ITEM 1. Business
Parker & Parsley Producing Properties 87-B, Ltd. (the "Partnership") is a limited partnership organized in 1987 under the laws of the state of Texas. As of August 8, 1997, Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general partner of the Partnership. Prior to August 8, 1997, the Partnership's managing general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August 7, 1997, Parker & Parsley and Mesa Inc. ("Mesa") received shareholder approval to merge and create Pioneer Natural Resources Company ("Pioneer"). On August 8, 1997, PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of Pioneer, resulting in Pioneer USA becoming the managing general partner of the Partnership as PPDLP's successor by merger. For a more complete description of the Parker & Parsley and Mesa merger, see Pioneer's Registration Statement on Form S-4 as filed with the Securities & Exchange Commission.
A Registration Statement, as amended, filed pursuant to the Securities Act of 1933, registering limited partnership interests aggregating $30,000,000 in a series of Texas limited partnerships formed under the Parker & Parsley Producing Properties Program-I, was declared effective by the Securities and Exchange Commission on February 20, 1987. On December 28, 1987, the offering of limited partnership interests in the Partnership, the second partnership formed under such statement, was closed, with interests aggregating $6,095,500 being sold to 573 subscribers.
The Partnership's primary business plan and objectives are to purchase producing oil and gas properties and distribute the cash flow from operations to its partners. The Partnership 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 1997 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 1997, approximately 49% and 35% 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. Pioneer USA employs 1,133 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. Pioneer USA supplies 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.
The Partnership completed seven purchases of producing properties. These acquisitions involved the purchase of working interests in 54 properties of which all are operated by the managing general partner. The Partnership also
participated in the drilling of two oil and gas wells during 1988 which were completed as producers. Additionally, the Partnership purchased 15 overriding royalty interests effective January 1, 1990 and two additional overriding royalty interests during 1991. Several uneconomical wells have been abandoned in prior years, including three wells in 1994, three wells in 1995, one well in 1996 and one well in 1997. At December 31, 1997, the Partnership had 46 producing oil and gas wells.
For information relating to the Partnership's estimated proved oil and gas reserves at December 31, 1997, 1996 and 1995 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 Pioneer USA with a review by an independent petroleum consultant.
ITEM 3.
ITEM 3. Legal Proceedings
The Partnership is a party to various legal proceedings incidental to its business involving claims in oil and gas leases or interests, other claims for damages in amounts not in excess of 10% of its current assets and other matters, none of which Pioneer believes to be material.
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 1997.
PART II
ITEM 5.
ITEM 5. Market for Partnership's Common Equity and Related Stockholder Matters
At March 9, 1998, the Partnership had 12,191 outstanding limited partnership interests held of record by 560 subscribers. There is no established public trading market for the limited partnership interests. Under the limited partnership agreement, Pioneer USA 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, 1997 and 1996, $477,903 and $433,825, 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
1997 compared to 1996
Results of operations
The Partnership's 1997 oil and gas revenues decreased 14% to $846,163 from $980,232 in 1996. The decrease in revenues resulted from a lower average price received per barrel of oil. In 1997, 28,091 barrels of oil, 7,221 barrels of natural gas liquids ("NGLs") and 90,629 mcf of gas were sold, or 50,417 barrel of oil equivalents ("BOEs"). In 1996, 35,151 barrels of oil and 90,750 mcf of gas were sold, or 50,276 BOEs.
Consistent with the managing general partner, the Partnership has historically accounted for processed natural gas production as wellhead production on a wet gas basis. As a result of the merger with Mesa, the managing general partner has adopted Mesa's accounting policy and now accounts for processed natural gas production in two components: natural gas liquids and dry residue gas. As a result of the change in the managing general partner's policy, the Partnership now accounts for processed natural gas production as processed natural gas liquids and dry residue gas. Consequently, separate product volumes will not be comparable for periods prior to September 30, 1997.
The average price received per barrel of oil decreased $2.53, or 12%, from $21.65 in 1996 to $19.12 in 1997. The average price received per barrel of NGLs during 1997 was $10.65. The average price received per mcf of gas increased 6% from $2.42 in 1996 to $2.56 in 1997. 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 1997.
In 1997, $13,626 gain on disposition of assets was recognized from the write-off of remaining capitalized well costs of $29,906 on one plugged and abandoned oil and gas well, offset by proceeds of $43,532 received from equipment salvage.
