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, 2004
Commission File Number:
II-A: 0-16388 II-C: 0-16981 II-E: 0-17320 II-G: 0-17802
II-B: 0-16405 II-D: 0-16980 II-F: 0-17799 II-H: 0-18305
GEODYNE ENERGY INCOME LIMITED PARTNERSHIP II-A
GEODYNE ENERGY INCOME LIMITED PARTNERSHIP II-B
GEODYNE ENERGY INCOME LIMITED PARTNERSHIP II-C
GEODYNE ENERGY INCOME LIMITED PARTNERSHIP II-D
GEODYNE ENERGY INCOME LIMITED PARTNERSHIP II-E
GEODYNE ENERGY INCOME LIMITED PARTNERSHIP II-F
GEODYNE ENERGY INCOME LIMITED PARTNERSHIP II-G
GEODYNE ENERGY INCOME LIMITED PARTNERSHIP II-H
----------------------------------------------
(Exact name of Registrant as specified in its Articles)
II-A 73-1295505
II-B 73-1303341
II-C 73-1308986
II-D 73-1329761
II-E 73-1324751
II-F 73-1330632
II-G 73-1336572
Oklahoma II-H 73-1342476
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Two West Second Street, Tulsa, Oklahoma 74103
--------------------------------------------------
(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
----- -----
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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.
X Disclosure is not contained herein
-----
Disclosure is contained herein
-----
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes No X
----- -----
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.
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.................................................9
ITEM 3. LEGAL PROCEEDINGS.........................................29
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
LIMITED PARTNERS..........................................29
PART II.....................................................................29
ITEM 5. MARKET FOR UNITS AND RELATED LIMITED PARTNER MATTERS......29
ITEM 6. SELECTED FINANCIAL DATA...................................32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................41
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.........................................68
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...............68
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.......................68
ITEM 9A. CONTROLS AND PROCEDURES...................................68
ITEM 9B. OTHER INFORMATION.........................................69
PART III....................................................................69
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE GENERAL PARTNER...69
ITEM 11. EXECUTIVE COMPENSATION....................................70
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.....................................80
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............82
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES....................83
PART IV.....................................................................84
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES................84
SIGNATURES...........................................................104
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PART I.
ITEM 1. BUSINESS
General
The Geodyne Energy Income Limited Partnership II-A (the "II-A
Partnership"), Geodyne Energy Income Limited Partnership II-B (the "II-B
Partnership"), Geodyne Energy Income Limited Partnership II-C (the "II-C
Partnership"), Geodyne Energy Income Limited Partnership II-D (the "II-D
Partnership"), Geodyne Energy Income Limited Partnership II-E (the "II-E
Partnership"), Geodyne Energy Income Limited Partnership II-F (the "II-F
Partnership"), Geodyne Energy Income Limited Partnership II-G (the "II-G
Partnership"), and Geodyne Energy Income Limited Partnership II-H (the "II-H
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"), a Delaware corporation, as the
general partner, Geodyne 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 the dates set
forth below.
Date of
Partnership Activation
----------- -----------------
II-A July 22, 1987
II-B October 14, 1987
II-C January 14, 1988
II-D May 10, 1988
II-E September 27, 1988
II-F January 5, 1989
II-G April 10, 1989
II-H May 17, 1989
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
(the "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 limited 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, and is a wholly-owned
subsidiary of Samson Investment Company. Samson
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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, 2004, Samson owned interests
in approximately 16,000 oil and gas wells located in 18 states of the United
States and the countries of Canada, Venezuela, and Australia. At December 31,
2004, Samson operated approximately 5,000 oil and gas wells located in 14 states
of the United States, as well as Canada, Venezuela, and Australia.
The Partnerships are currently engaged in the business of owning interests
in producing oil and gas properties located in the continental United States.
The Partnerships may also engage to a limited extent in development drilling on
producing oil and gas properties as required for the prudent management of the
Partnerships.
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, 2005, 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."
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 would have terminated on
December 31, 2001. 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 extended the terms of the Partnerships for
their second two-year extension thereby extending their termination date to
December 31, 2005. As of the date of this Annual Report, the General Partner has
not determined whether to further extend the term of any Partnership.
Funding
Although the Partnership Agreements permit the Partnerships to incur
borrowings, the Partnerships' operations and expenses are currently funded out
of each Partnership's revenues from oil and gas sales. The General Partner may,
but is not required to, advance funds to a Partnership for the same purposes for
which Partnership borrowings are authorized.
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Principal Products Produced and Services Rendered
The Partnerships' sole business is the production of, and related
incidental development of, oil and gas. 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. However, substantial increases in the
price of steel may increase the costs of any future workover, recompletion or
drilling activities conducted by the Partnerships.
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 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.
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
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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
Partnerships' oil and gas sales during the year ended December 31, 2004:
Partnership Purchaser Percentage
- ----------- -------------------------------------- ----------
II-A Cinergy Marketing Company ("Cinergy") 16.1%
BP America Production Company 14.8%
Duke Energy Field Services Inc. ("Duke") 12.3%
II-B Cinergy 24.1%
Citation Oil & Gas Corp. ("Citation") 13.1%
II-C Cinergy 22.3%
Citation 11.6%
II-D Cinergy 17.0%
Whiting Petroleum Corporation 11.8%
Vintage Petroleum, Inc. 10.3%
II-E Cinergy 25.1%
II-F Duke 14.7%
Cinergy 12.3%
Chevron USA, Inc. 10.0%
II-G Duke 14.9%
Cinergy 12.2%
II-H Duke 15.1%
Cinergy 11.9%
In the event of interruption of purchases by one or more of the
Partnerships' significant customers or the cessation or material change in
availability of open access transportation by the Partnerships' pipeline
transporters, the Partnerships may encounter difficulty in marketing their 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.
-7-
The Partnerships' principal customers for crude oil production are
refiners and other companies which have pipeline facilities near the producing
properties of the Partnerships. 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 by the Partnerships 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,
including the Partnerships. Although virtually all of the Partnerships' gas
production 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' operations and projections of
future oil and gas production and revenues.
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 -- The Partnerships' 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 increase the cost of the Partnerships' operations or may
affect the Partnerships' ability to timely complete existing or future
activities. Management anticipates that various local, state, and federal
environmental control agencies will have an increasing impact on oil and gas
operations.
-8-
Insurance Coverage
The Partnerships are subject to all of the risks inherent in the
exploration for and production of oil and gas including blowouts, pollution,
fires, and other casualties. The Partnerships maintain insurance coverage as is
customary for entities of a similar size engaged in operations similar to that
of the Partnerships, 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.
ITEM 2. PROPERTIES
Well Statistics
The following table sets forth the number of productive wells of the
Partnerships as of December 31, 2004.
Well Statistics(1)
As of December 31, 2004
Number of Gross Wells(2) Number of Net Wells(3)
------------------------ ----------------------
P/ship Total Oil Gas Total Oil Gas
------ ----- --- --- ----- ----- -----
II-A 1,016 742 274 42.65 25.36 17.29
II-B 203 90 113 24.78 12.97 11.81
II-C 288 109 179 9.49 2.80 6.69
II-D 213 75 138 23.26 2.86 20.40
II-E 868 613 255 11.20 3.69 7.51
II-F 874 609 265 11.76 2.94 8.82
II-G 874 609 265 25.38 6.20 19.18
II-H 874 609 265 6.22 1.46 4.76
- ---------------
(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.
(2) As used in this Annual Report, "gross well" refers to a well in which a
working interest is owned; accordingly, the number of gross wells is the
total number of wells in which a working interest is owned.
(3) As used in this Annual Report, "net well" refers to the sum of the
fractional working interests owned in gross wells.
-9-
For example, a 15% working interest in a well represents one gross well,
but 0.15 net well.
Drilling Activities
During the year ended December 31, 2004, the Partnerships directly or
indirectly participated in the drilling activities described below.
