
The value of net assets in liquidation of the Partnerships is
substantially dependent on prices of crude oil, natural gas, and natural
gas liquids. Declines in commodity prices will adversely affect the amount
of cash that will be received from the sale of the Partnerships' Net
Profits Interests in liquidation, and thus ultimately affect the amount of
cash that will be available for distribution to the partners.
The following table presents the estimated change in value of net assets
of Partnership in liquidation presuming a decrease of 10% in forecasted
natural gas and crude oil prices. These estimated decreases in liquidation
values are in comparison to the estimated liquidation value calculated
using strip pricing for the unaudited statements of changes in net assets
of Partnership in liquidation March 31, 2007.
General Limited
Partnership Partner Partners Total
----------- --------- ---------- ----------
P-7 $306,000 $2,759,000 $3,065,000
P-8 196,000 1,765,000 1,961,000
ACCOUNTING POLICIES
-------------------
The Unaudited Statements of Net Assets of Partnership in Liquidation as of
March 31, 2007, Unaudited Statements of Changes in Net Assets of
Partnership in Liquidation as of March 31, 2007, Unaudited Statements of
Operations for the period from January 1, 2007 to February 4, 2007 and the
three months ended March 31, 2006, and Unaudited Statements of Cash Flows
for the period from January 1, 2007 to February 4, 2007 and the three
months ended March 31, 2006 were prepared by the General Partner. In the
opinion of management the financial statements referred to above include
all necessary adjustments, consisting of normal recurring adjustments, to
present fairly the fair value of net assets of Partnership in liquidation
at March 31, 2007, the unaudited results of operations for the period from
January 1, 2007 to February 4, 2007 and the three months ended March 31,
2006, unaudited results of changes in net assets of Partnership in
liquidation from February 5, 2007 to March 31, 2007, and the unaudited
cash flows for the period from January 1, 2007 to February 4, 2007 and the
three months ended March 31, 2006.
Information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles were condensed or omitted. The accompanying unaudited interim
financial statements should be read in conjunction with the Partnerships'
Annual Report on Form 10-K filed for the year ended December 31, 2006. The
results of operations for the period ending February 4, 2007 and the
changes in fair value of net assets
-16-
of Partnership in liquidation for the period ending March 31, 2007 are not
necessarily indicative of the results to be expected for the full year.
The Limited Partners' net income or loss per unit is based upon each $100
initial capital contribution.
STATEMENTS OF CASH FLOWS
------------------------
Cash flows from operating, investing and financing activities presented in
the Unaudited Statements of Cash Flows include cash flows attributable to
discontinued operations and assets held for sale for all periods
presented.
NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
In September 2006, the FASB issued FAS No. 157, "Fair Value
Measurements" (FAS No. 157). FAS No. 157 establishes a common
definition for fair value to be applied to US GAAP guidance requiring
use of fair value, establishes a framework for measuring fair value,
and expands the disclosure about such fair value measurements. FAS No.
157 is effective for fiscal years beginning after November 5, 2007.
The Partnerships are currently assessing the impact of FAS No. 157 on
its fair value of net assets of Partnership in liquidation and its
changes of net assets of Partnership in liquidation.
PARTNERSHIP TERMINATION
-----------------------
Pursuant to the terms of the Partnership agreements for the Partnerships
(the "Partnership Agreements"), the Partnerships would have terminated 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 the third two-year extension period to December 31,
2007. On February 5, 2007, the General Partner mailed a notice to the
limited partners announcing that the Partnerships will terminate at the
end of their current term, December 31, 2007. The reader should refer to
Note 4 - Partnership Termination to the unaudited financial statements for
additional information regarding this matter.
-17-
RECLASSIFICATION
----------------
Certain prior year balances were reclassified to conform with current year
presentation.
