Attached files

file filename
EX-99.1 - REPORT OF FORREST A. GARB & ASSOCIATES, INC. - Mewbourne Energy Partners 07-A, L.P.ex99-1.htm
EX-32.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - Mewbourne Energy Partners 07-A, L.P.ex32-2.htm
EX-32.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - Mewbourne Energy Partners 07-A, L.P.ex32-1.htm
EX-31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER - Mewbourne Energy Partners 07-A, L.P.ex31-2.htm
EX-31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER - Mewbourne Energy Partners 07-A, L.P.ex31-1.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the year ended December 31, 2016

 

Or 

TRANSITION REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the transition period from __________________________ to __________________________

 

Commission File No. 000-53190

 

MEWBOURNE ENERGY PARTNERS 07-A, L.P.

 

Delaware   20-8481823
(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  

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

Securities registered pursuant to section 12(g) of the Act:

 

Limited Partner Interests

 

(Title of class)

 

General Partner Interests

 

(Title of class)

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. 

Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. 

Yes ☐ No ☒

 

Note: Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

 

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 ☒  No ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the 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. ☒

 

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 ☒  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. See definitions of “large accelerated filer”, “accelerated filer” and “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

 

Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

Yes ☐ No ☒

 

No market currently exists for the limited and general partner interests of the Registrant. Based on original purchase price the aggregate market value of limited and general partner interests owned by non-affiliates of the Registrant is $70,000,000.

 

The following documents are incorporated by reference into the indicated parts of this Annual Report on Form 10-K: Part of the information called for by Part IV of the Annual Report on Form 10-K is incorporated by reference from the Registrant’s Form 10.

 

   

 

 

MEWBOURNE ENERGY PARTNERS 07-A, L.P.

 

INDEX

 

Part I   3
  Item 1. Business 3
  Item 1A. Risk Factors 4
  Item 1B. Unresolved Staff Comments 6
  Item 2. Properties 6
  Item 3. Legal Proceedings 7
  Item 4. Mine Safety Disclosure 7
Part II   7
  Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters 7
  Item 6. Selected Financial Data 7
  Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 7
  Item 7A. Quantitative and Qualitative Disclosures about Market Risk 11
  Item 8. Financial Statements and Supplementary Data 11
  Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 12
  Item 9A. Controls and Procedures 12
Part III   13
  Item 10. Directors and Executive Officers of the Registrant 13
  Item 11. Executive Compensation 14
  Item 12. Security Ownership of Certain Beneficial Owners and Management 14
  Item 13. Certain Relationships and Related Transactions 15
  Item 14. Principal Accountant Fees and Services 15
Part IV   16
  Item 15. Exhibits, Financial Statements, Financial Statement Schedules and Reports on Form 8K 16
  Item 16.

Form 10-K Summary

16
     
SIGNATURES 17
INDEX TO EXHIBITS 28

Certification of CEO Pursuant to Section 302

Certification of CFO Pursuant to Section 302

Certification of CEO Pursuant to Section 906

Certification of CFO Pursuant to Section 906

Report of Forrest A. Garb & Associates, Inc.

 

  2 

 

 

PART I

 

ITEM 1. Business

 

Mewbourne Energy Partners 07-A, L.P. (the “Registrant” or the “Partnership”) is a limited partnership organized under the laws of the State of Delaware on March 1, 2007 (date of inception). Mewbourne Development Corporation (“MD”), a Delaware Corporation, has been appointed as the Registrant’s managing general partner. MD has no significant equity interest in the Registrant.

 

Limited and general partner interests in the Registrant were offered at $5,000 each to accredited investors in a private placement pursuant to Section 4(2) of the Securities Act of 1933 and Regulation D promulgated thereunder, with a maximum offering amount of $70,000,000 (14,000 interests). On August 13, 2007, the offering of limited and general partnership interests in the Registrant was closed, with interests aggregating $70,000,000 originally being sold to accredited investors of which $65,710,000 were sold to accredited investors as general partner interests and $4,290,000 were sold to accredited investors as limited partner interests. During 2009 all general partner equity interests were converted to limited partner equity interests.

 

The Partnership participates in oil and gas activities through a Drilling Program Agreement (the “Program”). The Partnership and MD are parties to the Program Agreement. The Registrant engages primarily in oil and gas development and production and is not involved in any other industry segment. The Program is governed by a Drilling Program Agreement between the Registrant, MD and Mewbourne Oil Company (“MOC”), the program manager and a wholly owned subsidiary of Mewbourne Holdings, Inc., which is also the parent of MD. MD does not make any capital contributions directly to the Registrant; rather, MD makes its capital contributions directly to the Program. See the financial statements in Item 8 of this report for a summary of the Registrant’s revenue, income and identifiable assets.

 

The sale of crude oil and gas produced by the Registrant will be affected by a number of factors that are beyond the Registrant’s control. These factors include the price of crude oil and 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 gas, and other competitive conditions. It is impossible to predict with any certainty the future effect of these factors on the Registrant.

 

The market for crude oil is such that the Registrant anticipates it will be able to sell all the crude oil it can produce. Gas will be sold to gas marketers and end users on the spot market. The spot market reflects immediate sales of gas without long-term contractual commitments. The future market condition for gas cannot be predicted with any certainty, and the Registrant may experience delays in marketing gas production and fluctuations in gas prices.

 

Many aspects of the Registrant’s activities are highly competitive including, but not limited to, the acquisition of suitable drilling prospects and the procurement of drilling and related oil field equipment, and are subject to governmental regulation, both at Federal and state levels. The Registrant’s ability to compete depends on its financial resources and on the managing general partner’s staff and facilities, none of which are significant in comparison with those of the oil and gas exploration, development and production industry as a whole. Federal and state regulation of oil and gas operations generally includes operational activity, drilling and spacing of wells on producing acreage, the imposition of maximum allowable production rates, the taxation of income and other items, and the protection of the environment.

