ITEM 1. Business
Parker & Parsley 90-A, L.P. (the "Partnership") is a limited partnership organized in 1990 under the laws of the State of Delaware. The managing general partner is Parker & Parsley Development L.P. ("PPDLP"). PPDLP's general partner is Parker & Parsley Petroleum USA, Inc. ("PPUSA").
A Registration Statement, as amended, filed pursuant to the Securities Act of 1933, registering limited partnership interests aggregating $70,000,000 in a series of Delaware limited partnerships formed under the Parker & Parsley 89-90 Development Drilling Program, was declared effective by the Securities and Exchange Commission on August 1, 1989. On April 30, 1990, the offering of limited partnership interests in the Partnership, the third partnership formed under such registration statement, was closed, with interests aggregating $6,811,000 being sold to 525 subscribers.
The Partnership engages primarily in oil and gas development and production and is not involved in any industry segment other than oil and gas. See "Item 6. Selected Financial Data" and "Item 8. Financial Statements and Supplementary Data" of this report for a summary of the Partnership's revenue, income and identifiable assets.
The principal markets during 1996 for the oil produced by the Partnership were refineries and oil transmission companies that have facilities near the Partnership's oil producing properties. The principal markets for the Partnership's gas were companies that have pipelines located near the Partnership's gas producing properties. Of the Partnership's total oil and gas revenues for 1996, approximately 61% and 14% were attributable to sales made to Genesis Crude Oil, L.P. and Western Gas Resources, Inc., respectively.
The Partnership's revenues, profitability, cash flow and future rate of growth are highly dependent on the prevailing prices of oil and gas, which are affected by numerous factors beyond the Partnership's control. Oil and gas prices historically have been very volatile. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Partnership's revenues, profitability and cash flow and could, under certain circumstances, result in a reduction in the carrying value of the Partnership's oil and gas properties.
Because of the demand for oil and gas, the Partnership does not believe that the termination of the sales of its products to any one customer would have a
material adverse impact on its operations. The loss of a particular customer for gas may have an effect if that particular customer has the only gas pipeline located in the areas of the Partnership's gas producing properties. The Partnership believes, however, that the effect would be temporary, until alternative arrangements could be made.
Federal and state regulation of oil and gas operations generally includes the fixing of maximum prices for regulated categories of natural gas, the imposition of maximum allowable production rates, the taxation of income and other items, and the protection of the environment. Although the Partnership believes that its business operations do not impair environmental quality and that its costs of complying with any applicable environmental regulations are not currently significant, the Partnership cannot predict what, if any, effect these environmental regulations may have on its current or future operations.
The Partnership does not have any employees of its own. PPUSA employs 659 persons, many of whom dedicated a part of their time to the conduct of the Partnership's business during the period for which this report is filed. The Partnership's managing general partner, PPDLP through PPUSA, is responsible for all management functions.
Numerous uncertainties exist in estimating quantities of proved reserves and future net revenues therefrom. The estimates of proved reserves and related future net revenues set forth in this report are based on various assumptions, which may ultimately prove to be inaccurate. Therefore, such estimates should not be construed as estimates of the current market value of the Partnership's proved reserves.
No material part of the Partnership's business is seasonal and the Partnership conducts no foreign operations.
ITEM 2.
ITEM 2. Properties
The Partnership's properties consist primarily of leasehold interests in properties on which oil and gas wells 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 Spraberry Trend Area of West Texas were acquired by the Partnership, resulting in the Partnership's participation in the drilling of 27 oil and gas wells. Two wells have been sold; one in 1996 and one in 1993. At December 31, 1996, 25 wells were producing.
For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 1996, 1995 and 1994 and changes in such quantities for the years then ended, see Note 7 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below. Such reserves have been estimated by the engineering staff of PPUSA with a review by an independent petroleum consultant.
ITEM 3.
ITEM 3. Legal Proceedings
The Partnership is not aware of any material legal proceedings (other than routine litigation in the ordinary course of the Partnership's business) to which it is a party or to which its properties are subject.
ITEM 4.
ITEM 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth quarter of 1996.
