ITEM 1. BUSINESS
General
The Geodyne Institutional/Pension Energy Income Limited Partnership P-7 (the "P-7 Partnership") and Geodyne Institutional/Pension Energy Income Limited Partnership P-8 (the "P-8 Partnership") (collectively, the "Partnerships") are limited partnerships formed under the Oklahoma Revised Uniform Limited Partnership Act. Each Partnership is composed of Geodyne Resources, Inc. ("Geodyne" or the "General Partner"), a Delaware corporation, as the general partner, Geodyne Institutional Depositary Company, a Delaware corporation, as the sole initial limited partner, and public investors as substitute limited partners (the "Limited Partners"). The Partnerships commenced operations on February 28, 1992.
The General Partner currently serves as general partner of 26 limited partnerships, including the Partnerships. The General Partner is a wholly-owned subsidiary of Samson Investment Company. Samson Investment Company and its various corporate subsidiaries, including the General Partner (collectively "Samson"), are primarily engaged in the production and development of and exploration for oil and gas reserves and the acquisition and operation of producing properties. At December 31, 2000 Samson owned interests in approximately 13,500 oil and gas wells located in 19 states of the United States and the countries of Canada, Venezuela, and Russia. At December 31, 2000, Samson operated approximately 2,700 oil and gas wells located in 14 states of the United States, as well as Canada, Venezuela, and Russia.
The Partnerships are currently engaged in the business of owning net profits and royalty interests in oil and gas properties located in the continental United States. Most of the net profits interests acquired by the Partnerships have been carved out of working interests in oil and gas properties ("Working Interests") which were acquired by affiliated oil and gas investment programs or other affiliates (the "Affiliated Programs"). Net profits interests entitle the Partnerships to a share of net revenues from producing properties measured by a specific percentage of the net profits realized by such Affiliated Programs on those properties. Except where otherwise noted, references to certain operational activities of the Partnerships are actually the activities of the Affiliated Programs. As the holder of a net profits interest, a Partnership is not liable to pay any amount by which oil and gas operating costs and expenses exceed revenues for any period, although any deficit, together with interest, is applied to reduce the amounts payable to the Partnership in subsequent periods. As used throughout this Annual Report on Form 10-K405 ("Annual Report")
the Partnerships' net profits and royalty interests in oil and gas sales will be referred to as "Net Profits" and the Partnerships' net profits and royalty interests in oil and gas properties will be collectively referred to as "Net Profits Interests."
In order to prudently manage the properties which are burdened by the Partnerships' Net Profits Interests, it may be appropriate for drilling operations to be conducted on such properties. Since the Partnerships' capitalized cost of their Net Profits Interests are calculated after considering such costs, the Partnerships also indirectly engage in development drilling.
As limited partnerships, the Partnerships have no officers, directors, or employees. They rely instead on the personnel of the General Partner and Samson. As of February 15, 2001, Samson employed approximately 965 persons. No employees are covered by collective bargaining agreements, and management believes that Samson provides a sound employee relations environment. For information regarding the executive officers of the General Partner, see "Item 10. Directors and Executive Officers of the General Partner."
The General Partner's and the Partnerships' principal place of business is located at Samson Plaza, Two West Second Street, Tulsa, Oklahoma 74103, and their telephone number is (918) 583-1791 or (888) 436-3963 [(888) GEODYNE].
The Partnerships will terminate on February 28, 2002 in accordance with the partnership agreement for each Partnership (the "Partnership Agreement"). However, the General Partner may extend the term of each Partnership for up to five periods of two years each. As of the date of this Annual Report, the General Partner has not determined whether to extend the term of either Partnership.
Funding
Although the partnership agreement for each Partnership permits each Partnership to incur a limited amount of borrowings, operations and expenses are currently funded out of revenues from each Partnership's Net Profits Interests. The General Partner may, but is not required to, advance funds to the Partnerships for the same purposes for which Partnership borrowings are authorized.
Principal Products Produced and Services Rendered
The Partnerships' sole business is the holding of certain Net Profits Interests. The Partnerships do not refine or otherwise process crude oil and condensate. The Partnerships do not hold any patents, trademarks, licenses, or concessions and are not a party to any government contracts. The Partnerships
have no backlog of orders and do not participate in research and development activities. The Partnerships are not presently encountering shortages of oilfield tubular goods, compressors, production material, or other equipment.
Competition and Marketing
The Partnerships' revenues, net income or loss, cash flows, carrying value of oil and gas properties, and amount of oil and gas which can be economically produced depend substantially upon the prevailing prices for oil and gas. Oil and gas prices (and consequently the Partnerships' profitability) depend on a number of factors that are beyond the control of the Partnerships. These factors include worldwide political instability (especially in oil-producing regions), United Nations export embargoes, the supply and price of foreign imports of oil and gas, the level of consumer product demand (which can be heavily influenced by weather patterns), the level of domestic oil and gas production, government regulations and taxes, the price and availability of alternative fuels, the overall economic environment, and the availability and capacity of transportation and processing facilities. The effect of these factors on future oil and gas industry trends cannot be accurately predicted or anticipated. In addition, the domestic oil and gas industry is highly competitive, with a large number of companies and individuals engaged in the exploration and development of oil and gas properties. Predicting future prices is not possible. Concerning past trends, oil and gas prices in the United States have been highly volatile for many years.
Over the past ten years average yearly wellhead gas prices have generally been in the $1.40 to $2.40 per Mcf range. However, due to unusual supply and demand circumstances gas prices are currently substantially higher than the upper end of this range. Substantially all of the Partnerships' gas reserves are being sold on the "spot market." Prices on the spot market are subject to wide seasonal and regional pricing fluctuations due to the highly competitive nature of the spot market. In addition, such spot market sales are generally short-term in nature and are dependent upon the obtaining of transportation services provided by pipelines. Spot prices for the Partnerships' gas increased from approximately $2.24 per Mcf at December 31, 1999 to approximately $6.03 per Mcf at December 31, 2000. Such prices were on an MMBTU basis and differ from the prices actually received by the Partnerships due to transportation and marketing costs, BTU adjustments, and regional price and quality differences.
For the past ten years, average oil prices have generally been in the $16.00 to $24.00 per barrel range, but have been extremely volatile over the past three years. Due to global consumption and supply trends as well as a slowdown in Asian energy demand, oil prices in late 1997 and early 1998 reached
historically low levels, dropping to as low as approximately $9.25 per barrel. However, production curtailment agreements among major oil producing nations and other supply and demand factors have caused recent oil prices to climb to over $30.00 per barrel in some markets. It is not known whether this trend will continue. Prices for the Partnerships' oil increased from approximately $22.75 per barrel at December 31, 1999 to approximately $27.52 per barrel at December 31, 2000.
Future prices for both oil and gas will likely be different from the prices in effect on December 31, 2000. While it is impossible to predict whether future oil and gas prices will (i) stabilize, (ii) increase, or (iii) decrease, management believes it is possible that average oil and gas prices for the near future may be somewhat higher than the prices experienced over the past 10 years.
Significant Customers
The following customers accounted for ten percent or more of the oil and gas revenues attributable to the Partnerships' Net Profits Interests during the year ended December 31, 2000:
Partnership Customer Percentage ----------- ---------------------- ----------
P-7 National Cooperative Refinery Association ("NCRA") 29.1% Scurlock Permian Corp. ("Scurlock") 12.8%
P-8 NCRA 27.6% El Paso Energy Marketing Company 10.5% Scurlock 10.2%
In the event of interruption of purchases by one or more of these significant customers or the cessation or material change in availability of open access transportation by pipeline transporters, the Partnerships may encounter difficulty in marketing gas and in maintaining historic sales levels. Management does not expect any of its open access transporters to seek authorization to terminate their transportation services. Even if the services were terminated, management believes that alternatives would be available whereby the Partnerships would be able to continue to market their gas.
The Partnerships' principal customers for crude oil production are refiners and other companies which have pipeline facilities near the producing properties in which the Partnerships own Net Profits Interests. In the event pipeline
facilities are not conveniently available to production areas, crude oil is usually trucked by purchasers to storage facilities.
Oil, Gas, and Environmental Control Regulations
Regulation of Production Operations -- The production of oil and gas is subject to extensive federal and state laws and regulations governing a wide variety of matters, including the drilling and spacing of wells, allowable rates of production, prevention of waste and pollution, and protection of the environment. In addition to the direct costs borne in complying with such regulations, operations and revenues may be impacted to the extent that certain regulations limit oil and gas production to below economic levels.
Regulation of Sales and Transportation of Oil and Gas -- Sales of crude oil and condensate are made at market prices and are not subject to price controls. The sale of gas may be subject to both federal and state laws and regulations. The provisions of these laws and regulations are complex, and affect all who produce, resell, transport, or purchase gas. Although virtually all of the natural gas production affecting the Partnerships is not subject to price regulation, other regulations affect the availability of gas transportation services and the ability of gas consumers to continue to purchase or use gas at current levels. Accordingly, such regulations may have a material effect on the Partnerships' Net Profits and projections of future Net Profits.
Future Legislation -- Legislation affecting the oil and gas industry is under constant review for amendment or expansion. Because such laws and regulations are frequently amended or reinterpreted, management is unable to predict what additional energy legislation may be proposed or enacted or the future cost and impact of complying with existing or future regulations.
Regulation of the Environment - Oil and gas operations are subject to numerous laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Compliance with such laws and regulations, together with any penalties resulting from noncompliance, may decrease the Partnerships' Net Profits. Management anticipates that various local, state, and federal environmental control agencies will have an increasing impact on oil and gas operations.
Insurance Coverage
Exploration for and production of oil and gas are subject to many inherent risks, including blowouts, pollution, fires, and other casualties. The Partnerships maintain insurance coverage as is customary for entities of a similar size engaged in similar
operations, but losses can occur from uninsurable risks or in amounts in excess of existing insurance coverage. The occurrence of an event which is not fully covered by insurance could have a material adverse effect on the Partnerships' financial condition and results of operations in that it could negatively impact the cash flow received from the Net Profits Interests.
ITEM 2.