NET PROFITS INTERESTS
---------------------
Before implementation of the liquidation basis of accounting, the
Partnerships follow the successful efforts method of accounting for their
Net Profits Interests. Under the successful efforts method, the
Partnerships capitalized 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
was adjusted to reflect the net cash results of operations, including
interest incurred to finance the acquisition, for the period of time the
properties were held by the General Partner prior to their transfer to the
Partnerships.
Depletion of the cost of Net Profits interests was computed on the
unit-of-production method through February 4, 2007. The Partnerships'
calculation of depletion of its Net Profits Interests included estimated
dismantlement and abandonment costs and estimated salvage value of the
equipment. When complete units of depreciable property were retired or
sold, the asset cost and related accumulated depreciation were eliminated
with any gain or loss (including the elimination of the asset retirement
obligation) reflected in income. On February 5, 2007, the Partnerships
adopted the liquidation basis of accounting and no longer calculate
depreciation, depletion, and amortization.
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'
Unaudited Statements of Cash Flows.
ASSET RETIREMENT OBLIGATIONS
----------------------------
The Partnerships' wells must be properly plugged and abandoned after their
oil and gas reserves are exhausted.
-18-
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. 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.
2. TRANSACTIONS WITH RELATED PARTIES
---------------------------------
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. The general and administrative
expenses are included as a component of the net assets of Partnership in
liquidation. The reader should refer to Note 1 - Basis of Presentation to
the unaudited financial statements included in Part I, Item 1 of this
Quarterly Report on Form 10-Q for additional information regarding this
matter. During the three months ended March 31, 2007, the following
payments were made to the General Partner or its affiliates by the
Partnerships:
Direct General Administrative
Partnership and Administrative Overhead
----------- ------------------- ---------------
P-7 $33,486 $49,659
P-8 31,094 30,570
Affiliates of the Partnerships serve as operator of some of the
Partnerships' wells. The General Partner contracts 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 paid by
the Partnerships to the affiliates during the three months ended March 31,
2007 is approximately $12,000 and $7,000, respectively, for the P-7 and
P-8 Partnerships.
-19-
3. DISCONTINUED OPERATIONS
-----------------------
During August 2006, the General Partner approved a plan to sell an
increased amount of the Partnerships' properties as a result of the
generally favorable current environment for oil and gas properties. These
properties were classified as assets held for sale.
The properties classified as assets held for sale represent "disposal of a
component" under Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" (FAS
144). Accordingly, current year results for the period of January 1, 2007
through February 4, 2007 for these properties were classified as
discontinued operations, and prior periods were restated. Once properties
are classified as assets held for sale, they no longer incur any
depreciation, depletion, and amortization expense. In conjunction with the
planned sales, the Partnerships will retain all assets and liabilities
through the effective date of the sale and purchasers will assume the
asset retirement obligations associated with the sold interests. On
February 5, 2007, the Partnerships adopted the liquidation basis of
accounting. The reader should refer to Note 1 - Basis of Presentation to
the unaudited financial statements for additional information regarding
this matter.
Net income from discontinued operations is as follows:
P-7 Partnership
---------------
Period from Three Months
January 1, to Ended
February 4, March 31,
2007 2006
------------ -------------
Net Profits $137,811 $438,306
Accretion and depreciation,
depletion, and amortization
of oil and gas properties ( 1,779) ( 31,138)
-------- --------
Income from discontinued
operations $136,032 $407,168
======== ========
-20-
P-8 Partnership
---------------
Period from Three Months
January 1, to Ended
February 4, March 31,
2007 2006
------------ -------------
Net profits $ 86,631 $274,695
Accretion and depreciation,
depletion, and amortization
of oil and gas properties ( 1,109) ( 19,148)
-------- --------
Income from discontinued
operations $ 85,522 $255,547
======== ========
Assets of the discontinued operations as of December 31, 2006 were as follows:
P-7
Partnership
-----------
Accounts payable - Net Profits ($ 377,900)
Net Profits Interests 8,075,604
Accumulated depreciation, depletion,
amortization and valuation allowance ( 4,636,983)
----------
Net assets held for sale $3,060,721
==========
P-8
Partnership
-----------
Accounts payable - Net Profits ($ 216,754)
Net Profits Interests 4,611,390
Accumulated depreciation, depletion,
amortization and valuation allowance ( 2,478,693)
----------
Net assets held for sale $1,915,943
==========
4. PARTNERSHIP TERMINATION
-----------------------
The Partnerships would have terminated on February 28, 2002 in accordance
with the Partnership Agreements. 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 two-year
-21-
extension, thereby extending the termination date to December 31, 2007. On
February 5, 2007 the General Partner mailed a notice to the limited
partners announcing that (i) the Partnerships will terminate on December
31, 2007 and (ii) the General Partner will liquidate the Partnerships'
assets and satisfy their liabilities as part of the winding-up process
required by the Partnership Agreements and state law.