II-A Partnership
Working Revenue
Well Name County St. Interest Interest Type Status
- ----------------- --------- --- -------- -------- ---- -----------
Freda #1-11 Grady OK - 0.0018 Gas Producing
Hedgecock #4-12 Caddo OK - 0.0054 Gas Producing
Inlow #3-11 Caddo OK - 0.0039 Gas Producing
Inlow #4-11 Caddo OK - 0.0039 Gas Producing
Brown Foundation Washita OK - 0.0035 Gas Producing
#5-14
Brown Foundation Washita OK - 0.0028 Gas Producing
#6-14
Flaming #3-20 Washita OK - 0.0006 Gas Producing
Katie #4-11 Washita OK - 0.0074 Gas Producing
Chandra #1-4 Caddo OK - 0.0052 Oil Producing
Ramey #1-13 Woodward OK 0.0087 0.0071 Oil Producing
Farris Ranch #31-2 Dewey OK - 0.0004 N/A In Progress
Jo-Mill Unit
(27 new wells) Borden TX 0.0025 0.0022 Oil Producing
II-B Partnership
Working Revenue
Well Name County St. Interest Interest Type Status
- ----------------- --------- --- -------- -------- ---- -----------
Brown Foundation Washita OK - 0.0057 Gas Producing
#5-14
Brown Foundation Washita OK - 0.0046 Gas Producing
#6-14
Flaming #3-20 Washita OK - 0.0010 Gas Producing
Katie #4-11 Washita OK - 0.0057 Gas Producing
Farris Ranch #31-2 Dewey OK - 0.0018 N/A In Progress
II-C Partnership
Working Revenue
Well Name County St. Interest Interest Type Status
- ----------------- --------- --- -------- -------- ---- -----------
Huls #2-24 Washita OK - 0.0015 Gas Producing
Huls #3-24 Washita OK - 0.0015 Gas Producing
Stella-Killebrew #2 Roberts TX - 0.0001 Gas Producing
Brown Foundation Washita OK - 0.0024 Gas Producing
#5-14
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Brown Foundation Washita OK - 0.0020 Gas Producing
#6-14
Flaming #3-20 Washita OK - 0.0004 Gas Producing
Katie #4-11 Washita OK - 0.0025 Gas Producing
Farris Ranch #31-2 Dewey OK - 0.0003 N/A In Progress
II-D Partnership
Working Revenue
Well Name County St. Interest Interest Type Status
- ----------------- --------- --- -------- -------- ---- -----------
Huls #2-24 Washita OK - 0.0017 Gas Producing
Huls #3-24 Washita OK - 0.0017 Gas Producing
Stella-Killebrew
#2 Roberts TX - 0.0011 Gas Producing
II-E Partnership
Working Revenue
Well Name County St. Interest Interest Type Status
- ----------------- --------- --- -------- -------- ---- -----------
Wilson A-#2 Roger OK 0.0001 0.0001 Gas Producing
Mills
Bryant #5-44 Wheeler TX - 0.0012 Gas Producing
Black Tiger #1 Seminole OK 0.0021 0.0021 Oil Producing
Armstrong #1-640.5H Dimmit TX - 0.0042 N/A Shut-in
Ward #17-1 Howard TX - 0.0042 Gas Producing
Hill, Wess #13 Sutton TX - 0.0001 Gas Producing
Davis, N B #16 Sutton TX - 0.0003 Gas Producing
Miers, W A #17 Sutton TX - 0.0001 Gas Producing
Hill, Wess #14 Sutton TX - 0.0001 Gas Producing
Garner 12 #1 Terrell TX 0.0021 0.0017 Gas Producing
Emperor #24-1 (RY) Winkler TX - 0.0006 Gas Producing
Hill, Wess #16 Sutton TX - 0.0001 Gas Producing
Hill, Wess #15 Sutton TX - 0.0001 Gas Producing
Cox 27 #3 (RY) Upton TX - 0.0038 Gas Producing
Andrews Waterflood
Unit (3 new wells) Andrews TX 0.0011 0.0011 Oil Producing
Resler B3 (RY) Lea NM - 0.0005 Oil Producing
Resler B2 (RY) Lea NM - 0.0005 Oil Producing
Resler A1 (RY) Lea NM - 0.0005 Oil Producing
Neal 30 #1 Re-Entry Upton TX - 0.0007 Oil Producing
Taylor 17 #1 Howard TX - 0.0033 N/A In Progress
Owens 17 #1 Crockett TX 0.0042 0.0042 N/A Dry Hole
Tribal C 4B Rio NM - 0.0001 Gas Producing
Arriba
Jenney #1B Rio NM - 0.0006 N/A In Progress
Arriba
Hoyt #2C Rio
(MV/Dakota) Arriba NM - 0.0001 N/A Shut-in
Hardy Percy #9 &
#10 Lea NM - 0.0017 Oil Producing
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II-F Partnership
Working Revenue
Well Name County St. Interest Interest Type Status
- ----------------- --------- --- -------- -------- ---- ----------
Wilson A #2 Roger OK 0.0002 0.0002 Gas Producing
Mills
Bryant #5-44 Wheeler TX - 0.0030 Gas Producing
Black Tiger #1 Seminole OK 0.0051 0.0051 Oil Producing
Armstrong #1-640.5H Dimmit TX - 0.0101 N/A Shut-in
Ward #17-1 Howard TX - 0.0101 Gas Producing
Hill, Wess #13 Sutton TX - 0.0003 Gas Producing
Davis, N B #16 Sutton TX - 0.0006 Gas Producing
Miers, W A #17 Sutton TX - 0.0003 Gas Producing
Hill, Wess #14 Sutton TX - 0.0003 Gas Producing
Garner 12 #1 Terrell TX 0.0052 0.0042 Gas Producing
Emperor #24-1 (RY) Winkler TX - 0.0015 Gas Producing
Hill, Wess #16 Sutton TX - 0.0003 Gas Producing
Hill, Wess #15 Sutton TX - 0.0003 Gas Producing
Cox 27 #3 (RY) Upton TX - 0.0092 Gas Producing
Andrews Waterflood
Unit (3 new wells) Andrews TX 0.0028 0.0028 Oil Producing
Resler B3 (RY) Lea NM - 0.0013 Oil Producing
Resler B2 (RY) Lea NM - 0.0013 Oil Producing
Resler A1 (RY) Lea NM - 0.0013 Oil Producing
Neal 30 #1 Re-Entry Upton TX - 0.0018 Oil Producing
Taylor 17 #1 Howard TX - 0.0081 N/A In Progress
Owens 17 #1 Crockett TX 0.0101 0.0101 N/A Dry Hole
Tribal C 4B Rio NM - 0.0000 Gas Producing
Arriba
Jenney #1B Rio NM - 0.0002 N/A In Progress
Arriba
Hoyt #2C Rio
(MV/Dakota) Arriba NM - 0.0000 N/A Shut-in
Hardy Percy #9 &
#10 Lea NM - 0.0041 Oil Producing
II-G Partnership
Working Revenue
Well Name County St. Interest Interest Type Status
- ----------------- --------- --- -------- -------- ---- ----------
Wilson A #2 Roger OK 0.0004 0.0004 Gas Producing
Mills
Bryant #5-44 Wheeler TX - 0.0064 Gas Producing
Black Tiger #1 Seminole OK 0.0106 0.0106 Oil Producing
Armstrong #1-640.5H Dimmit TX - 0.0212 N/A Shut-in
Ward #17-1 Howard TX - 0.0212 Gas Producing
Hill, Wess #13 Sutton TX - 0.0007 Gas Producing
Davis, N B #16 Sutton TX - 0.0014 Gas Producing
Miers, W A #17 Sutton TX - 0.0007 Gas Producing
Hill, Wess #14 Sutton TX - 0.0007 Gas Producing
Garner 12 #1 Terrell TX 0.0109 0.0088 Gas Producing
Emperor #24-1 (RY) Winkler TX - 0.0032 Gas Producing
Hill, Wess #16 Sutton TX - 0.0007 Gas Producing
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Hill, Wess #15 Sutton TX - 0.0007 Gas Producing
Cox 27 #3 (RY) Upton TX - 0.0192 Gas Producing
Andrews Waterflood
Unit (3 new wells) Andrews TX 0.0058 0.0058 Oil Producing
Resler B3 (RY) Lea NM - 0.0027 Oil Producing
Resler B2 (RY) Lea NM - 0.0027 Oil Producing
Resler A1 (RY) Lea NM - 0.0027 Oil Producing
Neal 30 #1 Re-Entry Upton TX - 0.0037 Oil Producing
Taylor 17 #1 Howard TX - 0.0170 N/A In Progress
Owens 17 #1 Crockett TX 0.0212 0.0212 N/A Dry Hole
Tribal C 4B Rio NM - 0.0002 Gas Producing
Arriba
Jenney #1B Rio NM - 0.0007 N/A In Progress
Arriba
Hoyt #2C Rio
(MV/Dakota) Arriba NM - 0.0001 N/A Shut-in
Hardy Percy #9 &
#10 Lea NM - 0.0085 Oil Producing
II-H Partnership
Working Revenue
Well Name County St. Interest Interest Type Status
- ----------------- --------- --- -------- -------- ---- ----------
Wilson A #2 Roger OK 0.0001 0.0001 Gas Producing
Mills
Bryant #5-44 Wheeler TX - 0.0015 Gas Producing