ITEM 2. PROPERTIES
Well Statistics
The following table sets forth the number of productive wells in which the Partnerships had a Net Profits Interest as of December 31, 2000.
Number of Wells(1) --------------------------- P/ship Total Oil Gas ------ ----- ----- --- P-7 1024 735 289 P-8 1164 829 335
- ----------- (1) The designation of a well as an oil well or gas well is made by the General Partner based on the relative amount of oil and gas reserves for the well. Regardless of a well's oil or gas designation, it may produce oil, gas, or both oil and gas.
Drilling Activities
During 2000 the Partnerships indirectly participated (through their Net Profits Interests) in the drilling of 13 developmental and 12 injection wells in the Riley North Unit in Gaines County, Texas. The P-7 and P-8 Partnerships owned interests of approximately 2.0% and 1.2%, respectively, in these wells.
Oil and Gas Production, Revenue, and Price History
The following tables set forth certain historical information concerning the oil (including condensates) and gas production attributable to the Partnerships' Net Profits Interests, revenues attributable to such production, and certain price information.
Net Production Data P-7 Partnership ---------------
Year ended December 31, ------------------------------------------- 2000 1999 1998 ---------- ---------- ---------- Production: Oil (Bbls) 91,382 100,309 98,774 Gas (Mcf) 441,284 490,044 511,563 Oil and gas sales(1): Oil $2,637,937 $1,649,200 $1,248,689 Gas 1,491,160 958,363 929,598 --------- --------- --------- Total $4,129,097 $2,607,563 $2,178,287 ========= ========= ========= Average sales price: Per barrel of oil $28.87 $16.44 $12.64 Per Mcf of gas 3.38 1.96 1.82
- ------------------- (1) These amounts differ from the Net Profits included in the P-7 Partnership's financial statements because they do not reflect the offset of $1,203,317, $1,185,636, and $730,501, respectively, of production expenses incurred by the Affiliated Programs.
Net Production Data P-8 Partnership ---------------
Year ended December 31, ------------------------------------------- 2000 1999 1998 ---------- ---------- ---------- Production: Oil (Bbls) 54,441 59,557 58,417 Gas (Mcf) 329,468 367,289 364,998 Oil and gas sales(1): Oil $1,570,223 $ 978,274 $ 734,314 Gas 1,131,966 706,555 661,625 --------- --------- --------- Total $2,702,189 $1,684,829 $1,395,939 ========= ========= ========= Average sales price: Per barrel of oil $28.84 $16.43 $12.57 Per Mcf of gas 3.44 1.92 1.81
- ------------------- (1) These amounts differ from the Net Profits included in the P-8 Partnership's financial statements because they do not reflect the offset of $761,352, $684,172, and $564,328,
respectively, of production expenses incurred by the Affiliated Programs.
Proved Reserves and Net Present Value
The following table sets forth each Partnership's estimated proved oil and gas reserves and net present value therefrom as of December 31, 2000 which were attributable to the Partnerships' Net Profits Interests. The schedule of quantities of proved oil and gas reserves was prepared by the General Partner in accordance with the rules prescribed by the Securities and Exchange Commission (the "SEC"). Certain reserve information was reviewed by Ryder Scott Company, L.P. ("Ryder Scott"), an independent petroleum engineering firm. As used throughout this Annual Report, "proved reserves" refers to those estimated quantities of crude oil, gas, and gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known oil and gas reservoirs under existing economic and operating conditions.
Net present value represents estimated future gross cash flow from the production and sale of proved reserves, net of estimated oil and gas production costs (including production taxes, ad valorem taxes, and operating expenses) and estimated future development costs, discounted at 10% per annum. Net present value attributable to the Partnerships' proved reserves was calculated on the basis of current costs and prices at December 31, 2000. Such prices were not escalated except in certain circumstances where escalations were fixed and readily determinable in accordance with applicable contract provisions. The oil and gas prices at December 31, 2000 have caused the estimates of remaining economically recoverable reserves, as well as the value placed on such reserves, to be substantially higher than in the past several years, particularly considering the impact of depletion from production over the years. Any decrease in these oil prices will result in a corresponding reduction in the estimate of remaining reserves. The prices used in calculating the net present value attributable to the Partnerships' proved reserves do not necessarily reflect market prices for oil and gas production subsequent to December 31, 2000. There can be no assurance that the prices used in calculating the net present value of the Partnerships' proved reserves at December 31, 2000 will actually be realized for such production. The General Partner believes that it is unlikely that prices will remain at their current high levels.
The process of estimating oil and gas reserves is complex, requiring significant subjective decisions in the evaluation of available geological, engineering, and economic data for each reservoir. The data for a given reservoir may change substantially over time as a result of, among other things, additional development activity, production history, and viability of production under varying economic conditions;
consequently, it is reasonably possible that material revisions to existing reserve estimates may occur in the near future. Although every reasonable effort has been made to ensure that these reserve estimates represent the most accurate assessment possible, the significance of the subjective decisions required and variances in available data for various reservoirs make these estimates generally less precise than other estimates presented in connection with financial statement disclosures.
Proved Reserves and Net Present Values From Proved Reserves As of December 31, 2000(1)
P-7 Partnership: - ---------------
Estimated proved reserves: Gas (Mcf) 3,875,191 Oil and liquids (Bbls) 829,859
Net present value (discounted at 10% per annum) $16,058,144
P-8 Partnership: - ---------------
Estimated proved reserves: Gas (Mcf) 2,712,228 Oil and liquids (Bbls) 483,219
Net present value (discounted at 10% per annum) $10,909,494
- ----------
(1) Includes certain gas balancing adjustments which cause the gas volumes and net present values to differ from the reserve reports which were prepared by the General Partner and reviewed by Ryder Scott.
No estimates of the proved reserves of the Partnerships comparable to those included herein have been included in reports to any federal agency other than the SEC. Additional information relating to the Partnerships' proved reserves is contained in Note 4 to the Partnerships' financial statements, included in Item 8 of this Annual Report.
Significant Properties
As of December 31, 2000, affiliates of the Partnerships operated 20 (2%) and 24 (2%), respectively, of the P-7 and P-8 Partnership's wells. The following table sets forth certain well
and reserve information for the basins in which the Partnerships own a significant amount of Net Profits Interests. The table contains the following information for each significant basin: (i) the number of wells in which a Net Profits Interest is owned, (ii) the number and percentage of wells operated by the Partnership's affiliates, (iii) estimated proved oil reserves, (iv) estimated proved gas reserves, and (v) the present value (discounted at 10% per annum) of estimated future net cash flow.
The Anadarko Basin is located in western Oklahoma and the Texas panhandle, while the Permian Basin is located in west Texas and southeast New Mexico. The Mid-Gulf Coast Basin is located in southern Alabama and Mississippi.
Significant Properties as of December 31, 2000 ----------------------------------------------
Wells Operated by Affiliates Oil Gas Total ------------ Reserves Reserves Present Basin Wells Number %(1) (Bbl) (Mcf) Value - ----------- ----- ------ --- -------- ----------- ------------
P-7 P/ship: Permian 899 5 1% 756,371 1,668,161 $10,286,222 Anadarko 24 14 58% 29,478 1,709,942 4,029,942
P-8 P/ship: Permian 1,296 5 - 441,529 1,015,706 $ 6,164,839 Anadarko 32 17 53% 15,925 1,108,067 2,796,309 Mid-Gulf 8 - - 3,160 581,647 1,626,398 Coast - ------------------ (1) Percent of the Partnership's total wells in the basin which are operated by affiliates of the Partnerships.
Title to Oil and Gas Properties
Management believes that the Partnerships have satisfactory title to their Net Profits Interests. Record title to all of the properties subject to the Partnerships' Net Profits Interests is held by either the Partnerships or Geodyne Nominee Corporation, an affiliate of the General Partner.
Title to the Partnerships' Net Profits Interests is subject to customary royalty, overriding royalty, carried, working, and other similar interests and contractual arrangements customary in the oil and gas industry, to liens for current taxes not yet due, and to other encumbrances. Management believes that such burdens do not materially detract from the value of such properties or
from the Partnerships' Net Profits Interests therein or materially interfere with their use in the operation of the Partnerships' business.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
To the knowledge of the General Partner, neither the General Partner nor the Partnerships or their properties are subject to any litigation, the results of which would have a material effect on the Partnerships' or the General Partner's financial condition or operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF LIMITED PARTNERS
There were no matters submitted to a vote of the Limited Partners of either Partnership during 2000.
PART II.
ITEM 5.
ITEM 5. MARKET FOR UNITS AND RELATED LIMITED PARTNER MATTERS
As of February 1, 2001, the number of Units outstanding and the approximate number of Limited Partners of record in the Partnerships were as follows:
Number of Number of Partnership Units Limited Partners ----------- --------- ----------------
P-7 188,702 1,106 P-8 116,168 972
Units were initially sold for a price of $100. The Units are not traded on any exchange and there is no public trading market for them. The General Partner is aware of certain transfers of Units between unrelated parties, some of which are facilitated by secondary trading firms and matching services. In addition, as further described below, the General Partner is aware of certain "4.9% tender offers" which have been made for the Units. The General Partner believes that the transfers between unrelated parties have been limited and sporadic in number and volume. Other than trades facilitated by certain secondary trading firms and matching services, no organized trading market for Units exists and none is expected to develop. Due to the nature of these transactions, the General Partner has no verifiable information regarding prices at which Units have been transferred. Further, a transferee may not become a substitute Limited Partner without the consent of the General Partner.
Pursuant to the terms of the Partnership Agreements, the General Partner is obligated to annually issue a repurchase offer based on the estimated future net revenues from the Partnerships' reserves and is calculated pursuant to the terms of the Partnership Agreements. Such repurchase offer is recalculated monthly in order to reflect cash distributions to the Limited Partners and extraordinary events. The following table sets forth the General Partner's repurchase offer per Unit as of the periods indicated. For purposes of this Annual Report, a Unit represents an initial subscription of $100 to the Partnership.
