1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
(Fee Required)
FOR THE YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________________ TO _________________
COMMISSION FILE NO. 333-76911
MEWBOURNE ENERGY PARTNERS 99-A, L.P.
Delaware 75-2822738
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3901 SOUTH BROADWAY, TYLER, TEXAS 75701
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (903) 561-2900
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the act:
LIMITED AND GENERAL PARTNERSHIP INTEREST $1,000 PER INTEREST
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. [X] Yes [ ] No
No market currently exists for the limited and general partnership interest of
the registrant. Based on original purchase price the aggregate market value of
limited and general partnership interest owned by non-affiliates of the
registrant is $5,727,000.00.
The following documents are incorporated by reference into the indicated parts
of this Annual Report on Form 10-K: Part of the information called for by Part
IV of the Annual Report on Form 10-K is incorporated by reference from the
Registrant's Registration Statement on Form S-1, File No. 333-76911.
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PART I
ITEM 1. BUSINESS
Mewbourne Energy Partners 99-A, L.P. (the "Registrant") is a limited partnership
organized under the laws of the State of Delaware in 1999. Its managing general
partner is Mewbourne Development Corporation, a Delaware corporation ("MD").
A Registration Statement filed pursuant to the Securities Act of 1933, as
amended, registering limited partnership interests aggregating $4,000,000 and
$16,000,000 in general partnership interests in a series of Delaware limited
partnerships formed under Mewbourne Energy 99-00 Drilling Programs, was declared
effective by the Securities and Exchange Commission on August 10, 1999. On
November 22, 1999, the offering of limited and general partnership interests in
the Registrant, was closed, with interests aggregating $5,727,000 being sold to
237 subscribers of which $5,051,000 were sold to 208 subscribers as general
partner interests and $676,000 were sold to 29 subscribers as limited partner
interests.
The Registrant engages primarily in oil and gas development and production and
is not involved in any other industry segment. See the selected financial data
in Item 6 and the financial statements in Item 8 of this report for a summary of
the Registrant's revenue, income and identifiable assets.
The Registrant has acquired interests in oil and gas prospects for the purpose
of development drilling. At December 31, 1999, 12 wells had been drilled and
were productive and one well was drilled and abandoned. The following table
summarizes the Registrant's drilling activity from inception through December
31, 1999:
Gross Net
--------------- ----------------
Dry Productive Dry Productive
--- ---------- --- ----------
Development wells 1 12 .475 5.733
The sale of crude oil and natural gas produced by the Registrant will be
affected by a number of factors which are beyond the Registrant's control. These
factors include the price of crude oil and natural gas, the fluctuating supply
of and demand for these products, competitive fuels, refining, transportation,
extensive federal and state regulations governing the production and sale of
crude oil and natural gas, and other competitive conditions. It is impossible to
predict with any certainty the future effect of these factors on the Registrant.
The Registrant does not have long-term contracts with purchasers of its crude
oil or natural gas. The market for crude oil is such that the Registrant
anticipates it will be able to sell all the crude oil it can produce. Natural
gas will be sold to local
3
distribution companies, gas marketers and end users on the spot market. The spot
market reflects immediate sales of natural gas without long-term contractual
commitments. The future market condition for natural gas cannot be predicted
with any certainty, and the Registrant may experience delays in marketing
natural gas production and fluctuations in natural gas prices.
Many aspects of the Registrant's activities are highly competitive including,
but not limited to, the acquisition of suitable drilling prospects and the
procurement of drilling and related oil field equipment, and are subject to
governmental regulation, both at Federal and state levels. The Registrant's
ability to compete depends on its financial resources and on the managing
general partner's staff and facilities, none of which are significant in
comparison with those of the oil and gas exploration, development and production
industry as a whole. Federal and state regulation of oil and gas operations
generally includes drilling and spacing of wells on producing acreage, the
imposition of maximum allowable production rates, the taxation of income and
other items, and the protection of the environment.
The Registrant does not have any employees of its own. MD is responsible for all
management functions. Mewbourne Oil Company ("MOC"), a wholly-owned subsidiary
of Mewbourne Holdings, Inc., which is also the parent of the Registrant's
managing general partner, has been appointed Program Manager and is responsible
for activities in accordance with a Drilling Program Agreement entered into by
the Registrant, MD and MOC. At March 17, 2000, MOC employed 104 persons, many of
whom dedicated a part of their time to the conduct of the Registrant's business
during the period for which this report is filed.