Black Tiger #1 Seminole OK 0.0025 0.0025 Oil Producing
Armstrong #1-640.5H Dimmit TX - 0.0049 N/A Shut-in
Ward #17-1 Howard TX - 0.0049 Gas Producing
Hill, Wess #13 Sutton TX - 0.0002 Gas Producing
Davis, N B #16 Sutton TX - 0.0003 Gas Producing
Miers, W A #17 Sutton TX - 0.0002 Gas Producing
Hill, Wess #14 Sutton TX - 0.0002 Gas Producing
Garner 12 #1 Terrell TX 0.0025 0.0020 Gas Producing
Emperor #24-1 (RY) Winkler TX - 0.0007 Gas Producing
Hill, Wess #16 Sutton TX - 0.0002 Gas Producing
Hill, Wess #15 Sutton TX - 0.0002 Gas Producing
Cox 27 #3 (RY) Upton TX - 0.0045 Gas Producing
Andrews Waterflood
Unit(3 new wells) Andrews TX 0.0013 0.0014 Oil Producing
Resler B3 (RY) Lea NM - 0.0006 Oil Producing
Resler B2 (RY) Lea NM - 0.0006 Oil Producing
Resler A1 (RY) Lea NM - 0.0006 Oil Producing
Neal 30 #1 Re-Entry Upton TX - 0.0009 Oil Producing
Taylor 17 #1 Howard TX - 0.0039 N/A In Progress
Owens 17 #1 Crockett TX 0.0049 0.0049 N/A Dry Hole
Tribal C 4B Rio NM - 0.0001 Gas Producing
Arriba
Jenney #1B Rio NM - 0.0003 N/A In Progress
Arriba
Hoyt #2C Rio
(MV/Dakota) Arriba NM - 0.0000 N/A Shut-in
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Hardy Percy #9 &
#10 Lea NM - 0.0020 Oil Producing
Oil and Gas Production, Revenue, and Price History
The following tables set forth certain historical information concerning
the oil (including condensates) and gas production, net of all royalties,
overriding royalties, and other third party interests, of the Partnerships,
revenues attributable to such production, and certain price and cost
information. As used in the tables, direct operating expenses include lease
operating expenses and production taxes. In addition, gas production is
converted to oil equivalents at the rate of six Mcf per barrel, representing the
estimated relative energy content of gas and oil, which rate is not necessarily
indicative of the relationship of oil and gas prices. The respective prices of
oil and gas are affected by market and other factors in addition to relative
energy content.
Net Production Data
II-A Partnership
----------------
Year Ended December 31,
----------------------------------------
2004 2003 2002
---------- ---------- ----------
Production:
Oil (Bbls) 65,565 74,313 64,016
Gas (Mcf) 646,674 717,179 821,485
Oil and gas sales:
Oil $2,484,192 $2,078,263 $1,499,533
Gas 3,457,506 3,502,160 2,282,330
--------- --------- ---------
Total $5,941,698 $5,580,423 $3,781,863
========= ========= =========
Total direct operating
expenses $1,540,000 $1,407,759 $1,516,608
========= ========= =========
Direct operating expenses
as a percentage of oil
and gas sales 25.9% 25.2% 40.1%
Average sales price:
Per barrel of oil $37.89 $27.97 $23.42
Per Mcf of gas 5.35 4.88 2.78
Direct operating expenses per
equivalent Bbl of oil $ 8.88 $ 7.26 $ 7.55
-14-
Net Production Data
II-B Partnership
----------------
Year Ended December 31,
----------------------------------------
2004 2003 2002
---------- ---------- ----------
Production:
Oil (Bbls) 42,473 43,725 40,616
Gas (Mcf) 535,070 548,582 598,159
Oil and gas sales:
Oil $1,655,352 $1,282,628 $ 983,366
Gas 2,730,383 2,574,612 1,629,566
--------- --------- ---------
Total $4,385,735 $3,857,240 $2,612,932
========= ========= =========
Total direct operating
expenses $1,140,240 $ 998,312 $1,021,964
========= ========= =========
Direct operating expenses
as a percentage of oil
and gas sales 26.0% 25.9% 39.1%
Average sales price:
Per barrel of oil $38.97 $29.33 $24.21
Per Mcf of gas 5.10 4.69 2.72
Direct operating expenses per
equivalent Bbl of oil $ 8.66 $ 7.39 $ 7.28
-15-
Net Production Data
II-C Partnership
----------------
Year Ended December 31,
----------------------------------------
2004 2003 2002
---------- ---------- ----------
Production:
Oil (Bbls) 15,365 15,806 14,351
Gas (Mcf) 301,090 315,371 343,662
Oil and gas sales:
Oil $ 597,955 $ 465,997 $ 352,930
Gas 1,521,252 1,432,288 931,491
--------- --------- ---------
Total $2,119,207 $1,898,285 $1,284,421
========= ========= =========
Total direct operating
expenses $ 524,010 $ 484,633 $ 432,068
========= ========= =========
Direct operating expenses
as a percentage of oil
and gas sales 24.7% 25.5% 33.6%
Average sales price:
Per barrel of oil $38.92 $29.48 $24.59
Per Mcf of gas 5.05 4.54 2.71
Direct operating expenses per
equivalent Bbl of oil $ 7.99 $ 7.09 $ 6.03
-16-
Net Production Data
II-D Partnership
----------------
Year Ended December 31,
----------------------------------------
2004 2003 2002
---------- ---------- ----------
Production:
Oil (Bbls) 25,312 23,482 31,350
Gas (Mcf) 674,131 724,786 795,913
Oil and gas sales:
Oil $ 970,924 $ 672,785 $ 728,533
Gas 3,425,727 3,226,165 2,128,408
--------- --------- ---------
Total $4,396,651 $3,898,950 $2,856,941
========= ========= =========
Total direct operating
expenses $1,166,926 $1,075,751 $ 886,247
========= ========= =========
Direct operating expenses
as a percentage of oil
and gas sales 26.5% 27.6% 31.0%
Average sales price:
Per barrel of oil $38.36 $28.65 $23.24
Per Mcf of gas 5.08 4.45 2.67
Direct operating expenses per
equivalent Bbl of oil $ 8.48 $ 7.46 $ 5.40
-17-
Net Production Data
II-E Partnership
----------------
Year Ended December 31,
----------------------------------------
2004 2003 2002
---------- ---------- ----------
Production:
Oil (Bbls) 18,135 19,131 23,426
Gas (Mcf) 409,863 467,472 488,328
Oil and gas sales:
Oil $ 686,966 $ 561,004 $ 566,653
Gas 2,101,949 2,186,172 1,387,404
--------- --------- ---------
Total $2,788,915 $2,747,176 $1,954,057
========= ========= =========
Total direct operating
expenses $ 683,739 $ 664,928 $ 528,268
========= ========= =========
Direct operating expenses
as a percentage of oil
and gas sales 24.5% 24.2% 27.0%
Average sales price:
Per barrel of oil $37.88 $29.32 $24.19
Per Mcf of gas 5.13 4.68 2.84
Direct operating expenses per
equivalent Bbl of oil $ 7.91 $ 6.85 $ 5.04
-18-
Net Production Data
II-F Partnership
----------------
Year Ended December 31,
----------------------------------------
2004 2003 2002
---------- ---------- ----------
Production:
Oil (Bbls) 26,083 24,828 27,894
Gas (Mcf) 402,717 442,255 451,358
Oil and gas sales:
Oil $ 950,141 $ 705,160 $ 663,274
Gas 1,925,993 1,934,121 1,236,733
--------- --------- ---------
Total $2,876,134 $2,639,281 $1,900,007
========= ========= =========
Total direct operating
expenses $ 608,955 $ 573,207 $ 421,986
========= ========= =========
Direct operating expenses
as a percentage of oil
and gas sales 21.2% 21.7% 22.2%
Average sales price:
Per barrel of oil $36.43 $28.40 $23.78
Per Mcf of gas 4.78 4.37 2.74
Direct operating expenses per
equivalent Bbl of oil $ 6.53 $ 5.82 $ 4.09