Loss on disposition of assets of $1,162 was recognized during 1996, resulting from the write-off of remaining capitalized well costs of $2,473 on one oil and gas well and one saltwater disposal well, offset by proceeds of $1,311 received from equipment salvage.
Total costs and expenses increased in 1997 to $1,008,245 as compared to $680,099 in 1996, an increase of $328,146, or 48%. The increase was primarily attributable to increases in the impairment of oil and gas properties, depletion and abandoned property costs, offset by declines in production and general and administrative expenses ("G&A").
Production costs were $407,313 in 1997 and $457,850 in 1996, resulting in a $50,537 decrease, or 11%. The decrease was the net result of a reduction in workover costs, well maintenance costs and production taxes, offset by an increase in ad valorem taxes.
Expenses of $24,969 and $1,735 were incurred during 1997 and 1996, respectively, to plug and abandon one oil and gas well in 1997 and one oil and gas well and one saltwater disposal well in 1996.
G&A's components are independent accounting and engineering fees and managing general partner personnel and operating costs. During this period, G&A decreased, in aggregate, 13%, from $31,991 in 1996 to $27,969 in 1997. The Partnership paid the managing general partner $19,944 in 1997 and $24,530 in 1996 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
Page
Financial Statements of Parker & Parsley Producing Properties 87-B, Ltd.: Independent Auditors' Report......................................... 11 Balance Sheets as of December 31, 1997 and 1996...................... 12 Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995................................................ 13 Statements of Partners' Capital for the Years Ended December 31, 1997, 1996 and 1995................................... 14 Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995................................................ 15 Notes to Financial Statements........................................ 16
INDEPENDENT AUDITORS' REPORT
The Partners Parker & Parsley Producing Properties 87-B, Ltd. (A Texas Limited Partnership):
We have audited the financial statements of Parker & Parsley Producing Properties 87-B, Ltd. as listed in the accompanying index. 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 Producing Properties 87-B, Ltd. as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1997, 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 20, 1998
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. (A Texas Limited Partnership)
BALANCE SHEETS December 31
1997 1996 ----------- ----------- ASSETS
Current assets: Cash and cash equivalents, including interest bearing deposits of $74,658 in 1997 and $63,551 in 1996 $ 74,883 $ 63,834 Accounts receivable - affiliate 115,661 159,893 ---------- ---------- Total current assets 190,544 223,727 ---------- ---------- Oil and gas properties - at cost, based on the successful efforts accounting method 4,827,151 4,896,213 Accumulated depletion (3,818,776) (3,296,326) ---------- ---------- Net oil and gas properties 1,008,375 1,599,887 ---------- ---------- $ 1,198,919 $ 1,823,614 ========== ==========
PARTNERS' CAPITAL
Partners' capital: Managing general partner $ 11,934 $ 17,711 Limited partners (12,191 interests) 1,186,985 1,805,903 ----------- ----------- $ 1,198,919 $ 1,823,614 =========== ===========
The accompanying notes are an integral part of these financial statements.
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. (A Texas Limited Partnership)
STATEMENTS OF OPERATIONS For the years ended December 31
1997 1996 1995 ---------- -------- -------- Revenues: Oil and gas $ 846,163 $980,232 $921,034 Interest 6,017 4,409 6,554 Gain (loss) on disposition of assets 13,626 (1,162) (3,109) --------- ------- ------- 865,806 983,479 924,479 ------- ------- ------- Costs and expenses: Oil and gas production 407,313 457,850 471,114 General and administrative 27,969 31,991 27,631 Impairment of oil and gas properties 317,255 42,277 104,960 Depletion 230,739 146,246 154,885 Abandoned property 24,969 1,735 8,153 --------- ------- ------- 1,008,245 680,099 766,743 --------- ------- ------- Net income (loss) $ (142,439) $303,380 $157,736 ========= ======= ======= Allocation of net income (loss): Managing general partner $ (1,424) $ 3,034 $ 1,578 ========= ======= ======= Limited partners $ (141,015) $300,346 $156,158 ========= ======= ======= Net income (loss) per limited partnership interest $ (11.57) $ 24.64 $ 12.81 ========= ======= =======
The accompanying notes are an integral part of these financial statements.
