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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission File No. 333-85994

 

 

MEWBOURNE ENERGY PARTNERS 02-A, L.P.

 

 

 

Delaware   71-0871949
(State or jurisdiction of incorporation or organization)   (I.R.S. Employer Identification Number)

 

3901 South Broadway, Tyler, Texas   75701
(Address of principal executive offices)   (Zip code)

Registrant’s Telephone Number, including area code: (903) 561-2900

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of 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 such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   x

Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

 

 

 


Table of Contents

MEWBOURNE ENERGY PARTNERS 02-A, L.P.

INDEX

 

     Page No.  

Part 1 - Financial Information

  

Item 1. Financial Statements

  

Condensed Balance Sheets - September 30, 2011 (Unaudited) and December 31, 2010

     3   

Condensed Statements of Operations (Unaudited) - For the three months ended September 30, 2011 and 2010 and the nine months ended September 30, 2011 and 2010

     4   

Condensed Statements of Cash Flows (Unaudited) - For the nine months ended September 30, 2011 and 2010

     5   

Condensed Statement of Changes In Partners’ Capital (Unaudited) - For the nine months ended September 30, 2011

     6   

Notes to Condensed Financial Statements

     7   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     9   

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     12   

Item 4. Disclosure Controls and Procedures

     12   

Part II - Other Information

  

Item 1. Legal Proceedings

     13   

Item 6. Exhibits and Reports on Form 8-K

     13   

 

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Table of Contents

MEWBOURNE ENERGY PARTNERS 02-A, L.P.

Part I - Financial Information

Item 1. Financial Statements

CONDENSED BALANCE SHEETS

September 30, 2011 and December 31, 2010

 

     September 30, 2011     December 31, 2010  
     (Unaudited)        

ASSETS

    

Cash

   $ 7,412      $ 4,825   

Accounts receivable, affiliate

     173,622        195,823   

Prepaid state taxes

     5,924        2,481   
  

 

 

   

 

 

 

Total current assets

     186,958        203,129   
  

 

 

   

 

 

 

Oil and gas properties at cost, full-cost method

     17,260,608        17,255,252   

Less accumulated depreciation, depletion and amortization

     (14,692,398     (14,590,235
  

 

 

   

 

 

 

Net oil and gas properties at cost, full-cost method

     2,568,210        2,665,017   
  

 

 

   

 

 

 

Total assets

   $ 2,755,168      $ 2,868,146   
  

 

 

   

 

 

 

LIABILITIES AND PARTNERS’ CAPITAL

    

Accounts payable, affiliate

   $ 48,358      $ 52,885   
  

 

 

   

 

 

 

Total current liabilities

     48,358        52,885   
  

 

 

   

 

 

 

Asset retirement obligation

     508,321        488,491   

Partners’ capital

     2,198,489        2,326,770   
  

 

 

   

 

 

 

Total liabilities and partners’ capital

   $ 2,755,168      $ 2,868,146   
  

 

 

   

 

 

 

The accompanying notes are an integral part of the financial statements.

 

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MEWBOURNE ENERGY PARTNERS 02-A, L.P.

CONDENSED STATEMENTS OF OPERATIONS

For the three months ended September 30, 2011 and 2010 and

the nine months ended September 30, 2011 and 2010

(Unaudited)

 

     Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
     2011      2010      2011      2010  

Revenues and other income:

           

Oil sales

   $ 37,126       $ 32,616       $ 142,870       $ 106,439   

Gas sales

     240,438         259,480         756,603         883,897   

Interest income

     —           —           616         74   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues and other income

     277,564         292,096         900,089         990,410   
  

 

 

    

 

 

    

 

 

    

 

 

 

Expenses:

           

Lease operating expense

     83,724         92,951         266,196         296,646   

Production taxes

     20,462         22,564         62,906         74,913   

Administrative and general expense

     17,118         18,041         52,763         61,413   

Depreciation, depletion, and amortization

     33,009         37,804         102,163         115,348   

Asset retirement obligation accretion

     5,055         4,525         15,165         14,505   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total expenses

     159,368         175,885         499,193         562,825   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 118,196       $ 116,211       $ 400,896       $ 427,585   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic and diluted net income per partner interest (16,072 interests outstanding)

   $ 7.35       $ 7.23       $ 24.94       $ 26.60   
  

 

 

    

 

 

    

 

 

    

 

 

 

The accompanying notes are an integral part of the financial statements.