PART II
ITEM 5.
ITEM 5. Market for Partnership's Common Equity and Related Stockholder Matters
At March 8, 1997, the Partnership had 6,811 outstanding limited partnership interests held of record by 526 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, PPDLP has made certain commitments to purchase partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are not required to meet the Partnership's obligations are distributed to the partners at least quarterly in accordance with the limited partnership agreement. During the years ended December 31, 1996 and 1995, $366,110 and $330,027, respectively, of such revenue-related distributions were made to the limited partners.
ITEM 6.
ITEM 6. Selected Financial Data
The following table sets forth selected financial data for the years ended December 31:
ITEM 7.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
1996 compared to 1995
The Partnership's 1996 oil and gas revenues increased to $777,677 from $661,198 in 1995, an increase of 18%. The increase in revenues resulted from a 26% increase in the average price received per barrel of oil and a 50% increase in the average price received per mcf of gas, offset by a 9% decline in barrels of oil produced and sold and a 17% decline in mcf of gas produced and sold. In 1996, 25,428 barrels of oil were sold compared to 27,823 in 1995, a decrease of 2,395 barrels. In 1996, 88,919 mcf of gas were sold compared to 107,613 in 1995, a decrease of 18,694 mcf. Of this decrease, 10,464 mcf, or 10%, was attributable to the sale of one gas well during 1996. The remainder of the decrease, 8,230 mcf or 7%, was due to the decline characteristics of the Partnership's oil and gas properties. Management expects a certain amount of decline in production to continue in the future until the Partnership's economically recoverable reserves are fully depleted.
The average price received per barrel of oil increased $4.45 from $17.17 in 1995 to $21.62 in 1996. The average price received per mcf of gas increased in 1996 to $2.56 compared to $1.71 in 1995. The market price for oil and gas has been extremely volatile in the past decade, and management expects a certain amount of volatility to continue in the foreseeable future. The Partnership may therefore sell its future oil and gas production at average prices lower or higher than that received in 1996.
Total costs and expenses decreased in 1996 to $523,562 as compared to $1,365,678 in 1995, a decrease of $842,116, or 62%. This decrease was due to declines in impairment of oil and gas properties, production costs, depletion and amortization of organization costs, offset by increases in general and administrative expenses ("G&A") and loss on sale of assets.
Production costs were $298,749 in 1996 and $331,241 in 1995, resulting in a $32,492 decrease, or 10%. The decrease was due to a decline in well repair and maintenance costs and lower ad valorem taxes, offset by an increase in production taxes.
G&A's components are independent accounting and engineering fees, computer services, postage and managing general partner personnel costs. During this period, G&A increased, in aggregate, 10% from $23,890 in 1995 to $26,252 in 1996. The Partnership paid the managing general partner $22,989 in 1996 and $19,345 in 1995 for G&A incurred on behalf of the Partnership. G&A is allocated, in part, to the Partnership by the managing general partner. Such allocated expenses are determined by the managing general partner based upon its judgement of the level of activity of the Partnership relative to the managing general partner's activities and other entities it manages. The method of allocation has varied in certain years and may do so again depending on the activities of the managed entities.
The Partnership adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121") effective as of October 1, 1995 (see Notes 2 and 3 of Notes to Financial Statements included in "Item 8.
ITEM 8. Financial Statements and Supplementary Data
The Partnership's audited financial statements are included elsewhere herein.
ITEM 9.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
ITEM 10.
ITEM 10. Directors and Executive Officers of the Partnership
The Partnership does not have any officers or directors. Under the limited partnership agreement, the Partnership's managing general partner, PPDLP, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. PPUSA, the sole general partner of PPDLP, is a wholly-owned subsidiary of Parker & Parsley Petroleum Company (the "Company"), a publicly-traded corporation on the New York Stock Exchange.
Set forth below are the names, ages and positions of the directors and executive officers of PPUSA. Directors of PPUSA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.
