FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
Commission File Number: P-1: 0-17800; P-3: 0-18306;
P-4: 0-18308; P-5: 0-18637; P-6: 0-18937
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME P-1 LIMITED PARTNERSHIP
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-3
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-4
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-5
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-6
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(Exact name of Registrant as specified in its Articles)
P-1: Texas P-1: 73-1330245
P-3: Oklahoma P-3: 73-1336573
P-4: Oklahoma P-4: 73-1341929
P-5: Oklahoma P-5: 73-1353774
P-6: Oklahoma P-6: 73-1357375
- --------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two West Second Street, Tulsa, Oklahoma 74103
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (918) 583-1791
Securities registered pursuant to Section 12(b) of the Act: None Securities
registered pursuant to Section 12(g) of the Act:
Depositary Units of Limited Partnership interest
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to the
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
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Disclosure is not contained herein
-----
X Disclosure is contained herein
-----
The Depositary Units are not publicly traded, therefore, Registrant cannot
compute the aggregate market value of the voting units held by non-affiliates of
the Registrant.
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes No X
----- -----
DOCUMENTS INCORPORATED BY REFERENCE: None
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FORM 10-K
TABLE OF CONTENTS
PART I.......................................................................4
ITEM 1. BUSINESS...................................................4
ITEM 2. PROPERTIES................................................10
ITEM 3. LEGAL PROCEEDINGS.........................................21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF LIMITED PARTNERS.......21
PART II.....................................................................21
ITEM 5. MARKET FOR UNITS AND RELATED LIMITED PARTNER MATTERS......21
ITEM 6. SELECTED FINANCIAL DATA...................................24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................30
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK........................................ 47
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...............47
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. .....................47
PART III....................................................................47
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER...47
ITEM 11. EXECUTIVE COMPENSATION....................................48
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................55
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............56
PART IV.....................................................................58
ITEM 14. controls and procedures...................................58
item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K...............................................58
SIGNATURES..................................................................68
CERTIFICATIONS..............................................................69
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PART I.
ITEM 1. BUSINESS
General
The Geodyne Institutional/Pension Energy Income P-1 Limited Partnership
(the "P-1 Partnership") is a limited partnership formed under the Texas Revised
Limited Partnership Act and the Geodyne Institutional/Pension Energy Income
Limited Partnership P-3 (the "P-3 Partnership"), Geodyne Institutional/Pension
Energy Income Limited Partnership P-4 (the "P-4 Partnership"), Geodyne
Institutional/Pension Energy Income Limited Partnership P-5 (the "P-5
Partnership"), and Geodyne Institutional/Pension Energy Income Limited
Partnership P-6 (the "P-6 Partnership") are limited partnerships formed under
the Oklahoma Revised Uniform Limited Partnership Act (collectively, the
"Partnerships"). Each Partnership is composed of Geodyne Resources, Inc.
("Geodyne"), a Delaware corporation, as the general partner, Geodyne
Institutional Depository 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 the dates set
forth below:
Date of
Partnership Activation
----------- -----------------
P-1 October 25, 1988
P-3 May 10, 1989
P-4 November 21, 1989
P-5 February 27, 1990
P-6 September 5, 1990
Immediately following activation, each Partnership invested as a general
partner in a separate Oklahoma general partnership which actually conducts the
Partnerships' operations. Geodyne serves as managing partner of such general
partnerships. Unless the context indicates otherwise, all references to any
single Partnership or all of the Partnerships in this Annual Report on Form 10-K
("Annual Report") are references to the Partnership and its related general
partnership, collectively. In addition, unless the context indicates otherwise,
all references to the "General Partner" in this Annual Report are references to
Geodyne as the general partner of the Partnerships, and as the managing partner
of the related general partnerships.
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
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development of and exploration for oil and gas reserves and the acquisition and
operation of producing properties. At December 31, 2002, Samson owned interests
in approximately 12,000 oil and gas wells located in 18 states of the United
States and the countries of Canada, Venezuela, and Russia. At December 31, 2002,
Samson operated approximately 3,000 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 producing properties
("Working Interests") which were acquired by affiliated oil and gas investment
programs (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, 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' Net
Profits 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, 2003, Samson employed approximately 1,100 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."
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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].
Pursuant to the terms of the partnership agreements for the Partnerships
(the "Partnership Agreements"), the Partnerships are scheduled to terminate on
December 31, 2005. However, the Partnership Agreements provide that the General
Partner may extend the term of each Partnership for up to five periods of two
years each. The General Partner has not yet determined whether it will extend
the terms of any of the Partnerships.
Funding
Although the partnership agreement for each Partnership (the "Partnership
Agreement") permits each Partnership to incur 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 a Partnership 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 primary source of liquidity and Partnership cash distributions comes
from the net revenues generated from the sale of oil and gas produced from the
Partnerships' oil and gas properties. The level of net revenues is highly
dependent upon the total volumes of oil and natural gas sold. Oil and gas
reserves are depleting assets and will experience production declines over time,
thereby likely resulting in reduced net revenues. The level of net revenues is
also highly dependent upon the prices received for oil and gas sales, which
prices have historically been very volatile and may continue to be so.
Additionally, lower oil and natural gas prices may reduce the amount of
oil and gas that is economic to produce and reduce the
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Partnerships' revenues and cash flow. Various factors beyond the Partnerships'
control will affect prices for oil and natural gas, such as:
* Worldwide and domestic supplies of oil and natural gas;
* The ability of the members of the Organization of Petroleum Exporting
Countries ( OPEC ) to agree upon and maintain oil prices and production
quotas;
* Political instability or armed conflict in oil-producing regions or
around major shipping areas;
* The level of consumer demand and overall economic activity;
* The competitiveness of alternative fuels;
* Weather conditions;
* The availability of pipelines for transportation; and
* Domestic and foreign government regulations and taxes.
Recently, while economic factors have been relatively unfavorable for oil
and natural gas demand, oil prices have benefited from the political uncertainty
associated with the increase in terrorist activities in parts of the world. In
the last few years, natural gas prices have varied significantly, from very high
prices in late 2000 and early 2001, to low prices in late 2001 and early 2002,
to rising prices in the later part of 2002 and early 2003. The high natural gas
prices were associated with cold winter weather and decreased supply from
reduced capital investment for new drilling, while the low prices were
associated with warm winter weather and reduced economic activity. The more
recent increase in prices is the result of increased demand from weather
patterns, the pricing effect of relatively high oil prices, and increased
concern about the ability of the industry to meet any longer-term demand
increases based upon current drilling activity.
It is not possible to predict the future direction of oil or natural gas
prices or whether the above discussed trends will remain. Operating costs,
including General and Administrative Expenses, may not decline over time or may
experience only a gradual decline, thus adversely affecting net revenues as
either production or oil and natural gas prices decline. In any particular
period, net revenues may also be affected by either the receipt of proceeds from
property sales or the incursion of additional costs as a result of well
workovers, recompletions, new well drilling, and other events.