The production of oil and gas is not considered subject to seasonal factors
although the price received by the Registrant for natural gas sales will tend to
increase during the winter months. Order backlog is not pertinent to the
Registrant's business.
4
ITEM 2. PROPERTIES
The Registrant's properties consist primarily of leasehold interests in
properties on which oil and gas wells-in-progress are located. Such property
interests are often subject to landowner royalties, overriding royalties and
other oil and gas leasehold interests.
Fractional working interests in developmental oil and gas prospects located
primarily in the Anadarko Basin of Western Oklahoma, the Texas Panhandle and
Kansas, and the Permian Basin of New Mexico and West Texas, were acquired by the
Registrant, resulting in the Registrant's participation in the drilling of 13
oil and gas wells. At December 31, 1999, 12 wells had been drilled and were
productive and one well was drilled and abandoned.
ITEM 3. LEGAL PROCEEDINGS
The Registrant is not aware of any pending legal proceedings to which it is a
party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of the year ended December 31, 1999 covered by this report.
5
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At March 17, 2000, the Registrant had 5,727 outstanding limited and general
partnership interests held of record by 237 subscribers. There is no established
public or organized trading market for the limited and general partnership
interests.
Revenues which, in the sole judgement of the managing general partner, are not
required to meet the Registrant's obligations will be distributed to the
partners at least quarterly in accordance with the Registrant's Partnership
Agreement. During the period from inception through December 31, 1999, no
distributions had been made to the limited and general partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the period from April
9, 1999 (date of inception) through December 31, 1999:
Operating results:
Oil and gas sales $ 0
Net loss $ (282,772)
Net loss per limited and general
partner interest $ (49.38)
At year end:
Total Assets $5,444,328
==========
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
Mewbourne Energy Partners 99-A, L.P. (the "Registrant") was organized as a
Delaware limited partnership on April 9, 1999. The offering of limited and
general partner interests began August 10, 1999 as part of an offering
registered under the name Mewbourne Energy 99-00 Drilling Programs. The offering
of limited and general partner interests in the Registrant concluded November
22, 1999, with total investor partner contributions of $5,727,000.
6
The Registrant was formed to engage primarily in the business of drilling
development wells, to produce and market crude oil and natural gas produced from
such properties, to distribute any net proceeds from operations to the general
and limited partners and to the extent necessary, acquire leases which contain
drilling prospects. The economic life of the Registrant depends on the period
over which the Registrant's oil and gas reserves are economically recoverable.
Results of Operations
Because the Registrant was formed during the period covered by this report, no
trend analysis based on yearly changes in liquidity, capital resources or
results of operations is available.
Revenues during the period from April 9, 1999 (date of inception) through
December 31, 1999 totaled $27,653, and consisted entirely of interest income.
Expenses totaling $310,425, consisting primarily of a ceiling cost write-down,
resulted in a net loss for the period of $282,772. At December 31, 1999, 12
wells had been drilled and were productive and one well had been drilled and
abandoned. The Registrant's oil and gas revenues should increase during 2000 as
additional wells are completed and oil and gas production is sold. Interest
income should decrease in 2000 as the remaining wells are drilled and the
available cash is utilized for the equipping of such wells. The Registrant
expects that drilling and completion costs will decrease during 2000 and that
production cost and depletion provisions will increase.
Liquidity and capital resources
Net cash increased by $2,052,767 during the period from April 9, 1999 (date of
inception) through December 31, 1999. Approximately $3,674,233 of the net
initial partners' capital of $5,727,000 was used for drilling and completion
costs and for lease acquisition costs. Capital requirements in the future are
expected to be paid with the initial partners' capital. Management believes that
funds are sufficient to complete the wells for which funds have been
committed. Under certain circumstances, as provided in the Registrant's
Partnership Agreement, the Registrant may use revenues and/or borrow monies to
fund additional capital requirements.
Year 2000 Issue
The Year 2000 issue is the result of computer software programs being coded to
use two digits to define the applicable year. Programs that utilize date
sensitive software may recognize "00" as Year 1900 rather than Year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations including among other things, a temporary inability to process
transactions, send invoices or engage in normal business activities.