Age at December 31, Name 1996 Position ---- ------------ --------
Scott D. Sheffield 44 President, Chairman of the Board, Chief Executive Officer and Director
Timothy A. Leach 37 Executive Vice President and Director
Steven L. Beal 37 Senior Vice President, Chief Financial Officer and Director
Mark L. Withrow 49 Senior Vice President, Secretary and Director
David A. Chroback 41 Senior Vice President and Director
Scott D. Sheffield. Mr. Sheffield, a graduate of The University of Texas with a Bachelor of Science degree in Petroleum Engineering, has been the President and a Director of the Company since May 1990 and has been the Chairman of the Board and Chief Executive Officer since October 1990. Mr. Sheffield joined the Company as a petroleum engineer in 1979. Mr. Sheffield served as Vice President - Engineering of the Company from September 1981 until April 1985 when he was elected President and a Director of the Company. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of the Company. On January 1, 1995, Mr. Sheffield resigned as President and Chief Executive Officer of PPUSA, but remained Chairman of the Board and a Director of PPUSA. On January 1, 1996, Mr. Sheffield reassumed the positions of President and Chief Executive Officer of PPUSA. Before joining the Company, Mr. Sheffield was principally occupied for more than three years as a production and reservoir engineer for Amoco Production Company.
Timothy A. Leach. Mr. Leach, a graduate of Texas A&M University with a Bachelor of Science degree in Petroleum Engineering and the University of Texas of the Permian Basin with a Master of Business Administration degree, was elected Executive Vice President - Engineering of the Company on March 21, 1995. Mr. Leach had been serving as Senior Vice President - Engineering since March 1993 and served as Vice President - Engineering of the Company from October 1990 to March 1993. Mr. Leach was elected Executive Vice President and Director of PPUSA on December 1, 1995. He had joined the Company as Vice President - Engineering in September 1989. Prior to joining the Company, Mr. Leach was employed as Senior Vice President and Director of First City Texas - Midland, N.A.
Steven L. Beal. Mr. Beal, a graduate of the University of Texas with a Bachelor of Business Administration degree in Accounting and a certified public accountant, was elected Senior Vice President - Finance of the Company in January 1995 and Chief Financial Officer of the Company on March 21, 1995. Mr. Beal was elected Senior Vice President and Chief Financial Officer of PPUSA on January 1, 1995 and was elected a Director of PPUSA on January 2, 1996. He served as Treasurer of PPUSA from January 1, 1995 to June 12, 1996. Mr. Beal joined the Company as Treasurer in March 1988 and was elected Vice President - Finance in October 1991. Prior to joining the Company, Mr. Beal was employed as an audit manager for Price Waterhouse.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a Bachelor of Science degree in Accounting and Texas Tech University with a Juris Doctorate degree, was Vice President - General Counsel of the Company from February 1991 to January 1995, when he was appointed Senior Vice President - General Counsel, and has been the Company's Secretary since August 1992. On January 1, 1995, Mr. Withrow was elected Senior Vice President and Secretary of PPUSA and was elected a Director of PPUSA on January 2, 1996. Mr. Withrow joined the Company in January 1991. Prior to joining the Company, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
David A. Chroback. Mr. Chroback, a graduate of Hanover College with a Bachelor of Science degree in Geology, and a graduate of Southern Illinois University at Carbondale with a Master of Science degree in Geology, was elected Senior Vice President of the Company and PPUSA on October 7, 1996. On January 2, 1996, Mr. Chroback was elected Director of PPUSA. He had served as Vice President - Geology of the Company since February 1993. Mr. Chroback has been the Geological Manager since June 1992, and prior to that has been a Senior Geologist with the Company since January 1988. Before joining the Company, he was a project geologist with Indian Wells Oil Company. Mr. Chroback was previously employed by Amoco Production Company as a petroleum geologist from 1980 through 1984.
ITEM 11.
ITEM 11. Executive Compensation
The Partnership does not have any directors or officers. Management of the Partnership is vested in PPDLP, the managing general partner. The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Under the Program agreement, PPDLP and P&P Employees 90-A Conv., L.P. ("EMPL") pay approximately 10% of the
Partnership's acquisition, drilling and completion costs and approximately 15% during the first three years and approximately 20% after three years of its operating and general and administrative expenses. In return, they are allocated approximately 15% during the first three years and approximately 20% after three years of the Partnership's revenues. See Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below for information regarding fees and reimbursements paid to the managing general partner or its affiliates by the Partnership.