 

The Registrant does not have any employees of its own. MD is responsible for all management functions. MOC, a wholly owned subsidiary of Mewbourne Holdings, Inc., which is also the parent of the Registrant’s managing general partner, has been appointed Program Manager and is responsible for activities in accordance with a Drilling Program Agreement entered into by the Registrant, MD and MOC. At March 31, 2017, MOC employed 399 persons, many of whom dedicated a part of their time to the conduct of the Registrant’s business during the period for which this report is filed.

 

The production of oil and gas is not considered subject to seasonal factors although the price received by the Registrant for gas sales will generally tend to increase during the winter months. Order backlog is not pertinent to the Registrant’s business.

 

  3 

 

 

ITEM 1A. Risk Factors

 

Oil and gas prices are volatile. An absence of significant price increases could adversely affect the Registrant’s financial position, financial results, and cash flows.

 

Revenues, operating results, and profitability depend primarily upon the prices received for oil and gas sales. Prices also affect the amount of cash flow available for distribution. Absent significant price increases, cost ceiling write-downs may be necessary in the future.

 

Historically, the markets for oil and gas have been volatile and they are likely to continue to be volatile. Wide fluctuations in oil and gas prices may result from relatively minor changes in the supply of and demand for oil and gas, market uncertainty and other factors that are beyond the Registrant’s control, including:

 

worldwide and domestic supplies of oil and gas;
weather conditions;
the level of consumer demand;
the price and availability of alternative fuels;
the proximity, accessibility and capacity of gas pipelines and other transportation facilities;
regional imbalances in supply and demand;
the price and level of foreign imports;
domestic and foreign governmental regulations and taxes;
the ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls;
political instability or armed conflict in oil-producing regions; and
overall domestic and global economic conditions.

 

These factors and the volatility of the energy markets make it extremely difficult to predict future oil and gas price movements with any certainty. Declines in oil and gas prices would not only reduce revenue, but could reduce the amount of oil and gas that can be produced economically and, as a result, could have a material adverse effect on the Registrant’s financial condition, results of operations and reserves. For the year ended December 31, 2016, a 10% change in the price received for oil and gas production would have had an approximate $172,000 impact on revenue.

 

The actual quantities and present value of proved reserves may prove to be lower than estimated.

 

This report contains estimates of proved reserves. These estimates are based upon various assumptions, including assumptions required by the Securities and Exchange Commission (“SEC”) relating to oil and gas prices, drilling and operating expenses, capital expenditures, taxes and availability of funds. The process of estimating oil and gas reserves is complex. The process involves significant decisions and assumptions in the evaluation of available geological, geophysical, engineering and economic data for each reservoir. Therefore, these estimates are inherently imprecise.

 

Actual future production, oil and gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable oil and gas reserves most likely will vary from these estimates. Such variations may be significant and could materially affect the estimated quantities and present value of proved reserves. In addition, the Registrant may adjust estimates of proved reserves to reflect production history, results of exploration and development drilling, prevailing oil and gas prices and other factors, many of which are beyond the Registrant’s control. The Registrant’s properties may also be susceptible to hydrocarbon drainage from production by operators on adjacent properties.

 

  4 

 

 

The absence of significant future price increases may result in a write-down of asset carrying values.

 

The Registrant utilizes the full-cost method of accounting for costs related to oil and gas properties. Under this method, all such costs (for both productive and nonproductive properties) are capitalized and amortized on an aggregate basis over the estimated lives of the properties using the unit-of-production method. However, these capitalized costs are subject to a ceiling test which limits such pooled costs to the aggregate of the present value of future net revenues attributable to proved oil and gas reserves discounted at 10% plus the lower of cost or market value of unproved properties. The full-cost ceiling is evaluated at the end of each quarter using the oil and gas pricing guidelines established by the SEC. The absence of significant price increases in oil and gas prices from current levels or the presence of other factors, without other mitigating circumstances, could cause a future write-down of capitalized costs and a non-cash charge against future earnings.

 

The Registrant’s ceiling test calculations indicated an impairment of oil and gas properties of $866,942 and $6,043,458 during the years ended December 31, 2016 and 2015, respectively.

 

Oil and gas drilling and producing operations can be hazardous and may expose the Registrant to environmental liabilities.

 

Oil and gas operations are subject to many risks, including well blowouts, cratering and explosions, pipe failure, fires, formations with abnormal pressures, uncontrollable flows of oil, gas, brine or well fluids, and other environmental hazards and risks. If any of these risks occurs, the Registrant could sustain substantial losses as a result of:

 

injury or loss of life;
severe damage to or destruction of property, natural resources and equipment;
pollution or other environmental damage;
clean-up responsibilities;
regulatory investigations and administrative, civil and criminal penalties; and
injunctions resulting in limitation or suspension of operations.

 

There is inherent risk of incurring significant environmental costs and liabilities in exploration and production operations due to generation, handling, and disposal of materials, including wastes and petroleum hydrocarbons. The Registrant may incur joint and several, strict liability under applicable U.S. federal and state environmental laws in connection with releases of petroleum hydrocarbons and wastes on, under or from leased or owned properties, some of which have been used for oil and gas exploration and production activities for a number of years, often by third parties not under the Registrant’s control. While the Registrant maintains insurance against some, but not all, of the risks described above, the Registrant’s insurance may not be adequate to cover casualty losses or liabilities. Also, in the future the Registrant may not be able to obtain insurance at premium levels that justify its purchase.