Significant Customers
The following customers accounted for ten percent or more of the oil and
gas sales attributable to the Partnerships' Net Profits Interests during the
year ended December 31, 2002:
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Partnership Customer Percentage
----------- ----------------------------- ----------
P-1 El Paso Energy Marketing
Company ("El Paso") 17.5%
P-3 El Paso 17.4%
P-4 Eaglwing Trading, Inc. 23.3%
Valero Industrial Gas LP 20.3%
Conoco, Inc. 15.7%
El Paso 11.9%
P-5 El Paso 59.2%
ONEOK Field Services Company 12.0%
P-6 El Paso 28.0%
Duke Energy Field
Services, Inc. 18.0%
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
-8-
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. In
particular, many types of pollution and contamination can exist, undiscovered,
for long periods of time and can result in substantial environmental liabilities
which are not insured. 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.
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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, 2002.
P/ship Number of Wells(1)
------ ----------------------------
Total Oil Gas
----- --- ---
P-1 786 648 138
P-3 827 669 158
P-4 187 89 98
P-5 70 20 50
P-6 122 34 88
- ---------------
(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 the year ended December 31, 2002, the Partnerships indirectly
participated (through their Net Profits Interests) in the developmental drilling
activities described below.
Revenue
P/ship Well Name County St. Interest Type Status
- ------ --------------- --------- --- -------- ---- ---------
P-1 Hixson #2-9 Ellis OK .0096 Gas Producing
Brown L-3 Beaver OK .0025 Gas Producing
Brown L-4 Beaver OK .0025 Oil Producing
Estes, Kay #7 Edwards TX .0046 Gas Producing
Miers, W.A. #16 Sutton TX .0002 Gas Producing
Hill, Wess #11 Sutton TX .0360 Gas Producing
P-3 Hixson #2-9 Ellis OK .0149 Gas Producing
Brown L-3 Beaver OK .0031 Gas Producing
Brown L-4 Beaver OK .0031 Oil Producing
Estes, Kay #7 Edwards TX .0057 Gas Producing
Miers, W.A. #16 Sutton TX .0003 Gas Producing
Hill, Wess #11 Sutton TX .0454 Gas Producing
Duke #1-B San Juan NM (1) Gas Producing
Senter #1-C San Juan NM .0002 Gas Producing
Southern
Union #1-C San Juan NM .0007 Gas Producing
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Southern
Union #1-B San Juan NM .0007 Gas Producing
P-4 Hachar D.D.
#40 Webb TX .0035 Gas Producing
BMT #16 Webb TX .0023 Gas Producing
Duke #1-B San Juan NM (1) Gas Producing
Senter #1-C San Juan NM .0004 Gas Producing
Southern
Union #1-C San Juan NM .0013 Gas Producing
Southern
Union #1-B San Juan NM .0013 Gas Producing
P-5 Loving 1
State #3 Eddy NM .0058 Gas Producing
Sugg 1894 #2 Irion TX .0003 Gas Producing
Ellie Mae #1-16 Stephens OK .0130 Gas Producing
P-6 Loving 1
State #3 Eddy NM .0063 Gas Producing
Sugg 1894 #2 Irion TX .0003 Gas Producing
Ellie Mae #1-16 Stephens OK .0045 Gas Producing
- ----------------------
(1) The owner of the working interests from which the P-3 and P-4
Partnerships' Net Profits Interests were carved elected to not participate
in the drilling of the Duke #1B Well located in San Juan County, New
Mexico. If the well reaches payout under the terms of its operating
agreement, the P-3 and P-4 Partnerships will have revenue interests of
approximately .0034 and .0061, respectively, in this well.
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.
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Net Production Data
P-1 Partnership
---------------
Year Ended December 31,
----------------------------------------
2002 2001 2000
---------- ---------- ----------
Production:
Oil (Bbls) 20,652 23,073 17,814
Gas (Mcf) 286,109 290,969 304,477
Oil and gas sales(1):
Oil $ 490,488 $ 558,898 $ 497,691
Gas 767,070 1,052,513 1,011,219
--------- --------- ---------
Total $1,257,558 $1,611,411 $1,508,910
========= ========= =========
Average sales price:
Per barrel of oil $23.75 $24.22 $27.94
Per Mcf of gas 2.68 3.62 3.32
- ----------
(1) These amounts differ from the Net Profits included in the P-1
Partnership's financial statements because they do not reflect the offset
of $264,289, $315,902, and $258,325, respectively, of production expenses
incurred by the Affiliated Programs.
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Net Production Data
P-3 Partnership
---------------
Year Ended December 31,
----------------------------------------
2002 2001 2000
---------- ---------- ----------
Production:
Oil (Bbls) 26,541 29,759 23,146
Gas (Mcf) 433,484 447,621 460,861
Oil and gas sales(1):
Oil $ 630,058 $ 721,740 $ 646,749
Gas 1,190,447 1,653,444 1,566,811
--------- --------- ---------
Total $1,820,505 $2,375,184 $2,213,560
========= ========= =========
Average sales price:
Per barrel of oil $23.74 $24.25 $27.94
Per Mcf of gas 2.75 3.69 3.40
- ----------
(1) These amounts differ from the Net Profits included in the P-3
Partnership's financial statements because they do not reflect the offset
of $409,030, $488,607, and $402,262, respectively, of production expenses
incurred by the Affiliated Programs.
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Net Production Data
P-4 Partnership
---------------
Year Ended December 31,
----------------------------------------
2002 2001 2000
---------- ---------- ----------
Production:
Oil (Bbls) 26,054 38,934 23,482
Gas (Mcf) 444,617 388,416 339,221
Oil and gas sales(1):
Oil $ 630,272 $ 960,023 $ 684,104
Gas 1,257,617 1,669,588 1,331,225
--------- --------- ---------
Total $1,887,889 $2,629,611 $2,015,329
========= ========= =========
Average sales price:
Per barrel of oil $24.19 $24.66 $29.13
Per Mcf of gas 2.83 4.30 3.92
- ----------
(1) These amounts differ from the Net Profits included in the P-4
Partnership's financial statements because they do not reflect the offset
of $455,891, $487,414, and $419,053, respectively, of production expenses
incurred by the Affiliated Programs.
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Net Production Data
P-5 Partnership
---------------
Year Ended December 31,
----------------------------------------
2002 2001 2000
---------- ---------- ----------
Production:
Oil (Bbls) 6,223 4,781 5,827
Gas (Mcf) 386,565 438,194 495,141
Oil and gas sales(1):
Oil $ 150,253 $ 122,654 $ 170,821
Gas 1,102,856 1,925,638 1,741,689
--------- --------- ---------
Total $1,253,109 $2,048,292 $1,912,510
========= ========= =========
Average sales price:
Per barrel of oil $24.14 $25.65 $29.32
Per Mcf of gas 2.85 4.39 3.52
- ----------
(1) These amounts differ from the Net Profits included in the P-5
Partnership's financial statements because they do not reflect the offset
of $367,327, $405,549, and $478,767, respectively, of production expenses
incurred by the Affiliated Programs.
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Net Production Data
P-6 Partnership
---------------
Year Ended December 31,
----------------------------------------
2002 2001 2000
---------- ---------- ----------
Production:
Oil (Bbls) 15,089 13,190 14,022
Gas (Mcf) 636,758 678,969 809,428
Oil and gas sales(1):
Oil $ 355,875 $ 330,103 $ 394,656
Gas 1,840,127 2,687,675 2,934,211
--------- --------- ---------
Total $2,196,002 $3,017,778 $3,328,867
========= ========= =========
Average sales price:
Per barrel of oil $23.59 $25.03 $28.15
Per Mcf of gas 2.89 3.96 3.63
- ----------
(1) These amounts differ from the Net Profits included in the P-6
Partnership's financial statements because they do not reflect the offset
of $719,751, $735,303, and $860,708, respectively, of production expenses
incurred by the Affiliated Programs.