PPUSA's current executive officers and other employees are general partners of EMPL which serves as a co-general partner of the Program. Under this arrangement, EMPL pays approximately 2-1/2% of the Partnership's acquisition, drilling and completion costs and approximately 3.75% during the first three years and approximately 5% after three years of its operating and general and administrative expenses. In return, EMPL is allocated approximately 3.75% during the first three years and approximately 5% after three years of the Partnership's revenues. EMPL does not receive any fees or reimbursements from the Partnership.
The Partnership does not directly pay any salaries of the executive officers of PPUSA, but does pay a portion of PPUSA's general and administrative expenses of which these salaries are a part. See Note 6 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below.
ITEM 12.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more of the outstanding limited partnership interests of the Partnership. PPDLP owned 147 limited partner interests at January 1, 1997.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general partner of the Partnership, PPDLP, has the exclusive right and full authority to manage, control and administer the Partnership's business. Under the limited partnership agreement, limited partners holding a majority of the outstanding limited partnership interests have the right to take certain actions, including the removal of the managing general partner or any other general partner. The Partnership is not aware of any current arrangement or activity which may lead to such removal. The Partnership is not aware of any officer or director of PPUSA who beneficially owns limited partnership interests in the Partnership.
ITEM 13.
ITEM 13. Certain Relationships and Related Transactions
Transactions with the managing general partner or its affiliates
Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner or its affiliates during the years ended December 31:
1996 1995 1994 -------- -------- -------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $121,284 $112,212 $113,102
Reimbursement of general and administrative expenses $ 22,989 $ 19,345 $ 21,540
Purchase of oil and gas properties and related equipment, at predecessor cost $ 619 $ 6,805 $ 9,682
Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" below, regarding the Partnership's participation with the managing general partner in oil and gas activities of the Program.
PART IV
ITEM 14.
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial statements
The following are filed as part of this annual report:
Independent Auditors' Report
Balance sheets as of December 31, 1996 and 1995
Statements of operations for the years ended December 31, 1996, 1995 and 1994
Statements of partners' capital for the years ended December 31, 1996, 1995 and 1994
Statements of cash flows for the years ended December 31, 1996, 1995 and 1994
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the required information is in the financial statements or notes thereto, or is not applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or incorporated by reference as part of this annual report.
S I G N A T U R E S
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.
PARKER & PARSLEY 90-A, L.P.
Dated: March 26, 1997 By: Parker & Parsley Development L.P., Managing General Partner
By: Parker & Parsley Petroleum USA, Inc. ("PPUSA"), General Partner
By: /s/ Scott D. Sheffield ------------------------------ Scott D. Sheffield, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
/s/ Scott D. Sheffield President, Chairman of the Board, March 26, 1997 - ----------------------- Chief Executive Officer and Scott D. Sheffield Director of PPUSA
/s/ Timothy A. Leach Executive Vice President and March 26, 1997 - ----------------------- Director of PPUSA Timothy A. Leach
/s/ Steven L. Beal Senior Vice President, Chief March 26, 1997 - ----------------------- Financial Officer and Director Steven L. Beal of PPUSA
/s/ Mark L. Withrow Senior Vice President, Secretary March 26, 1997 - ----------------------- and Director of PPUSA Mark L. Withrow
/s/ David A. Chroback Senior Vice President and March 26, 1997 - ----------------------- Director of PPUSA David A. Chroback
INDEPENDENT AUDITORS' REPORT
The Partners Parker & Parsley 90-A, L.P. (A Delaware Limited Partnership):
We have audited the financial statements of Parker & Parsley 90-A, L.P. as listed in the accompanying index under Item 14(a). These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Parker & Parsley 90-A, L.P. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles.
As discussed in Notes 2 and 3 to the financial statements, the Partnership adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" in 1995.