 

  5 

 

 

In addition, in response to studies suggesting that emissions of certain gases may be contributing to warming of the earth’s atmosphere, many states are beginning to consider initiatives to track and record these gases, generally referred to as “greenhouse gases,” with several states having already adopted regulatory initiatives aimed at reducing emissions of greenhouse gases. Methane, a primary component of gas, and carbon dioxide, a byproduct of the burning of gas, are included among the types of gases targeted by greenhouse gas initiatives and laws. This movement is in its infancy but regulatory initiatives or legislation placing restrictions on emissions of methane or carbon dioxide that may be imposed in various states of the United States could adversely affect operations of oil and gas wells and the demand for oil and gas products.

 

ITEM 1B. Unresolved Staff Comments

 

None.

 

ITEM 2. Properties

 

Property Interests

 

The Registrant’s properties consist primarily of interests in properties on which oil and gas wells are located. Such property interests are often subject to landowner royalties, overriding royalties and other oil and gas leasehold interests.

 

Fractional working interests in developmental oil and gas prospects, located primarily in the Anadarko Basin of Western Oklahoma, the Texas Panhandle, and the Permian Basin of New Mexico and West Texas, were acquired by the Registrant, resulting in the Registrant’s participation in the drilling of oil and gas wells. At December 31, 2016, the Registrant owned working interests in 118 producing wells. The Registrant had no drilling activity for the years ended December 31, 2016 and 2015.

 

Third Party Review of Reserves Estimate

 

The reserves estimate shown herein has been independently evaluated by Forrest A. Garb & Associates, Inc. Their reserves estimate is filed with this report as Exhibit 99.1. The qualifications of William Donald Harris III, P.E., the technical person primarily responsible for overseeing his firm’s preparation of the Partnership’s reserve estimates are set forth below.

 

Over 25 years of practical experience in petroleum engineering
Registered professional engineer in the state of Texas
Bachelor of Science Degree in Petroleum Engineering
Master of Business Administration

 

  6 

 

Internal Controls Over Reserves Estimate

 

MD, the Registrant’s managing general partner, maintains internal controls such as the following to ensure the reliability of reserves estimation:

 

No employee’s compensation is tied to the amount of reserves booked.
Comprehensive SEC-compliant internal policies are followed to determine and report proved reserves.
Reserves estimate is made by experienced reservoir engineers or under their direct supervision.
The reservoir engineers review all the Partnership’s reported proved reserves at the close of each quarter.

 

ITEM 3. 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 4. Mine Safety Disclosure

 

Not Applicable

 

PART II

 

ITEM 5. Market for Registrant’s Common Equity and Related Stockholder Matters

 

At March 31, 2017, the Registrant had 14,000 outstanding limited partnership interests held of record by 1,776 subscribers. There is no established public or organized trading market for the partner interests.

 

Revenues which, in the sole judgment of the managing general partner, are not required to meet the Registrant’s obligations will be distributed to the partners at least quarterly in accordance with the Registrant’s Partnership Agreement. Distributions made to partners and state tax payments for the benefit of investor partners during the years ended December 31, 2016 and 2015 were $734,089 and $2,115,597, respectively. Since inception, the Partnership has made distributions of $63,201,335, inclusive of state tax payments.

 

ITEM 6. Selected Financial Data

 

Not required under Regulation S-K, Item 301 for smaller reporting companies.

 

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

General

 

The Registrant was formed to engage primarily in the business of drilling development wells, to produce and market crude oil and gas produced from such properties, to distribute any net proceeds from operations to the general and limited partners and to the extent necessary, acquire leases which contain drilling prospects. The economic life of the Registrant depends on the period over which the Registrant’s oil and gas reserves are economically recoverable.

 

  7 

 

 

Results of Operations

 

The following is a comparative discussion of the results of operations for the periods indicated. It should be read in conjunction with the financial statements and the related notes to the financial statements, which begin on page 20. As a result of declines in prices for commodities, the results of operations for 2016 may not be indicative of results in 2017 as realized prices for production may remain low or continue to decline.

 

Year ended December 31, 2016 compared to the year ended December 31, 2015:

 

   Year Ended December 31,
   2016  2015
Oil sales  $616,508   $593,698 
Barrels produced   15,789    13,294 
Average price/bbl  $39.05   $44.66 
           
Gas sales  $1,098,819   $1,248,847 
Mcf produced   454,609    484,620 
Average price/mcf  $2.42   $2.58 

 

Oil and gas revenues. As shown in the above table, total oil and gas sales decreased by $127,218, a 6.9% decline, for the year ended December 31, 2016 as compared to the year ended December 31, 2015.

 

Of this decline, $74,611 and $77,489 were due to decreases in the average prices of oil and gas sold, respectively. The average price fell to $39.05 from $44.66 per barrel (bbl) and to $2.42 from $2.58 per thousand cubic feet (mcf) for the year ended December 31, 2016 as compared to the year ended December 31, 2015.

 

Also contributing to the decline in sales was $72,539 due to a lower volume of gas sold by 30,011 mcf.

 

Partially offsetting these decreases was an increase of $97,421 due to a higher volume of oil sold by 2,495 bbls.

 

Lease operations. Lease operating expense during the year ended December 31, 2016 decreased to $840,238 from $917,826 for the year ended December 31, 2015 due to fewer well repairs and workovers as well as lower pumping expenses and overhead.

 

Production taxes. Production taxes during the year ended December 31, 2016 decreased to $88,512 from $97,585 for the year ended December 31, 2015. This was due to lower overall oil and gas revenue for the year ended December 31, 2016.

 

Administrative and general expense. Administrative and general expense for the year ended December 31, 2016 fell to $102,410 from $121,407 for the year ended December 31, 2015 due to decreased administrative expenses allocable to the Partnership.

 

Depreciation, depletion and amortization. Depreciation, depletion and amortization for the year ended December 31, 2016 decreased to $388,496 from $736,043 for the year ended December 31, 2015. This was due to cost ceiling write-downs that reduced the balance of the full cost pool subject to amortization as well as an overall decrease in oil and gas production.