Repurchase Offer Prices ----------------------- 1999 2000 2001 -------------------------- ------------------------- ---- 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st P/ship Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. - ------ ---- ---- ---- ---- ---- ---- ---- ---- ----
P-7 $27 $27 $22 $20 $18 $16 $25 $21 $17 P-8 26 26 24 22 20 17 27 23 19
In addition to this repurchase offer, the Partnerships have been subject to "4.9% tender offers" from several third parties. The General Partner does not know the terms of these offers or the prices received by the Limited Partners who accepted these offers.
Cash Distributions
Cash distributions are primarily dependent upon a Partnership's cash receipts from its Net Profits Interests and cash requirements of the Partnership. Distributable cash is determined by the General Partner at the end of each calendar quarter and distributed to the Limited Partners within 45 days after the end of the quarter. Distributions are restricted to cash on hand less amounts required to be retained out of such cash as determined in the sole judgment of the General Partner to pay costs, expenses, or other Partnership obligations whether accrued or anticipated to accrue. In certain instances, the General Partner may not distribute the full amount of cash receipts which might otherwise be available for distribution in an effort to equalize or stabilize the amounts of quarterly distributions. Any available amounts not distributed are invested and the interest or income thereon is for the accounts of the Limited Partners.
The following is a summary of cash distributions paid to the Limited Partners during 1999 and 2000 and the first quarter of 2001:
Cash Distributions ------------------
------------------------------------------ 1st 2nd 3rd 4th P/ship Qtr. Qtr. Qtr. Qtr. ------ ------ ------ ------ ------ P-7 $1.16 $0.20 $0.82 $1.84 P-8 1.13 0.38 0.90 1.94
2000 2001 ------------------------------------------ ----- 1st 2nd 3rd 4th 1st P/ship Qtr. Qtr. Qtr. Qtr.(1) Qtr ------ ------ ------ ------ ------ ----- P-7 $1.87 $2.09 $2.91 $4.64 $3.34 P-8 2.04 2.22 3.01 4.55 3.81
- ----------- (1) Amount of cash distribution includes proceeds from the sale of certain Net Profits Interests.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data for the Partnerships. This data should be read in conjunction with the financial statements of the Partnerships, and the respective notes thereto, included elsewhere in this Annual Report. See "Item 8. Financial Statements and Supplementary Data."
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Use of Forward-Looking Statements and Estimates
This Annual Report contains certain forward-looking statements. The words "anticipate," "believe," "expect," "plan," "intend," "estimate," "project," "could," "may," and similar expressions are intended to identify forward-looking statements. Such statements reflect management's current views with respect to future events and financial performance. This Annual Report also includes certain information which is, or is based upon, estimates and assumptions. Such estimates and assumptions are management's efforts to accurately reflect the condition and operation of the Partnerships.
Use of forward-looking statements and estimates and assumptions involve risks and uncertainties which include, but are not limited to, the volatility of oil and gas prices, the uncertainty of reserve information, the operating risk associated with oil and gas properties (including the risk of personal injury, death, property damage, damage to the well or producing reservoir, environmental contamination, and other operating risks), the prospect of changing tax and regulatory laws, the availability and capacity of processing and transportation facilities, the general economic climate, the supply and price of foreign imports of oil and gas, the level of consumer product demand, and the price and availability of alternative fuels. Should one or more of these risks or uncertainties occur or should estimates or underlying assumptions prove incorrect, actual conditions or results may vary materially and adversely from those stated, anticipated, believed, estimated, or otherwise indicated.
General Discussion
The following general discussion should be read in conjunction with the analysis of results of operations provided below. As previously noted, the Partnerships own net profits and royalty interests in oil and gas properties. The Partnerships' net profits interests were carved out of Working Interests which were acquired by the Affiliated Programs. Net profits interests entitle the Partnerships to a share of net revenues from producing properties measured by a specific percentage of the net profits realized by such Affiliated Programs. Except where otherwise noted, references to certain operational activities of the Partnerships are actually the activities of the Affiliated Programs. As the holder of a net profits interest, a Partnership is not liable to pay any amount by which oil and gas operating costs and expenses exceed revenues for any period, although any deficit, together with interest, is applied to reduce the amounts payable to the Partnership in
subsequent periods. As used throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations, the Partnerships' net profits and royalty interests in oil and gas sales will be referred to as "Net Profits" and the Partnerships' net profits and royalty interests in oil and gas properties will be collectively referred to as "Net Profits Interests."
The Partnerships' revenues, net income or loss, cash flows, carrying value of oil and gas properties, and amount of oil and gas which can be economically produced depend substantially upon the prevailing prices for oil and gas. Oil and gas prices (and consequently the Partnerships' profitability) depend on a number of factors that are beyond the control of the Partnerships. These factors include worldwide political instability (especially in oil-producing regions), United Nations export embargoes, the supply and price of foreign imports of oil and gas, the level of consumer product demand (which can be heavily influenced by weather patterns), the level of domestic oil and gas production, government regulations and taxes, the price and availability of alternative fuels, the overall economic environment, and the availability and capacity of transportation and processing facilities. The effect of these factors on future oil and gas industry trends cannot be accurately predicted or anticipated. In addition, the domestic oil and gas industry is highly competitive, with a large number of companies and individuals engaged in the exploration and development of oil and gas properties. Predicting future prices is not possible. Concerning past trends, oil and gas prices in the United States have been highly volatile for many years.
Over the past ten years average yearly wellhead gas prices have generally been in the $1.40 to $2.40 per Mcf range. However, due to unusual supply and demand circumstances gas prices are currently substantially higher than the upper end of this range. Substantially all of the Partnerships' gas reserves are being sold on the "spot market." Prices on the spot market are subject to wide seasonal and regional pricing fluctuations due to the highly competitive nature of the spot market. In addition, such spot market sales are generally short-term in nature and are dependent upon the obtaining of transportation services provided by pipelines. Spot prices for the Partnerships' gas increased from approximately $2.24 per Mcf at December 31, 1999 to approximately $6.03 per Mcf at December 31, 2000. Such prices were on an MMBTU basis and differ from the prices actually received by the Partnerships due to transportation and marketing costs, BTU adjustments, and regional price and quality differences.
For the past ten years, average oil prices have generally been in the $16.00 to $24.00 per barrel range, but have been extremely volatile over the past three years. Due to global consumption and supply trends as well as a slowdown in Asian energy demand, oil prices in late 1997 and early 1998 reached
historically low levels, dropping to as low as approximately $9.25 per barrel. However, production curtailment agreements among major oil producing nations and other supply and demand factors have caused recent oil prices to climb to over $30.00 per barrel in some markets. It is not known whether this trend will continue. Prices for the Partnerships' oil increased from approximately $22.75 per barrel at December 31, 1999 to approximately $27.52 per barrel at December 31, 2000.
Future prices for both oil and gas will likely be different from the prices in effect on December 31, 2000. While it is impossible to predict whether future oil and gas prices will (i) stabilize, (ii) increase, or (iii) decrease, management believes it is possible that average oil and gas prices for the near future may be somewhat higher than the prices experienced over the past 10 years.
As discussed in the "Results of Operations" section below, volumes of oil and gas sold also significantly affect the Partnerships' revenues. Oil and gas wells generally produce the most oil or gas in the earlier years of their lives and, as production continues, the rate of production naturally declines. At some point, production physically ceases or becomes no longer economic. The Partnerships are not acquiring additional Net Profits Interests, and the existing Net Profits Interests are not experiencing significant additional production through drilling or other capital projects. Therefore, volumes of oil and gas produced from the properties underlying the Partnerships' Net Profits Interests naturally decline from year to year. While it is difficult for management to predict future production from these properties, it is likely that this general trend of declining production will continue.
Despite the general trend of declining production, several factors can cause the volumes of oil and gas sold to increase or decrease at an even greater rate over a given period. These factors include, but are not limited to, (i) geophysical conditions which cause an acceleration of the decline in production, (ii) the shutting in of wells (or the opening of previously shut-in wells) due to low oil and gas prices, mechanical difficulties, loss of a market or transportation, or performance of workovers, recompletions, or other operations in the well, (iii) prior period volume adjustments (either positive or negative) made by the operator or purchasers of the production, (iv) ownership adjustments in accordance with agreements governing the operation or ownership of the well (such as adjustments that occur at payout), and (v) completion of enhanced recovery projects which increase production for the well. Many of these factors are very significant as related to a single well or as related to many wells over a short period of time. However, due to the large number of Net Profits Interests owned by the Partnerships, these factors are generally not material as compared to the normal decline in production
experienced on all remaining wells in which a Net Profits Interest is owned.
Results of Operations
An analysis of the change in net oil and gas operations (oil and gas sales, less lease operating expenses and production taxes), is presented in the tables following "Results of Operations" under the heading "Average Proceeds and Units of Production." Following is a discussion of each Partnership's results of operations for the year ended December 31, 2000 as compared to the year ended December 31, 1999 and for the year ended December 31, 1999 as compared to the year ended December 31, 1998.
P-7 Partnership ---------------
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999 -------------------------------------
Total Net Profits increased $1,503,853 (105.8%) in 2000 as compared to 1999. Of this increase, approximately $1,136,000 and $628,000, respectively, were related to increases in the average prices of oil and gas sold. Volumes of oil and gas sold decreased 8,927 barrels and 48,760 Mcf, respectively, in 2000 as compared to 1999. The decrease in volumes of gas sold was primarily due to normal declines in production. Average oil and gas prices increased to $28.87 per barrel and $3.38 per Mcf, respectively, in 2000 from $16.44 per barrel and $1.96 per Mcf, respectively, in 1999.
As discussed in "Liquidity and Capital Resources" below, the P-7 Partnership sold certain Net Profits Interests during 2000 and recognized a $440,131 gain on such sales. Sales of Net Profits Interests during 1999 resulted in the P-7 Partnership recognizing similar gains totaling $1,263.
Depletion of Net Profits Interests increased $13,110 (4.7%) in 2000 as compared to 1999. This increase was primarily due to an increase in depletable Net Profits Interests primarily due to developmental drilling during 2000. This increase was partially offset by (i) the decreases in volumes of oil and gas sold and (ii) upward revisions in the estimates of remaining oil and gas reserves at December 31, 2000. As a percentage of Net Profits, this expense decreased to 10.0% in 2000 from 19.6% in 1999. This percentage decrease was primarily due to the increases in the average prices of oil and gas sold.