 

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MEWBOURNE ENERGY PARTNERS 02-A, L.P.

CONDENSED STATEMENTS OF CASH FLOWS

For the nine months ended September 30, 2011 and 2010

(Unaudited)

 

     Nine Months Ended
September 30,
 
     2011     2010  

Cash flows from operating activities:

    

Net income

   $ 400,896      $ 427,585   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation, depletion, and amortization

     102,163        115,348   

Asset retirement obligation accretion

     15,165        14,505   

Changes in operating assets and liabilities:

    

Accounts receivable, affiliate

     22,201        51,249   

Prepaid state taxes

     (3,443     (2,547

Accounts payable, affiliate

     (4,527     10,122   
  

 

 

   

 

 

 

Net cash provided by operating activities

     532,455        616,262   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Purchase and development of oil and gas properties

     (691     (7,586
  

 

 

   

 

 

 

Net cash used in investing activities

     (691     (7,586
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Cash distributions to partners

     (529,177     (611,194
  

 

 

   

 

 

 

Net cash used in financing activities

     (529,177     (611,194
  

 

 

   

 

 

 

Net increase (decrease) in cash

     2,587        (2,518

Cash, beginning of period

     4,825        11,324   
  

 

 

   

 

 

 

Cash, end of period

   $ 7,412      $ 8,806   
  

 

 

   

 

 

 

Supplemental Cash Flow Information:

    

Non-cash changes to oil & gas properties related to asset retirement obligation liabilities

   $ 4,665      $ (13,157
  

 

 

   

 

 

 

The accompanying notes are an integral part of the financial statements.

 

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Table of Contents

MEWBOURNE ENERGY PARTNERS 02-A, L.P.

CONDENSED STATEMENT OF CHANGES IN PARTNERS’ CAPITAL

For the nine months ended September 30, 2011

(Unaudited)

 

     Partners’ Capital  

Balance at December 31, 2010

   $ 2,326,770   

Cash distributions

     (529,177

Net income

     400,896   
  

 

 

 

Balance at September 30, 2011

   $ 2,198,489   
  

 

 

 

The accompanying notes are an integral part of the financial statements.

 

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MEWBOURNE ENERGY PARTNERS 02-A, L.P.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1. Description of Business

Mewbourne Energy Partners 02-A, L.P. (the “Registrant” or the “Partnership”), a Delaware limited partnership, is engaged primarily in oil and gas development and production in Texas, Oklahoma, and New Mexico, and was organized on February 27, 2002. The offering of limited and general partnership interests began June 26, 2002 as a part of an offering registered under the name Mewbourne Energy Partners 02-03 Drilling Program, (the “Program”), and concluded October 10, 2002, with total investor contributions of $16,072,000 originally being sold to 647 subscribers of which $14,667,000 were sold to 597 subscribers as general partner interests and $1,405,000 were sold to 50 subscribers as limited partner interests. During 2004, all general partner equity interests were converted to limited partner equity interests. In accordance with the laws of the State of Delaware, Mewbourne Development Corporation (“MD”), a Delaware Corporation, has been appointed as the Partnership’s managing general partner. MD has no significant equity interest in the Partnership.

2. Summary of Significant Accounting Policies

Reference is hereby made to the Registrant’s Annual Report on Form 10-K for 2010, which contains a summary of significant accounting policies followed by the Partnership in the preparation of its financial statements. These policies are also followed in preparing the quarterly report included herein.

In the opinion of management, the accompanying unaudited financial statements contain all adjustments of a normal recurring nature necessary to present fairly our financial position, results of operations, cash flows and partners’ capital for the periods presented. The results of operations for the interim periods are not necessarily indicative of the final results expected for the full year.