 

Cost ceiling write-down. There were cost ceiling write-downs totaling $866,942 and $6,043,458 for the years ended December 31, 2016 and 2015, respectively. These were due to lower average oil and gas prices for the twelve months preceding the write-downs.

 

8 

 

 

Absent significant price increases, the sustained lower oil prices experienced in 2016 will continue to impact proved reserves adversely as the prices used for such estimates under SEC rules are based on the trailing 12-month unweighted average prices. Lower prices used in estimating proved reserves may result in a reduction in volumes due to economic limits, which in turn, may make it more likely that we will in the future incur impairment charges under full cost accounting.

 

Liquidity and Capital Resources

 

Cash decreased by $64,481 during the year ended December 31, 2016. Cash flows from operating activities and proceeds from asset sales were utilized primarily for cash distributions to partners. All wells for which funds have been committed have been drilled. Any incidental future capital expenditures incurred will be paid with current available cash and revenues generated through oil and gas sales. Revenues which, in the sole judgment of the managing general partner, are not required to meet the Registrant’s obligations will be distributed to the partners at least quarterly in accordance with the Registrant’s Partnership Agreement.

 

The Partnership had reduced cash flows from operations in 2016 due to the steep decline in oil and gas prices. Considering these reduced operating cashflows, the Partnership anticipates smaller distributions to partners until prices improve. The Partnership’s revenue and cash flow from operating activities are highly dependent on commodity prices.

 

Critical Accounting Policies

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Significant estimates inherent in the Registrant’s financial statements include the estimate of oil and gas reserves and future abandonment costs. Changes in oil and gas prices and the changes in production estimates could have a significant effect on reserve estimates. The reserve estimates directly impact the computation of depreciation, depletion, and amortization, asset retirement obligation, and the ceiling test for the Registrant’s oil and gas properties.

 

All financing activities of the Registrant are reported in the financial statements. The Registrant does not engage in any off-balance sheet financing arrangements. Additionally, the Registrant has no contractual obligations but has a financial obligation to plug and abandon non-producing properties as discussed below.

 

Recent Accounting Developments

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, concerning revenue recognition. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein. In April 2015, the FASB proposed to delay the effective date one year, beginning in fiscal year 2018 and such proposal was subsequently adopted by the FASB in August 2015. The Partnership is currently determining the impacts of the new revenue recognition standard on its contracts. The Partnership’s approach include evaluating its key revenue contracts representative of its revenue and comparing historical accounting policies and practices to the new standard. The Partnership’s revenue contracts are primarily normal purchase/normal sale contracts with index pricing that settle monthly and as such, the Partnership does not expect that the new revenue recognition standard will have a material impact on its financial statements upon adoption. The new revenue recognition standard will require new disclosure related to revenue. The Partnership intends to apply the new standard utilizing a modified retrospective basis that could result in a cumulative effect adjustment as of January 1, 2018.

 

9 

 

 

Full Cost Method of Accounting

 

The Registrant 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. Oil and gas properties 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. The present value of future net cash flows has been prepared by using the oil and gas pricing guidelines established by the SEC, projected development and production costs and a 10 percent annual discount rate.

 

Asset Retirement Obligations

 

The Partnership has recognized an estimated liability for future plugging and abandonment costs. A liability for the estimated fair value of the future plugging and abandonment costs is recorded with a corresponding increase in the full cost pool at the time a new well is drilled. Depreciation expense associated with estimated plugging and abandonment costs is recognized in accordance with the full cost methodology.

 

The Partnership estimates a liability for plugging and abandonment costs 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 plugging and abandonment costs or well useful lives, 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 years ended December 31, 2016 and December 31, 2015 is as follows:

 

   2016  2015
Balance, beginning of period  $558,971   $534,688 
Liabilities incurred       665 
Liabilities reduced due to sales of property       (12,560)
Accretion expense   38,204    36,178 
Balance, end of period  $597,175   $558,971 

 

Organization and Related Party Transactions

 

The Partnership was organized on March 1, 2007 in accordance with the laws of the state of Delaware. MD, a Delaware Corporation, has been appointed as the Registrant’s managing general partner. MD has no significant equity interest in the Registrant. 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 well 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. Amounts accrued for and paid to MOC for operator charges totaled $507,553 and $575,837 for the years ended December 31, 2016 and 2015, respectively. Operator charges are billed in accordance with the Program and Partnership Agreements.

 

10 

 

 

In accordance with the Partnership agreement, 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 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. Administrative expenses can only be paid out of funds available for distributions. Under this arrangement, $55,610 and $80,704 were allocated to the Partnership during the years ended December 31, 2016 and 2015, respectively.

 

The Partnership participates in oil and gas activities through a Drilling Program Agreement (the “Program”). The Partnership and MD are parties to the Program Agreement. The costs and revenues of the Program are allocated to MD and the Partnership as follows:

 

   Partnership  MD (1)
Revenues:      
Proceeds from disposition of depreciable and depletable properties   70%   30%
All other revenues   70%   30%
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   70%   30%

 

(1)As noted above, pursuant to the Program, MD must contribute 100% of organization and offering costs and lease acquisition costs which should approximate 20% of total capital costs. To the extent that organization and offering costs and lease acquisition costs are less than 20% of total capital costs, MD is responsible for tangible drilling costs until its share of the Program’s total capital costs reaches approximately 20%. The Partnership’s financial statements reflect its respective proportionate interest in the Program.

 

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

 

Not required under Regulation S-K, Item 305 for smaller reporting companies.

 

ITEM 8. Financial Statements and Supplementary Data

 

The required financial statements of the Registrant are contained in a separate section of this report following the signature attestation. See “Item 15. Exhibits, Financial Statements, Financial Statement Schedules and Reports on Form 8-K”.