General and administrative expenses remained relatively constant in 2000 as compared to 1999. As a percentage of Net Profits, these expenses decreased to 7.7% in 2000 from 15.7% in
1999. This percentage decrease was primarily due to the increase in Net Profits.
Cumulative cash distributions to the Limited Partners through December 31, 2000 were $13,774,916 or 73.00% of the Limited Partners' capital contributions.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 -------------------------------------
Total Net Profits decreased $25,859 (1.8%) in 1999 as compared to 1998. Of this decrease, approximately $39,000 was related to a decrease in volumes of gas sold and approximately $455,000 was related to an increase in production expenses incurred by the owners of the Working Interests. These decreases were partially offset by increases of approximately $19,000 related to an increase in volumes of oil sold and approximately $381,000 and $68,000, respectively, related to increases in the average prices of oil and gas sold. Volumes of oil sold increased 1,535 barrels, while volumes of gas sold decreased 21,519 Mcf in 1999 as compared to 1998. The increase in volumes of oil sold was primarily due to a positive prior period volume adjustment made by the purchaser on one significant well during 1999, which amount was partially offset by normal declines in production. The increase in production expenses was primarily due to a negative prior period lease operating expense adjustment made by the operator on one significant well during 1998. Average oil and gas prices increased to $16.44 per barrel and $1.96 per Mcf, respectively, in 1999 from $12.64 per barrel and $1.82 per Mcf, respectively, in 1998.
Depletion of Net Profits Interests decreased $1,034,267 (78.8%) in 1999 as compared to 1998. This decrease was primarily due to (i) a reduction in the depletable base of oil and gas properties due to an impairment provision recorded during the fourth quarter of 1998 and (ii) several wells being substantially depleted during 1998 due to the lack of remaining economically recoverable reserves. As a percentage of Net Profits, this expense decreased to 19.6% in 1999 from 90.6% in 1998. This percentage decrease was primarily due to the dollar decrease in depletion of Net Profits Interests.
The P-7 Partnership recognized a non-cash charge against earnings of $1,664,601 in the fourth quarter of 1998. This charge was related to the decline in oil and gas prices used to determine future cash flows from the P-7 Partnership's Net Profits Interests in proved oil and gas reserves at December 31, 1998. No similar charge was necessary in 1999.
General and administrative expenses remained relatively constant in 1999 as compared to 1998. As a percentage of Net
Profits, these expenses increased to 15.7% in 1999 from 15.3% in 1998.
P-8 Partnership ---------------
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999 -------------------------------------
Total Net Profits increased $940,180 (94.0%) in 2000 as compared to 1999. Of this increase, approximately $676,000 and $498,000, respectively, were related to increases in the average prices of oil and gas sold. Volumes of oil and gas sold decreased 5,116 barrels and 37,821 Mcf, respectively, in 2000 as compared to 1999. The decrease in volumes of gas sold was primarily due to (i) normal declines in production and (ii) a negative prior period volume adjustment made by the purchaser on one significant well during 2000. Average oil and gas prices increased to $28.84 per barrel and $3.44 per Mcf, respectively, in 2000 from $16.43 per barrel and $1.92 per Mcf, respectively, in 1999.
As discussed in "Liquidity and Capital Resources" below, the P-8 Partnership sold certain Net Profits Interests during 2000 and recognized a $233,352 gain on such sales. Sales of Net Profits Interests during 1999 resulted in the P-8 Partnership recognizing similar gains totaling $678.
Depletion of Net Profits Interests increased $15,743 (9.6%) in 2000 as compared to 1999. This increase was primarily due to an increase in depletable Net Profits Interests primarily due to developmental drilling during 2000. This increase was partially offset by (i) the decreases in volumes of oil and gas sold and (ii) upward revisions in the estimates of remaining oil and gas reserves at December 31, 2000. As a percentage of Net Profits, this expense decreased to 9.3% in 2000 from 16.4% in 1999. This percentage decrease was primarily due to the increases in the average prices of oil and gas sold.
General and administrative expenses increased $1,706 (1.2%) in 2000 as compared to 1999. As a percentage of Net Profits, these expenses decreased to 7.2% in 2000 from 13.7% in 1999. This percentage decrease was primarily due to the increase in Net Profits.
Cumulative cash distributions to the Limited Partners through December 31, 2000 were $8,641,583 or 74.39% of the Limited Partners' capital contributions.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 -------------------------------------
Total Net Profits increased $169,046 (20.3%) in 1999 as compared to 1998. Of this increase, approximately $230,000 and $41,000, respectively, were related to increases in the average prices of oil and gas sold. These increases were partially offset by a decrease of approximately $120,000 related to an increase in production expenses incurred by the owners of the Working Interests. Volumes of oil and gas sold increased 1,140 barrels and 2,291 Mcf, respectively, in 1999 as compared to 1998. The increase in production expenses was primarily due to a negative prior period lease operating expense adjustment made by the operator on one significant well during 1998. Average oil and gas prices increased to $16.43 per barrel and $1.92 per Mcf, respectively, in 1999 from $12.57 per barrel and $1.81 per Mcf, respectively, in 1998.
The P-8 Partnership sold certain Net Profits Interests during 1999 and recognized a $678 gain on such sales. Sales of Net Profits Interests during 1998 resulted in the P-8 Partnership recognizing similar gains totaling $102,195.
Depletion of Net Profits Interests decreased $517,299 (75.9%) in 1999 as compared to 1998. This decrease was primarily due to (i) a reduction in the depletable base of oil and gas properties due to an impairment provision recorded during the fourth quarter of 1998 and (ii) several wells being substantially depleted during 1998 due to the lack of remaining economically recoverable reserves. As a percentage of Net Profits, this expense decreased to 16.4% in 1999 from 82.0% in 1998. This percentage decrease was primarily due to the dollar decrease in depletion of Net Profits Interests.
The P-8 Partnership recognized a non-cash charge against earnings of $798,075 in the fourth quarter of 1998. This charge was related to the decline in oil and gas prices used to determine future cash flows from the P-8 Partnership's Net Profits Interests in proved oil and gas reserves at December 31, 1998. No similar charge was necessary in 1999.
General and administrative expenses remained relatively constant in 1999 as compared to 1998. As a percentage of Net Profits, these expenses decreased to 13.7% in 1999 from 16.4% in 1998. This percentage decrease was primarily due to the increase in Net Profits.
Average Proceeds and Units of Production
The following tables are comparisons of the annual equivalent units of production (one barrel of oil or six Mcf of gas) and the average proceeds received per equivalent unit of production for the oil and gas sales attributable to the Partnerships' Net Profits Interest for the years ended December 31, 2000, 1999, and 1998.
2000 Compared to 1999 ---------------------
Equivalent Units Average Proceeds of Production per Equivalent Unit ----------------------------- ------------------------- P/ship 2000 1999 % Change 2000 1999 % Change - ------ ------- ------- -------- ----- ------ --------
P-7 164,929 181,983 ( 9%) $17.74 $7.81 127% P-8 109,352 120,772 ( 9%) 17.75 8.29 114%
1999 Compared to 1998 ---------------------
Equivalent Units Average Proceeds of Production per Equivalent Unit ----------------------------- ------------------------- P/ship 1999 1998 % Change 1999 1998 % Change - ------ ------- ------- -------- ----- ------ --------
P-7 181,983 184,035 ( 1%) $7.81 $ 7.87 ( 1%) P-8 120,772 119,250 1% 8.29 6.97 19%
Liquidity and Capital Resources
Net proceeds from operations less necessary operating capital are distributed to the Limited Partners on a quarterly basis. See "Item 5. Market for Units and Related Limited Partner Matters." The net proceeds from the Net Profits Interests are not reinvested in productive assets. Assuming 2000 production levels for future years, the P-7 and P-8 Partnerships' proved reserve quantities at December 31, 2000 would have remaining lives of approximately 9.1 and 8.9 years, respectively, for oil reserves and 8.8 and 8.2 years, respectively, for gas reserves. These life of reserves estimates are based on the current estimates of remaining oil and gas reserves. See "Item 2. Properties" for a discussion of these reserve estimates. Any decrease from the high oil and gas prices at December 31, 2000 may cause a decrease in the estimated life of said reserves.
The Partnerships' available capital from the Limited Partners' subscriptions has been spent on Net Profits Interests and there should be no further material capital resource commitments in the future. The Partnerships have no debt commitments.
Occasional expenditures by the Affiliated Programs for new wells or well recompletions or workovers, however, may reduce or eliminate cash available for a particular quarterly cash distribution. During 2000, 1999, and 1998, capital expenditures affecting the P-7 Partnership's Net Profits Interests totaled $372,668, $147,771, and $202,852, respectively. During 2000, 1999, and 1998, capital expenditures affecting the P-8 Partnership's Net Profits Interests totaled $227,113, $100,393, and $118,875, respectively. These costs were indirectly incurred as a result of (i) drilling activities associated with a large unitized property and (ii) the successful recompletion of one well during each of 1999 and 1998.
The Partnerships sold certain Net Profits Interests during 2000, 1999, and 1998. These sales were made by the General Partner after giving due consideration to both the offer price and the General Partner's estimate of the underlying property's remaining proved reserves and future operating costs. Net proceeds from the sales were distributed to the Partnerships and included in the calculation of the Partnerships' cash distributions for the quarter immediately following the Partnerships' receipt of the proceeds. During 2000, 1999, and 1998, such proceeds to the P-7 Partnership were $449,976, $1,263, and $181,197, respectively, while such proceeds to the P-8 Partnership were $238,988, $678, and $119,285, respectively. The General Partner believes that the sale of these Net Profits Interests will be beneficial to the Partnerships since the properties sold generally had a higher ratio of future operating expenses as compared to reserves than the properties not sold.
