ITEM 1. BUSINESS.
General
PDC 1997-A Limited Partnership ("the Partnership") is a limited partnership formed on May 19, 1997 pursuant to the West Virginia Uniform Limited Partnership Act. Petroleum Development Corporation ("PDC") serves as Managing General Partner of the Partnership.
Since the commencement of operations on May 19, 1997, the Partnership has been engaged in onshore, domestic gas exploration exclusively in the northern Appalachian and Michigan Basins. A total of 6 limited partners contributed initial capital of $118,000 and a total of 306 additional general partners contributed initial capital of $4,048,946 and PDC (Managing General Partner) contributed $906,311 in capital as a participant in accordance with contribution provisions of the Limited Partnership Agreement (the Agreement).
Under the terms of the Agreement, the allocation of revenues is as follows: Allocation of Revenues Additional General and Limited Partners 80% Managing General Partner 20%
Operating and direct costs are allocated and charged to the additional general and limited partners and the Managing General Partner in the same percentages as revenues are allocated. Leasehold, drilling and completion costs, and equipment costs are borne 80% by the additional general and limited partners and 20% by the Managing General Partner.
Employees
The Partnership has no employees, however, PDC has approximately 75 employees which include a staff of geologists, petroleum engineers, landmen and accounting personnel who administer all of the partnership's operations.
Plan of Operations
The Partnership participated in the drilling of twenty-two gross wells and will continue to operate and produce its twenty-one gross productive wells. The Partnership does not have unexpended initial capital and no additional drilling activity is planned.
See Item 2
ITEM 2. PROPERTIES.
Drilling Activity
The following table sets forth the results of drilling activity from May 19, 1997 (date of inception) to March 15, 1998, of the Partnership which was conducted in the Continental United States.
The Partnership has not participated in any exploratory wells. No additional drilling activity is planned.
Productive Wells
The following table summarizes the Partnership's total gross and net interests in productive wells at March 15, 1998.
A "productive well" is a well producing, or capable of producing, oil and gas in commercial quantities. For purposes of the above table, a "gross well" is one in which the Partnership has a working interest and a "net well" is a gross well multiplied by the Partnership's working interest to which it is entitled under its drilling agreement.
Title to Properties
The Partnership's interests in producing acreage are in the form of assigned direct interests in leases. Such properties are subject to customary royalty interests generally contracted for in connection with the acquisition of properties and could be subject to liens incident to operating agreements, liens for current taxes and other burdens. The Partnership believes that none of these burdens materially interfere with the use of such properties in the operation of the Partnership's business.
As is customary in the oil and gas industry, little or no investigation of title is made at the time of acquisition of undeveloped properties (other than a preliminary review of local mineral records). Investigations are generally made, including in most cases receiving a title opinion of legal counsel, before commencement of drilling operations. A thorough examination of title has been made with respect to all of the Partnership's producing properties and the Partnership believes that it has generally satisfactory title to such properties.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
The Managing General partner as driller/operator is not party to any legal action what would materially affect the Managing General Partner's or Partnership's operations or financial statements.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND SECURITY HOLDER MATTERS.
At December 31, 1997, PDC 1997-A Limited Partnership had one Managing General Partner and a total of 6 Limited Partners who fully paid for 5.9 units at $20,000 per unit of limited partnership interest, a total of 306 Additional General Partners who fully paid for 202.4473 units at $20,000 per unit of additional general partnership interests. No established public trading market exists for the interests.
Limited and additional general partnership interests are transferable, however no assignee of an interest in the Partnership can become a substituted partner without the written consent of the transferor and the Managing General Partner.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data presented below has been derived from audited financial statements of the Partnership appearing elsewhere herein.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Liquidity and Capital Resources
The Partnership was funded with initial Limited and Additional General Partner contributions of $4,166,946 and the Managing General Partner contributed $906,311 in accordance with the Agreement. Syndication cost and management fee of $541,703 were incurred leaving available capital of $4,531,554 for Partnership activities.
The Partnership began exploration and development activities subsequent to the funding of the Partnership and completed these activities by December 31, 1997. Twenty-two wells have been drilled, twenty-one of which have been completed as producers. No additional wells will be drilled.