KPMG Peat Marwick LLP
Midland, Texas March 21, 1997
PARKER & PARSLEY 90-A, L.P. (A Delaware Limited Partnership)
BALANCE SHEETS December 31
1996 1995 ----------- ----------- ASSETS
Current assets: Cash and cash equivalents, including interest bearing deposits of $102,316 in 1996 and $118,538 in 1995 $ 127,525 $ 118,751 Accounts receivable - oil and gas sales 131,628 67,632 ---------- ---------- Total current assets 259,153 186,383 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 5,053,096 5,246,047 Accumulated depletion (3,165,751) (3,154,493) ---------- ---------- Net oil and gas properties 1,887,345 2,091,554 ---------- ---------- $ 2,146,498 $ 2,277,937 ========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities: Accounts payable - affiliate $ 18,703 $ 41,576 Accounts payable - other 32 - ---------- ---------- Total current liabilities 18,735 41,576 ---------- ---------- Partners' capital: Limited partners (6,811 interests) 2,106,405 2,213,917 Managing general partner 21,358 22,444 ---------- ---------- 2,127,763 2,236,361 ---------- ---------- $ 2,146,498 $ 2,277,937 ========== ==========
The accompanying notes are an integral part of these financial statements.
PARKER & PARSLEY 90-A, L.P. (A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS For the years ended December 31
1996 1995 1994 --------- ---------- --------- Revenues: Oil and gas $ 777,677 $ 661,198 $ 733,354 Interest 7,095 7,494 5,676 -------- --------- -------- 784,772 668,692 739,030 -------- --------- -------- Costs and expenses: Oil and gas production 298,749 331,241 350,978 General and administrative 26,252 23,890 27,403 Impairment of oil and gas properties - 583,706 - Depletion 169,844 425,884 354,859 Amortization of organization - 957 2,870 Loss on sale of assets 28,717 - - -------- --------- -------- 523,562 1,365,678 736,110 -------- --------- -------- Net income (loss) $ 261,210 $ (696,986) $ 2,920 ======== ========= ======== Allocation of net income (loss): Managing general partner $ 2,612 $ (6,960) $ 58 ======== ========= ======== Limited partners $ 258,598 $ (690,026) $ 2,862 ======== ========= ======== Net income (loss) per limited partnership interest $ 37.97 $ (101.31) $ .42 ======== ========= ========
The accompanying notes are an integral part of these financial statements.
PARKER & PARSLEY 90-A, L.P. (A Delaware Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total -------- ---------- ----------
Partners' capital at January 1, 1994 $ 36,543 $3,621,956 $3,658,499
Distributions (3,948) (390,848) (394,796)
Net income 58 2,862 2,920 ------- --------- ---------
Partners' capital at December 31, 1994 32,653 3,233,970 3,266,623
Distributions (3,249) (330,027) (333,276)
Net loss (6,960) (690,026) (696,986) ------- --------- ---------
Partners' capital at December 31, 1995 22,444 2,213,917 2,236,361
Distributions (3,698) (366,110) (369,808)
Net income 2,612 258,598 261,210 ------- --------- ---------
Partners' capital at December 31, 1996 $ 21,358 $2,106,405 $2,127,763 ======= ========= =========
The accompanying notes are an integral part of these financial statements.
PARKER & PARSLEY 90-A, L.P. (A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS For the years ended December 31
1996 1995 1994 ---------- ---------- ---------- Cash flows from operating activities: Net income (loss) $ 261,210 $ (696,986) $ 2,920 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of oil and gas properties - 583,706 - Depletion and amortization 169,844 426,841 357,729 Loss on sale of assets 28,717 - - Changes in assets and liabilities: (Increase) decrease in accounts receivable (63,996) 10,276 6,296 Increase (decrease) in accounts payable (22,583) 18,509 10,265 --------- --------- --------- Net cash provided by operating activities 373,192 342,346 377,210 --------- --------- --------- Cash flows from investing activities: Additions to oil and gas properties (1,425) (6,611) (9,682) Proceeds from the sale of assets 6,815 - - --------- --------- --------- Net cash provided by (used in) investing activities 5,390 (6,611) (9,682) --------- --------- --------- Cash flows from financing activities: Cash distributions to partners (369,808) (333,276) (394,796) --------- --------- --------- Net increase (decrease) in cash and cash equivalents 8,774 2,459 (27,268) Cash and cash equivalents at beginning of year 118,751 116,292 143,560 --------- --------- --------- Cash and cash equivalents at end of year $ 127,525 $ 118,751 $ 116,292 ========= ========= =========
The accompanying notes are an integral part of these financial statements..