 

11 

 

 

ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

ITEM 9A. Controls and Procedures

 

(a) Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this report, MD’s management conducted an evaluation, under the supervision and with the participation of MD’s principal executive officer and principal financial officer, of the Registrant’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, MD’s principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Registrant’s disclosure controls and procedures are effective. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Registrant to disclose material information otherwise required to be set forth in the Registrant’s periodic reports.

 

(b) MD Management’s Annual Report on Internal Control Over Financial Reporting

 

MD’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of MD’s management, including MD’s principal executive officer and principal financial officer, MD conducted an evaluation of the effectiveness of the Partnership’s internal control over financial reporting based on the framework in “Internal Control — Integrated Framework” (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on MD’s evaluation under the framework in “Internal Control — Integrated Framework”, MD’s management concluded that internal control over financial reporting was effective as of December 31, 2016. This annual report does not include an attestation report of the Registrant’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Registrant’s independent registered public accounting firm pursuant to rules of the SEC that permit the Registrant to provide only management’s report in this annual report. There have been no changes in MD’s internal controls for the quarter ended December 31, 2016 or in other factors which have materially affected, or are reasonably likely to materially affect the internal controls over financial reporting.

 

12 

 

 

PART III

 

ITEM 10. Directors and Executive Officers of the Registrant

 

The Registrant does not have any officers or directors. Under the Registrant’s Partnership Agreement, the Registrant’s managing partner, MD, is granted the exclusive right and full authority to manage, control and administer the Registrant’s business. MD is a wholly owned subsidiary of Mewbourne Holdings, Inc.

 

Set forth below are the names, ages and positions of the directors and executive officers of MD, the Registrant’s managing general partner. Directors of MD are elected to serve until the next annual meeting of stockholders or until their successors are elected and qualified.

 

    Age as of    
    December 31,    
Name   2016   Position
         
J. Roe Buckley   54   Chairman of the Board and Chief Financial Officer
         
Kenneth S. Waits   56   Chief Executive Officer
         
Alan Clark   64   Treasurer and Controller
         
Dorothy M. Cuenod   56   Assistant Secretary and Director
         
Ruth M. Buckley   55   Assistant Secretary and Director
         
Julie M. Greene   53   Assistant Secretary and Director

 

J. Roe Buckley, age 54, joined Mewbourne Holdings, Inc. in July, 1990 and serves as Chairman of the Board and Chief Financial Officer of Mewbourne Holdings, Inc., MD and MOC. Mr. Buckley was employed by Mbank Dallas from 1985 to 1990 where he served as a commercial loan officer. He received a Bachelor of Arts in Economics from Sewanee in 1984. Mr. Buckley is married to Ruth M. Buckley. He is also the brother-in-law of Dorothy M. Cuenod and Julie M. Greene.

 

Kenneth S. Waits, age 56, Chief Executive Officer of Mewbourne Holdings, Inc., MD and MOC, has been with MOC since February 1984. He joined the company following his graduation from the University of Oklahoma where he received a Bachelor of Science in Petroleum Engineering in December, 1983. He currently manages all of MOC’s exploration efforts. He has also served as Exploration Manager for Western Oklahoma. Previously at MOC, he held positions in Operations and in Reservoir/Evaluations.

 

13 

 

 

Alan Clark, age 64, joined MOC in 1979 and serves as Treasurer and Controller of both MD and MOC. Prior to joining MOC, Mr. Clark was employed by Texas Oil and Gas Corporation as Assistant Supervisor of joint interest accounting from 1976 to 1979. Mr. Clark has served in several accounting/finance positions with MOC prior to his current assignment. Mr. Clark received a Bachelor of Business Administration from the University of Texas at Arlington.

 

Dorothy M. Cuenod, age 56, received a Bachelor of Arts degree in Art History from The University of Texas and a Masters of Business Administration Degree from Southern Methodist University. Since 1984 she has served as a Director and Assistant Secretary of both MD and MOC. Ms. Cuenod is the sister of Ruth M. Buckley and Julie M. Greene. She is also the sister-in-law of J. Roe Buckley.

 

Ruth M. Buckley, age 55, received a Bachelor of Science Degree in both Engineering and Geology from Vanderbilt University. Since 1987 she has served as a Director and Assistant Secretary of both MD and MOC. Ms. Buckley is the sister of Dorothy M. Cuenod and Julie M. Greene. She is also the wife of J. Roe Buckley.

 

Julie M. Greene, age 53, received a Bachelor of Arts degree in Business Administration from The University of Oklahoma. Since 1988 she has served as a Director and Assistant Secretary of both MD and MOC. Prior to that time she was employed by Rauscher, Pierce, Refsnes, Inc. Ms. Greene is the sister of Dorothy M. Cuenod and Ruth M. Buckley. She is also the sister-in-law of J. Roe Buckley.

 

The organizational structure of the Partnership does not provide for an audit committee and therefore the Partnership does not have an audit committee or financial expert serving in such capacity. 

 

ITEM 11. Executive Compensation

 

The Registrant does not have any officers or directors. Management of the Registrant is vested in the managing general partner. None of the officers or directors of MD or MOC will receive remuneration directly from the Registrant, but will continue to be compensated by their present employers. The Registrant will reimburse MD and MOC and affiliates thereof for certain costs of overhead falling within the definition of Administrative Costs, including without limitation, salaries of the officers and employees of MD and MOC; provided that no portion of the salaries of the directors or of the executive officer of MOC or MD may be reimbursed as Administrative Costs.

 

ITEM 12. Security Ownership of Certain Beneficial Owners and Management

 

(a) Beneficial owners of more than five percent at March 31, 2017

 

Class of   Name and Address of   Amount and Nature of   Percent of Limited
Ownership   Beneficial Owner   Beneficial Owner   Partnership Interests
N/A   N/A   N/A   N/A

 

(b) Security ownership of management

 

The Registrant does not have any officers or directors. The managing general partner of the Registrant, MD, has the exclusive right to manage and administer the Registrant’s business. Under the Registrant’s Partnership Agreement, limited and general partners holding a majority of the outstanding limited and general partnership interests have the right to take certain actions, including the removal of the managing general partner. The Registrant is not aware of any current arrangement or activity that may lead to such removal.