Unrelated to the Partnerships' termination, the General Partner is selling
selected oil and gas properties due to the generally favorable market for
oil and gas properties. The last such sales are anticipated to be The Oil
and Gas Asset Clearinghouse auctions in May through July of 2007. While
these property sales are not related to the Partnerships' liquidation, all
remaining property dispositions will be made as part of the liquidation
and winding-up process.
The General Partner intends to commence liquidating the Partnerships'
properties in the second half of 2007, and hopes to have all or
substantially all of the properties sold prior to March 31, 2008. As part
of the liquidation process, the General Partner will actively negotiate
for the sale of the properties. These properties will be offered to all
interested parties through normal oil and gas property auction processes
as well as appropriate negotiated transactions. It is possible that
affiliates of the General Partner may participate in any public auction of
these properties and may be the successful high bidder on some or all of
the properties.
The Partnerships will make routine cash distributions throughout the
remainder of 2007. Proceeds from the sale of Partnership properties may be
included in these normal cash distributions, or may be distributed to the
partners by way of special cash distributions. The General Partner will
analyze the level of cash held by the Partnerships throughout the
liquidation process and will retain sufficient cash to cover all final
expenses and liabilities of the Partnerships. After final settlement from
the sale of all properties, satisfaction of Partnership expenses and
liabilities, and calculation of any remaining assets and liabilities of
the Partnerships, any net cash will be paid as a final liquidating
distribution to all of the remaining partners in each Partnership. It is
expected that the final distribution will be made no later than December
31, 2008.
-22-
In order to ensure that the General Partner makes all liquidation
distributions to the correct parties based on the most accurate
information possible, the General Partner terminated the outstanding
repurchase offer as of March 9, 2007. In addition, the General Partner
will not process transfers among third parties which are not postmarked on
or before June 30, 2007 and received by the General Partner on or before
July 13, 2007. The General Partner will not impose these deadlines on
transfers between family members, their trusts, IRA accounts, or similar
related entities and transfers due to death or divorce.
5. SUBSEQUENT EVENT
----------------
On May 9, 2007, the Partnerships sold their interests in a number of
producing properties to independent third parties at a large public oil
and gas auction which resulted in proceeds of approximately $13,882,000
and $8,123,000 (net of fees), respectively, to the P-7 and P-8
Partnerships.
-23-
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.
PARTNERSHIP TERMINATION
- -----------------------
Pursuant to the terms of the Partnership Agreements, the Partnerships
would have terminated 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 the third two-year
extension period to December 31, 2007. On February 5, 2007, the General
Partner mailed a notice to the limited partners announcing that the
Partnerships will terminate at the end of their current term, December 31,
2007. The reader should refer to Note 4 - Partnership Termination to the
unaudited financial statements included in Part I, Item 1 of this
Quarterly Report on Form 10-Q for additional information regarding this
matter.
-24-
GENERAL
- -------
The Partnerships are engaged in the business of owning interests in
producing oil and gas properties located in the continental United States.
The Partnerships may also engage to a limited extent in development
drilling on producing oil and gas properties as required for the prudent
management of the Partnerships.