-19-
Net Production Data
II-G Partnership
----------------
Year Ended December 31,
----------------------------------------
2004 2003 2002
---------- ---------- ----------
Production:
Oil (Bbls) 54,665 52,045 58,467
Gas (Mcf) 859,114 941,870 959,663
Oil and gas sales:
Oil $1,991,518 $1,478,077 $1,389,987
Gas 4,125,357 4,127,614 2,633,819
--------- --------- ---------
Total $6,116,875 $5,605,691 $4,023,806
========= ========= =========
Total direct operating
expenses $1,300,804 $1,221,171 $ 900,203
========= ========= =========
Direct operating expenses
as a percentage of oil
and gas sales 21.3% 21.8% 22.4%
Average sales price:
Per barrel of oil $36.43 $28.40 $23.77
Per Mcf of gas 4.80 4.38 2.74
Direct operating expenses per
equivalent Bbl of oil $ 6.57 $ 5.84 $ 4.12
-20-
Net Production Data
II-H Partnership
----------------
Year Ended December 31,
----------------------------------------
2004 2003 2002
---------- ---------- ----------
Production:
Oil (Bbls) 12,688 12,082 13,577
Gas (Mcf) 206,905 226,604 229,923
Oil and gas sales:
Oil $ 462,355 $ 343,099 $322,666
Gas 997,695 992,693 631,670
--------- --------- -------
Total $1,460,050 $1,335,792 $954,336
========= ========= =======
Total direct operating
expenses $ 314,459 $ 295,355 $217,304
========= ========= =======
Direct operating expenses
as a percentage of oil
and gas sales 21.5% 22.1% 22.8%
Average sales price:
Per barrel of oil $36.44 $28.40 $23.77
Per Mcf of gas 4.82 4.38 2.75
Direct operating expenses per
equivalent Bbl of oil $ 6.67 $ 5.92 $ 4.19
-21-
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, 2004. 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, 2004. 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, 2004 ($43.36 per barrel and $6.02 per Mcf,
respectively) were higher than the prices in effect on December 31, 2003 ($29.25
per barrel and $5.77 per Mcf, respectively). 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, 2004 to be higher than
the previous estimates and values at December 31, 2003. 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, 2004. There can be no assurance that the prices used
in calculating the net present value of the Partnerships' proved reserves at
December 31, 2004 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
-22-
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, 2004 (1)
II-A Partnership:
- ----------------
Estimated proved reserves:
Gas (Mcf) 6,276,815
Oil and liquids (Bbls) 640,885
Net Present Value (discounted at 10% per annum) $22,577,646
II-B Partnership:
- ----------------
Estimated proved reserves:
Gas (Mcf) 4,820,010
Oil and liquids (Bbls) 464,848
Net Present Value (discounted at 10% per annum) $16,786,623
II-C Partnership:
- ----------------
Estimated proved reserves:
Gas (Mcf) 3,453,278
Oil and liquids (Bbls) 165,761
Net Present Value (discounted at 10% per annum) $10,385,490
II-D Partnership:
- ----------------
Estimated proved reserves:
Gas (Mcf) 9,092,389
Oil and liquids (Bbls) 187,315
Net Present Value (discounted at 10% per annum) $23,002,363
II-E Partnership:
- ----------------
Estimated proved reserves:
Gas (Mcf) 4,984,738
Oil and liquids (Bbls) 180,202
Net Present Value (discounted at 10% per annum) $13,207,547
II-F Partnership:
- ----------------
Estimated proved reserves:
Gas (Mcf) 3,712,870
Oil and liquids (Bbls) 341,736
Net Present Value (discounted at 10% per annum) $13,041,206
-23-
II-G Partnership:
- ----------------
Estimated proved reserves:
Gas (Mcf) 7,960,566
Oil and liquids (Bbls) 716,461
Net Present Value (discounted at 10% per annum) $27,697,953
II-H Partnership:
- ----------------
Estimated proved reserves:
Gas (Mcf) 1,928,846
Oil and liquids (Bbls) 166,923
Net Present Value (discounted at 10% per annum) $6,599,223
- ----------
(1) Includes certain gas balancing adjustments which cause the gas volumes and
net present values to differ from the reserve reports 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
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, 2004:
Operated Wells
-------------------------------------------
Partnership Number Percent
----------- ------ -------
II-A 69 6%
II-B 42 18%
II-C 60 17%
II-D 38 14%
II-E 40 2%
II-F 56 2%
II-G 56 2%
II-H 56 2%
The following tables set forth certain well and reserve information as of
December 31, 2004 for the basins in which the
-24-
Partnerships own a significant amount of properties. The tables contain the
following information for each significant basin: (i) the number of gross wells
and net wells, (ii) the number of wells in which only a non-working interest is
owned, (iii) the Partnership's total number of wells, (iv) the number and
percentage of wells operated by the Partnership's affiliates, (v) estimated
proved oil reserves, (vi) estimated proved gas reserves, and (vii) 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 Southern Oklahoma Folded Belt Basin is located in southern Oklahoma.
The Gulf Coast Basin is located in southern Louisiana and southeast Texas, while
the Permian Basin straddles west Texas and southeast New Mexico. The Sacramento
Basin is located in central California, and the Uinta Basin is located in
northeast Utah.
-25-
Significant Properties as of December 31, 2004
----------------------------------------------
Wells
Operated by
Affiliates Oil Gas
Gross Net Other Total ------------- Reserves Reserves Present
Basin Wells Wells Wells(1) Wells Number %(2) (Bbl) (Mcf) Value
- ----------------- ----- ----- -------- ----- ------ ---- -------- --------- ----------
II-A Partnership:
Anadarko 124 8.01 76 200 35 18% 35,616 3,409,255 $8,753,779
Permian 441 2.50 4 445 13 3% 140,607 1,137,557 4,103,530
Gulf Coast 274 12.26 - 274 - - 120,125 350,867 2,437,062
II-B Partnership:
Anadarko 40 4.46 18 58 12 21% 16,675 1,932,799 $4,646,137
Uinta 15 1.53 3 18 - - 205,159 390,381 3,413,825
Permian 15 1.79 - 15 13 87% 35,836 1,163,643 2,936,443
Southern Okla.
Folded Belt 16 4.62 2 18 16 89% 70,766 883,095 2,885,159
II-C Partnership:
Anadarko 87 4.28 40 127 18 14% 16,051 1,752,931 $4,668,748
Southern Okla.
Folded Belt 19 2.08 2 21 19 90% 30,828 571,730 1,673,448
Uinta 15 .66 3 18 - - 87,926 166,934 1,461,904
Permian 17 .81 2 19 13 68% 16,148 582,981 1,379,688
II-D Partnership:
Anadarko 54 7.39 22 76 8 11% 24,403 3,428,372 $8,894,711
Sacramento 42 6.93 - 42 - - - 1,361,722 3,745,801
Permian 7 1.50 3 10 4 40% 9,943 1,759,401 2,574,915
Gulf Coast 17 2.57 4 21 12 57% 28,099 775,976 2,207,271
- --------------------------
(1) Wells in which only a non-working (e.g. royalty) interest is owned.
(2) Percent of the Partnership's total wells in the basin which are operated by
affiliates of the Partnerships.