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. (A Texas Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing general Limited partner partners Total --------- ---------- ---------- Partners' capital at January 1, 1995 $ 21,685 $2,136,837 $2,158,522
Distributions (4,138) (353,613) (357,751)
Net income 1,578 156,158 157,736 -------- --------- --------- Partners' capital at December 31, 1995 19,125 1,939,382 1,958,507
Distributions (4,448) (433,825) (438,273)
Net income 3,034 300,346 303,380 -------- --------- --------- Partners' capital at December 31, 1996 17,711 1,805,903 1,823,614
Distributions (4,353) (477,903) (482,256)
Net loss (1,424) (141,015) (142,439) -------- --------- --------- Partners' capital at December 31, 1997 $ 11,934 $1,186,985 $1,198,919 ======== ========= =========
The accompanying notes are an integral part of these financial statements.
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. (A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS For the years ended December 31
1997 1996 1995 --------- --------- --------- Cash flows from operating activities: Net income (loss) $(142,439) $ 303,380 $ 157,736 Adjustments to reconcile net income (loss) to net cash provided by operating activities: (Gain) loss on disposition of assets (13,626) 1,162 3,109 Impairment of oil and gas properties 317,255 42,277 104,960 Depletion 230,739 146,246 154,885 Changes in assets: Accounts receivable 44,232 (114,291) 55,690 -------- -------- -------- Net cash provided by operating activities 436,161 378,774 476,380 -------- -------- -------- Cash flows from investing activities: (Additions to) disposals of oil and gas equipment 13,612 (15,058) (26,426) Proceeds from disposition of assets 43,532 2,410 6,868 -------- -------- -------- Net cash provided by (used in) investing activities 57,144 (12,648) (19,558) -------- -------- -------- Cash flows from financing activities: Cash distributions to partners (482,256) (438,273) (357,751) -------- -------- -------- Net increase (decrease) in cash and cash equivalents 11,049 (72,147) 99,071 Cash and cash equivalents at beginning of year 63,834 135,981 36,910 -------- -------- -------- Cash and cash equivalents at end of year $ 74,883 $ 63,834 $ 135,981 ======== ======== ========
The accompanying notes are an integral part of these financial statements.
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. (A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS December 31, 1997, 1996 and 1995
Note 1. Organization and nature of operations
Parker & Parsley Producing Properties 87-B, Ltd. (the "Partnership") is a limited partnership organized in 1987 under the laws of the State of Texas. As of August 8, 1997, Pioneer Natural Resources USA, Inc. ("Pioneer USA") became the managing general partner of the Partnership. Prior to August 8, 1997, the Partnership's managing general partner was Parker & Parsley Development L.P. ("PPDLP"), a wholly-owned subsidiary of Parker & Parsley Petroleum Company ("Parker & Parsley"). On August 7, 1997, Parker & Parsley and Mesa Inc. received shareholder approval to merge and create Pioneer Natural Resources Company ("Pioneer"). On August 8, 1997, PPDLP was merged with and into Pioneer USA, a wholly-owned subsidiary of Pioneer, resulting in Pioneer USA becoming the managing general partner of the Partnership as PPDLP's successor by merger.
The Partnership engages primarily in oil and gas production in 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:
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.
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 Pioneer USA, 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.
Impairment of long-lived assets - 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.
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.
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.
Reclassification - Certain reclassifications have been made to the 1996 and 1995 financial statements to conform to the 1997 financial statement presentations.
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 environmental 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. Such liabilities are generally undiscounted unless the timing of cash payments for the liability or component are fixed or reliably determinable.
Note 3. Impairment of long-lived assets
The Partnership adopted SFAS 121 effective October 1, 1995. In order to determine whether an impairment has occurred, the Partnership estimates the expected future cash flows of its oil and gas properties and compares such future cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount is 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 non-cash charges of $317,255, $42,277 and $104,960 related to its oil and gas properties during the fourth quarters of 1997, 1996 and 1995, respectively.
Note 4. Income taxes
The financial statement basis of the Partnership's net assets and liabilities was $1,113,272 less than the tax basis at December 31, 1997.