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 operations less necessary operating capital are
distributed to the Limited Partners on a quarterly basis. The
Partnerships' ability to make cash distributions depends primarily upon
the level of available cash flow generated by the Partnerships' operating
activities and sale of oil and gas properties, 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. While the General Partner cannot
predict future pricing trends, it believes the working capital available
as of March 31, 2007 and the net revenue generated from future operations
and property sales will provide sufficient working capital to meet current
and future obligations.
Occasional expenditures for new wells or well recompletions, or workovers
may reduce or eliminate cash available for a particular quarterly cash
distribution.
The reader should refer to the discussion above under the heading
"Partnership Termination" for information regarding termination of the
Partnerships as of December 31, 2007.
-25-
CRITICAL ACCOUNTING POLICIES
- ----------------------------
The unaudited financial statements included in this Quarterly Report on
Form 10-Q are presented on a going concern basis as of December 31, 2006
and for the period January 1, 2007 through February 4, 2007 and the three
months ended March 31, 2006. On February 5, 2007, the General Partner
mailed a notice to the limited partners announcing that the Partnerships
will terminate at the end of their current term, December 31, 2007.
Consequently, the Partnerships adopted the liquidation basis of accounting
effective February 5, 2007. The liquidation basis of accounting reports
the net assets of the Partnerships at their net realizable value.
Adjustments were made to reduce all balance sheet categories into one
line, net assets of Partnership in liquidation, which is an estimate of
the net fair value of all Partnership assets and liabilities. Cash,
accounts receivable, and accounts payable were valued at their historical
cost, which approximates fair value. Oil and gas properties were valued at
their estimated net sales price, which was estimated utilizing discounted
cash flows based on strip pricing as of March 31, 2007 at a discount rate
of 10% for proved developed producing reserves, 18% for proved developed
non-producing reserves and 20% for proved undeveloped reserves. An
adjustment was made to the discounted cash flows for the effects of gas
balancing and asset retirement obligations. A provision was also made to
account for direct expenses that will be incurred related to the sale of
the oil and gas properties. The allocation of the net assets of
Partnership in liquidation to the General Partner and limited partners was
calculated using the current allocation of income and expenses, which may
change.
Prior to the adoption of the liquidation basis of accounting, the
Partnerships followed the successful efforts method of accounting for
their Net Profits Interests. Under the successful efforts method, the
Partnerships capitalized all acquisition costs. Such acquisition costs
included costs incurred by the Partnerships or the General Partner to
acquire a Net Profits Interests, 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 consisted of the cost of
acquiring the underlying properties adjusted for the net cash results of
operations, including interest incurred to finance the acquisition, for
the period of time the properties were held by the General Partner.
-26-
Depletion of the cost of Net Profits interests was computed on the
unit-of-production method through February 4, 2007. The Partnerships'
calculation of depletion of its Net Profits Interests included estimated
dismantlement and abandonment costs and estimated salvage value of the
equipment. When complete units of depreciable property were retired or
sold, the asset cost and related accumulated depreciation were eliminated
with any gain or loss (including the elimination of the asset retirement
obligation) reflected in income. On February 5, 2007, the Partnerships
adopted the liquidation basis of accounting and no longer calculate
depreciation, depletion, and amortization.
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 current settling this
liability. This liability is a 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.
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. The
asset retirement obligations are included as a component of the net assets
of Partnership in liquidation. The reader should refer to Note 1 - Basis
of Presentation to the unaudited financial statements included
-27-
in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional
information regarding this matter.
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
In September 2006, the FASB issued FAS No. 157, "Fair Value
Measurements" (FAS No. 157). FAS No. 157 establishes a common
definition for fair value to be applied to US GAAP guidance requiring
use of fair value, establishes a framework for measuring fair value,
and expands the disclosure about such fair value measurements. FAS No.
157 is effective for fiscal years beginning after November 5, 2007.