3. Accounting for Oil and Gas Producing Activities

The Partnership follows the full-cost method of accounting for its oil and gas activities. Under the full-cost method, all productive and non-productive costs incurred in the acquisition, exploration and development of oil and gas properties are capitalized. Depreciation, depletion and amortization of oil and gas properties subject to amortization is computed on the units-of-production method based on the proved reserves underlying the oil and gas properties. At September 30, 2011 and 2010, all capitalized costs were subject to amortization. Proceeds from the sale or other disposition of properties are credited to the full cost pool. Gains and losses on the sale or other disposition of properties are not recognized unless such adjustments would significantly alter the relationship between capitalized costs and the proved oil and gas reserves. Capitalized costs are subject to a quarterly ceiling test that limits such costs to the aggregate of the present value of future net cash flows of proved reserves and the lower of cost or fair value of unproved properties. There were no cost ceiling write-downs for the three or nine months ended September 30, 2011 or 2010.

 

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4. Asset Retirement Obligations

The Partnership has recognized an estimated liability for future plugging and abandonment costs. The estimated liability is based on historical experience and estimated well life. The liability is discounted using the credit-adjusted risk-free rate. Revisions to the liability could occur due to changes in well ownership interests or well plugging and abandonment costs, or if federal or state regulators enact new well restoration requirements. The Partnership recognizes accretion expense in connection with the discounted liability over the remaining life of the well.

A reconciliation of the Partnership’s liability for well plugging and abandonment costs for the nine months ended September 30, 2011 and the year ended December 31, 2010 is as follows:

 

     September 30, 2011      December 31, 2010  

Balance, beginning of period

   $ 488,491       $ 482,332   

Liabilities incurred

     4,665         —     

Liabilities reduced due to revisions

     —           (13,157

Accretion expense

     15,165         19,316   
  

 

 

    

 

 

 

Balance, end of period

   $ 508,321       $ 488,491   
  

 

 

    

 

 

 

5. Related Party Transactions

In accordance with the laws of the State of Delaware, Mewbourne Development Corporation (“MD”), a Delaware Corporation, has been appointed as the Partnership’s managing general partner. MD has no significant equity interest in the Partnership. Mewbourne Oil Company (“MOC”) is operator of oil and gas properties owned by the Partnership. Mewbourne Holdings, Inc. is the parent of both MD and MOC. Substantially all transactions are with MD and MOC.

In the ordinary course of business, MOC will incur certain costs that will be passed on to owners of the well for which the costs were incurred. The Partnership will receive their portion of these costs based upon their ownership in each well incurring the costs. These costs are referred to as operator charges and are standard and customary in the oil and gas industry. Operator charges include recovery of gas marketing costs, fixed rate overhead, supervision, pumping, and equipment furnished by the operator, some of which will be included in the full cost pool pursuant to Rule 4-10(c)(2) of Regulation S-X. Services and operator charges are billed in accordance with the program and partnership agreements.

In general, during any particular calendar year the total amount of administrative expenses allocated to the Partnership by MOC shall not exceed the greater of (a) 3.5% of the Partnership’s gross revenue from the sale of oil and natural gas production during each year (calculated without any deduction for operating costs or other costs and expenses) or (b) the sum of $50,000 plus .25% of the capital contributions of limited and general partners.

 

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The Partnership participates in oil and gas activities through the Program. The Partnership and MD are the parties to the Program, and the costs and revenues are allocated between them as follows:

 

000000 000000
     Partnership     MD  

Revenues:

    

Proceeds from disposition of depreciable and depletable properties

     60     40

All other revenues

     60     40

Costs and expenses:

    

Organization and offering costs (1)

     0     100

Lease acquisition costs (1)

     0     100

Tangible and intangible drilling costs (1)

     100     0

Operating costs, reporting and legal expenses, general and administrative expenses and all other costs

     60     40

 

(1) Pursuant to the Program, MD must contribute 100% of organization and offering costs and lease acquisition costs which should approximate 30% of total capital costs. To the extent that organization and offering costs and lease acquisition costs are less than 30% of total capital costs, MD is responsible for tangible drilling costs until its share of the Program’s total capital costs reaches approximately 30%. The Partnership’s financial statements reflect its respective proportionate interest in the Program.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and Capital Resources

Mewbourne Energy Partners 02-A, L.P. was formed February 27, 2002. The offering of limited and general partnership interests began June 26, 2002 and concluded October 10, 2002, with total investor contributions of $16,072,000. During 2004, all general partner equity interests were converted to limited partner equity interests.