There can be no assurance as to the amount of the Partnerships' future cash distributions. The Partnerships' ability to make cash distributions depends primarily upon the level of available cash flow generated by the Partnerships' Net Profits Interests, which will be affected (either positively or negatively) by many factors beyond the control of the Partnerships, including the price of and demand for oil and gas and other market and economic conditions. Even if prices and costs remain stable, the amount of cash available for distributions will decline over time (as the volume of production from producing properties declines) since the Partnerships are not replacing production through acquisitions of Net Profits Interests. The Partnerships' quantity of proved reserves has been reduced by the sale of Net Profits Interests; therefore, it is possible that the Partnerships' future cash distributions will decline as a result of a reduction of the Partnerships' reserve base.
The Partnerships will terminate on February 28, 2002 in accordance with the Partnership Agreement. However, the General Partner may extend the term of each partnership for up to five periods of two years each. As the date of this Annual Report the General Partner has not determined whether to extend the term of either Partnership.
Inflation and Changing Prices
Prices obtained for oil and gas production depend upon numerous factors, including the extent of domestic and foreign production, foreign imports of oil, market demand, domestic and foreign economic conditions in general, and governmental regulations and tax laws. The general level of inflation in the economy did not have a material effect on the operations of the Partnerships in 2000. Oil and gas prices have fluctuated during recent years and generally have not followed the same pattern as inflation. See "Item 2. Properties - Oil and Gas Production, Revenue, and Price History."
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Partnerships do not hold any market risk sensitive instruments.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are indexed in Item 14 hereof.
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 GENERAL PARTNER
The Partnerships have no directors or executive officers. The following individuals are directors and executive officers of the General Partner. The business address of such director and executive officers is Two West Second Street, Tulsa, Oklahoma 74103.
Name Age Position with Geodyne ---------------- --- -------------------------------- Dennis R. Neill 48 President and Director
Judy K. Fox 49 Secretary
The director will hold office until the next annual meeting of shareholders of Geodyne or until his successor has been duly elected and qualified. All executive officers serve at the discretion of the Board of Directors.
Dennis R. Neill joined Samson in 1981, was named Senior Vice President and Director of Geodyne on March 3, 1993, and was named President of Geodyne and its subsidiaries on June 30, 1996. Prior to joining Samson, he was associated with a Tulsa law firm, Conner and Winters, where his principal practice was in the securities area. He received a Bachelor of Arts degree in political science from Oklahoma State University and a Juris Doctorate degree from the University of Texas. Mr. Neill also serves as Senior Vice President of Samson Investment Company and as President and Director of Samson Properties Incorporated, Samson Hydrocarbons Company, Dyco Petroleum Corporation, Berry Gas Company, Circle L Drilling Company, Snyder Exploration Company, and Compression, Inc.
Judy K. Fox joined Samson in 1990 and was named Secretary of Geodyne and its subsidiaries on June 30, 1996. Prior to joining Samson, she served as Gas Contract Manager for Ely Energy Company. Ms. Fox is also Secretary of Berry Gas Company, Circle L Drilling Company, Compression, Inc., Dyco Petroleum Corporation, Samson Hydrocarbons Company, Snyder Exploration Company, and Samson Properties Incorporated.
Section 16(a) Beneficial Ownership Reporting Compliance
To the best knowledge of the Partnerships and the General Partner, there were no officers, directors, or ten percent owners who were delinquent filers during 2000 of reports required under Section 16 of the Securities Exchange Act of 1934.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The General Partner and its affiliates are reimbursed for actual general and administrative costs and operating costs incurred and attributable to the conduct of the business affairs and operations of the Partnerships, computed on a cost basis, determined in accordance with generally accepted accounting principles. Such reimbursed costs and expenses allocated to the Partnerships include office rent, secretarial, employee compensation and benefits, travel and communication costs, fees for professional services, and other items generally classified as general or administrative expense. When actual costs incurred benefit other Partnerships and affiliates, the allocation of costs is based on the relationship of the Partnerships' reserves to the total reserves owned by all Partnerships and affiliates. The amount of general and administrative expense allocated to the General Partner and its affiliates and charged to each Partnership during 2000, 1999, and 1998, is set forth in the table below. Although the actual costs incurred by the General Partner and its affiliates have fluctuated during the three years presented, the amounts charged to the Partnerships have not fluctuated due to expense limitations imposed by the Partnership Agreements.
Partnership 2000 1999 1998 ----------- -------- -------- --------
P-7 $198,636 $198,636 $198,636 P-8 122,280 122,280 122,280
None of the officers or directors of the General Partner receive compensation directly from the Partnerships. The Partnerships reimburse the General Partner or its affiliates for that portion of such officers' and directors' salaries and expenses attributable to time devoted by such individuals to the Partnerships' activities based on the allocation method described above. The following tables indicate the approximate amount of general and administrative expense reimbursement attributable to the salaries of the directors, officers, and employees of the General Partner and its affiliates during 2000, 1999, and 1998:
- ---------- (1) The general and administrative expenses paid by the P-7 Partnership and attributable to salary reimbursements do not include any salary or other compensation attributable to Mr. Neill. (2) No officer or director of Geodyne or its affiliates provides full-time services to the P-7 Partnership and no individual's salary or other compensation reimbursement from the P-7 Partnership equals or exceeds $100,000 per annum.
- ---------- (1) The general and administrative expenses paid by the P-8 Partnership and attributable to salary reimbursements do not include any salary or other compensation attributable to Mr. Neill. (2) No officer or director of Geodyne or its affiliates provides full-time services to the P-8 Partnership and no individual's salary or other compensation reimbursement from the P-8 Partnership equals or exceeds $100,000 per annum.
Affiliates of the Partnerships serve as operator of some of the wells in which the Partnerships own a Net Profits Interest. The owners of the working interests in these wells contract with such affiliates for services as operator of the wells. As operator, such affiliates are compensated at rates provided in the operating agreements in effect and charged to all parties to such agreement. Such compensation may occur both prior and subsequent to the commencement of commercial marketing of production of oil or gas. The dollar amount of such compensation which burdens the Partnerships' Net Profits Interests is impossible to quantify as of the date of this Annual Report.
Samson maintains necessary inventories of new and used field equipment. Samson may have provided some of this equipment for wells in which the Partnerships have a Net Profits Interest. This equipment was provided at prices or rates equal to or less than those normally charged in the same or comparable geographic area by unaffiliated persons or companies dealing at arm's length.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information as to the beneficial ownership of the Units as of February 1, 2001 by (i) each beneficial owner of more than five percent of the issued and outstanding Units, (ii) the director and officers of the General Partner, and (iii) the General Partner and its affiliates. The address of the General Partner, its officers and director, and Samson Resources Company is Samson Plaza, Two West Second Street, Tulsa, Oklahoma 74103.
Number of Units Beneficially Owned (Percent Beneficial Owner of Outstanding) - ------------------------------------------ -------------------
P-7 Partnership: - ---------------
Samson Resources Company 30,465 (16.1%)
ATL, Inc. 54,896 (29.1%) 1200 Harbor Boulevard, 5th Floor Weehawken, NJ 07087
All affiliates, directors, and officers of the General Partner as a group and the General Partner (4 persons) 30,465 (16.1%)
P-8 Partnership: - ---------------
Samson Resources Company 27,244 (23.5%)
All affiliates, directors, and officers of the General Partner as a group and the General Partner (4 persons) 27,244 (23.5%)
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The General Partner and certain of its affiliates engage in oil and gas activities independently of the Partnerships which result in conflicts of interest that cannot be totally eliminated. The allocation of acquisition opportunities and the nature of the compensation arrangements between the Partnerships and the General Partner also create potential conflicts of interest. An affiliate of the Partnerships owns some of the Partnerships' Units and therefore has an identity of interest with other Limited Partners with respect to the operations of the Partnerships.
In order to attempt to assure limited liability for the Limited Partners as well as an orderly conduct of business, management of the Partnerships is exercised solely by the General Partner. The Partnership Agreements grant the General Partner broad discretionary authority with respect to the Partnerships' expenditure and control of funds, including borrowings. These provisions are similar to those contained in prospectuses and partnership agreements for other public oil and gas partnerships. Broad discretion as to general management of the Partnerships involves circumstances where the General Partner has conflicts of interest and where it must allocate costs and expenses, or opportunities, among the Partnerships and other competing interests.
The General Partner does not devote all of its time, efforts, and personnel exclusively to the Partnerships. Furthermore, the Partnerships do not have any employees, but instead rely on the personnel of Samson. The Partnerships thus compete with Samson (including other oil and gas partnerships) for the time and resources of such personnel. Samson devotes such time and personnel to the management of the Partnerships as are indicated by the circumstances and as are consistent with the General Partner's fiduciary duties.
Affiliates of the Partnerships operate certain wells in which the Partnerships have a Net Profits Interest and are compensated for such services at rates comparable to charges of unaffiliated third parties for services in the same geographic area. These costs are charged to the owners of the working interest of such wells and are considered when calculating the
Net Profits Interest payable to the Partnerships. These costs are thus indirectly borne by the Partnership.
Affiliates of the Partnerships are solely responsible for the negotiation, administration, and enforcement of oil and gas sales agreements covering the leasehold interests in which the Partnerships hold net profits or royalty interests. Because affiliates of the Partnerships who provide services to the owners of the Working Interests have fiduciary or other duties to other members of Samson, contract amendments and negotiating positions taken by them in their effort to enforce contracts with purchasers may not necessarily represent the positions that the owners of such Working Interests would take if they were to administer their own contracts without involvement with other members of Samson. On the other hand, management believes that the negotiating strength and contractual positions of the owners of such Working Interests have been enhanced by virtue of their affiliation with Samson.
PART IV.
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules, and Exhibits:
(1) Financial Statements: The following financial statements for the Geodyne Institutional/Pension Energy Income Limited Partnership P-7 and the Geodyne Institutional/Pension Energy Income Limited Partnership P-8 as of December 31, 2000 and 1999 and for the three years ended December 31, 2000 are filed as part of this report:
Report of Independent Accountants Balance Sheets Statements of Operations Statements of Changes in Partners' Capital (Deficit) Statements of Cash Flows Notes to Financial Statements
(2) Financial Statement Schedules:
None.
(3) Exhibits:
4.1 The Certificate and Agreements of Limited Partnership for the following Partnerships have been previously filed with the SEC as an Exhibit to Form 8-A filed by each Partnership on the dates shown below and are hereby incorporated by reference.