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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, 2002 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, 2002. Such prices were not
escalated except in certain circumstances where escalations were fixed and
readily determinable in accordance with applicable contract provisions. Oil and
gas prices at December 31, 2002 were higher than the prices in effect on
December 31, 2001. This increase in oil and gas prices has caused the estimates
of remaining economically recoverable reserves, as well as the values placed on
said reserves, at December 31, 2002 to be higher than such estimates and values
at December 31, 2001. 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, 2002. There
can be no assurance that the prices used in calculating the net present value of
the Partnerships' proved reserves at December 31, 2002 will actually be realized
for such production.
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
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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, 2002(1)
P-1 Partnership:
- ---------------
Estimated proved reserves:
Gas (Mcf) 1,732,980
Oil and liquids (Bbls) 160,338
Net present value (discounted at 10% per annum) $5,642,679
P-3 Partnership:
- ---------------
Estimated proved reserves:
Gas (Mcf) 2,901,481
Oil and liquids (Bbls) 216,687
Net present value (discounted at 10% per annum) $8,815,258
P-4 Partnership:
- ---------------
Estimated proved reserves:
Gas (Mcf) 2,008,648
Oil and liquids (Bbls) 29,515
Net present value (discounted at 10% per annum) $5,421,152
P-5 Partnership:
- ---------------
Estimated proved reserves:
Gas (Mcf) 2,206,895
Oil and liquids (Bbls) 44,787
Net present value (discounted at 10% per annum) $5,458,958
P-6 Partnership:
- ---------------
Estimated proved reserves:
Gas (Mcf) 3,923,928
Oil and liquids (Bbls) 114,215
Net present value (discounted at 10% per annum) $9,389,940
- ---------
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(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 Partnership's proved
reserves is contained in Note 4 to the Partnerships' financial statements,
included in Item 8 of this Annual Report.
Significant Properties
The following table sets forth the number and percent of each
Partnership's total wells which are operated by affiliates of the Partnerships
as of December 31, 2002:
Operated Wells
-------------------------------
Partnership Number Percent
----------- ------ -------
P-1 30 1%
P-3 51 2%
P-4 21 8%
P-5 85 40%
P-6 124 46%
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 Gulf Coast Basin is located in southern Louisiana and southeast Texas.
The Permian Basin is located in west Texas and southeast New Mexico.
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Significant Properties as of December 31, 2002
-----------------------------------------------
Wells
Operated by
Affiliates Oil Gas
Total ----------- Reserves Reserves Present
Basin Wells Number %(1) (Bbl) (Mcf) Value
- ------------- ----- ------ ---- -------- --------- ----------
P-1 P/ship:
Permian 1,979 2 - 151,419 814,402 $3,360,421
Anadarko 70 23 33% 3,979 876,194 2,161,421
P-3 P/ship:
Permian 1,979 2 - 190,858 1,030,411 $4,245,308
Anadarko 70 23 33% 6,252 1,358,225 3,296,695
South. Ok.
Folded Belt 26 21 81% 12,780 355,965 974,938
P-4 P/ship:
Gulf Coast 111 5 5% 21,531 769,857 $2,651,956
Anadarko 45 14 31% 3,713 909,770 2,145,754
P-5 P/ship:
Anadarko 83 26 31% 4,460 1,391,988 $3,338,333
South. Ok.
Folded Belt 22 - - 23,093 405,737 1,097,266
Permian 33 29 88% 17,234 356,775 825,943
P-6 P/ship:
Anadarko 82 26 32% 2,983 1,397,376 $3,406,406
Gulf Coast 16 5 31% 9,564 743,007 1,748,427
East Texas 4 3 75% 2,743 799,204 1,591,215
South. Ok.
Folded Belt 35 13 37% 74,097 239,205 1,226,754
Permian 34 29 85% 18,146 445,357 1,048,093
- -------------------------------
(1) Percent of the Partnership's total wells in the basin which are operated
by affiliates of the Partnership.
Following is a description of those oil and gas properties whose revisions
in the estimated proved reserves (based on equivalent barrels of oil) as of
December 31, 2002, as compared to December 31, 2001, were significant to the
Partnerships.
The P-4 Partnership's estimated proved reserves decreased 22,047 barrels
of oil equivalent in the Mahaffey No. 3 well located in Jefferson Davis Parish,
Louisiana from December 31, 2001 to December 31, 2002. This decrease was
primarily due to the full depletion of gas reserves on this well.
-20-
The P-6 Partnership's estimated proved reserves increased 44,957 barrels
of oil equivalent in the Karon Unit located in Live Oak County, Texas from
December 31, 2001 to December 31, 2002. This increase was primarily due to a
revised forecast in reserves due to actual production experience.
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. 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. SUBMISSION OF MATTERS TO A VOTE OF LIMITED PARTNERS
There were no matters submitted to a vote of the Limited Partners of any
Partnership during 2002.
PART II.
ITEM 5. MARKET FOR UNITS AND RELATED LIMITED PARTNER MATTERS
As of March 1, 2003, the number of Units outstanding and the approximate
number of Limited Partners of record in the Partnerships were as follows:
-21-
Number of Limited
Partnership Units Partners
----------- --------- --------
P-1 108,074 736
P-3 169,637 1,259
P-4 126,306 849
P-5 118,449 928
P-6 143,041 711
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 a
Partnership.
Repurchase Offer Prices
-----------------------
2001 2002 2003
------------------------- ------------------------- ----
1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st
P/ship Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr.
- ------ ---- ---- ---- ---- ---- ---- ---- ---- ----
P-1 $17 $13 $23 $21 $20 $19 $23 $21 $19
P-3 17 14 23 21 19 19 22 20 18
P-4 10 6 22 19 16 14 22 19 17
P-5 11 4 17 14 13 12 17 16 15
P-6 15 8 26 23 21 20 24 22 21
-22-
In addition to this repurchase offer, some of 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 2001 and 2002 and the first quarter of 2003:
Cash Distributions
------------------
2001
-----------------------------------------------
1st 2nd 3rd 4th
P/ship Quarter Quarter Quarter Quarter
------ ------- ------- ------- -------
P-1 $2.60 $3.41 $3.57 $2.02
P-3 2.42 3.06 3.29 2.06
P-4 3.35 4.65 3.49 3.22
P-5 3.60 6.37 4.38 2.50
P-6 4.79 6.76 5.11 3.57
-23-
2002 2003
----------------------------------------------- -------
1st 2nd 3rd 4th 1st
P/ship Quarter Quarter Quarter Quarter Quarter
------ ------- ------- ------- ------- -------
P-1 $1.64 $ .69 $1.35 $1.53 $2.04
P-3 1.52 .63 1.20 1.37 1.80
P-4 3.20 1.43 1.74 2.48 1.81
P-5 1.16 .89 1.25 1.31 1.15
P-6 1.23 1.47 1.89 1.79 1.16
ITEM 6. SELECTED FINANCIAL DATA
The following tables present 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."