Future capital requirements and operations will be conducted with available funds generated from oil and gas activities. No bank borrowing is anticipated. The Partnership had net working capital of $138,600 at September 30, 2011.

During the nine months ended September 30, 2011, the Partnership made cash distributions to the investor partners in the amount of $529,177 as compared to $611,194 for the nine months ended September 30, 2010. The Partnership expects that cash distributions will continue during 2011 as additional oil and gas revenues are sufficient to produce cash flows from operations.

The sale of crude oil and natural gas produced by the Partnership will be affected by a number of factors that are beyond the Partnership’s control. These factors include the price of crude oil and natural gas, the fluctuating supply of and demand for these products, competitive fuels, refining, transportation, extensive federal and state regulations governing the production and sale of crude oil and natural gas, and other competitive conditions. It is impossible to predict with any certainty the future effect of these factors on the Partnership.

 

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Results of Operations

For the three months ended September 30, 2011 as compared to the three months ended September 30, 2010:

 

     Three Months Ended September 30,  
     2011      2010  

Oil sales

   $ 37,126       $ 32,616   

Barrels produced

     427         457   

Average price/bbl

   $ 86.95       $ 71.37   

Gas sales

   $ 240,438       $ 259,480   

Mcf produced

     53,786         66,637   

Average price/mcf

   $ 4.47       $ 3.89   

Oil and gas revenues. As shown in the above table, total oil and gas sales decreased by $14,532, a 5.0 % decline, for the three months ended September 30, 2011 as compared to the three months ended September 30, 2010.

Of this decline, $2,608 and $57,447 were due to decreases in the volumes of oil and gas sold by 30 barrels (bbls) and 12,851 thousand cubic feet (mcf), respectively. The decreases in volumes sold were primarily due to normal declines in production.

Those decreases were partially offset by increases of $7,118 and $38,405 due to increases in the average prices of oil and gas sold, respectively. Average prices rose to $86.95 from $71.37 per bbl and to $4.47 from $3.89 per mcf for the three months ended September 30, 2011 as compared to the three months ended September 30, 2010.

Lease operations. Lease operating expense during the three month period ended September 30, 2011 decreased to $83,724 from $92,951 for the three month period ended September 30, 2010 due to fewer well repairs.

Depreciation, depletion and amortization. Depreciation, depletion and amortization for the three month period ended September 30, 2011 decreased to $33,009 from $37,804 for the three month period ended September 30, 2010 due to the decreased production volumes for the three month period ended September 30, 2011.

 

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Results of Operations

For the nine months ended September 30, 2011 as compared to the nine months ended September 30, 2010

 

     Nine Months Ended September 30,  
     2011      2010  

Oil sales

   $ 142,870       $ 106,439   

Barrels produced

     1,546         1,437   

Average price/bbl

   $ 92.41       $ 74.07   

Gas sales

   $ 756,603       $ 883,897   

Mcf produced

     168,749         201,306   

Average price/mcf

   $ 4.48       $ 4.39   

Oil and gas revenues. As shown in the above table, total oil and gas sales decreased by $90,863, a 9.2% decline, for the nine months ended September 30, 2011 as compared to the nine months ended September 30, 2010.

Of this decline, $145,973 was due to a decrease in the volume of gas sold by 32,557 thousand cubic feet due to normal declines in production.

This decrease was partially offset by increases of $26,358 and $18,679 due to increases in the average prices of oil and gas sold, respectively. Average prices rose to $92.41 from $74.07 per barrel and to $4.48 from $4.39 per mcf for the nine months ended September 30, 2011 as compared to the nine months ended September 30, 2010. Also partially offsetting the decline was an increase in revenue of $10,073 due to an increase in the volume of oil sold by 109 bbls.

Lease operations. Lease operating expense during the nine month period ended September 30, 2011 decreased to $266,196 from $296,646 for the nine months ended September 30, 2010 due to fewer well repairs and workovers.

Production taxes. Production taxes during the nine month period ended September 30, 2011 decreased to $62,906 from $74,913 for the nine month period ended September 30, 2010 due to lower overall oil and gas revenue.