The Partnership had net working capital at December 31, 1997 of $148,380.
Operations are expected to be conducted with available funds and revenues generated from oil and gas activities. No bank borrowings are anticipated.
Results of Operations
1997 Results
Oil and gas sales production commenced during the third quarter of 1997 with revenue distributions to the partners commencing in the fourth quarter. The net loss of $2,010,055 was primarily due to the impairment charge for oil and gas properties which amounted to $1,920,914 in 1997. This impairment resulted from net capitalized costs exceeding estimated undiscounted future net cash flow. The impairment was based on estimated fair value which considered future discounted cash flows. This charge did not effect cash distributions to the partners which amounted to $99,742 during 1997.
The Partnership's revenues from natural gas sales will be affected by changes in prices. Natural gas prices are subject to general market conditions which drive the pricing changes.
The principal effects of inflation upon the Partnership relate to the costs required to drill, complete and operate oil and gas wells. The Partnership expects these costs to remain somewhat stable over the next year.
Year 2000 Issue
PDC, who administers all aspects of the Partnership, has assessed the extent of Year 2000 Issues affecting PDC and the Partnership. PDC believes that the new computer system, including operating software currently being installed along with modifications being made by PDC's computer technicians will address the dating system flaw inherent in most operating systems. PDC expects to be fully Year 2000 Compliant by the end of 1998. PDC expects to be fully Year 2000 Compliant by the end of 1998. PDC does not currently expect to charge the Partnership for any portion of PDC's cost to become Year 2000 Compliant.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
The response to this Item is set forth herein in a separate section of this Report, beginning on Page.
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 COMPANY.
The Partnership has no directors or executive officers. The partnership is managed by Petroleum Development Corporation (the Managing General Partner). Petroleum Development Corporation's common stock is traded in the NASDAQ National Market and Form 10-K for 1997 has been filed with the Securities and Exchange Commission.
ITEM 11.
ITEM 11. MANAGEMENT REMUNERATIONS AND TRANSACTIONS.
NON-APPLICABLE.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
NON-APPLICABLE.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pursuant to the authorization contained in the Limited Partnership Agreement, PDC receives fees for services rendered and reimbursement of certain expenses from the Partnership. The following table presents compensation or reimbursements by the Partnership to PDC or other related parties during the period ended December 31, 1997.
Sales of Leases $ 186,569 Footage Drilling Contracts, Services, Chemicals, Supplies, and Equipment 4,344,985 Operator's Charges 43,079 Syndication cost and management fee 541,703 Tax return preparation 4,965 Direct administrative cost 765
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements
See Index to Financial Statements on
(2) Financial Statement Schedules
See Index to Financial Statements on page. All financial statement schedules are omitted because they are not required, inapplicable, or the information is included in the Financial Statements or Notes thereto.
CONFORMED COPY
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PDC 1997-A Limited Partnership By its Managing General Partner Petroleum Development Corporation
By /s/ James N. Ryan James N. Ryan, Chairman
March 23, 1998
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 dates indicated:
Signature Title Date
/s/ James N. Ryan Chairman, Chief Executive James N. Ryan Officer and Director March 23, 1998
/s/ Steven R. Williams President and Director Steven R. Williams March 23, 1998
/s/ Dale G. Rettinger Executive Vice President, Dale G. Rettinger Treasurer and Director March 23, 1998 (principal financial and accounting officer)
/s/ Roger J. Morgan Secretary and Director Roger J. Morgan March 23, 1998
PDC 1997-A LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Financial Statements for Annual Report on Form 10-K to Securities and Exchange Commission
Period from May 19, 1997 (Date of Inception) to December 31, 1997
(With Independent Auditors' Report Thereon)
PDC 1997-A LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Independent Auditors' Report Balance Sheet - December 31, 1997 Statement of Operations - Period from May 19, 1997 (Date of Inception) to December 31, 1997 Statement of Partners' Equity - Period from May 19, 1997 (Date of Inception) to December 31, 1997 Statement of Cash Flows - Period from May 19, 1997 (Date of Inception) to December 31, 1997 Notes to Financial Statements
All financial statement schedules have been omitted because they are not applicable or not required or for the reason that the required information is shown in the financial statements or notes thereto.