PARKER & PARSLEY 90-A, L.P. (A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994
Note 1. Organization and nature of operations
Parker & Parsley 90-A, L.P. (the "Partnership") is a limited partnership organized in 1990 under the laws of the State of Delaware.
The Partnership engages primarily in oil and gas development and production in the Spraberry Trend area of West Texas and is not involved in any industry segment other than oil and gas.
Note 2. Summary of significant accounting policies
A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows:
Impairment of long-lived assets - Commencing in 1995, in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the Partnership reviews its long-lived assets to be held and used on an individual property basis, including oil and gas properties accounted for under the successful efforts method of accounting whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. An impairment loss is indicated if the sum of the expected future cash flows is less than the carrying amount of the assets. In this circumstance, the Partnership recognizes an impairment loss for the amount by which the carrying amount of the asset exceeds the fair value of the asset.
The Partnership accounts for long-lived assets to be disposed of at the lower of their carrying amount or fair value less costs to sell once management has committed to a plan to dispose of the assets.
Prior to the adoption of SFAS 121 in the fourth quarter of 1995, the Partnership's aggregate oil and gas properties were stated at cost not in excess of total estimated future net revenues and the estimated fair value of oil and gas assets not being depleted.
Oil and gas properties - The Partnership utilizes the successful efforts method of accounting for its oil and gas properties and equipment. Under this method, all costs associated with productive wells and nonproductive development wells are capitalized while nonproductive exploration costs are expensed. Capitalized costs relating to proved properties are depleted using the unit-of-production method on a property-by-property basis based on proved oil (dominant mineral) reserves as determined by the engineering staff of Parker & Parsley Petroleum USA, Inc. ("PPUSA"), the sole general partner of Parker & Parsley Development L.P. ("PPDLP"), the Partnership's managing general partner, and reviewed by independent petroleum consultants. The carrying amounts of properties sold or otherwise disposed of and the related allowances for
depletion are eliminated from the accounts and any gain or loss is included in operations.
Use of estimates in the preparation of financial statements - Preparation of the accompanying 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 reporting amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Organization costs - Organization costs are capitalized and amortized on the straight-line method over 60 months.
Net income (loss) per limited partnership interest - The net income (loss) per limited partnership interest is calculated by using the number of outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in the financial statements as the income of the Partnership is included in the individual Federal income tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash and cash equivalents include depository accounts held by banks.
General and administrative expenses - General and administrative expenses are allocated in part to the Partnership by the managing general partner or its affiliates. Such allocated expenses are determined by the managing general partner based upon its judgement of the level of activity of the Partnership relative to the managing general partner's activities and other entities it manages. The method of allocation has varied in certain years and may do so again depending on the activities of the managed entities.
Environmental - The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environ mental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated.
Note 3. Impairment of long-lived assets
The Partnership adopted SFAS 121 effective October 1, 1995. In order to determine whether an impairment had occurred, the Partnership estimated the expected future cash flows of its oil and gas properties and compared such future cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount was recoverable. For those oil and gas properties for which the carrying amount exceeded the estimated future cash
flows, an impairment was determined to exist; therefore, the Partnership adjusted the carrying amount of those oil and gas properties to their fair value as determined by discounting their expected future cash flows at a discount rate commensurate with the risks involved in the industry. As a result of the review and evaluation of its long-lived assets for impairment, the Partnership recognized a non-cash charge of $583,706 related to its oil and gas properties during the fourth quarter of 1995.
Note 4. Income taxes
The financial statement basis of the Partnership's net assets and liabilities was $1,004,197 greater than the tax basis at December 31, 1996.