7
Due to the fact that the partnership has no accounting systems of its own, it is
not directly impacted by any potential Year 2000 issue. Substantially all of the
partnership's financial results, however, are derived from the accounting
systems of MOC. MOC has made an assessment of the impact of the Year 2000 on its
financial and operational systems and has completed work on upgrading all
systems. At March 17, 2000, MOC had not experienced any difficulties resulting
from any Year 2000 issues. MOC is continuing to monitor its risk associated with
third party suppliers and service providers.
The cost associated with Year 2000 issues, including upgrades, were not
materially different from the cost of normal upgrades under the software
maintenance contracts MOC has with its software vendors.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The required financial statements of the Registrant are contained in a separate
section of this report beginning with page 14 following the signature
attestation. See "Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
8
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Registrant does not have any officers or directors. Under the Registrant's
Partnership Agreement, the Registrant's managing general partner, MD, is granted
the exclusive right and full authority to manage, control and administer the
Registrant's business. MD is a wholly-owned subsidiary of Mewbourne Holdings,
Inc.
Set forth below are the names, ages and positions of the directors and executive
officers of MD, the Registrant's managing general partner. Directors of MD are
elected to serve until the next annual meeting of stockholders or until their
successors are elected and qualified.
Age as of
December 31,
Name 1999 Position
- ---- ------------ --------
Curtis W. Mewbourne 64 President and Director
J. Roe Buckley 37 Treasurer and Chief
Financial Officer
Michael F. Shepard 53 Secretary and General
Counsel
Dorothy M. Cuenod 39 Assistant Secretary
and Director
Ruth M. Buckley 38 Assistant Secretary
and Director
Julie M. Greene 36 Assistant Secretary
and Director
9
CURTIS W. MEWBOURNE, age 64, formed Mewbourne Holdings in 1965
and serves as Chairman of the Board and President of Mewbourne
Holdings, MOC and MD. He has operated as an independent oil and
gas producer for the past 34 years. Mr. Mewbourne received a
Bachelor of Science Degree in Petroleum Engineering from the
University of Oklahoma in 1957. Mr. Mewbourne is the father of
Dorothy M. Cuenod, Ruth M. Buckley, and Julie M. Greene and the
father-in-law of J. Roe Buckley.
J. ROE BUCKLEY, age 37, joined Mewbourne Holdings in July,
1990 and serves a Treasurer and Chief Financial Officer of both MD
and MOC. Mr. Buckley was employed by MBank Dallas from 1985-1990
where he served as a commercial loan officer. He received a
Bachelor of Arts in Economics from Sewanee in 1984. Mr. Buckley is
the son-in-law of Curtis W. Mewbourne and is married to Ruth M.
Buckley. He is also the brother-in-law of Dorothy M. Cuenod and
Julie M. Greene.
MICHAEL F. SHEPARD, age 53, joined MOC in 1986 and serves as Secretary
and General Counsel of MD. He has practiced law exclusively in the oil and gas
industry since 1979 and formerly was counsel with Parker Drilling Company and
its Perry Gas subsidiary for seven years. Mr. Shepard holds the Juris Doctor
degree from the University of Tulsa where he received the National Energy Law
and Policy Institute award as the outstanding graduate in the Energy Law
curriculum. He received the B.A. degree, magna cum laude, from the University of
Massachusetts in 1976. Mr. Shepard is a member of the bar in Texas and Oklahoma.
DOROTHY MEWBOURNE CUENOD, age 39, received a B.A. Degree in
Art History from The University of Texas and a Masters of Business
Administration Degree from Southern Methodist University. Since
1984 she has served as a Director and Assistant Secretary of both
MD and MOC. Ms. Cuenod is the daughter of Curtis W. Mewbourne and
is the sister of Ruth M. Buckley and Julie M. Greene. She is also
the sister-in-law of J. Roe Buckley.
RUTH MEWBOURNE BUCKLEY, age 38, received a Bachelor of Science
Degrees in both Engineering and Geology from Vanderbilt University.
Since 1987 she has served as a Director and Assistant Secretary of
both MD and MOC. Ms. Buckley is the daughter of Curtis W.
Mewbourne and is the sister of Dorothy M. Cuenod and Julie M.
Greene. She is also the wife of J. Roe Buckley.
JULIE MEWBOURNE GREENE, age 36, received a B.A. in Business
Administration from the University of Oklahoma. Since 1988 she has
served as a Director and Assistant Secretary of both MD and MOC.