Partnership Filing Date File No. ----------- ----------- --------
P-7 June 1, 1992 0-20265 P-8 June 1, 1992 0-20264
4.2 Second Amendment to Agreement of Limited Partnership of Geodyne Institutional/Pension Energy Income Limited Partnership P-7, filed as Exhibit 4.1 to Registrants' Current Report on Form 8-K dated August 2, 1993 filed with the SEC on August 10, 1993 and is hereby incorporated by reference.
4.3 Second Amendment to Agreement of Limited Partnership of Geodyne Institutional/Pension Energy Income Limited Partnership P-8, filed as Exhibit 4.2 to Registrants' Current Report on Form 8-K dated August 2, 1993 filed with the SEC on August 10, 1993 and is hereby incorporated by reference.
4.4 Third Amendment to Agreement of Limited Partnership of Geodyne Institutional/Pension Energy Income Limited Partnership P-7, filed as Exhibit 4.5 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 filed with the SEC on April 1, 1996 and is hereby incorporated by reference.
4.5 Third Amendment to Agreement of Limited Partnership of Geodyne Institutional/Pension Energy Income Limited Partnership P-8, filed as Exhibit 4.6 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 filed with the SEC on April 1, 1996 and is hereby incorporated by reference.
* 23.1 Consent of Ryder Scott Company, L.P. for the Geodyne Institutional/Pension Energy Income Limited Partnership P-7.
* 23.2 Consent of Ryder Scott Company, L.P. for the Geodyne Institutional/Pension Energy Income Limited Partnership P-8.
All other Exhibits are omitted as inapplicable.
----------
*Filed herewith.
(b) Reports on Form 8-K filed during the fourth quarter of 2000:
None.
SIGNATURES
Pursuant to the requirements of Sections 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 organized.
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-7 GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-8
By: GEODYNE RESOURCES, INC. General Partner February 28, 2001
By: /s/Dennis R. Neill ------------------------------ Dennis R. Neill 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 on the dates indicated.
By: /s/Dennis R. Neill President and February 28, 2001 ------------------- Director (Principal Dennis R. Neill Executive Officer)
/s/Patrick M. Hall (Principal February 28, 2001 ------------------- Financial and Patrick M. Hall Accounting Officer)
/s/Judy K. Fox Secretary February 28, 2001 ------------------- Judy K. Fox
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE PARTNERS
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-7
In our opinion, the accompanying balance sheets and the related statements of operations, changes in partners' capital (deficit) and cash flows present fairly, in all material respects, the financial position of the Geodyne Institutional/Pension Energy Income Limited Partnership P-7, an Oklahoma limited partnership, at December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. 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 of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Tulsa, Oklahoma February 9, 2001
-F1-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-7 Balance Sheets December 31, 2000 and 1999
ASSETS ------
2000 1999 ----------- -----------
CURRENT ASSETS: Cash and cash equivalents $ 633,461 $ 353,416 Accounts receivable: Net Profits 612,799 396,241 --------- ---------
Total current assets $1,246,260 $ 749,657
NET PROFITS INTERESTS, net, utilizing the successful efforts method 2,325,235 2,253,572 --------- ---------
$3,571,495 $3,003,229 ========= =========
PARTNERS' CAPITAL (DEFICIT) ---------------------------
PARTNERS' CAPITAL (DEFICIT): General Partner ($ 104,594) ($ 119,327) Limited Partners, issued and outstanding 188,702 Units 3,676,089 3,122,556 --------- ---------
Total Partners' capital $3,571,495 $3,003,229 ========= =========
The accompanying notes are an integral part of these financial statements
-F2-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-7 Statements of Operations For the Years Ended December 31, 2000, 1999, and 1998
2000 1999 1998 ------------ ------------ ------------
REVENUES: Net Profits $2,925,780 $1,421,927 $1,447,786 Interest income 29,655 7,425 11,228 Gain on sale of Net Profits Interests 440,131 1,263 148,737 --------- --------- ---------
$3,395,566 $1,430,615 $1,607,751
COSTS AND EXPENSES: Depletion of Net Profits Interests $ 291,160 $ 278,050 $1,312,317 Impairment provision - 1,664,601 General and administrative 224,725 222,880 221,826 --------- --------- ---------
$ 515,885 $ 500,930 $3,198,744 --------- --------- ---------
NET INCOME (LOSS) $2,879,681 $ 929,685 ($1,590,993) ========= ========= =========
GENERAL PARTNER - NET INCOME $ 154,148 $ 57,235 $ 38,966 ========= ========= =========
LIMITED PARTNERS - NET INCOME (LOSS) $2,725,533 $ 872,450 ($1,629,959) ========= ========= =========
NET INCOME (LOSS) per Unit $ 14.44 $ 4.62 ($ 8.64) ========= ========= =========
UNITS OUTSTANDING 188,702 188,702 188,702 ========= ========= =========
The accompanying notes are an integral part of these financial statements
-F3-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-7 Statements of Changes in Partners' Capital (Deficit) For the Years Ended December 31, 2000, 1999, and 1998
Limited General Partners Partner Total ------------- ---------- -------------
Balance, Dec. 31, 1997 $ 5,820,065 ($119,241) $ 5,700,824 Net income (loss) ( 1,629,959) 38,966 ( 1,590,993) Cash distributions ( 1,183,000) ( 49,154) ( 1,232,154) ---------- ------- ----------
Balance, Dec. 31, 1998 $ 3,007,106 ($129,429) $ 2,877,677 Net income 872,450 57,235 929,685 Cash distributions ( 757,000) ( 47,133) ( 804,133) ---------- ------- ----------
Balance, Dec. 31, 1999 $ 3,122,556 ($119,327) $ 3,003,229 Net income 2,725,533 154,148 2,879,681 Cash distributions ( 2,172,000) ( 139,415) ( 2,311,415) ---------- ------- ----------
Balance, Dec. 31, 2000 $ 3,676,089 ($104,594) $ 3,571,495 ========== ======= ==========
The accompanying notes are an integral part of these financial statements
-F4-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-7 Statements of Cash Flows For the Years Ended December 31, 2000, 1999, and 1998
2000 1999 1998 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $2,879,681 $ 929,685 ($1,590,993) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depletion of Net Profits Interests 291,160 278,050 1,312,317 Impairment provision - - 1,664,601 Gain on sale of Net Profits Interests ( 440,131) ( 1,263) ( 148,737) Increase in accounts receivable - Net Profits ( 216,558) ( 125,340) ( 270,901) Decrease in accounts payable - Net Profits - - ( 6,697) --------- --------- --------- Net cash provided by operating activities $2,514,152 $1,081,132 $ 959,590 --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ($ 372,668) ($ 147,771) ($ 202,852) Proceeds from sale of Net Profits Interests 449,976 1,263 181,197 --------- --------- --------- Net cash provided (used) by investing activities $ 77,308 ($ 146,508) ($ 21,655) --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES: Cash distributions ($2,311,415) ($ 804,133) ($1,232,154) --------- --------- --------- Net cash used by financing activities ($2,311,415) ($ 804,133) ($1,232,154) --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 280,045 $ 130,491 ($ 294,219)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 353,416 222,925 517,144 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 633,461 $ 353,416 $ 222,925 ========= ========= =========
The accompanying notes are an integral part of these financial statements
-F5-
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE PARTNERS
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-8
In our opinion, the accompanying balance sheets and the related statements of operations, changes in partners' capital (deficit) and cash flows present fairly, in all material respects, the financial position of the Geodyne Institutional/Pension Energy Income Limited Partnership P-8, an Oklahoma limited partnership, at December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Partnerships' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Tulsa, Oklahoma February 9, 2001
-F6-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-8 Balance Sheets December 31, 2000 and 1999
ASSETS ------ 2000 1999 ------------ ------------
CURRENT ASSETS: Cash and cash equivalents $ 498,373 $ 291,963 Accounts receivable: Net Profits 405,439 239,592 --------- ---------
Total current assets $ 903,812 $ 531,555
NET PROFITS INTERESTS, net, utilizing the successful efforts method 1,355,008 1,313,803 --------- ---------
$2,258,820 $1,845,358 ========= =========
PARTNERS' CAPITAL (DEFICIT) ---------------------------
PARTNERS' CAPITAL (DEFICIT): General Partner ($ 44,319) ($ 55,053) Limited Partners, issued and outstanding 116,168 Units 2,303,139 1,900,411 --------- ---------
Total Partners' capital $2,258,820 $1,845,358 ========= =========
The accompanying notes are an integral part of these financial statements
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GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-8 Statements of Operations For the Years Ended December 31, 2000, 1999, and 1998
2000 1999 1998 ------------ ------------ ------------
REVENUES: Net Profits $1,940,837 $1,000,657 $ 831,611 Interest income 21,779 7,179 9,731 Gain on sale of Net Profits Interests 233,352 678 102,195 --------- --------- ---------
$2,195,968 $1,008,514 $ 943,537
COSTS AND EXPENSES: Depletion of Net Profits Interests $ 180,272 $ 164,529 $ 681,828 Impairment provision - - 798,075 General and administrative 139,012 137,306 136,571 --------- --------- ---------
$ 319,284 $ 301,835 $1,616,474 --------- --------- ----------
NET INCOME (LOSS) $1,876,684 $ 706,679 ($ 672,937) ========= ========= =========
GENERAL PARTNER - NET INCOME $ 99,956 $ 41,556 $ 25,063 ========= ========= =========
LIMITED PARTNERS - NET INCOME (LOSS) $1,776,728 $ 665,123 ($ 698,000) ========= ========= =========
NET INCOME (LOSS) per Unit $ 15.29 $ 5.73 ($ 6.01) ========= ========= =========
UNITS OUTSTANDING 116,168 116,168 116,168 ========= ========= =========
The accompanying notes are an integral part of these financial statements
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GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-8 Statements of Changes in Partners' Capital (Deficit) For the Years Ended December 31, 2000, 1999, and 1998
Limited General Partners Partner Total ------------ --------- ------------
Balance, Dec. 31, 1997 $3,252,288 ($56,764) $3,195,524 Net income (loss) ( 698,000) 25,063 ( 672,937) Cash distributions ( 814,000) ( 33,151) ( 847,151) --------- ------ ---------
Balance, Dec. 31, 1998 $1,740,288 ($64,852) $1,675,436 Net income 665,123 41,556 706,679 Cash distributions ( 505,000) ( 31,757) ( 536,757) --------- ------ ---------
Balance, Dec. 31, 1999 $1,900,411 ($55,053) $1,845,358 Net income 1,776,728 99,956 1,876,684 Cash distributions ( 1,374,000) ( 89,222) ( 1,463,222) --------- ------ ---------
Balance, Dec. 31, 2000 $2,303,139 ($44,319) $2,258,820 ========= ====== =========
The accompanying notes are an integral part of these financial statements
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GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-8 Statements of Cash Flows For the Years Ended December 31, 2000, 1999, and 1998
2000 1999 1998 ------------ ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $1,876,684 $706,679 ($672,937) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depletion of Net Profits Interests 180,272 164,529 681,828 Impairment provision -798,075 Gain on sale of Net Profits Interests ( 233,352) ( 678) (102,195) Increase in accounts receivable - Net Profits ( 165,847) ( 122,960) ( 59,613) --------- ------- ------- Net cash provided by operating activities $1,657,757 $747,570 $645,158 --------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ($ 227,113) ($100,393) ($118,875) Proceeds from sale of Net Profits Interests 238,988 678 119,285 --------- ------- ------- Net cash provided (used) by investing activities $ 11,875 ($ 99,715) $ 410 --------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES: Cash distributions ($1,463,222) ($536,757) ($847,151) --------- ------- ------- Net cash used by financing activities ($1,463,222) ($536,737) ($847,151) --------- ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 206,410 $111,098 ($201,583)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 291,963 180,865 382,448 --------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 498,373 $291,963 $180,865 ========= ======= =======
The accompanying notes are an integral part of these financial statements
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GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME PROGRAM II LIMITED PARTNERSHIPS Notes to the Financial Statements For the Years Ended December 31, 2000, 1999, and 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
The Geodyne Institutional/Pension Energy Income Limited Partnerships (the "Partnerships") were formed pursuant to a public offering of depositary units ("Units"). Upon formation, investors became limited partners (the "Limited Partners") and held Units issued by each Partnership. Geodyne Resources, Inc. ("Geodyne") is the general partner of each of the Partnerships. Limited Partners' capital contributions were invested in net profits interests, royalty interests, and other nonoperating interests in producing oil and gas properties. Most of the net profits interests acquired by the Partnerships have been carved out of working interests in producing properties, located in the continental United States, which were acquired by affiliated oil and gas investment programs or other affiliates (the "Affiliated Programs").