Independent Auditors' Report
To the Partners PDC 1997-A Limited Partnership:
We have audited the financial statements of PDC 1997-A Limited Partnership (a West Virginia limited partnership) 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 audit.
We conducted our audit 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 audit provides 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 PDC 1997-A Limited Partnership as of December 31, 1997, and the results of its operations and its cash flows for the period from May 19, 1997 (date of inception) to December 31, 1997, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania March 19, 1998
PDC 1997-A LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Balance Sheet
December 31, 1997
See accompanying notes to financial statements.
PDC 1997-A LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Statement of Operations
Period from May 19, 1997 (Date of Inception) to December 31, 1997
See accompanying notes to financial statements.
PDC 1997-A LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Statement of Partners' Equity
Period from May 19, 1997 (Date of Inception) to December 31, 1997
See accompanying notes to financial statements.
PDC 1997-A LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Statement of Cash Flows
Period from May 19, 1997 (Date of Inception) to December 31, 1997
See accompanying notes to financial statements.
PDC 1997-A LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Notes to Financial Statements
December 31, 1997
(1) Summary of Significant Accounting Policies
Partnership Financial Statement Presentation Basis
The financial statements include only those assets, liabilities and results of operations of the partners which relate to the business of PDC 1997-A Limited Partnership (the Partnership). The statements do not include any assets, liabilities, revenues or expenses attributable to any of the partners' other activities.
Oil and Gas Properties
The Partnership follows the successful efforts method of accounting for the cost of exploring for and developing oil and gas reserves. Under this method, costs of development wells, including equipment and intangible drilling costs related to both producing wells and developmental dry holes, and successful exploratory wells are capitalized and amortized on an annual basis to operations by the units-of-production method using estimated proved developed reserves determined at year end by an independent petroleum engineer, Wright & Company, Inc. If a determination is made that an exploratory well has not discovered economically producible reserves, then its costs are expensed as dry hole costs.
The Partnership assesses impairment of capitalized costs of proved oil and gas properties by comparing net capitalized costs to undiscounted future cash flows on a field-by-field basis using expected prices. Prices utilized for measurement purposes and expected costs are held constant. If net capitalized costs exceed undiscounted future net cash flow, the measurement of impairment is based on estimated fair value which would consider future discounted cash flows. During 1997 the loss on impairment of oil and gas properties as reflected in the statement of operations amounted to $1,920,914.
Based on the Managing General Partner's experience, management believes site restoration, dismantlement and abandonment costs, net of salvage to be immaterial in relation to operating costs. These costs are being expensed when incurred.
Income Taxes
Since the taxable income or loss of the Partnership is reported in the separate tax returns of the partners, no provision has been made for income taxes on the Partnership's books.
Under federal income tax laws, regulations and administrative rulings, certain types of transactions may be accorded varying interpretations. Accordingly, the Partnership's tax return and, consequently, individual tax returns of the partners may be changed to conform to the tax treatment resulting from a review by the Internal Revenue Service.
Use of Estimates
Management of the Partnership has made a number of estimates and assumptions relating to the reporting of assets and liabilities and revenues and expenses and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. Estimates which are particularly significant to the financial statements include estimates of oil and gas reserves and future cash flows from oil and gas properties. (Continued)
PDC 1997-A LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Notes to Financial Statements, Continued
(2) Organization
The Partnership was organized as a limited partnership on May 19, 1997, in accordance with the laws of the State of West Virginia for the purpose of engaging in the drilling, completion and operation of oil and gas development and exploratory wells in the Northern Appalachian and Michigan Basins.
Purchasers of partnership units subscribed to and fully paid for 5.9 units of limited partner interest and 202.4473 units of additional general partner interests at $20,000 per unit (Investor Partners). Petroleum Development Corporation has been designated the Managing General Partner of the Partnership. Although costs, revenues and cash distributions allocable to the limited and additional general partners are shared pro rata based upon the amount of their subscriptions, including the Managing General Partner to the extent of its 20% capital contributions, there are significant differences in the federal income tax effects and liability associated with these different types of units in the Partnership.