-26-
Significant Properties as of December 31, 2004
----------------------------------------------
Wells
Operated by
Affiliates Oil Gas
Gross Net Other Total ------------- Reserves Reserves Present
Basin Wells Wells Wells(1) Wells Number %(2) (Bbl) (Mcf) Value
- ----------------- ----- ----- -------- ----- ------ ---- -------- --------- -----------
II-E Partnership:
Permian 724 3.98 1,373 2,097 6 - 131,093 2,081,747 $ 5,497,757
Anadarko 50 1.96 20 70 20 29% 4,882 1,325,007 3,279,536
Southern Okla.
Folded Belt 1 .18 - 1 1 100% 5,605 876,963 2,148,229
II-F Partnership:
Permian 719 6.50 1,373 2,092 2 - 317,955 1,923,957 $ 8,245,737
Anadarko 58 2.20 22 80 26 33% 4,605 1,387,577 3,675,681
II-G Partnership:
Permian 719 13.59 1,373 2,092 2 - 664,170 4,023,920 $17,237,053
Anadarko 58 4.68 22 80 26 33% 9,882 2,956,474 7,823,946
II-H Partnership:
Permian 719 3.14 1,373 2,092 2 - 153,717 931,646 $ 3,991,558
Anadarko 58 1.11 22 80 26 33% 2,391 706,420 1,869,500
- --------------------------
(1) Wells in which only a non-working (e.g. royalty) interest is owned.
(2) Percent of the Partnership's total wells in the basin which are operated by
affiliates of the Partnerships.
-27-
Title to Oil and Gas Properties
Management believes that the Partnerships have satisfactory title to their
oil and gas properties. Record title to all of the Partnerships' properties is
held by either the Partnerships or Geodyne Nominee Corporation, an affiliate of
the General Partner.
Title to the Partnerships' properties 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' interest therein or materially interfere with their use in the
operation of the Partnerships' business.
ITEM 3. LEGAL PROCEEDINGS
A lawsuit styled Xplor Energy Operating Co. v. The Newton Corp, et al.,
Case No. 99-04-01960-CV, 284th Judicial District Court of Montgomery County,
Texas was filed on May 12, 1999. The Newton Corp. ("Newton") acquired an
interest at auction in the State 87-S1 (the "Well") owned by the II-A
Partnership and two related partnerships (collectively the "Prior Owners").
Eight months after Newton's acquisition of the Prior Owners' interest, the
operator of the Well, Xplor Energy Operating Co. ("Xplor"), plugged and
abandoned the Well. Xplor filed this lawsuit on May 12, 1999 alleging that the
Prior Owners were the record owners of the lease when it expired and that the
Prior Owners were responsible for the costs of plugging and abandoning the Well.
Xplor sought to recover the Prior Owners' proportionate share of the costs to
plug and abandon the well along with attorneys' fees and interest. The Prior
Owners denied liability and cross-claimed against Newton for indemnity for any
amounts that may be awarded to Xplor. Newton in turn alleged that the Prior
Owners were liable for the plugging costs. Trial was held on August 6, 2001. At
the conclusion of the trial the Court awarded Xplor $86,000 plus $200,000 in
attorney fees and awarded Newton $300 plus $161,000 in attorney fees to be
divided among the Prior Owners. On January 15, 2002 the Prior Owners filed an
appeal of the matter with the Court of Appeals, Fifth District of Texas, Dallas,
Texas, Case No. 05-02-00070-CV. The II-A Partnership has approximately 15
percent of the liability with respect to the trial court judgment rendered in
the matter.
On April 23, 2002 the Prior Owners entered into a settlement agreement
with Xplor thereby settling for $165,000 the judgment in favor of Xplor. On
January 23, 2003 the Court of Appeals ruled against Newton on all issues except
the one claim resulting in the $300 liability to the Prior Owners, and remanded
the case to the trial court to determine and award to Newton any portion of the
alleged attorneys' fees awarded to them that is attributable solely to the $300
award against the Prior Owners. The Prior Owners requested the Texas Supreme
Court to reverse this decision as to the $300 claim and its related attorneys'
fees. The Texas Supreme Court initially declined to consider this request, but
in October 2004
-28-
entertained oral arguments on the matter. A decision is expected in 2005.
A lawsuit styled Robert W. Scott, Individually and as Managing Member of
R.W. Scott Investments, LLC v. Samson Resources Company, Case No. C-01-385, was
filed in the District Court of Sweetwater County, Wyoming on June 29, 2001. The
lawsuit seeks class action certification and alleges that Samson deducted from
its payments to royalty and overriding royalty owners certain charges which were
improper under the Wyoming royalty payment statutes. A number of these royalty
and overriding royalty payments burdened the interests of the II-C and II-D
Partnerships. In February 2003, Samson made a supplemental payment to the
royalty and overriding royalty interest owners who were potential class members
of amounts which were then thought to have been improperly deducted plus
statutory interest thereon. The applicable portions of these payments, $2,548.31
and $26,768.96, respectively, were recouped from the II-C and II-D Partnerships
in the first quarter of 2003. The lawsuit also alleges that Samson's check stubs
did not fully comply with the Wyoming Royalty Payment Act. Samson intends to
vigorously defend this claim.
Except as described above, 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 2004.
PART II.
ITEM 5. MARKET FOR UNITS AND RELATED LIMITED PARTNER MATTERS
As of February 28, 2005, the number of Units outstanding and the
approximate number of Limited Partners of record in the Partnerships were as
follows:
Number of Numbers of
Partnership Units Limited Partners
----------- --------- ----------------
II-A 484,283 3,210
II-B 361,719 2,010
II-C 154,621 1,060
II-D 314,878 2,200
II-E 228,821 1,670
II-F 171,400 1,330
II-G 372,189 2,030
II-H 91,711 950
-29-
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 which is 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
-----------------------
2003 2004 2005
------------------------ ------------------------ ----
1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st
P/ship Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr. Qtr.
- ------ ---- ---- ---- ---- ---- ---- ---- ---- ----
II-A $12 $11 $18 $16 $15 $14 $19 $17 $15
II-B 12 11 17 16 14 13 19 17 16
II-C 18 17 27 25 23 22 29 26 24
II-D 25 23 32 30 29 27 30 28 26
II-E 15 14 24 22 21 19 25 23 22
II-F 19 17 28 26 23 20 31 28 26
II-G 19 17 28 25 23 20 30 28 25
II-H 18 17 27 25 22 20 30 27 25
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 the sale of oil and gas production and cash
-30-
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 2003 and 2004 and the first quarter of 2005.
Cash Distributions
------------------
2003
------------------------------------------------
1st 2nd 3rd 4th
P/ship Qtr. Qtr. Qtr. Qtr.
- ------ ------ ------ ------ ------
II-A $ .71 $1.10 $1.87 $1.35
II-B .59 1.21 1.58 1.24
II-C .70 1.44 1.81 1.47
II-D .66 1.20 1.87 1.27
II-E 1.02 1.17 2.12 1.70
II-F 1.86 1.57 2.92 2.59
II-G 1.81 1.55 2.86 2.51
II-H 1.71 1.45 2.60 2.37
2004 2005
------------------------------------------------ ------
1st 2nd 3rd 4th 1st
P/ship Qtr. Qtr. Qtr. Qtr. Qtr.
- ------ ------ ------ ------ ------ ------
II-A $1.54 $1.32 $1.63 $1.89 $1.90
II-B 1.38 1.30 1.56 1.90 1.82
II-C 1.77 1.55 1.83 2.26 2.10
II-D 1.74 1.63 1.69 2.29 1.95
II-E 1.61 1.63 1.70 2.05 1.73
II-F 2.45 2.82 2.46 2.84 2.51
II-G 2.39 2.77 2.42 2.77 2.45
II-H 2.28 2.63 2.21 2.66 2.32
-31-
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."