Administrative and general expense. Administrative and general expense decreased to $52,763 for the nine month period ended September 30, 2011 from $61,413 for the nine month period ended September 30, 2010 due to decreased administrative expenses allocable to the Partnership and lower general expenses for reporting costs.

Depreciation, depletion and amortization. Depreciation, depletion and amortization for the nine month period ended September 30, 2011 decreased to $102,163 from $115,348 for the nine month period ended September 30, 2010 due to the decreased production volumes for the nine month period ended September 30, 2011.

 

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

1. Interest Rate Risk

The Partnership Agreement allows borrowings from banks or other financial sources of up to 20% of the total capital contributions to the Partnership without investor approval. Should the Partnership elect to borrow monies for additional development activity on Partnership properties, it will be subject to the interest rate risk inherent in borrowing activities. Changes in interest rates could significantly affect the Partnership’s results of operations and the amount of net cash flow available for partner distributions. Also, to the extent that changes in interest rates affect general economic conditions, the Partnership will be affected by such changes.

2. Commodity Price Risk

The Partnership does not expect to engage in commodity futures trading or hedging activities or enter into derivative financial instrument transactions for trading or other speculative purposes. The Partnership currently expects to sell a significant amount of its production from successful oil and gas wells on a month-to-month basis at market prices. Accordingly, the Partnership is at risk for the volatility in commodity prices inherent in the oil and gas industry, and the level of commodity prices will have a significant impact on the Partnership’s results of operations. For the nine months ended September 30, 2011, a 10% change in the price received for oil and gas production would have had an approximate $90,000 impact on revenue.

3. Exchange Rate Risk

The Partnership currently has no income from foreign sources or operations in foreign countries that would subject it to currency exchange rate risk. The Partnership does not currently expect to purchase any prospects located outside of either the United States or United States coastal waters in the Gulf of Mexico.

Item 4. Disclosure Controls and Procedures

MD maintains a system of controls and procedures designed to provide reasonable assurance as to the reliability of the financial statements and other disclosures included in this report, as well as to safeguard assets from unauthorized use or disposition. MD’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of its disclosure controls and procedures with the assistance and participation of other members of management. Based upon that evaluation, MD’s Chief Executive Officer and Chief Financial Officer concluded that its disclosure controls and procedures are effective for gathering, analyzing and disclosing the information the Partnership is required to disclose in the reports it files under the Securities Exchange Act of 1934 within the time periods specified in the SEC’s rules and forms. Since MD’s December 31, 2010 annual report on internal control over financial reporting, and for the quarter ended September 30, 2011, there have been no changes in MD’s internal controls or in other factors which have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.

 

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Part II – Other Information

Item 1. Legal Proceedings

From time to time, the Registrant may be a party to certain legal actions and claims arising in the ordinary course of business. While the outcome of these events cannot be predicted with certainty, the Partnership does not expect these matters to have a material effect on its financial position or results of operations.

Item 6. Exhibits and Reports on Form 8-K

 

  (a) Exhibits filed herewith.

 

  31.1 Certification of CEO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

 

  31.2 Certification of CFO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

 

  32.1 Certification of CEO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

 

  32.2 Certification of CFO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

 

  101 The following materials from the Partnership’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Balance Sheets, (ii) the Condensed Statements of Operations, (iii) the Condensed Statements of Cash Flows, (iv) the Condensed Statement of Changes in Partners’ Capital and (v) related notes.

 

  (b) Reports on Form 8-K

 

       None.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.

 

Mewbourne Energy Partners 02-A, L.P.
By:   Mewbourne Development Corporation
  Managing General Partner

Date: November 14, 2011

By:   /s/ Alan Clark
  Alan Clark, Treasurer and Controller

 

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INDEX TO EXHIBITS

 

EXHIBIT     

NUMBER

  

DESCRIPTION

31.1    Certification of CEO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
31.2    Certification of CFO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
32.1    Certification of CEO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
32.2    Certification of CFO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
101    The following materials from the Partnership’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Balance Sheets, (ii) the Condensed Statements of Operations, (iii) the Condensed Statements of Cash Flows, (iv) the Condensed Statement of Changes in Partners’ Capital and (v) related notes.

 

15