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: 1997 1996 1995 --------- -------- -------- Net income (loss) per statements of operations $(142,439) $303,380 $157,736 Intangible development costs capitalized for financial reporting purposes and expensed for tax reporting purposes - - (623) Depletion and depreciation provisions for tax reporting purposes (over) under amounts for financial reporting purposes 122,566 8,961 (23,603) Impairment of oil and gas properties for financial reporting purposes 317,255 42,277 104,960 Other, net 18,441 4,125 535 -------- ------- ------- Net income (loss) per Federal income tax returns $ 315,823 $358,743 $239,005 ======== ======= =======
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: 1997 1996 1995 -------- -------- -------- Property acquisition costs $ 32,175 $ 12,738 $ 10,852 ======= ======= ======= Development costs $ - $ (589) $ 623 ======= ======= =======
Capitalized oil and gas properties consist of the following:
1997 1996 ----------- ----------- Proved properties: Property acquisition costs $ 3,284,729 $ 3,353,791 Completed wells and equipment 1,542,422 1,542,422 ---------- ---------- 4,827,151 4,896,213 Accumulated depletion (3,818,776) (3,296,326) ---------- ---------- Net capitalized costs $ 1,008,375 $ 1,599,887 ========== ==========
During 1997 and 1996, respectively, the Partnership recognized non-cash charges against oil and gas properties of $317,255 and $42,277 in accordance with 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: 1997 1996 1995 -------- -------- -------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $166,265 $169,025 $153,156
Reimbursement of general and administrative expenses $ 19,944 $ 24,530 $ 23,322
Purchase of oil and gas properties and related equipment, at predecessor cost $ - $ 8,804 $ -
Receipt of proceeds for the salvage value of retired oil and gas equipment $ 60,409 $ - $ 6,498
The Partnership participates in oil and gas activities through an income tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA, P&P Producing Properties 87-B Employees ("EMPL") and the Partnership are parties to the Program agreement. EMPL is a general partnership organized for the benefit of certain employees of Pioneer USA.
The costs and revenues of the Program are allocated to Pioneer USA, EMPL and the Partnership as follows: Pioneer USA(1) and EMPL Partnership -------------- ----------- Revenues: Revenues from oil and gas production, proceeds from sales of producing properties and all other revenues: Before payout 4.040405% 95.959595% After payout 19.191920% 80.808080% Costs and expenses: Property acquisition costs, operating costs, general and administrative expenses and other costs: Before payout 4.040405% 95.959595% After payout 19.191920% 80.808080%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at the Partnership level and 196 limited partner interests owned by Pioneer USA.
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, 1997, 1996 and 1995 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 Pioneer USA 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 and NGLs Gas (bbls) (mcf) ---------- --------- Net proved reserves at January 1, 1995 438,938 1,502,888 Revisions 83,282 411,623 Production (43,188) (108,168) ---------- --------- Net proved reserves at December 31, 1995 479,032 1,806,343 Revisions (35,780) (140,224) Production (35,151) (90,750) ---------- --------- Net proved reserves at December 31, 1996 408,101 1,575,369 Revisions 46,800 (820,651) Production (35,312) (90,629) ---------- --------- Net proved reserves at December 31, 1997 419,589 664,089 ========== =========
The estimated present value of future net revenues of proved reserves, calculated using December 31, 1997 prices of $17.09 per barrel of oil, $12.55 per barrel of NGLs and $2.11 per mcf of gas, discounted at 10% was approximately $1,848,000 and undiscounted was $3,500,000 at December 31, 1997. Subsequent to December 31, 1997, the prices of oil and gas have been declining, and on March 19, 1998, the average prices for the Partnership's oil and gas were approximately $12.00 and $2.05, respectively.
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: 1997 1996 1995 -------- -------- -------- Genesis Crude Oil, L.P. 49% 61% 66% Western Gas Resources, Inc. 35% 10% - Phillips Petroleum Company - 11% - GPM Gas Corporation - 10% -
The above customers represent 47% of total accounts receivable at December 31, 1997.
Pioneer USA is party to a long-term agreement pursuant to which Pioneer USA 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 November 25, 1996, Pioneer USA 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.
Note 9. Organization and operations
The Partnership was organized December 28, 1987 as a limited partnership under the Texas Uniform Limited Partnership Act for the purpose of acquiring producing 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 Pioneer USA. Pioneer USA has the power and authority to manage, control and administer all 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 $6,095,500. Pioneer USA is required to contribute amounts equal to 1% of initial Partnership capital less commission and offering expenses 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.