-32-
Selected Financial Data
II-A Partnership
----------------
2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ ------------
Oil and Gas Sales $5,941,698 $5,580,423 $3,781,863 $4,812,392 $5,718,890
Net Income:
Limited Partners 3,284,043 3,062,786 1,457,582 1,583,821 2,697,991
General Partner 382,655 360,046 187,523 249,356 373,521
Total 3,666,698 3,422,832 1,645,105 1,833,177 3,071,512
Limited Partners' Net
Income per Unit 6.78 6.32 3.01 3.27 5.57
Limited Partners' Cash
Distributions per
Unit 6.38 5.03 2.49 7.41 5.70
Total Assets 5,413,607 5,073,056 4,165,182 3,841,529 5,753,841
Partners' Capital
(Deficit):
Limited Partners 4,632,938 4,436,895 3,811,109 3,559,527 5,561,706
General Partner ( 201,586) ( 232,071) ( 241,784) ( 285,152) ( 333,839)
Number of Units
Outstanding 484,283 484,283 484,283 484,283 484,283
-33-
Selected Financial Data
II-B Partnership
----------------
2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ ------------
Oil and Gas Sales $4,385,735 $3,857,240 $2,612,932 $3,677,731 $3,937,680
Net Income:
Limited Partners 2,429,208 2,049,029 857,193 1,807,584 1,839,198
General Partner 281,206 242,175 116,853 218,951 163,872
Total 2,710,414 2,291,204 974,046 2,026,535 2,003,070
Limited Partners' Net
Income per Unit 6.72 5.66 2.37 5.00 5.08
Limited Partners' Cash
Distributions per
Unit 6.14 4.62 2.01 6.41 5.76
Total Assets 3,672,534 3,401,746 2,810,167 2,621,540 3,176,745
Partners' Capital
(Deficit):
Limited Partners 3,410,866 3,203,658 2,826,629 2,701,436 3,212,852
General Partner ( 232,828) ( 254,807) ( 264,786) ( 302,054) ( 269,807)
Number of Units
Outstanding 361,719 361,719 361,719 361,719 361,719
-34-
Selected Financial Data
II-C Partnership
----------------
2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ ------------
Oil and Gas Sales $2,119,207 $1,898,285 $1,284,421 $1,640,398 $1,856,040
Net Income:
Limited Partners 1,208,720 1,017,928 615,932 842,315 886,994
General Partner 139,610 121,224 77,229 102,759 132,143
Total 1,348,330 1,139,152 693,161 945,074 1,019,137
Limited Partners' Net
Income per Unit 7.82 6.58 3.98 5.45 5.74
Limited Partners' Cash
Distributions per
Unit 7.41 5.42 3.26 8.86 5.90
Total Assets 1,722,761 1,645,411 1,391,833 1,238,646 1,771,934
Partners' Capital
(Deficit):
Limited Partners 1,612,101 1,549,381 1,370,453 1,258,521 1,786,206
General Partner ( 96,672) ( 106,418) ( 98,831) ( 130,178) ( 105,478)
Number of Units
Outstanding 154,621 154,621 154,621 154,621 154,621
-35-
Selected Financial Data
II-D Partnership
----------------
2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ ------------
Oil and Gas Sales $4,396,651 $3,898,950 $2,856,941 $3,581,469 $3,757,651
Net Income:
Limited Partners 2,408,986 1,936,342 2,391,740 1,608,081 2,287,970
General Partner 284,260 243,043 283,947 209,788 291,859
Total 2,693,246 2,179,385 2,675,687 1,817,869 2,579,829
Limited Partners' Net
Income per Unit 7.65 6.15 7.60 5.11 7.27
Limited Partners' Cash
Distributions per
Unit 7.35 5.00 6.46 10.91 5.59
Total Assets 3,452,048 3,360,141 2,915,283 2,418,532 4,271,202
Partners' Capital
(Deficit):
Limited Partners 3,150,068 3,055,082 2,695,740 2,339,000 4,167,919
General Partner ( 174,338) ( 190,287) ( 76,044) ( 238,692) ( 180,437)
Number of Units
Outstanding 314,878 314,878 314,878 314,878 314,878
-36-
Selected Financial Data
II-E Partnership
----------------
2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ ------------
Oil and Gas Sales $2,788,915 $2,747,176 $1,954,057 $2,561,210 $2,760,885
Net Income:
Limited Partners 1,462,780 1,512,784 892,565 1,085,511 1,504,695
General Partner 181,054 181,131 115,203 149,947 200,766
Total 1,643,834 1,693,915 1,007,768 1,235,458 1,705,461
Limited Partners' Net
Income per Unit 6.39 6.61 3.90 4.74 6.58
Limited Partners' Cash
Distributions per
Unit 6.99 6.01 2.33 8.82 6.52
Total Assets 2,589,335 2,622,429 2,385,354 2,084,248 2,908,582
Partners' Capital
(Deficit):
Limited Partners 2,384,331 2,519,551 2,380,767 2,021,202 2,953,691
General Partner ( 132,096) ( 129,173) ( 131,864) ( 162,380) ( 133,047)
Number of Units
Outstanding 228,821 228,821 228,821 228,821 228,821
-37-
Selected Financial Data
II-F Partnership
----------------
2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ ------------
Oil and Gas Sales $2,876,134 $2,639,281 $1,900,007 $2,487,886 $2,313,259
Net Income:
Limited Partners 1,668,244 1,593,959 987,108 1,345,727 1,405,133
General Partner 203,874 189,788 129,511 177,055 175,647
Total 1,872,118 1,783,747 1,116,619 1,522,782 1,580,780
Limited Partners' Net
Income per Unit 9.73 9.30 5.76 7.85 8.20
Limited Partners' Cash
Distributions per
Unit 10.57 8.94 4.96 11.09 7.49
Total Assets 2,336,860 2,310,868 2,153,885 1,970,061 2,513,797
Partners' Capital
(Deficit):
Limited Partners 2,073,730 2,217,486 2,155,527 2,017,419 2,573,692
General Partner ( 98,202) ( 91,417) ( 95,526) ( 118,848) ( 101,577)
Number of Units
Outstanding 171,400 171,400 171,400 171,400 171,400
-38-
Selected Financial Data
II-G Partnership
----------------
2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ ------------
Oil and Gas Sales $6,116,875 $5,605,691 $4,023,806 $5,285,009 $4,915,575
Net Income:
Limited Partners 3,546,447 3,393,388 2,092,430 2,861,002 2,967,172
General Partner 434,649 404,263 274,972 376,956 371,389
Total 3,981,096 3,797,651 2,367,402 3,237,958 3,338,561
Limited Partners' Net
Income per Unit 9.53 9.12 5.62 7.69 7.97
Limited Partners' Cash
Distributions per
Unit 10.35 8.73 4.95 11.06 7.47
Total Assets 5,004,538 4,950,432 4,606,106 4,259,746 5,385,526
Partners' Capital
(Deficit):
Limited Partners 4,341,271 4,646,824 4,501,436 4,251,006 5,504,004
General Partner ( 101,669) ( 87,509) ( 97,205) ( 146,206) ( 212,913)
Number of Units
Outstanding 372,189 372,189 372,189 372,189 372,189
-39-
Selected Financial Data
II-H Partnership
----------------
2004 2003 2002 2001 2000
------------ ------------ ------------ ------------ ------------
Oil and Gas Sales $1,460,050 $1,335,792 $ 954,336 $1,257,427 $1,162,286
Net Income:
Limited Partners 822,594 786,078 474,052 660,235 722,427
General Partner 101,267 93,794 62,658 87,334 56,035
Total 923,861 879,872 536,710 747,569 778,462
Limited Partners' Net
Income per Unit 8.97 8.57 5.17 7.20 7.88
Limited Partners' Cash
Distributions per
Unit 9.78 8.13 4.41 10.35 7.25
Total Assets 1,186,870 1,176,280 1,086,200 992,829 1,278,287
Partners' Capital
(Deficit):
Limited Partners 1,057,473 1,131,879 1,090,801 1,021,749 1,311,514
General Partner ( 54,377) ( 51,046) ( 53,547) ( 65,089) ( 54,632)
Number of Units
Outstanding 91,711 91,711 91,711 91,711 91,711
-40-
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:
-41-
* 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.
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 (or high
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 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.
-42-
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 Sales
Prices, Production Volumes, and Average Production Costs." Following is a
discussion of each Partnership's results of operations for the year ended
December 31, 2004 as compared to the year ended December 31, 2003 and for the
year ended December 31, 2003 as compared to the year ended December 31, 2002.