 

14 

 

 

ITEM 13. Certain Relationships and Related Transactions

 

Transactions with MD and its affiliates

 

Pursuant to the Registrant’s Partnership Agreement, the Registrant had the following related party transactions with MD and its affiliates for the years ended December 31, 2016 and 2015:

 

   2016  2015
Administrative and general expense, management fees (if applicable) and payment of well charges and supervision charges in accordance with standard industry operating agreements  $563,163   $656,541 

 

The Registrant participates in oil and gas activities through a drilling Program created by the Program. Pursuant to the Program, MD pays approximately 20% of the Program’s capital expenditures and approximately 30% of its operating and general and administrative expenses. The Registrant pays the remainder of the costs and expenses of the Program. In return, MD is allocated approximately 30% of the Program’s revenues.

 

ITEM 14. Principal Accountant Fees and Services

 

The Partnership has retained BDO USA, LLP as their independent registered public accounting firm to perform auditing services. BDO USA, LLP’s fees for the years ended December 31, 2016 and 2015 are set forth below:

 

   2016  2015
Audit Fees  $27,737   $26,667 

 

15 

 

 

PART IV

 

ITEM 15. Exhibits, Financial Statements, Financial Statement Schedules and Reports on Form 8-K 

       
(a) 1. Financial statements
       
    The following are filed as part of this annual report:
       
      Report of Independent Registered Public Accounting Firm
       
      Balance sheets as of December 31, 2016 and 2015
       
      Statements of operations for the years ended December 31, 2016 and 2015
       
      Statements of changes in partners’ capital for the years ended December 31, 2016 and 2015
       
      Statements of cash flows for the years ended December 31, 2016 and 2015
       
      Notes to financial statements
       
  2. Financial statement schedules
       
    Not required for smaller reporting companies
       
  3. Exhibits
       
    The exhibits listed on the accompanying index are filed or incorporated by reference as part of this annual report.
       
(b) Reports on Form 8-K
       
    None.

 

ITEM 16. Form 10-K Summary

 

None.

 

16 

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereto duly authorized.

 

  Mewbourne Energy Partners 07-A, L.P.
     
  By: Mewbourne Development Corporation
    Managing General Partner
     
     
  By: /s/ Kenneth S. Waits
    Kenneth S. Waits
    Chief Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

 

/s/ Kenneth S. Waits   Chief Executive Officer   March 31, 2017
Kenneth S. Waits        
         
/s/ J. Roe Buckley   Chairman of the Board    
J. Roe Buckley   Chief Financial Officer   March 31, 2017
         
/s/ Alan Clark   Treasurer and Controller   March 31, 2017
Alan Clark        
         
/s/ Dorothy M. Cuenod   Director   March 31, 2017
Dorothy M. Cuenod        
         
/s/ Ruth M. Buckley   Director   March 31, 2017
Ruth M. Buckley        
         
/s/ Julie M. Greene   Director   March 31, 2017
Julie M. Greene        

 

Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act

 

No annual report or proxy material has been sent to the Registrant’s security holders.

 

17 

 

 

MEWBOURNE ENERGY PARTNERS 07-A, L.P.

 

FINANCIAL STATEMENTS

 

WITH REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

As of and for the years ended December 31, 2016 and 2015

 

18 

 

 

Report of Independent Registered Public Accounting Firm

 

To the Partners of Mewbourne Energy Partners 07-A, L.P. and to the Board of Directors of Mewbourne Development Corporation

Tyler, Texas

 

We have audited the accompanying balance sheets of Mewbourne Energy Partners 07-A, L.P. (the “Partnership”) as of December 31, 2016 and 2015 and the related statements of operations, changes in partners’ capital and cash flows for the years then ended. These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Partnership at December 31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

/s/BDO USA, LLP

 

Dallas, Texas

March 31, 2017

 

19 

 

 

MEWBOURNE ENERGY PARTNERS 07-A, L.P.

 

BALANCE SHEETS

 

   December 31, 2016  December 31, 2015
       
ASSETS   
       
Cash  $12,829   $77,310 
Accounts receivable, affiliate   316,454    221,914 
Prepaid state taxes   417    5,344 
 Total current assets   329,700    304,568 
           
Oil and gas properties at cost, full-cost method   66,147,353    66,184,314 
Less accumulated depreciation, depletion, amortization          
and cost ceiling write-downs   (62,473,736)   (61,191,872)
    3,673,617    4,992,442 
           
Total assets  $4,003,317   $5,297,010 
           
LIABILITIES AND PARTNERS’ CAPITAL          
           
Accounts payable, affiliate  $94,128   $82,461 
Total current liabilities   94,128    82,461 
           
Asset retirement obligation   597,175    558,971 
           
Partners’ capital   3,312,014    4,655,578 
           
Total liabilities and partners’ capital  $4,003,317   $5,297,010 

 

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

 

20

 

 

MEWBOURNE ENERGY PARTNERS 07-A, L.P. 

 

STATEMENTS OF OPERATIONS

       
   For the Years Ended
   December 31,
   2016  2015
Revenues:      
Oil sales  $616,508   $593,698 
Gas sales   1,098,819    1,248,847 
Total revenues   1,715,327    1,842,545 
           
Expenses:          
Lease operating expense   840,238    917,826 
Production taxes   88,512    97,585 
Administrative and general expense   102,410    121,407 
Depreciation, depletion, and amortization   388,496    736,043 
Cost ceiling write-down   866,942    6,043,458 
Asset retirement obligation accretion   38,204    36,178 
Total expenses   2,324,802    7,952,497 
           
Net loss  $(609,475)  $(6,109,952)

 

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

 

21

 

 

MEWBOURNE ENERGY PARTNERS 07-A, L.P.
     