-24-
Selected Financial Data
P-1 Partnership
---------------
2002 2001 2000 1999 1998
------------ ------------ ------------ ------------ ------------
Net Profits $ 993,269 $1,295,509 $1,250,585 $ 802,539 $ 694,919
Net Income:
Limited Partners 686,720 899,400 945,012 443,201 760,585
General Partner 87,636 115,696 116,609 65,862 60,539
Total 774,356 1,015,096 1,061,621 509,063 821,124
Limited Partners' Net
Income per Unit 6.35 8.32 8.74 4.10 7.04
Limited Partners' Cash
Distributions per Unit 5.21 11.60 7.92 4.32 13.59
Total Assets 1,230,892 1,090,742 1,457,182 1,354,470 1,372,787
Partners' Capital (Deficit)
Limited Partners 1,292,019 1,168,299 1,521,899 1,431,887 1,455,686
General Partner ( 61,127) ( 77,557) ( 64,717) ( 77,417) ( 82,899)
Number of Units
Outstanding 108,074 108,074 108,074 108,074 108,074
-25-
Selected Financial Data
P-3 Partnership
---------------
2002 2001 2000 1999 1998
------------ ------------ ------------ ------------ ------------
Net Profits $1,411,475 $1,886,577 $1,811,298 $1,155,814 $ 997,464
Net Income:
Limited Partners 949,607 1,277,744 1,356,720 635,523 1,009,546
General Partner 122,969 167,610 152,174 45,011 66,787
Total 1,072,576 1,445,354 1,508,894 680,534 1,076,333
Limited Partners' Net
Income per Unit 5.60 7.53 8.00 3.75 5.95
Limited Partners' Cash
Distributions per
Unit 4.72 10.83 7.36 4.17 11.60
Total Assets 1,889,346 1,719,156 2,265,592 2,131,160 2,183,351
Partners' Capital
(Deficit)
Limited Partners 1,940,940 1,793,333 2,352,589 2,244,869 2,316,346
General Partner ( 51,594) ( 74,177) ( 86,997) ( 113,709) ( 132,995)
Number of Units
Outstanding 169,637 169,637 169,637 169,637 169,637
-26-
Selected Financial Data
P-4 Partnership
---------------
2002 2001 2000 1999 1998
------------ ------------ ------------ ------------ ------------
Net Profits $1,431,998 $2,142,197 $1,596,276 $ 746,854 $ 734,526
Net Income:
Limited Partners 878,439 1,560,544 1,187,175 367,583 357,206
General Partner 124,069 196,368 143,717 36,289 27,697
Total 1,002,508 1,756,912 1,330,892 403,872 384,903
Limited Partners' Net
Income per Unit 6.95 12.36 9.40 2.91 2.83
Limited Partners' Cash
Distributions per Unit 8.85 14.71 6.60 3.54 6.19
Total Assets 1,176,251 1,401,980 1,716,358 1,337,559 1,403,444
Partners' Capital (Deficit)
Limited Partners 1,234,038 1,473,599 1,771,055 1,417,880 1,497,297
General Partner ( 57,787) ( 71,619) ( 54,697) ( 80,321) ( 93,853)
Number of Units
Outstanding 126,306 126,306 126,306 126,306 126,306
-27-
Selected Financial Data
P-5 Partnership
---------------
2002 2001 2000 1999 1998
------------ ------------ ------------ ------------ ------------
Net Profits $ 885,782 $1,642,743 $1,433,743 $ 856,442 $ 827,076
Net Income:
Limited Partners 607,695 1,351,070 1,184,263 519,222 710,547
General Partner 36,219 75,627 64,906 34,149 48,790
Total 643,914 1,426,697 1,249,169 553,371 759,337
Limited Partners' Net
Income per Unit 5.13 11.41 10.00 4.38 6.00
Limited Partners' Cash
Distributions per Unit 4.61 16.85 7.64 4.66 9.04
Total Assets 930,874 863,504 1,522,340 1,235,321 1,257,489
Partners' Capital (Deficit)
Limited Partners 1,000,987 938,292 1,583,222 1,303,959 1,336,737
General Partner ( 70,113) ( 74,788) ( 60,882) ( 68,638) ( 79,248)
Number of Units
Outstanding 118,449 118,449 118,449 118,449 118,449
-28-
Selected Financial Data
P-6 Partnership
---------------
2002 2001 2000 1999 1998
------------ ------------ ------------ ------------ ------------
Net Profits $1,476,251 $2,282,475 $2,468,159 $1,340,784 $1,240,100
Net Income:
Limited Partners 999,684 1,833,293 1,897,956 796,190 739,792
General Partner 129,102 130,157 112,363 55,301 56,121
Total 1,128,786 1,963,450 2,010,319 851,491 795,913
Limited Partners' Net
Income per Unit 6.99 12.82 13.27 5.57 5.17
Limited Partners' Cash
Distributions per Unit 6.38 20.23 11.17 7.10 9.29
Total Assets 1,660,818 1,552,953 2,625,065 2,314,214 2,511,782
Partners' Capital (Deficit)
Limited Partners 1,728,547 1,640,863 2,700,570 2,400,614 2,618,424
General Partner ( 67,729) ( 87,910) ( 75,505) ( 86,400) ( 106,642)
Outstanding 143,041 143,041 143,041 143,041 143,041
-29-
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. The primary source of
liquidity and Partnership cash distributions comes from the net revenues
generated from the sale of oil and gas produced from the Partnerships' oil and
gas properties. The level of net revenues is highly dependent upon the prices
received for oil and gas sales, which prices have historically been very
volatile and may continue to be so. Additionally, lower oil and natural gas
prices may reduce the amount of oil and gas that is economic to produce and
reduce the Partnerships' revenues and cash flow. Various factors beyond the
Partnerships' control will affect prices for oil and natural gas, such as:
-30-
* Worldwide and domestic supplies of oil and natural gas;
* The ability of the members of the Organization of Petroleum Exporting
Countries ( OPEC ) to agree upon and maintain oil prices and production
quotas;
* Political instability or armed conflict in oil-producing regions or
around major shipping areas;
* The level of consumer demand and overall economic activity;
* The competitiveness of alternative fuels;
* Weather conditions;
* The availability of pipelines for transportation; and
* Domestic and foreign government regulations and taxes.
Recently, while economic factors have been relatively unfavorable for oil
and natural gas demand, oil prices have benefited from the political uncertainty
associated with the increase in terrorist activities in parts of the world. In
the last few years, natural gas prices have varied significantly, from very high
prices in late 2000 and early 2001, to low prices in late 2001 and early 2002,
to rising prices in the later part of 2002 and early 2003. The high natural gas
prices were associated with cold winter weather and decreased supply from
reduced capital investment for new drilling, while the low prices were
associated with warm winter weather and reduced economic activity. The more
recent increase in prices is the result of increased demand from weather
patterns, the pricing effect of relatively high oil prices, and increased
concern about the ability of the industry to meet any longer-term demand
increases based upon current drilling activity.
It is not possible to predict the future direction of oil or natural gas
prices or whether the above discussed trends will remain. Operating costs,
including General and Administrative Expenses, may not decline over time or may
experience only a gradual decline, thus adversely affecting net revenues as
either production or oil and natural gas prices decline. In any particular
period, net revenues may also be affected by either the receipt of proceeds from
property sales or the incursion of additional costs as a result of well
workovers, recompletions, new well drilling, and other events.