Prior to that time she was employed by Rauscher, Pierce, Refsnes,
Inc. Ms. Greene is the daughter of Curtis W. Mewbourne and is the
sister of Dorothy M. Cuenod and Ruth M. Buckley. She is also the
sister-in-law of J. Roe Buckley.
10
ITEM 11. EXECUTIVE COMPENSATION
The Registrant does not have any directors or officers. Management of the
Registrant is vested in the managing general partner. None of the officers or
directors of MD or MOC will receive remuneration directly from the Registrant,
but will continue to be compensated by their present employers. The Registrant
will reimburse MD and MOC and affiliates thereof for certain costs of overhead
falling within the definition of Administrative Costs, including without
limitation, salaries of the officers and employees of MD and MOC; provided that
no portion of the salaries of the directors or of the executive officer of MOC
or MD may be reimbursed as Administrative Costs.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
Name of Amount & Nature Percent
Beneficial of Beneficial of
Title of Class Owner Owner Class
- -------------- ---------- --------------- -------
None None N/A N/A
(b) Security ownership of management
The Registrant does not have any officers or directors. The managing general
partner of the Registrant, MD, has the exclusive right and full authority to
manage, control and administer the Registrant's business. Under the Registrant's
Partnership Agreement, limited and general partners holding a majority of the
outstanding limited and general partnership interests have the right to take
certain actions, including the removal of the managing general partner. The
Registrant is not aware of any current arrangement or activity which may lead to
such removal.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with MD and its affiliates
Pursuant to the Registrant's Partnership Agreement, the Registrant had the
following related party transactions with MD and its affiliates during the
period April 9, 1999 (date of inception) through December 31, 1999:
Payment of well charges
and supervision charges in
accordance with standard
industry operating agreements $69,886
11
The Registrant participates in oil and gas activities through a drilling program
created by the Drilling Program Agreement (the "Program"). Pursuant to the
Program, MD pays approximately 30% of the Program's capital expenditures and
approximately 40% of its operating and general and administrative expenses. The
Registrant pays the remainder of the costs and expenses of the Program. In
return, MD is allocated approximately 40% of the Program's revenues.
12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K.
(a) 1. Financial statements
The following are filed as part of this annual report:
Report of Independent Accountants
Balance sheet as of December 31, 1999
Statement of loss for the period from April 9, 1999
(date of inception) through December 31, 1999
Statement of changes in partners' capital for the
period from April 9, 1999 (date of inception) through
December 31, 1999
Statement of cash flows for the period from April 9,
1999 (date of inception) through December 31, 1999
Notes to financial statements
2. Financial statement schedules
None.
All required information is in the financial statements or the
notes thereto, or is not applicable or required.
3. Exhibits
The exhibits listed on the accompanying index are filed or
incorporated by reference as part of this annual report.
(b) Reports on Form 8-K
None.
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.
MEWBOURNE ENERGY PARTNERS 99-A, L.P.
By: Mewbourne Development Corporation
Managing General Partner
By: /s/ Curtis W. Mewbourne
-----------------------------------------
Curtis W. Mewbourne
President and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/s/ Curtis W. Mewbourne President/Director March 17, 2000
- ----------------------------
Curtis W. Mewbourne
/s/ J. Roe Buckley Treasurer/Chief March 17, 2000
- ---------------------------- Financial Officer
J. Roe Buckley
/s/ Dorothy M. Cuenod Director March 17, 2000
- ----------------------------
Dorothy M. Cuenod
/s/ Ruth M. Buckley Director March 17, 2000
- ----------------------------
Ruth M. Buckley
/s/ Julie M. Greene Director March 17, 2000
- ----------------------------
Julie M. Greene
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE
NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
No annual report or proxy material has been sent to the
Registrant's security holders.
14
MEWBOURNE ENERGY PARTNERS 99-A, L.P.
FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT ACCOUNTANTS
FOR THE PERIOD FROM APRIL 9, 1999
(DATE OF INCEPTION)
THROUGH DECEMBER 31, 1999
15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Mewbourne Energy Partners 99-A, L.P.
and to the Board of Directors of
Mewbourne Development Corporation:
In our opinion, the accompanying balance sheet and the related statements of
loss, changes in partners' capital and cash flows present fairly, in all
material respects, the financial position of Mewbourne Energy Partners 99-A,
L.P. at December 31, 1999, and the results of its operations and its cash flows
for the period from April 9,1999 (date of inception) through December 31, 1999,
in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Partnership's
management, our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
February 25, 2000
16
MEWBOURNE ENERGY PARTNERS 99-A, L.P.