The Partnerships are currently assessing the impact of FAS No. 157 on
its fair value of net assets of Partnership in liquidation and its
changes of net assets of Partnership in liquidation.
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 is 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 net present values
of the Partnerships' reserves are included as a component of the net
assets of Partnership in liquidation. The reader should refer to Note 1 -
Basis of Presentation to the unaudited financial statements included in
Part I, Item 1 of this Quarterly Report on Form 10-Q for additional
information regarding this matter.
The net present value of the Partnerships' reserves was estimated
utilizing discounted cash flows based on strip pricing as of March 31,
2007 at a discount rate of 10% for proved developed producing reserves,
18% for proved developed non-producing reserves and 20% for proved
undeveloped reserves. An adjustment was made to the discounted cash flows
for the effects of gas balancing and asset retirement obligations. A
provision was also made to account for expenses that will be incurred
directly related to the sale of the oil and gas properties.
-28-
RESULTS OF OPERATIONS
- ---------------------
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. Recently, the sale of oil and
gas properties is also a significant source of net revenues. 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:
* 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;
* Market expectations; and
* The effect of worldwide energy conservation.
It is not possible to predict the future direction of oil or natural gas
prices. 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 as 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 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
-29-
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:
* 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 (either positive or negative)
made by the operators of the properties;
* Adjustments in ownership or rights to production in accordance
with agreements governing the operation or ownership of the
well (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
THE PERIOD FROM JANUARY 1, 2007 TO FEBRUARY 4, 2007
Period from
January 1, to
February 4,
2007
-------------
Net Profits $ 84,930
Barrels produced 1,857
Mcf produced 23,070
Average price/Bbl $ 49.21
Average price/Mcf $ 5.35
Income and expenses for the P-7 Partnership for the period from January 1
to February 4, 2007 are not comparable to the three months ended March 31,
2006.
THE PERIOD FROM FEBRUARY 5, 2007 TO MARCH 31, 2007
Barrels produced 9,903
Mcf produced 48,205
Average price/Bbl $ 53.95
Average price/Mcf $ 6.46
-30-
Revenues from February 5, 2007 to March 31, 2007 were as follows:
Net Profits $552,772
Interest income 5,301
Other income 21,554
--------
$579,627
========
Operating expenses from February 5, 2007 to March 31, 2007 were as
follows:
Accretion expense $ 6,357
General and administrative 63,513
--------
$ 69,870
========
P-8 PARTNERSHIP
THE PERIOD FROM JANUARY 1, 2007 TO FEBRUARY 4, 2007
Period from
January 1, to
February 4,
2007
-------------
Net Profits $ 54,450
Barrels produced 1,074
Mcf produced 15,541
Average price/Bbl $ 49.13
Average price/Mcf $ 5.32
Income and expenses for the P-8 Partnership for the period from January 1
to February 4, 2007 are not comparable to the three months ended March 31,
2006.
THE PERIOD FROM FEBRUARY 5, 2007 TO MARCH 31, 2007
Barrels produced 5,959
Mcf produced 32,568
Average price/Bbl $ 53.89
Average price/Mcf $ 6.40
Revenues from February 5, 2007 to March 31, 2007 were as follows:
Net Profits $351,111
Interest income 3,144
Other income 11,030
--------
$365,285
========
-31-
Operating expenses from February 5, 2007 to March 31, 2007 were as
follows:
Accretion expense $ 4,728
General and administrative 48,772
--------
$ 53,500
========
-32-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Partnerships do not hold any market risk sensitive instruments.
ITEM 4T. 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.
During the period covered by this Form 10-Q, there were no changes
in our internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
-33-
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.
-34-
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: May 18, 2007 By: /s/Dennis R. Neill
--------------------------------
(Signature)
Dennis R. Neill
President
Date: May 18, 2007 By: /s/Craig D. Loseke
--------------------------------
(Signature)
Craig D. Loseke
Chief Accounting Officer
-35-
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.
-36-