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, Pioneer USA, is granted the exclusive right and full authority to manage, control and administer the Partnership's business. Pioneer USA is a wholly-owned subsidiary of Pioneer, 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 Pioneer USA. Directors of Pioneer USA are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified. Age at December 31, Name 1997 Position - -------------------- ------------ ------------------------------------- Scott D. Sheffield 45 President and Director
Timothy L. Dove 41 Executive Vice President and Director
Dennis E. Fagerstone 48 Executive Vice President and Director
Mark L. Withrow 50 Executive Vice President, General Counsel and Director
M. Garrett Smith 36 Executive Vice President, Chief Financial Officer and Director
Mel Fischer 63 Executive Vice President
Lon C. Kile 42 Executive Vice President
Rich Dealy 31 Vice President and Chief Accounting Officer
Scott D. Sheffield. Mr. Sheffield is a distinguished graduate of The University of Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as President, Chief Executive Officer and a director of Pioneer and President and a director of Pioneer USA. Mr. Sheffield was the President and a director of Parker & Parsley from May 1990 until August 1997 and was the Chairman of the Board and Chief Executive Officer of Parker & Parsley from October 1990 until August 1997. He was the sole director of Parker & Parsley from May 1990 until October 1990. Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as Vice President - Engineering of PPDC from September 1981 until April 1985 when he was elected President and a director. In March 1989, Mr. Sheffield was elected Chairman of the Board and Chief Executive Officer of PPDC. Before joining PPDC, Mr. Sheffield was employed as a production and reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove became Executive Vice President - Business Development of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. Mr. Dove joined Parker & Parsley in May 1994 as Vice President - International and was promoted to Senior Vice President - - Business Development in October 1996, in which position he served until August 1997. Prior to joining Parker & Parsley, Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy Corp, in various capacities in international exploration and production, marketing, refining and marketing and planning and development. Mr. Dove earned a B.S. in Mechanical Engineering from Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981 from the University of Chicago.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of Mines with a B.S. in Petroleum Engineering, became an Executive Vice President of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. He served as Executive Vice President and Chief Operating Officer of Mesa from March 1, 1997 until August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice President and Chief Operating Officer of Mesa and from May 1991 to October 1996, he served as Vice President - Exploration and Production of Mesa. From June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University with a B. S. in Accounting and Texas Tech University with a Juris Doctorate degree, became Executive Vice President, General Counsel and Secretary of Pioneer and Pioneer USA in August 1997. He was also appointed a director of Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of Parker & Parsley from January 1991, when he joined Parker & Parsley, to January 1995, when he was appointed Senior Vice President - General Counsel. He was Parker & Parsley's Secretary from August 1992 until August 1997. Prior to joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
M. Garrett Smith. Mr. Smith, a graduate of The University of Texas with a B.S. in Electrical Engineering and Southern Methodist University with an M.B.A., was appointed Executive Vice President and Chief Financial Officer of Pioneer in December 1997. He served as Senior Vice President - Finance of Pioneer from August 1997 until December 1997. Mr. Smith was elected Senior Vice President - Finance and a director of Pioneer USA in August 1997. He served as Vice President - Corporate Acquisitions of Mesa from January 1997 until August 1997. From October 1996 to December 1996, Mr. Smith served as Vice President - Finance of Mesa and from 1994 to 1996 he served as Director of Financial Planning of Mesa. Mr. Smith was employed by BTC Partners, Inc. (a former financial advisor to Mesa) from 1989 to 1994.
Mel Fischer. Mr. Fischer, a graduate of the University of California at Berkeley with a Masters degree in Geology, became Executive Vice President - Worldwide Exploration of Pioneer and Pioneer USA in August 1997. He served as a director of Parker & Parsley from November 1995 until August 1997 and was Executive Vice President - Worldwide Exploration for Parker & Parsley from February 1997 to August 1997. Mr. Fischer worked in the petroleum industry for 32 years, starting as a Petroleum Geologist with Texaco in 1962, and retiring as President, Occidental International Exploration and Production Company in March
1994. For the 10 years prior to becoming President of Occidental International, he served as Executive Vice President, World Wide Exploration with Occidental Oil and Gas Corporation. He is a registered geologist in the State of California, a member of the American Association of Petroleum Geologists and an emeritus member of the Board of Advisors for the Earth Sciences Research Institute at the University of Utah.