STATEMENTS OF CHANGES IN PARTNERS’ CAPITAL
For the years ended December 31, 2016 and 2015
     
     
   Partners’ 
   Capital
      
Balance at December 31, 2014  $12,881,127 
      
Cash distributions   (2,115,597)
Net loss   (6,109,952)
      
Balance at December 31, 2015   4,655,578 
      
Cash distributions   (734,089)
Net loss   (609,475)
      
Balance at December 31, 2016  $3,312,014 

 

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

 

22

 

 

MEWBOURNE ENERGY PARTNERS 07-A, L.P.
 
STATEMENTS OF CASH FLOWS
 
   For the Years Ended
   December 31,
   2016  2015
Cash flows from operating activities:          
Net loss  $(609,475)  $(6,109,952)
Adjustments to reconcile net loss to net cash  provided by operating activities:          
Depreciation, depletion, and amortization   388,496    736,043 
Cost ceiling write-down   866,942    6,043,458 
Asset retirement obligation accretion   38,204    36,178 
Changes in operating assets and liabilities:          
Accounts receivable, affiliate   (94,540)   302,184 
Prepaid state taxes   4,927    (1,183)
Accounts payable, affiliate   11,667    (42,481)
Net cash provided by operating activities   606,221    964,247 
           
Cash flows from investing activities:          
Proceeds from sale of oil and gas properties and expense reimbursement on defective pipe   64,574    1,228,456 
Purchase and development of oil and gas properties   (1,187)   (58,183)
Net cash provided by investing activities   63,387    1,170,273 
           
Cash flows from financing activities:          
Cash distributions to partners   (734,089)   (2,115,597)
Net cash used in financing activities   (734,089)   (2,115,597)
           
Net (decrease) increase in cash   (64,481)   18,923 
Cash, beginning of period   77,310    58,387 
           
Cash, end of period  $12,829   $77,310 
           
Supplemental Cash Flow Information:          
Change to net oil & gas properties related to asset retirement obligation liabilities  $—     $(11,895)
           
Change to property, plant and equipment related to accrual of leaseholds  $—     $122 

 

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

 

23

 

 

Mewbourne Energy Partners 07-A, L.P.

 

NOTES TO FINANCIAL STATEMENTS

 

1. Description of Business

 

Mewbourne Energy Partners 07-A, L.P., (the “Registrant” or the “Partnership”), a Delaware limited partnership engaged primarily in oil and gas development and production in Texas, Oklahoma, and New Mexico, was organized on March 1, 2007. The offering of limited and general partner interests began May 1, 2007 as a part of a private placement pursuant to Section 4(2) of the Securities Act of 1933 and Regulation D promulgated thereunder, and concluded August 13, 2007, with total investor contributions of $70,000,000 originally being sold to accredited investors of which $65,710,000 were sold to accredited investors as general partner interests and $4,290,000 were sold to accredited investors as limited partner interests. During 2009 all general partner equity interests were converted to limited partner equity interests. The managing general partner has no significant equity interest in the Partnership.

 

The Partnership’s sole business is the development and production of oil and gas. A substantial portion of the Partnership’s gas production is being sold regionally in the spot market. Due to the highly competitive nature of the spot market, prices are subject to seasonal and regional pricing fluctuations. In addition, such spot market sales are generally short-term in nature and are dependent upon obtaining transportation services provided by pipelines. The prices received for the Partnership’s oil and gas are subject to influences such as global consumption and supply trends.

 

2. Summary of Significant Accounting Policies

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Significant estimates inherent in the Registrant’s financial statements include the estimate of oil and gas reserves and future abandonment costs. Changes in oil and gas prices and the changes in production estimates could have a significant effect on reserve estimates. The reserve estimates directly impact the computation of depreciation, depletion, and amortization, asset retirement obligation, and the ceiling test for the Registrant’s oil and gas properties.

 

Full Cost Accounting

 

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 December 31, 2016 and 2015 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 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 estimated future net cash flows of proved reserves, computed using the 12-month unweighted average of first-day-of the-month oil and gas prices, discounted at 10%, and the lower of cost or fair value of unproved properties. If unamortized costs capitalized exceed the ceiling, the excess is charged to expense in the period the excess occurs. There were cost ceiling write-downs totaling $866,942 and $6,043,458 for the years ended December 31, 2016 and 2015, respectively.

 

 24

 

 

Subsequent Events

 

The Partnership has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued.

 

Recent Accounting Developments

 

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, concerning revenue recognition. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein. In April 2015, the FASB proposed to delay the effective date one year, beginning in fiscal year 2018 and such proposal was subsequently adopted by the FASB in August 2015. The Partnership is currently determining the impacts of the new revenue recognition standard on its contracts. The Partnership’s approach include evaluating its key revenue contracts representative of its revenue and comparing historical accounting policies and practices to the new standard. The Partnership’s revenue contracts are primarily normal purchase/normal sale contracts with index pricing that settle monthly and as such, the Partnership does not expect that the new revenue recognition standard will have a material impact on its financial statements upon adoption. The new revenue recognition standard will require new disclosure related to revenue. The Partnership intends to apply the new standard utilizing a modified retrospective basis that could result in a cumulative effect adjustment as of January 1, 2018.

 

Cash

 

The Partnership maintains all its cash in one financial institution. At various times throughout the year, the cash amount may be in excess of the amount insured by the Federal Deposit Insurance Corporation.

 

Fair Value of Financial Instruments

 

The FASB has issued guidance on determining the estimated fair value for financial instruments. This disclosure states that the fair value of financial instruments is determined at discrete points in time based on relevant market information. Such estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash, accounts receivable, affiliate and accounts payable, affiliate approximates their carrying value due to their short-term nature.