Net profits interests entitle the Partnerships to a share of net revenues from producing properties measured by a specific percentage of the net profits realized by such Affiliated Programs as owners of the working interests in the producing properties. Except where otherwise noted, references to certain operational activities of the Partnerships are actually the activities of the Affiliated Programs. As the holder of a net profits interest, a Partnership is not liable to pay any amount by which oil and gas operating costs and expenses exceed revenues for any period, although any deficit, together with interest, is applied to reduce the amounts payable to the Partnership in subsequent periods. As used in these financial statements, the Partnerships' net profits and royalty interests in oil and gas sales are referred to as "Net Profits" and the Partnerships' net profits and royalty interests in oil and gas properties are referred to as "Net Profits Interests." The Partnerships do not directly bear capital costs. However, the Partnerships indirectly bear certain capital costs incurred by the Affiliated Programs to the extent such capital costs are charged against the applicable oil and gas revenues in calculating the net profits payable to the Partnerships. For financial reporting purposes only, such capital costs are reported as capital expenditures in the Partnerships' Statements of Cash Flows.
The P-7 and P-8 Partnerships were activated February 28, 1992 with Limited Partner capital contributions of $18,870,200 and $11,616,800 respectively. The Partnerships will terminate on February 28, 2002 in accordance with the partnership agreement for each Partnership (the "Partnership Agreement"). However, the
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General Partner may extend the term of each Partnership for up to five periods of two years each. As of the date of these financial statements, the General Partner has not determined whether to extend the term of any Partnership.
An affiliate of the General Partner owned 30,465(16.1%) and 27,244(23.5%) of the P-7 and P-8 Partnerships' Units, respectively, at December 31, 2000.
The Partnerships' sole business is owning Net Profits Interests in oil and gas properties. Substantially all of the gas reserves attributable to the Partnerships' Net Profits Interests are being sold regionally on the "spot market." Due to the highly competitive nature of the spot market, prices on the spot market are subject to wide seasonal and regional pricing fluctuations. In addition, such spot market sales are generally short-term in nature and are dependent upon obtaining transportation services provided by pipelines. The Partnerships' oil is sold at or near the Partnerships' wells under short-term purchase contracts at prevailing arrangements which are customary in the oil industry. The prices received for the Partnerships' oil and gas are subject to influences such as global consumption and supply trends.
Allocation of Costs and Revenues
Each Partnership Agreement allocates costs and income between the Limited Partners and General Partner as follows:
Before Payout(1) After Payout(1) ------------------ ------------------- General Limited General Limited Partner Partners Partner Partners ------- -------- ------- -------- Costs - -------------------------
Sales commissions, payment for organization and offering costs and acquisition fee 1% 99% - - Property Acquisition Costs 1% 99% 1% 99% General and administrative costs and direct administrative costs(2) 5% 95% 15% 85%
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Income - -------------------------
Temporary investments of Limited Partners' Subscriptions 1% 99% 1% 99% Income from oil and gas production(2) 5% 95% 15% 85% Gain on sale of Net Profits Interests(2) 5% 95% 15% 85% All other income(2) 5% 95% 15% 85%
- ---------- (1) Payout occurs when total distributions to Limited Partners equal total original Limited Partner subscriptions. (2) If at payout the total distributions received by the Limited Partners from the commencement of the property investment period have averaged on an annualized basis an amount that is less than 12% of the Limited Partners' subscriptions, the percentage of income, and costs which are shared in the same proportions as income, allocated to the General Partner will increase to only 10% and the Limited Partners will be allocated 90% thereof until such time, if ever, that the distributions to the Limited Partners from the commencement of the property investment period reaches a yearly average equal to at least 12% of the Limited Partners' subscriptions. Thereafter, income, and costs shared in the same proportions as income, will be allocated 15% to the General Partner and 85% to the Limited Partners.
Cash and Cash Equivalents
The Partnerships consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents are not insured, which cause the Partnerships to be subject to risk.
Credit Risk
Accrued oil and gas sales, which are included in the Partnerships' accounts receivable-Net Profits, are due from a variety of oil and gas purchasers and, therefore, indirectly subject the Partnerships to a concentration of credit risk. Some of these purchasers are discussed in Note 3 - Major Customers.
Net Profits Interests
The Partnerships follow the successful efforts method of accounting for their Net Profits Interests. Under the successful efforts method, the Partnerships capitalize all acquisition costs. Such acquisition costs include costs incurred by the
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Partnerships or the General Partner to acquire a Net Profits Interest, including related title insurance or examination costs, commissions, engineering, legal and accounting fees, and similar costs directly related to the acquisitions plus an allocated portion of the General Partner's property screening costs. The net acquisition cost to the Partnerships of the Net Profits Interests in properties acquired by the General Partner consists of the cost of acquiring the underlying properties adjusted for the net cash results of operations, including any interest incurred to finance the acquisition, for the period of time the properties are held by the General Partner. Impairment of Net Profits Interests in unproved oil and gas properties is recognized based upon an individual property assessment. Upon discovery of commercial reserves, net profits interests in unproved properties are transferred to producing properties.
Depletion of the cost of Net Profits Interests is computed on the units-of-production method. The Partnerships' calculation of depletion of its Net Profits Interests includes estimated dismantlement and abandonment costs, net of estimated salvage values related to the underlying properties in which the Partnership has a Net Profits Interest. The depletion rates per equivalent barrel of oil produced during the years ended December 31, 2000, 1999, and 1998 were as follows:
Partnership 2000 1999 1998 ----------- ----- ----- -----
P-7 $1.77 $1.53 $7.13 P-8 1.65 1.36 5.72
The Partnerships evaluate the recoverability of the carrying costs of their Net Profits Interests in proved oil and gas properties at the field level. If the unamortized costs of a Net Profits Interest within a field exceeds the expected undiscounted future cash flows from such Net Profits Interest, the cost of the Net Profits Interest is written down to fair value, which is determined by using the discounted future cash flows from the Net Profits Interest. During 2000, 1999, and 1998, the Partnerships recorded the following non-cash charges against earnings (impairment provisions):
Partnership 2000 1999 1998 ----------- ---------- -------- ---------- P-7 - - $1,664,601 P-8 - - 798,075
The risk that the Partnerships will be required to record similar impairment provisions in the future increases as oil and gas prices decrease.
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Accounts Receivable (Accounts Payable) - Net Profits
Revenues from a Net Profits Interest consist of a share of the oil and gas sales of the property, less operating and production expenses. The Partnerships accrue for oil and gas revenues less expenses from the Net Profits Interests. Sales of gas applicable to the Net Profits Interests are recorded as revenue when the gas is metered and title transferred pursuant to the gas sales contracts. During such times as sales of gas exceed a Partnership's pro rata Net Profits Interest in a well, such sales are recorded as revenue unless total sales from the well have exceeded the Partnership's share of estimated total gas reserves attributable to the underlying property, at which time such excess is recorded as a liability. The rates per Mcf used to calculate this liability are based on the average gas price received for the volumes at the time the overproduction occurred. This also approximates the price for which the Partnerships are currently settling this liability. This liability is recorded as a reduction of accounts receivable.
Also included in accounts receivable (payable)- Net Profits are amounts which represent costs deferred or accrued for Net Profits relating to lease operating expenses incurred in connection with the net underproduced or overproduced gas imbalance positions. The rate used in calculating the deferred charge or accrued liability is the average of the annual production costs per Mcf.
The Partnerships have not entered into any hedging or derivative contracts in connection with their production of oil and gas.