II-A Partnership
----------------
Year Ended December 31, 2004 Compared
to Year Ended December 31, 2003
--------------------------------------
Total oil and gas sales increased $361,275 (6.5%) in 2004 as compared to
2003. Of this increase, approximately $650,000 and $300,000, respectively, were
related to increases in the average prices of oil and gas sold. These increases
were partially offset by decreases of approximately $245,000 and $344,000,
respectively, related to decreases in volumes of oil and gas sold. Volumes of
oil and gas sold decreased 8,748 barrels and 70,505 Mcf, respectively, in 2004
as compared to 2003. The decrease in volumes of oil sold was primarily due to
(i) normal declines in production and (ii) a positive prior period volume
adjustment made by the operator on one significant well during 2003. The
decrease in volumes of gas sold was primarily due to (i) normal declines in
production and (ii) downward revisions in the estimates of remaining gas
reserves on one significant well resulting in the II-A Partnership becoming over
produced in excess of estimated ultimate reserves thereby increasing gas
imbalance payable. Average oil and gas prices increased to $37.89 per barrel and
$5.35 per Mcf, respectively, in 2004 from $27.97 per barrel and $4.88 per Mcf,
respectively, in 2003.
Oil and gas production expenses (including lease operating expenses and
production taxes) increased $132,241 (9.4%) in 2004 as compared to 2003. This
increase was primarily due to (i) workover expenses incurred on several wells
during 2004, (ii) an increase in production taxes associated with the increase
in oil and gas sales, and (iii) an increase in saltwater disposal expenses on
one significant well during 2004 as compared to 2003. These increases were
partially offset by a decrease in lease operating expenses associated with the
decreases in volumes of oil and gas sold. As of the date of this Annual Report,
management anticipates that the saltwater disposal expenses on the significant
well will remain at 2004 levels. As a percentage
-43-
of oil and gas sales, these expenses increased to 25.9% in 2004 from 25.2% in
2003.
Depreciation, depletion, and amortization of oil and gas properties
increased $5,233 (2.5%) in 2004 as compared to 2003. As a percentage of oil and
gas sales, this expense decreased to 3.6% in 2004 from 3.8% in 2003.
General and administrative expenses remained relatively constant in 2004
and 2003. As a percentage of oil and gas sales, these expenses decreased to 9.4%
in 2004 from 10.1% in 2003.
The Limited Partners have received cash distributions through December 31,
2004 totaling $61,080,357 or 126.13% of Limited Partners' capital contributions.
Year Ended December 31, 2003 Compared
to Year Ended December 31, 2002
--------------------------------------
Total oil and gas sales increased $1,798,560 (47.6%) in 2003 as compared
to 2002. Of this increase, approximately (i) $338,000 and $1,510,000,
respectively, were related to increases in the average prices of oil and gas
sold and (ii) $241,000 was related to an increase in the volumes of oil sold.
These increases were partially offset by a decrease of approximately $290,000
related to a decrease in volumes of gas sold. Volumes of oil sold increased
10,297 barrels, while volumes of gas sold decreased 104,306 Mcf in 2003 as
compared to 2002. 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, (ii) an increase in production on
another significant well due to the successful workover of that well during mid
2003, and (iii) a positive prior period volume adjustment made by the purchaser
on another significant well during 2003. 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 operator on one significant well during
2003. Average oil and gas prices increased to $27.97 per barrel and $4.88 per
Mcf, respectively, in 2003 from $23.42 per barrel and $2.78 per Mcf,
respectively, in 2002.
As discussed in "Liquidity and Capital Resources" below, the II-A
Partnership sold certain oil and gas properties during 2003 and recognized a
$9,595 gain on such sales. Sales of oil and gas properties during 2002 resulted
in the II-A Partnership recognizing similar gains of $193,272.
Oil and gas production expenses (including lease operating expenses and
production taxes) decreased $108,849 (7.2%) in 2003 as compared to 2002. This
decrease was primarily due to (i) workover expenses incurred on several wells
during 2002, (ii) a
-44-
decrease in lease operating expenses associated with the decrease in volumes of
gas sold, and (iii) a negative prior period lease operating expense adjustment
made by the operator on one significant well during 2003. These decreases were
partially offset by (i) an increase in production taxes associated with the
increase in oil and gas sales, (ii) a partial reversal during 2002 of
approximately $22,000 (due to a partial post-judgment settlement) of a charge
previously accrued for a judgment, and (iii) workover expenses incurred on one
significant well during 2003. As a percentage of oil and gas sales, these
expenses decreased to 25.2% in 2003 from 40.1% in 2002. This percentage decrease
was primarily due to the increases in the average prices of oil and gas sold.
Depreciation, depletion, and amortization of oil and gas properties
decreased $50,295 (19.2%) in 2003 as compared to 2002. This decrease was
primarily due to (i) one significant well being fully depleted in 2002 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,
2003. As a percentage of oil and gas sales, this expense decreased to 3.8% in
2003 from 6.9% in 2002. 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 2003
and 2002. As a percentage of oil and gas sales, these expenses decreased to
10.1% in 2003 from 14.7% in 2002. This percentage decrease was primarily due to
the increase in oil and gas sales.
II-B Partnership
----------------
Year Ended December 31, 2004 Compared
to Year Ended December 31, 2003
--------------------------------------
Total oil and gas sales increased $528,495 (13.7%) in 2004 as compared to
2003. Of this increase, approximately $409,000 and $219,000, respectively, were
related to increases in the average prices of oil and gas sold. These increases
were partially offset by a decrease of approximately $63,000 related to a
decrease in volumes of gas sold. Volumes of oil and gas sold decreased 1,252
barrels and 13,512 Mcf, respectively, in 2004 as compared to 2003. Average oil
and gas prices increased to $38.97 per barrel and $5.10 per Mcf, respectively,
in 2004 from $29.33 per barrel and $4.69 per Mcf, respectively, in 2003.
Oil and gas production expenses (including lease operating expenses and
production taxes) increased $141,928 (14.2%) in 2004 as compared to 2003. This
increase was primarily due to (i) an
-45-
increase in salt water disposal expenses on one significant well during 2004 as
compared to 2003, (ii) an increase in production taxes associated with the
increase in oil and gas sales, and (iii) workover expenses incurred on one
significant well during 2004. These increases were partially offset by a
decrease in lease operating expenses associated with the decreases in volumes of
oil and gas sold. As of the date of this Annual Report, management anticipates
that the saltwater disposal expenses on the significant well will remain at 2004
levels. As a percentage of oil and gas sales, these expenses increased to 26.0%
in 2004 from 25.9% in 2003.
Depreciation, depletion, and amortization of oil and gas properties
remained relatively constant in 2004 and 2003. As a percentage of oil and gas
sales, this expense decreased to 3.5% in 2004 from 4.0% in 2003. 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 2004
and 2003. As a percentage of oil and gas sales, these expenses decreased to 9.6%
in 2004 from 11.0% in 2003. This percentage decrease was primarily due to the
increase in oil and gas sales.
The Limited Partners have received cash distributions through December 31,
2004 totaling $43,950,916 or 121.51% of Limited Partners' capital contributions.
Year Ended December 31, 2003 Compared
to Year Ended December 31, 2002
--------------------------------------
Total oil and gas sales increased $1,244,308 (47.6%) in 2003 as compared
to 2002. Of this increase, approximately $224,000 and $1,080,000, respectively,
were related to increases in the average prices of oil and gas sold. These
increases were partially offset by a decrease of approximately $135,000 related
to a decrease in volumes of gas sold. Volumes of oil sold increased 3,109
barrels, while volumes of gas sold decreased 49,577 Mcf in 2003 as compared to
2002. Average oil and gas prices increased to $29.33 per barrel and $4.69 per
Mcf, respectively, in 2003 from $24.21 per barrel and $2.72 per Mcf,
respectively, in 2002.
Oil and gas production expenses (including lease operating expenses and
production taxes) decreased $23,652 (2.3%) in 2003 as compared to 2002. This
decrease was primarily due to workover expenses incurred on several wells during
2002, which decrease was partially offset by an increase in production taxes
associated with the increase in oil and gas sales. As a percentage of oil and
gas sales, these expenses decreased to 25.9% in 2003 from 39.1% in 2002. This
percentage decrease was
-46-
primarily due to the increases in the average prices of oil and gas sold.