BALANCE SHEET
DECEMBER 31, 1999
ASSETS
Cash $2,052,767
Prepaid well costs 515,346
Oil and gas properties at cost --full cost method 3,171,847
Less accumulated depreciation, depletion and amortization (295,632)
----------
Total assets $5,444,328
==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable, affiliate $ 100
----------
General partners 4,801,595
Limited partners 642,633
----------
Total partners' capital 5,444,228
----------
Total liabilities and partners' capital $5,444,328
==========
The accompanying notes are an integral part of
these financial statements.
17
MEWBOURNE ENERGY PARTNERS 99-A, L.P.
STATEMENT OF LOSS
FOR THE PERIOD FROM APRIL 9, 1999
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1999
Revenues:
Interest income $ 27,653
---------
27,653
---------
Expenses:
Lease operating and production tax 14,759
Administrative and general expense 34
Ceiling cost write-down 295,632
---------
310,425
---------
Net loss $(282,772)
=========
Allocation of net loss:
General partners $(249,405)
=========
Limited partners $ (33,367)
=========
Basic and diluted net loss per limited and general partner interest
(5,727 outstanding) $ (49.38)
=========
The accompanying notes are an integral part of
these financial statements.
18
MEWBOURNE ENERGY PARTNERS 99-A, L.P.
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIOD FROM APRIL 9, 1999
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1999
General Limited
Partners Partners Total
----------- ----------- -----------
Partners' capital, beginning of period $ -- $ -- $ --
Capital contributions 5,051,000 676,000 5,727,000
Net loss (249,405) (33,367) (282,772)
----------- ----------- -----------
Partners' capital, end of period $ 4,801,595 $ 642,633 $ 5,444,228
=========== =========== ===========
The accompanying notes are an integral part of
these financial statements.
19
MEWBOURNE ENERGY PARTNERS 99-A, L.P.
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM APRIL 9, 1999
(DATE OF INCEPTION) THROUGH DECEMBER 31, 1999
Cash flows from operating activities:
Net loss $ (282,772)
Adjustment to reconcile net loss to net cash provided by operating activities:
Cost ceiling write-down 295,632
Changes in operating assets and liabilities:
Increase in accounts payable, affiliate 100
-----------
Net cash provided by operating activities 12,960
-----------
Cash flows from investing activities:
Purchase of oil and gas properties (3,171,847)
Prepaid well costs (515,346)
-----------
Net cash used in investing activities (3,687,193)
-----------
Cash flows from financing activities:
Capital contribution from partners 5,727,000
-----------
Net cash provided by financing activities 5,727,000
-----------
Net increase in cash 2,052,767
Cash at beginning of period 0
-----------
Cash at end of period $ 2,052,767
===========
The accompanying notes are an integral part of
these financial statements.
20
MEWBOURNE ENERGY PARTNERS 99-A, L.P.
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
ACCOUNTING FOR OIL AND GAS PRODUCING ACTIVITIES
Mewbourne Energy Partners 99-A, L.P., (the partnership), a
Delaware limited partnership engaged primarily in oil and gas
development and production in Texas, Oklahoma, New Mexico and Kansas
was organized on April 9, 1999. The offering of limited and general
partnership interests began August 10, 1999 as a part of an offering
registered under the name Mewbourne Energy Partners 99-00 Drilling
Programs and concluded November 22, 1999, with total investor
contributions of $5,727,000.
The partnership follows the full-cost method of accounting for
its oil and gas activities. Under the full-cost method, all productive
and nonproductive costs incurred in the acquisition, exploration and
development of oil and gas properties are capitalized. Depreciation,
depletion and amortization of oil and gas properties subject to
amortization is computed on the units-of-production method based on the
proved reserves underlying the oil and gas properties. At December 31,
1999, no capitalized costs were subject to amortization. Costs
associated with the two wells that had been drilled and plugged and
abandoned during the period from April 9, 1999 (date of inception)
through December 31, 1999 were written off and are reflected as ceiling
cost write-down on the Statement of Loss. Gains and losses on the sale
or other disposition of properties are not recognized unless such
adjustments would significantly alter the relationship between
capitalized costs and the proved oil and gas reserves. Capitalized
costs are subject to an annual ceiling test that limits such costs to
the aggregate of the present value of future net cash flows of proved
reserves and the lower of cost or fair value of unproved properties.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
CASH
The partnership maintains all its cash in one financial
institution.