The following is a reconciliation of net income (loss) per statements of operations with the net income per Federal income tax returns for the years ended December 31: 1996 1995 1994 -------- --------- -------- Net income (loss) per statements of operations $261,210 $(696,986) $ 2,920 Depletion and depreciation provisions for tax reporting purposes (over) under amounts for financial reporting purposes (25,153) 219,258 135,481 Impairment of oil and gas properties for financial reporting purposes - 583,706 - Loss on sale of an asset for financial reporting purposes under amounts for tax reporting purposes 26,940 - - Other 2,545 355 354 ------- -------- ------- Net income per Federal income tax returns $265,542 $ 106,333 $138,755 ======= ======== ======= Note 5. Oil and gas producing activities
The following is a summary of the costs incurred, whether capitalized or expensed, related to the Partnership's oil and gas producing activities for the years ended December 31: 1996 1995 1994 ---------- ---------- ---------- Development costs $ 1,168 $ 6,868 $ 9,682 ========= ========= =========
Capitalized oil and gas properties consist of the following: 1996 1995 1994 ----------- ----------- ----------- Proved properties: Property acquisition costs $ 200,177 $ 230,905 $ 230,905 Completed wells and equipment 4,852,919 5,015,142 5,008,274 ---------- ---------- ---------- 5,053,096 5,246,047 5,239,179 Accumulated depletion (3,165,751) (3,154,493) (2,144,903) ---------- ---------- ---------- Net capitalized costs $ 1,887,345 $ 2,091,554 $ 3,094,276 ========== ========== ==========
During 1995, the Partnership recognized a non-cash charge against oil and gas properties of $583,706 associated with the adoption of SFAS 121. See Note 3.
Note 6. Related party transactions
Pursuant to the limited partnership agreement, the Partnership had the following related party transactions with the managing general partner or its affiliates during the years ended December 31: 1996 1995 1994 -------- -------- -------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $121,284 $112,212 $113,102
Reimbursement of general and administrative expenses $ 22,989 $ 19,345 $ 21,540
Purchase of oil and gas properties and related equipment, at predecessor cost $ 618 $ 6,805 $ 9,682
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. PPDLP and P&P Employees 90-A Conv., L.P. ("EMPL") (the "Entities"), Parker & Parsley 90-A Conv., L.P. and the Partnership (the "Partner ships") are parties to the Program agreement. EMPL is a limited partnership organized for the benefit of certain employees of PPUSA.
The costs and revenues of the Program are allocated to the Entities and the Partnerships as follows: Entities (1) Partnerships (2) ------------ ---------------- Revenues: Proceeds from disposition of depreciable and depletable properties - First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081% All other revenues - First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081% Costs and expenses: Lease acquisition costs, drilling and completion costs and all other costs 9.090909% 90.909091% Operating costs, reporting and legal expenses and general and administrative expenses - First three years 14.141414% 85.858586% After first three years 19.191919% 80.808081%
(1) Excludes PPDLP's 1% general partner ownership which is allocated at the Partnership level and 147 limited partner interests owned by PPDLP.
(2) The allocation between the Partnership and Parker & Parsley 90-A Conv., L.P. is 74.274809% and 25.725191%, respectively.
Note 7. Oil and gas information (unaudited)
The following table presents information relating to the Partnership's estimated proved oil and gas reserves at December 31, 1996, 1995 and 1994 and changes in such quantities during the years then ended. All of the Partnership's reserves are proved and located within the United States. The Partnership's reserves are based on an evaluation prepared by the engineering staff of PPUSA and reviewed by an independent petroleum consultant, using criteria established by the Securities and Exchange Commission. Reserve value information is available to limited partners pursuant to the Partnership agreement and therefore, is not presented. Oil (bbls) Gas (mcf) ---------- --------- Net proved reserves at January 1, 1994 459,090 1,726,437 Revisions (68,398) (219,814) Production (32,490) (118,085) ------- -------- Net proved reserves at December 31, 1994 358,202 1,388,538 Revisions (21,993) 24,720 Production (27,823) (107,613) ------- -------- Net proved reserves at December 31, 1995 308,386 1,305,645 Revisions 60,341 363,559 Sale of reserves (141) (51,479) Production (25,428) (88,919) ------- ------- Net proved reserves at December 31, 1996 343,158 1,528,806 ======= =========
The estimated present value of future net revenues of proved reserves, calculated using December 31, 1996 prices of $24.80 per barrel of oil and $3.78 per mcf of gas, discounted at 10% was approximately $3,363,000 and undiscounted was $6,755,000 at December 31, 1996.