General and Administrative Overhead
The General Partner and its affiliates are reimbursed for actual general and administrative costs incurred and attributable to the conduct of the business affairs and operations of the Partnerships.
Use of Estimates in Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Further, accounts receivable (payable) - Net Profits includes accrued liabilities, accrued lease operating expenses, and deferred lease operating expenses related to gas balancing which involve estimates that could materially differ from the actual
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amounts ultimately realized or incurred in the near term. Oil and gas reserves (see Note 4) also involve significant estimates which could materially differ from the actual amounts ultimately realized.
Income Taxes
Income or loss for income tax purposes is includable in the income tax returns of the partners. Accordingly, no recognition has been given to income taxes in these financial statements.
2. TRANSACTIONS WITH RELATED PARTIES
The Partnerships reimburse the General Partner for the general and administrative overhead applicable to the Partnerships based on an allocation of actual costs incurred by the General Partner. When costs incurred benefit other Partnerships and affiliates, the allocation of costs is based on the relationship of the Partnerships' reserves to the total reserves owned by all Partnerships and affiliates. The General Partner believes this allocation method is reasonable. Although the actual costs incurred by the General Partner and its affiliates have fluctuated during the three years presented, the amounts charged to the Partnerships have not fluctuated due to expense limitations imposed by the Partnership Agreements. The following is a summary of payments made to the General Partner or its affiliates by the Partnerships for general and administrative overhead costs for the years ended December 31, 2000, 1999, and 1998:
Partnership 2000 1999 1998 ----------- -------- -------- --------
P-7 $198,636 $198,636 $198,636 P-8 122,280 122,280 122,280
Affiliates of the Partnerships operate certain of the properties in which the Partnerships own a Net Profits Interest and their policy is to bill the owners of the working interests of such properties for all customary charges and cost reimbursements associated with these activities, together with any compressor rentals, consulting, or other services provided. Such charges are comparable to third party charges in the area where the wells are located and are the same as charged to other working interest owners in the wells.
3. MAJOR CUSTOMERS
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The following table sets forth purchasers who individually accounted for ten percent or more of the combined oil and gas sales attributable to each of the Partnership's Net Profits Interests during the years ended December 31, 2000, 1999, and 1998:
Partnership Purchaser Percentage ----------- ---------------------- ------------------------ 2000 1999 1998 ----- ----- -----
P-7 National Cooperative Refinery Association ("NCRA") 29.1% 23.7% 23.3% Scurlock Permian Corp. ("Scurlock") 12.8% 14.7% 14.4% Hunt Oil Company - % 10.3% - %
P-8 NCRA 27.6% 22.3% 22.2% El Paso Energy Marketing Company 10.5% 10.8% 13.0% Scurlock 10.2% 11.8% 11.8%
In the event of interruption of purchases by one or more of these significant customers or the cessation or material change in availability of open access transportation by pipeline transporters, the Partnerships may encounter difficulty in marketing gas and in maintaining historic sales levels. Alternative purchasers or transporters may not be readily available.
4. SUPPLEMENTAL OIL AND GAS INFORMATION
The following supplemental information regarding the Net Profits Interest activities of the Partnerships is presented pursuant to the disclosure requirements promulgated by the SEC.
Capitalized Costs
Capitalized costs and accumulated depletion and valuation allowance at December 31, 2000 and 1999 were as follows:
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P-7 Partnership ---------------
2000 1999 ------------- -------------
Net Profits Interests in proved oil and gas properties $14,122,306 $14,640,090
Accumulated depletion and valuation allowance ( 11,797,071) ( 12,386,518) ---------- ---------- Net Profits Interests, net $ 2,325,235 $ 2,253,572 ========== ==========
P-8 Partnership ---------------
2000 1999 ------------ -------------
Net Profits Interests in proved oil and gas properties $8,546,781 $8,785,706
Accumulated depletion and valuation allowance ( 7,191,773) ( 7,471,903) --------- ---------
Net Profits Interests, net $1,355,008 $1,313,803 ========= =========
Costs Incurred
The following table sets forth the development costs related to the Working Interests which are burdened by the Partnerships' Net Profits Interests during the years ended December 31, 2000, 1999, and 1998. Since these development costs were charged against the Net Profits payable to the Partnerships, such development costs were indirectly borne by the Partnerships. No acquisition or exploration costs were incurred during the same periods.
Partnership 2000 1999 1998 ------------ -------- -------- --------
P-7 $372,668 $147,771 $202,852 P-8 227,113 100,393 118,875
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Quantities of Proved Oil and Gas Reserves - Unaudited
The following table summarizes changes in net quantities of proved reserves attributable to the Partnerships' Net Profits Interests, all of which are located in the United States, for the periods indicated. The proved reserves were estimated by petroleum engineers employed by affiliates of the Partnerships. Certain reserve information was reviewed by Ryder Scott Company, L.P., an independent petroleum engineering firm. The following information includes certain gas balancing adjustments which cause the gas volumes to differ from the reserve reports prepared by the General Partner and reviewed by the Ryder Scott.
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Standardized Measure of Discounted Future Net Cash Flows of Proved Oil and Gas Reserves - Unaudited
The following summary sets forth the estimated future net cash flows as of December 31, 2000 relating to the proved reserves attributable to the Partnerships' Net Profits Interests based on the standardized measure as prescribed in SFAS No. 69:
P-7 Partnership P-8 Partnership --------------- --------------- Future cash inflows $46,910,260 $30,184,772 Future production and development costs ( 15,624,584) ( 9,469,309) ---------- ----------
Future net cash flows $31,285,676 $20,715,463
10% discount to reflect timing of cash flows ( 15,227,532) ( 9,805,969) ---------- ----------
Standardized measure of discounted future net cash flows $16,058,144 $10,909,494 ========== ==========
The process of estimating oil and gas reserves is complex, requiring significant subjective decisions in the evaluation of available geological, engineering, and economic data for each reservoir. The data for a given reservoir may change substantially over time as a result of, among other things, additional development activity, production history, and viability of production under varying economic conditions; consequently, it is reasonably possible that material revisions to existing reserve estimates may occur in the near future. Although every reasonable effort has been made to ensure that the reserve estimates reported herein represent the most accurate assessment possible, the significance of the subjective decisions required and variances in available data for various reservoirs make these estimates generally less precise than other estimates presented in connection with financial statement disclosures. The Partnerships' estimated future cash inflows as of December 31, 2000 were determined using the following year end prices:
Partnership Oil (per Bb1) Gas (per Mcf) ----------- ------------- ------------- P-7 $30.68 $5.41 P-8 30.64 5.57
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5. QUARTERLY FINANCIAL DATA (Unaudited)
Summarized unaudited quarterly financial data for 2000 and 1999 are as follows:
P-7 Partnership ---------------
------------------------------------------------------------ First Second Third Fourth Quarter Quarter Quarter Quarter --------- --------- ---------- ---------
Total Revenues $ 673,743 $ 834,246 $1,026,230 $861,347 Gross Profit (1) 601,984 766,922 970,651 764,849 Net Income 534,533 715,292 916,685 713,171 Limited Partners' Net Income Per Unit 2.68 3.59 4.60 3.57
------------------------------------------------------------ First Second Third Fourth Quarter Quarter Quarter Quarter --------- --------- ---------- ---------
Total Revenues $ 162,766 $ 343,730 $ 536,409 $ 387,710 Gross Profit (1) 51,738 242,582 420,020 438,225 Net Income (Loss) ( 14,807) 188,994 367,809 387,689 Limited Partners' Net Income(Loss ( .10) .93 1.83 1.96 Per Unit - ------------------------- (1) Total revenues less depletion of Net Profits Interests.
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P-8 Partnership ---------------
--------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter --------- --------- --------- ---------
Total Revenues $437,618 $517,241 $622,902 $618,207 Gross Profit (1) 396,091 478,446 589,173 551,986 Net Income 354,675 446,404 555,710 519,895 Limited Partners' Net Income Per Unit 2.89 3.64 4.53 4.23
--------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter --------- --------- --------- ---------
Total Revenues $116,179 $242,406 $344,333 $305,596 Gross Profit (1) 54,071 183,393 280,163 326,358 Net Income 13,058 150,360 248,017 295,244 Limited Partners' Net Income Per Unit .09 1.21 2.00 2.43 - ---------------------- (1) Total revenues less depletion of Net Profits Interests.
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INDEX TO EXHIBITS -----------------
Number Description - ------ -----------
4.1 The Certificate and Agreements of Limited Partnership for the following Partnerships have been previously filed with the SEC as an Exhibit to Form 8-A filed by each Partnership on the dates shown below and are hereby incorporated by reference.
Partnership Filing Date File No. ----------- ----------- --------
P-7 June 1, 1992 0-20265 P-8 June 1, 1992 0-20264
4.2 Second Amendment to Agreement of Limited Partnership of Geodyne Institutional/Pension Energy Income Limited Partnership P-7, filed as Exhibit 4.1 to Registrants' Current Report on Form 8-K dated August 2, 1993 filed with the SEC on August 10, 1993 and is hereby incorporated by reference.
4.3 Second Amendment to Agreement of Limited Partnership of Geodyne Institutional/Pension Energy Income Limited Partnership P-8, filed as Exhibit 4.2 to Registrants' Current Report on Form 8-K dated August 2, 1993 filed with the SEC on August 10, 1993 and is hereby incorporated by reference.
4.4 Third Amendment to Agreement of Limited Partnership of Geodyne Institutional/Pension Energy Income Limited Partnership P-7, filed as Exhibit 4.5 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 filed with the SEC on April 1, 1996 and is hereby incorporated by reference.
4.5 Third Amendment to Agreement of Limited Partnership of Geodyne Institutional/Pension Energy Income Limited Partnership P-8, filed as Exhibit 4.6 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 filed with the SEC on April 1, 1996 and is hereby incorporated by reference.
*23.1 Consent of Ryder Scott Company, L.P. for the Geodyne Institutional/Pension Energy Income Limited Partnership P-7.
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*23.2 Consent of Ryder Scott Company, L.P. for the Geodyne Institutional/Pension Energy Income Limited Partnership P-8.
All other Exhibits are omitted as inapplicable.
----------------- * Filed herewith.
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