INCOME TAXES
The partnership is treated as a partnership for income tax
purposes, and as a result, income of the partnership is reported on the
tax returns of the partners and no recognition is given to income taxes
in the financial statements.
21
2. ORGANIZATION AND RELATED PARTY TRANSACTIONS:
The partnership was organized on April 9, 1999. Mewbourne
Development Corporation (MD) is managing general partner and Mewbourne
Oil Company (MOC) is operator of oil and gas properties owned by the
partnership. Substantially all transactions are with MD and MOC.
Reimbursement to MOC for supervision and other operating
charges totaled $69,886 for the period April 9, 1999 (date of
inception) through December 31, 1999. Services and operator charges are
billed in accordance with the program and partnership agreements.
In general, during any particular calendar year the total
amount of administrative expenses allocated to the partnership shall
not exceed the greater of (a) 3.5% of the partnership's gross revenue
from the sale of oil and natural gas production during each year
(calculated without any deduction for operating costs or other costs
and expenses) or (b) the sum of $50,000 plus .25% of the capital
contributions of limited and general partners.
The partnership participates in oil and gas activities through
an income tax partnership (the Program). The partnership and MD are
parties to the Program agreement. The costs and revenues of the Program
are allocated to MD and the partnership as follows:
Partnership MD
----------- ---
Revenues:
Proceeds from disposition of depreciable and
depletable properties 60% 40%
All other revenues 60% 40%
Costs and expenses:
Organization and offering costs (1) 0% 100%
Lease acquisition costs (1) 0% 100%
Tangible and intangible drilling costs (1) 100% 0%
Operating costs, reporting and legal
expenses, general and administrative
expenses and all other costs 60% 40%
- --------
(1) As noted above, pursuant to the Program, MD must contribute 100% of
organization and offering costs and lease acquisition costs which will
approximate 30% of total capital costs. To the extent that organization and
offering costs and lease acquisition costs are less that 30% of total capital
costs, MD is responsible for tangible drilling costs until its share of the
Program's total capital costs reaches approximately 30%.
The partnership's financial statements reflect its respective proportionate
interest in the Program.
22
3. RECONCILIATION OF NET LOSS PER STATEMENT OF LOSS WITH NET LOSS PER
FEDERAL INCOME TAX RETURN:
The following is a reconciliation of net loss per statement of
loss with the net loss per federal income tax return for the period
from April 9, 1999 (date of inception) through December 31, 1999:
Net loss per statement of loss $ (282,772)
Intangible development costs capitalized for financial reporting
purposes and expensed for tax reporting purposes (2,854,304)
Cost-ceiling write down for financial reporting purposes 295,632
-----------
Net loss per federal income tax return before tentative tax depletion $(2,841,444)
===========
The partnership's financial reporting bases of its net assets
exceeded the tax bases of its net assets by $2,558,672 at December 31,
1999.
4. PRELIMINARY OIL AND GAS INFORMATION (UNAUDITED):
A majority of the wells drilled, or to be drilled, by the
partnership have been, or will be, completed subsequent to December 31,
1999. Sufficient information is not yet available from well tests or
from initial production to accurately present numerical unaudited
reserve information.
23
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(a)3.
Exhibit No. Description
- ----------- -----------
3.1 Form of Certificate of Limited Partnership
(filed as Exhibit 3.1 to Registration
Statement on Form S-1, File No. 333-76911
and incorporate herein by reference)
3.2 Form of Certificate of Amendment of the
Certificate of Limited Partnership
(filed as Exhibit 3.2 to Registration
Statement on Form S-1, File No. 333-76911
and incorporated herein by reference)
4.1 Form of Agreement of Partnership
(filed as Exhibit 4.1 to Registration
Statement on Form S-1, File No. 333-76911
and incorporated herein by reference)
4.1.2 Amendment to Agreement of
Partnership (filed herewith)
10.1 Form of Drilling Program Agreement
(filed as Exhibit 10.1 to Registration
Statement on Form S-1, File No. 333-76911
and incorporated herein by reference)
10.3 Form of Operating Agreement
(filed as Exhibit 10.3 to Registration
Statement on Form S-1, File No. 333-76911
and incorporated herein by reference)
27 Financial Data Schedule