In addition to pricing, the level of net revenues is also highly dependent
upon the total volumes of oil and natural gas sold. Oil and gas reserves are
depleting assets and will experience production declines over time, thereby
likely resulting in reduced net revenues. Despite this 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
-31-
other operations in the well, (iii) prior period volume adjustments (either
positive or negative) made by 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 wells
owned by the Partnerships, these factors are generally not material as compared
to the normal decline in production experienced on all remaining wells.
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 Partnerships results of
operations for the year ended December 31, 2002 as compared to the year ended
December 31, 2001 and for the year ended December 31, 2001 as compared to the
year ended December 31, 2000.
-32-
P-1 Partnership
---------------
Year Ended December 31, 2002 Compared
to Year Ended December 31, 2001
--------------------------------------
Total Net Profits decreased $302,240 (23.3%) in 2002 as compared to 2001.
Of this decrease, approximately (i) $268,000 was related to a decrease in the
average price of gas sold and (ii) $59,000 was related to a decrease in volumes
of oil sold. These decreases were partially offset by an increase of
approximately $52,000 related to a decrease in production expenses. Volumes of
oil and gas sold decreased 2,421 barrels and 4,860 Mcf, respectively, in 2002 as
compared to 2001. The decrease in volumes of oil sold was primarily due to
normal declines in production. The decrease in production expenses was primarily
due to (i) workover expenses incurred on several wells during 2001 and (ii) a
decrease in production taxes associated with the decrease in oil and gas sales.
Average oil and gas prices decreased to $23.75 per barrel and $2.68 per Mcf,
respectively, in 2002 from $24.22 per barrel and $3.62 per Mcf, respectively, in
2001.
Depletion of Net Profits Interests decreased $53,312 (31.6%) in 2002 as
compared to 2001. This decrease was primarily due to (i) several wells being
fully depleted in 2001 due to lack of remaining economically recoverable
reserves and (ii) the decreases in volumes of oil and gas sold. As a percentage
of Net Profits, this expense decreased to 11.6% in 2002 from 13.0% in 2001. This
percentage decrease was primarily due to the dollar decrease in Depletion of Net
Profits Interests.
General and administrative expenses increased $3,789 (2.7%) in 2002 as
compared to 2001. As a percentage of Net Profits, these expenses increased to
14.4% in 2002 from 10.7% in 2001. This percentage increase was primarily due to
the decrease in Net Profits.
Cumulative cash distributions to the Limited Partners through December 31,
2002 were $14,620,558 or 135.28% of Limited Partners' capital contributions.
Year Ended December 31, 2001 Compared
to Year Ended December 31, 2000
--------------------------------------
Total Net Profits increased $44,924 (3.6%) in 2001 as compared to 2000. Of
this increase, approximately (i) $147,000 was related to an increase in volumes
of oil sold and (ii) $86,000 was related to an increase in the average price of
gas sold. These increases were partially offset by decreases of approximately
(i) $86,000 related to a decrease in the average
-33-
price of oil sold, (ii) $57,000 related to an increase in production expenses,
and (iii) $45,000 related to a decrease in volumes of gas sold. Volumes of oil
sold increased 5,259 barrels, while volumes of gas sold decreased 13,508 Mcf in
2001 as compared to 2000. The increase in volumes of oil sold was primarily due
to an increase in production on one significant well due to the successful
workover of that well during early 2001. The increase in production expenses was
primarily due to (i) workover expenses incurred on several wells during 2001 and
(ii) an increase in production taxes associated with the increase in oil and gas
sales. Average oil prices decreased to $24.22 per barrel in 2001 from $27.94 per
barrel in 2000. Average gas prices increased to $3.62 per Mcf in 2001 from $3.32
per Mcf in 2000.
Depletion of Net Profits Interests increased $40,700 (31.8%) in 2001 as
compared to 2000. This increase was primarily due to several wells being fully
depleted in 2001 due to the lack of remaining economically recoverable reserves.
This increase was partially offset by upward revisions in the estimates of
remaining gas reserves at December 31, 2001. As a percentage of Net Profits,
this expense increased to 13.0% in 2001 from 10.2% in 2000. This percentage
increase was primarily due to the dollar increase in Depletion of Net Profits
Interests.
General and administrative expenses increased $9,442 (7.3%) in 2001 as
compared to 2000. As a percentage of Net Profits, these expenses increased to
10.7% in 2001 from 10.4% in 2000.
P-3 Partnership
---------------
Year Ended December 31, 2002 Compared
to Year Ended December 31, 2001
--------------------------------------
Total Net Profits decreased $475,102 (25.2%) in 2002 as compared to 2001.
Of this decrease, approximately (i) $411,000 was related to a decrease in the
average price of gas sold and (ii) $78,000 and $52,000, respectively, were
related to decreases in volumes of oil and gas sold. These decreases were
partially offset by an increase of approximately $80,000 related to a decrease
in production expenses. Volumes of oil and gas sold decreased 3,218 barrels and
14,137 Mcf, respectively, in 2002 as compared to 2001. The decrease in volumes
of oil sold was primarily due to normal declines in production. The decrease in
production expenses was primarily due to (i) workover expenses incurred on
several wells during 2001 and (ii) a decrease in production taxes associated
with the decrease in oil and gas sales. Average oil and gas prices decreased to
$23.74 per barrel and $2.75 per Mcf, respectively, in 2002 from $24.25 per
barrel and $3.69 per Mcf, respectively, in 2001.
-34-
Depletion of Net Profits Interests decreased $95,076 (34.9%) in 2002 as
compared to 2001. This decrease was primarily due to (i) several wells being
fully depleted in 2001 due to the lack of remaining economically recoverable
reserves and (ii) the decreases in volumes of oil and gas sold. As a percentage
of Net Profits, this expense decreased to 12.6% in 2002 from 14.4% in 2001. This
percentage decrease was primarily due to the dollar decrease in Depletion of Net
Profits Interests.
General and administrative expenses increased $4,517 (2.2%) in 2002 as
compared to 2001. As a percentage of Net Profits, these expenses increased to
15.0% in 2002 from 11.0% in 2001. This percentage increase was primarily due to
the decrease in Net Profits.
Cumulative cash distributions to the Limited Partners through December 31,
2002 were $20,354,401 or 119.99% of Limited Partners' capital contributions.
Year Ended December 31, 2001 Compared
to Year Ended December 31, 2000
--------------------------------------
Total Net Profits increased $75,279 (4.2%) in 2001 as compared to 2000. Of
this increase, approximately (i) $185,000 was related to an increase in volumes
of oil sold and (ii) $131,000 was related to an increase in the average price of
gas sold. These increases were partially offset by decreases of approximately
(i) $110,000 related to a decrease in the average price of oil sold, (ii)
$86,000 related to an increase in production expenses, and (iii) $45,000 related
to a decrease in volumes of gas sold. Volumes of oil sold increased 6,613
barrels, while volumes of gas sold decreased 13,240 Mcf in 2001 as compared to
2000. The increase in volumes of oil sold was primarily due to an increase in
production on one significant well due to the successful workover of that well
during early 2001. The increase in production expenses was primarily due to (i)
workover expenses incurred on several wells during 2001 and (ii) an increase in
production taxes associated with the increase in oil and gas sales. Average oil
prices decreased to $24.25 per barrel in 2001 from $27.94 per barrel in 2000.
Average gas prices increased to $3.69 per Mcf in 2001 from $3.40 per Mcf in
2000.