Lon C. Kile. Mr. Kile, a graduate of Oklahoma State University with a B.B.A. in Accounting, became Executive Vice President of Pioneer and Pioneer USA in August 1997. Mr. Kile was Senior Vice President - Investor Relations from October 1996 to August 1997. Previously, he served as Vice President and Manager of the Mid-Continent Division, Vice President - Equity Finance & Analysis and Vice President - Marketing & Program Administration. Prior to joining Parker & Parsley in 1985, he was employed as Supervisor - Senior, Audit, in charge of Parker & Parsley's audit, with Ernst & Young.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to February 1998. He served as Controller of Parker & Parsley from August 1995 to August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July, 1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in charge of Parker & Parsley's audit.
ITEM 11.
ITEM 11. Executive Compensation
The Partnership does not have any directors or officers. Management of the Partnership is vested in Pioneer USA, 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 limited partnership agreement, Pioneer USA pays 1% of the Partnership's acquisition, drilling and completion costs and 1% of its operating and general and administrative expenses. In return, Pioneer USA is allocated 1% of the Partnership's revenues. See Notes 6 and 9 of Notes to Financial Statements included in "Item 8. Financial Statements and Supplementary Data" for information regarding fees and reimbursements paid to the managing general partner or its affiliates by the Partnership.
The Partnership does not directly pay any salaries of the executive officers of Pioneer USA, but does pay a portion of Pioneer USA'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".
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. Pioneer USA owned 196 limited partner interests at January 1, 1998.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general partner of the Partnership, Pioneer USA, 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 Pioneer USA 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: 1997 1996 1995 -------- -------- -------- Payment of lease operating and supervision charges in accordance with standard industry operating agreements $166,265 $169,025 $153,156
Reimbursement of general and administrative expenses $ 19,944 $ 24,530 $ 23,322
Purchase of oil and gas properties and related equipment, at predecessor cost $ - $ 8,804 $ -
Receipt of proceeds for the salvage value of retired oil and gas equipment $ 60,409 $ - $ 6,498
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" 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, 1997 and 1996
Statements of operations for the years ended December 31, 1997, 1996 and 1995
Statements of partners' capital for the years ended December 31, 1997, 1996 and 1995
Statements of cash flows for the years ended December 31, 1997, 1996 and 1995
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 PRODUCING PROPERTIES 87-B, LTD.
Dated: March 30, 1998 By: Pioneer Natural Resources USA, Inc. Managing 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 and Director of March 30, 1998 - ------------------------- Pioneer USA Scott D. Sheffield
/s/ Timothy L. Dove Executive Vice President and March 30, 1998 - ------------------------- Director of Pioneer USA Timothy L. Dove
/s/ Dennis E. Fagerstone Executive Vice President and March 30, 1998 - ------------------------- Director of Pioneer USA Dennis E. Fagerstone
/s/ Mark L. Withrow Executive Vice President, General March 30, 1998 - ------------------------- Counsel and Director of Pioneer USA Mark L. Withrow
/s/ M. Garrett Smith Executive Vice President, Chief March 30, 1998 - ------------------------- Financial Officer and Director M. Garrett Smith of Pioneer USA
/s/ Mel Fischer Executive Vice President of March 30, 1998 - ------------------------- Pioneer USA Mel Fischer
/s/ Lon C. Kile Executive Vice President of March 30, 1998 - ------------------------- Pioneer USA Lon C. Kile
/s/ Rich Dealy Vice President and Chief Accounting March 30, 1998 - ------------------------- Officer of Pioneer USA Rich Dealy
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
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 of Limited - Partnership of Parker & Parsley Producing Properties 87-B, Ltd. incorporated by reference to Exhibit 3a of Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-11193)
4(a) Agreement of Limited Partnership of Parker & - Parsley Producing Properties 87-B, Ltd. incorporated by reference to Exhibit A of Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-11193)
4(b) Subscription Agreement incorporated by - reference to Exhibit C of Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-11193)
4(b) Power of Attorney incorporated by reference - to Exhibit B of Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-11193)
4(c) Specimen Certificate of Limited Partnership - Interest incorporated by reference to Exhibit 4c of the Partnership's Registration Statement on Form S-1 (Registration No. 33-11193)
10(b) Program Agreement incorporated by reference - to Exhibit B of Amendment No. 1 of the Partnership's Registration Statement on Form S-1 (Registration No. 33-11193)
27.1* Financial Data Schedule
99.1 Mutual Release and Indemnity Agreement - dated May 25, 1993 incorporated by reference to Exhibit 99.1 of the Partnership's Annual Report on Form 10-K for the year ended December 31, 1993
*Filed herewith