The Partnership emphasizes that reserve estimates are inherently imprecise and, accordingly, the estimates are expected to change as future information becomes available.
Note 8. Major customers
The following table reflects the major customers of the Partnership's oil and gas sales (a major customer is defined as a customer whose sales exceed 10% of total sales) during the years ended December 31:
1996 1995 1994 ------ ------ ------ Genesis Crude Oil, L.P. 61% 63% 61% Western Gas Resources, Inc. 14% 12% 10% GPM Gas Corporation - 10% 13%
The above customers represent 68% of total accounts receivable at December 31, 1996.
PPDLP is party to a long-term agreement pursuant to which PPDLP and affiliates are to sell to Basis Petroleum, Inc. (formerly Phibro Energy, Inc.) substantially all crude oil (including condensate) which any of such entities have the right to market from time to time. On September 23, 1996, PPDLP and Basis Petroleum, Inc. entered into an agreement that supersedes the prior crude oil purchase agreement between the parties and provides for adjusted terms effective December 1, 1995. On November 25, 1996, the Company consented to the assignment of the agreement to Genesis Crude Oil, L.P. ("Genesis"), a limited partnership formed by Basis Petroleum, Inc. and Howell Corporation. The price to be paid by Genesis for oil purchased under the agreement ("Genesis Agreement") is to be competitive with prices paid by other substantial purchasers in the same areas who are significant competitors of Genesis. The price to be paid for oil purchased under the Genesis Agreement includes a market-related bonus that may vary from month to month based upon spot oil prices at various commodity trade points. The term of the Genesis Agreement is through June 30, 1998, and it may continue thereafter subject to termination rights afforded each party. Salomon, Inc., the parent company of Basis Petroleum, Inc. and a subordinated limited partner in Genesis, secures the payment obligations under the Genesis Agreement with a $25 million payment guarantee. Accounts receivable-oil and gas sales included $66,846 due from Genesis at December 31, 1996.
Note 9. Organization and operations
The Partnership was organized April 30, 1990 as a limited partnership under the Delaware Act for the purpose of acquiring and developing oil and gas properties. The following is a brief summary of the more significant provisions of the limited partnership agreement:
Managing general partner - The managing general partner of the Partnership is PPDLP. PPDLP has the power and authority to manage, control and administer all Program and Partnership affairs. Under the limited partnership agreement, the managing general partner pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, it is allocated 1% of the Partnership's revenues.
Limited partner liability - The maximum amount of liability of any limited partner is the total contributions of such partner plus his share of any undistributed profits.
Initial capital contributions - The limited partners entered into subscription agreements for aggregate capital contributions of $6,811,000. PPDLP is required to contribute amounts equal to 1% of initial Partnership capital less commission and organization and offering costs allocated to the limited partners and to contribute amounts necessary to pay costs and expenses allocated to it under the Partnership agreement to the extent its share of revenues does not cover such costs.
Note 10. Disposition of Assets
A loss of $28,717 on sale of assets to Costilla Energy, L.L.C. was recognized during 1996. This loss was the result of the write-off of remaining capitalized well costs for one gas well of $35,532, less proceeds received of $6,815.
PARKER & PARSLEY 90-A, L.P.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item 14(c):
Exhibit No. Description Page ----------- ----------- ----
3(a) Amended and Restated Certificate and - Agreement of Limited Partnership of
Parker & Parsley 90-A, L.P.
4(b) Form of Subscription Agreement and - Power of Attorney
4(c) Specimen Certificate of Limited - Partnership Interest
10(a) Operating Agreement -
10(b) Exploration and Development Program - Agreement