Depletion of Net Profits Interests increased $80,729 (42.1%) in 2001 as
compared to 2000. This increase was primarily due to several wells being fully
depleted in 2001 due to the lack of remaining economically recoverable reserves.
This increase was partially offset by upward revisions in the estimates of
remaining gas reserves at December 31, 2001. As a percentage of Net Profits,
this expense increased to 14.4% in 2001 from 10.6%
-35-
in 2000. This percentage increase was primarily due to the dollar increase
in Depletion of Net Profits Interests.
General and administrative expenses increased $4,551 (2.3%) in 2001 as
compared to 2000. As a percentage of Net Profits, these expenses decreased to
11.0% in 2001 from 11.2% in 2000.
P-4 Partnership
---------------
Year Ended December 31, 2002 Compared
to Year Ended December 31, 2001
--------------------------------------
Total Net Profits decreased $710,199 (33.2%) in 2002 as compared to 2001.
Of this decrease, approximately (i) $654,000 was related to a decrease in the
average price of gas sold and (ii) $318,000 was related to a decrease in volumes
of oil sold. These decreases were partially offset by an increase of
approximately $242,000 related to an increase in volumes of gas sold. Volumes of
oil sold decreased 12,880 barrels, while volumes of gas sold increased 56,201
Mcf in 2002 as compared to 2001. The decrease in volumes of oil sold was
primarily due to (i) normal declines in production and (ii) production
difficulties on one significant well during 2002. The increase in volumes of gas
sold was primarily due to (i) positive prior period gas balancing adjustments on
two significant wells during 2002, (ii) an increase in production on one
significant well due to the workover of that well during late 2001, and (iii)
the P-4 Partnership receiving an increased percentage of sales on another
significant well during 2002 due to gas balancing. These increases were
partially offset by (i) normal declines in production and (ii) depletion of all
gas reserves on one significant well during 2002. As of the date of this Annual
Report, management does not expect the gas balancing adjustment to continue for
the foreseeable future. Average oil and gas prices decreased to $24.19 per
barrel and $2.83 per Mcf, respectively, in 2002 from $24.66 per barrel and $4.30
per Mcf, respectively, in 2001.
Depletion of Net Profits Interests increased $21,228 (8.6%) in 2002 as
compared to 2001. This increase was primarily due to (i) downward revisions in
the estimates of remaining oil reserves at December 31, 2002 and (ii) several
other wells being fully depleted in 2002 due to the lack of remaining
economically recoverable reserves. These increases were partially offset by two
significant wells being fully depleted in 2001 due to the lack of remaining
economically recoverable reserves. As a percentage of Net Profits, this expense
increased to 18.8% in 2002 from 11.5% in 2001. This percentage increase was
primarily due to the decreases in the average prices of oil and gas sold.
-36-
General and administrative expenses increased $2,168 (1.4%) in 2002 as
compared to 2001. As a percentage of Net Profits, these expenses increased to
11.1% in 2002 from 7.3% in 2001. This percentage increase was primarily due to
the decrease in Net Profits.
Cumulative cash distributions to the Limited Partners through December 31,
2002 were $16,444,945 or 130.20% of Limited Partners' capital contributions.
Year Ended December 31, 2001 Compared
to Year Ended December 31, 2000
--------------------------------------
Total Net Profits increased $545,921 (34.2%) in 2001 as compared to 2000.
Of this increase, approximately (i) $450,000 and $193,000, respectively, were
related to increases in volumes of oil and gas sold and (ii) $145,000 was
related to an increase in the average price of gas sold. These increases were
partially offset by decreases of approximately (i) $174,000 related to a
decrease in the average price of oil sold and (ii) $68,000 related to an
increase in production expenses. Volumes of oil and gas sold increased 15,452
barrels and 49,195 Mcf, respectively, in 2001 as compared to 2000. The increase
in volumes of oil sold was primarily due to increased production on several
wells due to the successful recompletion of those wells during 2001. The
increase in volumes of gas sold was primarily due to (i) the successful
completion of a new well during mid 2000 and (ii) increased production on
several wells due to the successful recompletion of those wells during 2001.
These increases were partially offset by normal declines in production. The
increase in production expenses was primarily due to (i) an increase in lease
operating expenses associated with the increases in volumes of oil and gas sold
and (ii) an increase in production taxes associated with the increase in oil and
gas sales. These increases were partially offset by workover expenses incurred
on several wells during 2000. Average oil prices decreased to $24.66 per barrel
in 2001 from $29.13 per barrel in 2000. Average gas prices increased to $4.30
per Mcf in 2001 from $3.92 per Mcf in 2000.
Depletion of Net Profits Interests increased $115,496 (87.6%) in 2001 as
compared to 2000. This increase was primarily due to (i) two significant wells
being fully depleted in 2001 due to the lack of remaining economically
recoverable reserves, (ii) the increases in volumes of oil and gas sold, and
(iii) two other significant wells being substantially depleted in 2001. These
increases were partially offset by upward revisions in the estimates of
remaining oil reserves at December 31, 2001. As a percentage of Net Profits,
this expense increased to 11.5% in 2001 from 8.3% in 2000. This percentage
increase was primarily due to the dollar increase in Depletion of Net Profits
Interests.
-37-
General and administrative expenses increased $5,312 (3.5%) in 2001 as
compared to 2000. As a percentage of Net Profits, these expenses decreased to
7.3% in 2001 from 9.5% in 2000. This percentage decrease was primarily due to
the increase in Net Profits.
P-5 Partnership
---------------
Year Ended December 31, 2002 Compared
to Year Ended December 31, 2001
--------------------------------------
Total Net Profits decreased $756,961 (46.1%) in 2002 as compared to 2001.
Of this decrease, approximately (i) $596,000 was related to a decrease in the
average price of gas sold and (ii) $227,000 was related to a decrease in volumes
of gas sold. Volumes of oil sold increased 1,442 barrels, while volumes of gas
sold decreased 51,629 Mcf in 2002 as compared to 2001. The increase in volumes
of oil sold was primarily due to (i) an increase in production on one
significant well due to the successful recompletion of that well during mid 2002
and (ii) positive prior period volume adjustments on two other wells during
2002. The decrease in volumes of gas sold was primarily due to (i) normal
declines in production and (ii) the shutting-in of one significant well due to
production difficulties during 2002. As of the date of this Annual Report,
management does not expect the shut-in well to return to production. Average oil
and gas prices decreased to $24.14 per barrel and $2.85 per Mcf, respectively,
in 2002 from $25.65 per barrel and $4.39 per Mcf, respectively, in 2001.
Depletion of Net Profits Interests decreased $24,086 (18.9%) in 2002 as
compared to 2001. This decrease was primarily due to (i) one significant well
being fully depleted in 2001 due to the lack of remaining economically
recoverable reserves and (ii) the decrease in volumes of gas sold. These
decreases were partially offset by two significant wells being fully depleted in
2002 due to the lack of remaining economically recoverable reserves. As a
percentage of Net Profits, this expense increased to 11.7% in 2002 from 7.7% in
2001. This percentage increase was primarily due to the decreases in the average
prices of oil and gas sold.
General and administrative expenses increased $2,040 (1.4%) in 2002 as
compared to 2001. As a percentage of Net Profits, these expenses increased to
16.9% in 2002 from 9.0% in 2001. This percentage increase was primarily due to
the decrease in Net Profits.