Upon completion of the drilling phase of the Partnership's wells, all additional general partners units are converted into units of limited partner interests and thereafter become limited partners of the Partnership. Limited partners do not have any rights to convert their units into units of additional general partner interests in the Partnership.
In accordance with the terms of the Partnership Agreement (the Agreement), the Managing General Partner manages all activities of the Partnership and acts as the intermediary for substantially all Partnership transactions.
(3) Transactions with Managing General Partner and Affiliates
The Partnership's transactions with the Managing General Partner include charges for the following:
(4) Allocation
The following table summarizes the participation of the Managing General Partner and the Investor Partners, taking account of the Managing General Partner's capital contribution equal to 20% of the Initial Operating Capital, in the costs and revenues of the Partnership.
(Continued)
PDC 1997-A LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Notes to Financial Statements, Continued
[FN] ____________________ (1) Organization and Offering Costs, net of the Dealer Manager commissions, discounts, due diligence expenses, and wholesaling fees of the Partnership were paid by the Managing General Partner and not from Partnership funds. In addition, Organization and Offering Costs in excess of 10-1/2% of Subscriptions were paid by the Managing General Partner, without recourse to the Partnership.
(2) Represents Operating costs incurred after the completion of productive wells, including monthly per-well charges paid to the Managing General Partner.
(3) The Managing General Partner receives monthly reimbursement from the Partnership for direct costs incurred by the Managing General Partner on behalf of the Partnership.
(4) The revenues and expenses allocated to the partners are subject to a special provision in the partnership agreement, whereby the allocable share of revenues and expenses of the Investor Partners may be increased and the interest of the Managing General Partner may be decreased if certain cash distribution levels are not met. The shifting of the allocable share of revenues and expenses to the Investor Partners in the event that certain prescribed cash distribution levels are not attained may also serve to shift an increased amount of cash distributions to the Investor Partners and a decreased amount of cash distributions to the Managing General Partner.
(5) In the event of the sale or other disposition of a productive well, a lease upon which such well is situated, or any equipment related to any such lease or well, the proceeds from such sale or disposition shall be allocated and credited to the Partners as oil and gas revenues are allocated. The term "proceeds" above does not include revenues from a royalty, overriding royalty, lease interest reserved, or other promotional consideration received by the Partnership in connection with any sale or disposition, which revenues shall be allocated to the Investor Partners and the Managing General Partner in the same percentages that oil and gas revenues are allocated.
(Continued)
PDC 1997-A LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Notes to Financial Statements, Continued
(5) Costs Relating to Oil and Gas Activities
The Partnership is engaged solely in oil and gas activities, all of which are located in the continental United States. Information regarding aggregate capitalized costs and results of operations for these activities is located in the basic financial statements. Costs capitalized for these activities at December 31, 1997, are as follows:
The following costs were incurred for the Partnership's oil and gas activities:
(6) Income Taxes
As a result of the differences in the treatment of certain items for income tax purposes as opposed to financial reporting purposes, primarily depreciation, depletion and amortization of oil and gas properties and the recognition of intangible drilling costs as an expense or capital item, the income tax basis of oil and gas properties differs from the basis used for financial reporting purposes. At December 31, 1997, the income tax basis of the Partnership's oil and gas properties was $843,944.
(7) Supplemental Reserve Information (Unaudited)
Proved oil and gas reserves of the Partnership have been estimated by an independent petroleum engineer, Wright & Company, Inc. These reserves have been prepared in compliance with the Securities and Exchange Commission rules based on year end prices. A copy of the reserve report has been made available to all partners. All of the partnership's reserves are proved developed. An analysis of the change in estimated quantities of proved developed oil and gas reserves is shown below:
Natural gas (mcf)
Proved developed reserves as of May 19, 1997 (date of inception) - Extensions, discoveries and other additions 2,543,777 Production (103,912)
Proved developed reserves as of December 31, 1997 2,439,865