 

Asset Retirement Obligations

 

The Partnership has recognized an estimated liability for future plugging and abandonment costs. A liability for the estimated fair value of the future plugging and abandonment costs is recorded with a corresponding increase in the full cost pool at the time a new well is drilled. Depreciation expense associated with estimated plugging and abandonment costs is recognized in accordance with the full cost methodology.

 

The Partnership estimates a liability for plugging and abandonment costs 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 plugging and abandonment costs or well useful lives, 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.

 

 25

 

 

A reconciliation of the Partnership’s liability for well plugging and abandonment costs for the years ended December 31, 2016 and December 31, 2015 is as follows:

 

   2016   2015 
Balance, beginning of period  $558,971   $534,688 
Liabilities incurred       665 
Liabilities reduced due to sales of property       (12,560)
Accretion expense   38,204    36,178 
Balance, end of period  $597,175   $558,971 

 

Oil and Gas Sales

 

The Partnership’s oil and condensate production is sold and revenue recognized at or near the Partnership’s wells under short-term purchase contracts at prevailing prices in accordance with arrangements which are customary in the oil industry. Sales of gas applicable to the Partnership’s interest are recorded as revenue when the gas is metered and title transferred pursuant to the gas sales contracts covering the Partnership’s interest in gas reserves. The Partnership uses the sales method to recognize oil and gas revenue whereby revenue is recognized for the amount of production taken regardless of the amount for which the Partnership is entitled based on its working interest ownership. As of December 31, 2016 and 2015, no material gas imbalances between the Partnership and other working interest owners existed.

 

Substantially all of the Partnership’s accounts receivable result from oil and gas sales to third parties in the oil and gas industry. This concentration of customers may impact the Partnership’s overall credit risk in that these entities may be similarly affected by changes in economic and other conditions. Historically, the Partnership has not experienced significant credit losses on such receivables. No bad debt expense was recorded in 2016 or 2015. The Partnership cannot ensure that such losses will not be realized in the future.

 

Comprehensive Income

 

Comprehensive income is defined as a change in equity of a business enterprise during a period from transactions and other events and circumstances from non-partner sources and includes all changes in equity during a period except those resulting from investments by partners and distributions to partners. The Partnership has no items of comprehensive income, other than net income, in any period presented. Therefore, net income as presented in the statements of operations equals comprehensive income.

 

Income Taxes

 

The Partnership is treated as a partnership for income tax purposes and, as a result, income of the Partnership is reported on the tax returns of the partners and no recognition is given to income taxes in the financial statements. The Partnership’s financial reporting basis of its net assets exceeded the tax basis of its net assets by $3,596,924 and $4,861,256 at December 31, 2016 and 2015, respectively.

 

The Partnership accounts for uncertainty in income taxes in accordance with applicable accounting guidance and recognizes the effects of those positions only if they are more likely than not of being sustained. As no liability had been recognized as of December 31, 2016 or 2015, the Partnership did not accrue for any interest or penalties.

 

 26

 

 

3. Organization and Related Party Transactions:

 

The Partnership was organized on March 1, 2007 in accordance with the laws of the state of Delaware. Mewbourne Development Corporation (“MD”), a Delaware Corporation, has been appointed as the Registrant’s managing general partner. MD has no significant equity interest in the Registrant. 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 well 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. Amounts accrued for and paid to MOC for operator charges totaled $507,553 and $575,837 for the years ended December 31, 2016 and 2015, respectively. Operator charges are billed in accordance with the Program and Partnership Agreements.

 

In accordance with the Partnership agreement, 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 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. Administrative expenses can only be paid out of funds available for distributions. Under this arrangement, $55,610 and $80,704 were allocated to the Partnership during the years ended December 31, 2016 and 2015, respectively.

 

The Partnership participates in oil and gas activities through a Drilling Program Agreement (the “Program”). The Partnership and MD are parties to the Program Agreement. The costs and revenues of the Program are allocated to MD and the Partnership as follows:

 

   Partnership   MD (1) 
Revenues:        
Proceeds from disposition of depreciable and depletable properties   70%   30%
All other revenues   70%   30%
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   70%   30%

 

(1)As noted above, pursuant to the Program, MD must contribute 100% of organization and offering costs and lease acquisition costs which should approximate 20% of total capital costs. To the extent that organization and offering costs and lease acquisition costs are less than 20% of total capital costs, MD is responsible for tangible drilling costs until its share of the Program’s total capital costs reaches approximately 20%. The Partnership’s financial statements reflect its respective proportionate interest in the Program.

 

 27

 

 

MEWBOURNE ENERGY PARTNERS 07-A, L.P.

  

INDEX TO EXHIBITS

 

The following documents are incorporated by reference in response to Item 15(a)3.

   

EXHIBIT
NUMBER
  DESCRIPTION
     
 3.1   Form of Certificate of Limited Partnership (filed as Exhibit 3.1 to Form 10 and incorporated herein by reference)
     
 3.2   Form of Certificate of Amendment of the Certificate of Limited Partnership (filed as Exhibit 3.2 to Form 10 and incorporated herein by reference)
     
 4.1   Form of Agreement of Partnership (filed as Exhibit 4.1 to Form 10 and incorporated herein by reference)
     
10.1   Form of Drilling Program Agreement (filed as Exhibit 10.1 to Form 10 and incorporated herein by reference)
     
10.2   Form of Operating Agreement (filed as Exhibit 10.2 to Form 10 and incorporated herein by reference)
     
 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.
     
 99.1   Report of Forrest A. Garb & Associates, Inc.
     
101   The following materials from the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2016 formatted in Extensible Business Reporting Language (XBRL): (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statements of Cash Flows, (iv) the Statement of Changes in Partners’ Capital and (v) related notes.

  

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