Cumulative cash distributions to the Limited Partners through December 31,
2002 were $11,423,759 or 96.44% of Limited Partners' capital contributions.
-38-
Year Ended December 31, 2001 Compared
to Year Ended December 31, 2000
--------------------------------------
Total Net Profits increased $209,000 (14.6%) in 2001 as compared to 2000.
Of this increase, approximately (i) $384,000 was related to an increase in the
average price of gas sold and (ii) $73,000 was related to a decrease in
production expenses. These increases were partially offset by decreases of
approximately $31,000 and $200,000, respectively, related to decreases in
volumes of oil and gas sold. Volumes of oil and gas sold decreased 1,046 barrels
and 56,947 Mcf, respectively, in 2001 as compared to 2000. The decrease in
volumes of oil sold was primarily due to normal declines in production. The
decrease in volumes of gas sold was primarily due to (i) normal declines in
production and (ii) a positive prior period volume adjustment on one significant
well during 2000. These decreases were partially offset by an increase in
production on one significant well due to the successful recompletion of that
well during 2000. The decrease in production expenses was primarily due to (i) a
decrease in lease operating expenses associated with the decreases in volumes of
oil and gas sold, (ii) workover expenses incurred on one significant well during
2000 and (iii) negative prior period lease operating expense adjustments made by
the operator on two significant wells during 2000. These decreases were
partially offset by an increase in production taxes associated with the increase
in oil and gas sales. Average oil prices decreased to $25.65 per barrel in 2001
from $29.32 per barrel in 2000. Average gas prices increased to $4.39 per Mcf in
2001 from $3.52 per Mcf in 2000.
Depletion of Net Profits Interests increased $15,898 (14.3%) in 2001 as
compared to 2000. This increase was primarily due to one significant well being
fully depleted in 2001 due to the lack of remaining economically recoverable
reserves. 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, 2001. As a percentage of Net Profits, this expense
decreased to 7.7% in 2001 from 7.8% in 2000.
General and administrative expenses increased $5,930 (4.2%) in 2001 as
compared to 2000. As a percentage of Net Profits, these expenses decreased to
9.0% in 2001 from 9.9% in 2000.
-39-
P-6 Partnership
---------------
Year Ended December 31, 2002 Compared
to Year Ended December 31, 2001
--------------------------------------
Total Net Profits decreased $806,224 (35.3%) in 2002 as compared to 2001.
Of this decrease, approximately (i) $680,000 was related to a decrease in the
average price of gas sold and (ii) $167,000 was related to a decrease in volumes
of gas sold. Volumes of oil sold increased 1,899 barrels, while volumes of gas
sold decreased 42,211 Mcf in 2002 as compared to 2001. The increase in volumes
of oil sold was primarily due to (i) an increase in production on one
significant well due to the successful workover of that well during late 2001
and early 2002 and (ii) an increase in production on another significant well
due to the successful recompletion of that well during late 2002. The decrease
in volumes of gas sold was primarily due to (i) normal declines in production
and (ii) the shutting-in of one significant well due to production difficulties
during 2002. These decreases were partially offset by the P-6 Partnership's
receipt of a reduced percentage of sales on another significant well during 2001
due to gas balancing. As of the date of this Annual Report, management does not
expect the shut-in well to return to production. Average oil and gas prices
decreased to $23.59 per barrel and $2.89 per Mcf, respectively, in 2002 from
$25.03 per barrel and $3.96 per Mcf, respectively, in 2001.
Depletion of Net Profits Interests decreased $36,468 (16.6%) in 2002 as
compared to 2001. This decrease was primarily due to (i) several wells being
fully depleted in 2001 due to the lack of remaining economically recoverable
reserves and (ii) upward revisions in the estimates of remaining oil and gas
reserves at December 31, 2002. These decreases were partially offset by several
wells being fully depleted in 2002 due to the lack of remaining economically
recoverable reserves. As a percentage of Net Profits, this expense increased to
12.4% in 2002 from 9.6% in 2001. This percentage increase was primarily due to
the decreases in the average prices of oil and gas sold.
General and administrative expenses increased $2,308 (1.3%) in 2002 as
compared 2001. As a percentage of Net Profits, these expenses increased to 12.0%
in 2002 from 7.7% in 2001. This percentage increase was primarily due to the
decrease in Net Profits.
Cumulative cash distributions to the Limited Partners through December 31,
2002 were $16,195,248 or 113.22% of Limited Partners' capital contribution.
-40-
Year Ended December 31, 2001 Compared
to Year Ended December 31, 2000
--------------------------------------
Total Net Profits decreased $185,684 (7.5%) in 2001 as compared to 2000.
Of this decrease, approximately $23,000 and $473,000, respectively, were related
to decreases in volumes of oil and gas sold and approximately $41,000 was
related to a decrease in the average price of oil sold. These decreases were
partially offset by increases of approximately $226,000 related to an increase
in the average price of gas sold and $125,000 related to a decrease in
production expenses. Volumes of oil and gas sold decreased 832 barrels and
130,459 Mcf, respectively, during 2001 as compared to 2000. The decrease in
volumes of gas sold was primarily due to (i) the P-6 Partnership receiving a
reduced percentage of sales on one significant well during 2001 as compared to
2000 due to gas balancing and (ii) normal declines in production. As of the date
of this Annual Report, management expects the gas balancing adjustment to
continue for the foreseeable future, thereby continuing to contribute to a
decrease in volumes of gas produced for the P-6 Partnership. The decrease in
production expenses was primarily due to (i) a negative prior period lease
operating expense adjustment made by the operator on one significant well during
2001 and (ii) a positive prior period lease operating expense adjustment made by
the operator on another significant well during 2000. Average oil prices
decreased to $25.03 per barrel in 2001 from $28.15 per barrel in 2000. Average
gas prices increased to $3.96 per Mcf in 2001 from $3.63 per Mcf in 2000.
Depletion of Net Profits Interests decreased $114,343 (34.2%) in 2001 as
compared to 2000. This decrease was primarily due to (i) two significant wells
being fully depleted in 2000 due to the lack of remaining economically
recoverable reserves and (ii) upward revisions in the estimates of remaining gas
reserves at December 31, 2001. As a percentage of Net Profits, this expense
decreased to 9.6% in 2001 from 13.5% in 2000. This percentage decrease was
primarily due to the dollar decrease in Depletion of Net Profits Interests.
General and administrative expenses increased $3,911 (2.3%) in 2001 as
compared to 2000. As a percentage of Net Profits, these expenses increased to
7.7% in 2001 from 6.9% in 2000. This percentage increase was primarily due to
the decrease in Net Profits.
-41-
Average Proceeds and Units of Production
The following tables are comparisons of the annual barrel of oil
equivalent (one barrel of oil or six Mcf of gas) and the average proceeds (oil
and gas sales less lease operating expenses and production taxes) received per
barrel of oil equivalent attributable to the Partnerships' Net Profits for the
years ended December 31, 2002, 2001, and 2000.