Depreciation, depletion, and amortization of oil and gas properties
decreased $64,625 (29.5%) in 2003 as compared to 2002. This decrease was
primarily due to (i) upward revisions in the estimates of remaining oil and gas
reserves at December 31, 2003 and (ii) one significant well being fully depleted
in 2002 due to the lack of remaining economically recoverable reserves. As a
percentage of oil and gas sales, this expense decreased to 4.0% in 2003 from
8.4% in 2002. This percentage decrease was primarily due to (i) the increases in
the average prices of oil and gas sold and (ii) the dollar decrease in
depreciation, depletion, and amortization.
General and administrative expenses remained relatively constant in 2003
and 2002. As a percentage of oil and gas sales, these expenses decreased to
11.0% in 2003 from 16.1% in 2002. This percentage decrease was primarily due to
the increase in oil and gas sales.
II-C Partnership
----------------
Year Ended December 31, 2004 Compared
to Year Ended December 31, 2003
--------------------------------------
Total oil and gas sales increased $220,922 (11.6%) in 2004 as compared to
2003. Of this increase, approximately $145,000 and $154,000, respectively, were
related to increases in the average prices of oil and gas sold. These increases
were partially offset by a decrease of approximately $65,000 related to a
decrease in volumes of gas sold. Volumes of oil and gas sold decreased 441
barrels and 14,281 Mcf, respectively, in 2004 as compared to 2003. Average oil
and gas prices increased to $38.92 per barrel and $5.05 per Mcf, respectively,
in 2004 from $29.48 per barrel and $4.54 per Mcf, respectively, in 2003.
Oil and gas production expenses (including lease operating expenses and
production taxes) increased $39,377 (8.1%) in 2004 as compared to 2003. As a
percentage of oil and gas sales, these expenses decreased to 24.7% in 2004 from
25.5% in 2003.
Depreciation, depletion, and amortization of oil and gas properties
decreased $12,901 (15.4%) in 2004 as compared to 2003. This decrease was
primarily due to (i) the decreases in volumes of oil and gas sold and (ii)
upward revisions in the estimates of remaining oil and gas reserves during 2004.
As a percentage of oil and gas sales, this expense decreased to 3.3% in 2004
from 4.4% in 2003. This percentage decrease was primarily due to (i) the dollar
decrease in depreciation, depletion, and amortization
-47-
of oil and gas properties and (ii) the increases in the average prices of oil
and gas sold.
General and administrative expenses remained relatively constant in 2004
and 2003. As a percentage of oil and gas sales, these expenses decreased to 9.1%
in 2004 from 10.2% in 2003. This percentage decrease was primarily due to the
increase in oil and gas sales.
The Limited Partners have received cash distributions through December 31,
2004 totaling $20,662,686 or 133.63% of Limited Partners' capital contributions.
Year Ended December 31, 2003 Compared
to Year Ended December 31, 2002
--------------------------------------
Total oil and gas sales increased $613,864 (47.8%) in 2003 as compared to
2002. Of this increase, approximately $77,000 and $577,000, respectively, were
related to increases in the average prices of oil and gas sold. These increases
were partially offset by a decrease of approximately $77,000 related to a
decrease in volumes of gas sold. Volumes of oil sold increased 1,455 barrels,
while volumes of gas sold decreased 28,291 Mcf in 2003 as compared to 2002. 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 mid
2003. The decrease in volumes of gas sold was primarily due to (i) normal
declines in production and (ii) a positive prior period volume adjustment made
by the purchaser on one significant well during 2002. Average oil and gas prices
increased to $29.48 per barrel and $4.54 per Mcf, respectively, in 2003 from
$24.59 per barrel and $2.71 per Mcf, respectively, in 2002.
As discussed in "Liquidity and Capital Resources" below, the II-C
Partnership sold certain oil and gas properties during 2003 and recognized a
$768 gain on such sales. Sales of oil and gas properties during 2002 resulted in
the II-C Partnership recognizing similar gains of $120,063.
Oil and gas production expenses (including lease operating expenses and
production taxes) increased $52,565 (12.2%) in 2003 as compared to 2002. This
increase was primarily due to an increase in production taxes associated with
the increase in oil and gas sales. As a percentage of oil and gas sales, these
expenses decreased to 25.5% in 2003 from 33.6% in 2002. This percentage decrease
was primarily due to the increases in the average prices of oil and gas sold.
Depreciation, depletion, and amortization of oil and gas properties
decreased $5,862(6.5%) in 2003 as compared to 2002. As a percentage of oil and
gas sales, this expense decreased to 4.4% in 2003 from 7.0% in 2002. This
percentage decrease was
-48-
primarily due to the increases in the average prices of oil and gas sold.
General and administrative expenses increased $2,655 (1.4%) in 2003 as
compared to 2002. As a percentage of oil and gas sales, these expenses decreased
to 10.2% in 2003 from 14.9% in 2002. This percentage decrease was primarily due
to the increase in oil and gas sales.
II-D Partnership
----------------
Year Ended December 31, 2004 Compared
to Year Ended December 31, 2003
--------------------------------------
Total oil and gas sales increased $497,701 (12.8%) in 2004 as compared to
2003. Of this increase, approximately (i) $246,000 and $425,000, respectively,
were related to increases in the average prices of oil and gas sold and (ii)
$52,000 was related to an increase in volumes of oil sold. These increases were
partially offset by a decrease of approximately $225,000 related to a decrease
in volumes of gas sold. Volumes of oil sold increased 1,830 barrels, while
volumes of gas sold decreased 50,655 Mcf in 2004 as compared to 2003. The
increase in volumes of oil sold was primarily due to an increase in production
on one significant well following successful repairs of its mechanical problems
during late 2003, which increase was partially offset by normal declines in
production. Average oil and gas prices increased to $38.36 per barrel and $5.08
per Mcf, respectively, in 2004 from $28.65 per barrel and $4.45 per Mcf,
respectively, in 2003.
Oil and gas production expenses (including lease operating expenses and
production taxes) increased $91,175 (8.5%) in 2004 as compared to 2003. This
increase was primarily due to (i) workover expenses incurred on several wells
during 2004 and (ii) an increase in production taxes associated with the
increase in oil and gas sales. These increases were partially offset by (i)
workover expenses incurred on several other wells during 2003 and (ii) a
positive prior period lease operating expense adjustment made by the operator on
one significant well during 2003. As a percentage of oil and gas sales, these
expenses decreased to 26.5% in 2004 from 27.6% in 2003.
Depreciation, depletion, and amortization of oil and gas properties
decreased $107,738 (38.3%) in 2004 as compared to 2003. This decrease was
primarily due to (i) the abandonment of one significant well during 2003 due to
severe mechanical problems, (ii) the decrease in volumes of gas sold, and (iii)
upward revisions in the estimates of remaining oil and gas reserves during 2004.
These decreases were partially offset by one
-49-
significant well being fully depleted during 2004 due to the lack of remaining
reserves. As a percentage of oil and gas sales, this expense decreased to 3.9%
in 2004 from 7.2% in 2003. This percentage decrease was primarily due to the
dollar decrease in depreciation, depletion, and amortization of oil and gas
properties.
General and administrative expenses remained relatively constant in 2004
and 2003. As a percentage of oil and gas sales, these expenses decreased to 8.4%
in 2004 from 9.6% in 2003. This percentage decrease was primarily due to the
increase in oil and gas sales.
The Limited Partners have received cash distributions through December 31,
2004 totaling $43,227,903 or 137.28% of Limited Partners' capital contributions.
Year Ended December 31, 2003 Compared
to Year Ended December 31, 2002
--------------------------------------
Total oil and gas sales increased $1,042,009 (36.5%) in 2003 as compared
to 2002. Of this increase, approximately $127,000 and $1,288,000, respectively,
were related to increases in the average prices of oil and gas sold. These
increases were partially offset by decreases of approximately $183,000 and
$190,000, respectively, related to decreases in volumes of oil and ga