2002 Compared to 2001
---------------------
Barrel of Oil Average Proceeds per
Equivalent Barrel of Oil Equivalent
----------------------------- --------------------------
P/ship 2002 2001 % Change 2002 2001 % Change
------ ------- ------- -------- ------ ------ --------
P-1 68,337 71,568 ( 5%) $14.53 $18.10 (20%)
P-3 98,788 104,363 ( 5%) 14.29 18.08 (21%)
P-4 100,157 103,670 ( 3%) 14.30 20.66 (31%)
P-5 70,651 77,813 ( 9%) 12.54 21.11 (41%)
P-6 121,215 126,352 ( 4%) 12.18 18.06 (33%)
2001 Compared to 2000
---------------------
Barrel of Oil Average Proceeds per
Equivalent Barrel of Oil Equivalent
----------------------------- --------------------------
P/ship 2001 2000 % Change 2001 2000 % Change
------ ------- ------- -------- ------ ------ --------
P-1 71,568 68,560 4% $18.10 $18.24 ( 1%)
P-3 104,363 99,956 4% 18.08 18.12 -
P-4 103,670 80,019 30% 20.66 19.95 4%
P-5 77,813 88,351 (12%) 21.11 16.23 30%
P-6 126,352 148,927 (15%) 18.06 16.57 9%
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 2002
production levels for future years, the Partnerships' proved reserve quantities
at December 31, 2002 would have the following remaining lives:
-42-
Partnership Gas-Years Oil-Years
----------- --------- ---------
P-1 6.1 7.8
P-3 6.7 8.2
P-4 4.5 1.1
P-5 5.7 7.2
P-6 6.2 7.6
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, 2002
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.
The Partnerships sold certain Net Profits Interests during 2002, 2001, and
2000. 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. The amount of such proceeds
from the sale of Net Profits Interest during 2002, 2001, and 2000, were as
follows:
Partnership 2002 2001 2000
----------- ------- ------- -------
P-1 $40,636 $17,521 $63,928
P-3 51,341 23,925 86,679
P-4 - 3,414 21,922
P-5 10,398 43,097 54,584
P-6 11,319 52,686 25,726
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
-43-
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. 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.
Pursuant to the terms of the Partnership Agreements, the Partnerships are
scheduled to terminate on December 31, 2005. However, the Partnership Agreements
provide that the General Partner may extend the term of each Partnership for up
to five periods of two years each. The General Partner has not yet determined
whether it will extend the terms of any of the Partnerships.
Critical Accounting Policies
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 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.
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 Partnerships evaluate the recoverability of the carrying costs of
their Net Profits Interests in proved oil and gas properties for each oil and
gas field (rather than separately for each well). 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
-44-
using the discounted future cash flows from the Net Profits Interest.
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 annual production costs per Mcf.
New Accounting Pronouncements
Below is a brief description of Financial Accounting Standards ("FAS")
recently issued by the Financial Accounting Standards Board ("FASB") which may
have an impact on the Partnerships' future results of operations and financial
position.
In July 2001, the FASB issued FAS No. 143, "Accounting for Asset
Retirement Obligations", which is effective for fiscal years beginning after
June 15, 2002 (January 1, 2003 for the Partnerships). FAS No. 143 will require
the recording of the fair value of liabilities associated with the retirement of
long-lived assets (mainly plugging and abandonment costs for the Partnerships'
depleted wells), in the period in which the liabilities are incurred (at the
time the wells are drilled). Management estimates that adopting this statement
will result in an increase in capitalized cost of oil and natural gas
properties, an increase in net income for the cumulative effect of the change in
accounting principle, and the recognition of an asset retirement obligation in
the following approximate amounts for each Partnership:
-45-
Change in Increase in
Capitalized Net Income for
Cost of Oil the Change in Asset
and Gas Accounting Retirement
Partnership Properties Principle Obligation
- ----------- ------------ -------------- ----------
P-1 $ 89,000 $ 34,000 $ 55,000
P-3 146,000 51,000 95,000
P-4 80,000 26,000 54,000
P-5 110,000 41,000 69,000
P-6 331,000 126,000 205,000
In August 2001, the FASB issued FAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which is effective for fiscal
years beginning after December 15, 2001 (January 1, 2002 for the Partnerships).
This statement supersedes FAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". The provisions
of FAS No. 144, as they relate to the Partnerships, are essentially the same as
FAS No. 121 and thus did not have a significant effect on the Partnerships'
financial condition or results of operations.
In November 2002, the FASB issued FASB Interpretation 45 (FIN 45)
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantee of Indebtedness of Others." FIN 45 requires that upon
issuance of a guarantee, the guarantor must recognize a liability for the fair
value of the obligation it assumes under that guarantee. The disclosure
requirements are effective for financial statements of both interim and annual
periods which end after December 15, 2002. The Partnerships are not guarantors
under any guarantees and thus this interpretation is not expected to have an
effect on their financial position or results of operations.
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
2002. 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."
-46-
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Partnerships do not hold any market risk sensitive instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are indexed in Item 15
hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III.
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 General Partner
---------------- --- --------------------------------
Dennis R. Neill 51 President and Director
Judy K. Fox 52 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.
-47-
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 2002 of reports required under Section 16 of the Securities Exchange Act
of 1934.
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 2002, 2001, and 2000, 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 2002 2001 2000
----------- -------- -------- --------
P-1 $113,760 $113,760 $113,760
P-3 178,560 178,560 178,560
P-4 132,960 132,960 132,960
P-5 124,680 124,680 124,680
P-6 150,564 150,564 150,564
-48-
None of the officers or directors of the General Partner receive
compensation directly from the Partnerships. The Partnerships reimburse the
General Partner or its affiliates for that portion of such officers' and
directors' salaries and expenses attributable to time devoted by such
individuals to the Partnerships' activities based on the allocation method
described above. The following tables indicate the approximate amount of general
and administrative expense reimbursement attributable to the salaries of the
directors, officers, and employees of the General Partner and its affiliates
during 2002, 2001, and 2000:
-49-
Salary Reimbursements
P-1 Partnership
---------------
Long Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
------------------------------ ----------------------- -------
Securi-
Other ties All
Name Annual Restricted Under- Other
and Compen- Stock lying LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) ($) ($) SARs(#) ($) ($)
- --------------- ---- ------- ------- ------- ---------- -------- ------- -------
Dennis R. Neill,
President(1)(2) 2000 - - - - - - -
2001 - - - - - - -
2002 - - - - - - -
All Executive
Officers,
Directors,
and Employees
as a group(2) 2000 $67,517 - - - - - -
2001 $63,160 - - - - - -
2002 $60,748 - - - - - -
- ----------
(1) The general and administrative expenses paid by the P-1 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-1 Partnership and no individual's salary or other
compensation reimbursement from the P-1 Partnership equals or exceeds
$100,000 per annum.
-50-
Salary Reimbursements
P-3 Partnership
---------------
Long Term Compensation
-----------------------------------
Annual Compensation Awards Payouts
------------------------------ ----------------------- -------
Securi-
Other ties All
Name Annual Restricted Under- Other
and Compen- Stock lying LTIP Compen-
Principal Salary Bonus sation Award(s) Options/ Payouts sation
Position Year ($) ($) ($) ($) SARs(#) ($) ($)
- --------------- ---- ------- ------- ------- ---------- -------- ------- -------
Dennis R. Neill,
President(1)(2) 2000 - - - - - - -
2001 - - - - - - -
2002 - - - - - - -
All Executive
Officers,
Directors,
and Employees
as a group(2) 2000 $105,975 - - - - - -
2001 $ 99,137 - - - - - -
2002 $ 95,351 - - - - - -
- ----------
(1) The general and administrative expenses paid by the P-3 Part