ITEM 1. BUSINESS.
General
PDC 1993-E Limited Partnership ("the Partnership") is a limited partnership formed on December 31, 1993 pursuant to the West Virginia Uniform Limited Partnership Act. Petroleum Development Corporation ("PDC") serves as Managing General Partner of the Partnership.
Since the commencement of operations on December 31, 1993, the Partnership has been engaged in onshore, domestic gas exploration exclusively in the northern Appalachian Basin. A total of 5 limited partners contributed initial capital of $110,000; a total of 527 additional general partners contributed initial capital of $7,248,795; and PDC (Managing General Partner) contributed $715,438 in capital as a participant in accordance with contribution provisions of the Limited Partnership Agreement (the Agreement).
Under the terms of the Agreement, the allocation of revenues is as follows: Allocation of Revenues Additional General and Limited Partners 82%
Managing General Partner 18%
Operating and direct costs are allocated and charged to the additional general and limited partners and the Managing General Partner in the same percentages as revenues are allocated. Leasehold, drilling and completion costs, and equipment costs are borne 90% by the additional general and limited partners and 10% by the Managing General Partner.
Employees
The Partnership has no employees, however, PDC has approximately 81 employees which include a staff of geologists, petroleum engineers, landmen and accounting personnel who administer all of the partnership's operations.
Plan of Operations
The Partnership participated in the drilling of approximately 36 gross wells and will continue to operate and produce its 34 gross productive wells. The Partnership does not have unexpended initial capital and no additional drilling activity is planned.
See Item 2
ITEM 2. PROPERTIES.
Drilling Activity.
The following table sets forth the results of drilling activity from December 31, 1993 (date of inception) to March 15, 1999, of the Partnership which was conducted in the continental United States.
The Partnership has not participated in any exploratory wells. No additional drilling activity is planned.
Productive Wells
The following table summarizes the Partnership's total gross and net interests in productive wells at March 15, 1999. No additional drilling activity is planned.
A "productive well" is a well producing, or capable of producing, oil and gas in commercial quantities. For purposes of the above table, a "gross well" is one in which the Partnership has a working interest and a "net well" is a gross well multiplied by the Partnership's working interest to which it is entitled under its drilling agreement.
Title to Properties
The Partnership's interests in producing acreage are in the form of assigned direct interests in leases. Such properties are subject to customary royalty interests generally contracted for in connection with the acquisition of properties and could be subject to liens incident to operating agreements, liens for current taxes and other burdens. The Partnership believes that none of these burdens materially interfere with the use of such properties in the operation of the Partnership's business. As is customary in the oil and gas industry, little or no investigation of title is made at the time of acquisition of undeveloped properties (other than a preliminary review of local mineral records). Investigations are generally made, including in most cases receiving a title opinion of legal counsel, before commencement of drilling operations. A thorough examination of title has been made with respect to all of the Partnership's producing properties and the Partnership believes that it has generally satisfactory title to such properties.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
The Managing General Partner as driller/operator is not party to any legal action that would materially affect the Managing General Partner's or Partnership's operations or financial statements.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND SECURITY HOLDER MATTERS.
At December 31, 1998, PDC 1993-E Limited Partnership had one Managing General Partner, 5 Limited Partners who fully paid for 5.50 units at $20,000 per unit of limited partnership interests and a total of 527 Additional General Partners who fully paid for 362.44 units at $20,000 per unit of additional general partnership interests. No established public trading market exists for the interests.
Limited and additional general partnership interests are transferable, however no assignee of an interest in the Partnership can become a substituted partner without the written consent of the transferor and the Managing General Partner.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data presented below has been derived from audited financial statements of the Partnership appearing elsewhere herein.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Liquidity and Capital Resources
The Partnership was funded with initial Limited and Additional General Partner contributions of $7,358,795 and the Managing General Partner contributed $715,438 in accordance with the Agreement. Offering, organization and legal costs of $919,850 were incurred leaving available capital of $7,154,383 for Partnership activities.
The Partnership began exploration and development activities subsequent to the funding of the Partnership and completed well activities by December 31, 1994. Thirty-six wells have been drilled, of which thirty-four have been completed as producing wells. No additional wells will be drilled.
The Partnership had net working capital at December 31, 1998 of $57,875.
Operations are expected to be conducted with available funds and revenues generated from oil and gas activities. No bank borrowings are anticipated.
Results of Operations
1998 Compared with 1997
Oil and gas sales decreased 19.4% in 1998 compared to 1997 due to lower average sales prices and lower sales volumes. Cash distributions to the partners decreased from $533,666 in 1997 to $409,559 during 1998 for the same reason outlined above.
1997 Compared with 1996
Oil and gas sales decreased 8.2% in 1997 compared to 1996 due to lower average sales prices and sales volumes. Cash distributions to the partners decreased from $538,408 in 1996 to $533,666 during 1997 for the reasons outlined above.
The Partnership's revenues from natural gas sales will be affected by changes in prices. Natural gas prices are subject to general market conditions which drive the pricing changes.
The principal effects of inflation upon the Partnership relate to the costs required to drill, complete and operate oil and gas wells. The Partnership expects these costs to remain somewhat stable over the next year.
Year 2000 Issue
State of Readiness
The Year 2000 Issue is the risk that computer programs using two-digit data fields will fail to properly recognize the year 2000, with the result being business interruption due to computer system failures by PDC's software or hardware or that of government entities, service providers and vendors. PDC, who administers all aspects of the Partnership, has assessed the extent of the Year 2000 Issues affecting PDC and the Partnership. PDC believes that the new computer system including operating software installed during 1998 along with modifications made by PDC's computer technicians have addressed the dating system flaw inherent in most operating systems. PDC has completed a remediation plan and believes it is currently fully Year 2000 compliant.
PDC has initiated formal communications with its significant suppliers and service providers to determine the extent to which PDC may be vulnerable to their failure to correct their own Year 2000 issues. It is expected that full identification will be completed by April 30, 1999. To the extent that responses to Year 2000 readiness are unsatisfactory, PDC intends to take appropriate action, including identifying alternative suppliers and service providers who have demonstrated Year 2000 readiness.
Cost of Readiness
PDC does not currently expect to charge the Partnership for any portion of PDC's cost to become Year 2000 Compliant.
Risks of Year 2000 Issues
PDC presently believes the Year 2000 Issue will not present a materially adverse risk to PDC's or the Partnership's future results of operations, liquidity, and capital resources. However, if the level of the timely compliance by key suppliers or service providers is not sufficient, the Year 2000 Issue could have a material impact on PDC's or the Partnership's operations including, but not limited to, increased operating costs, loss of customers or suppliers, loss of accounting functions, including well revenue distributions, or other significant disruptions to PDC's or the Partnership's business.
Contingency Plan
PDC has a contingency plan, and will implement it on any system that remains non-compliant at December 31, 1999, if any.
New Accounting Standards
Statement of Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133), was issued by the Financial Accounting Standards Board in June, 1998. Statement 133 standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts. The Partnership must adopt SFAS No. 133 by January 1, 2000; however, early adoption is permitted. On adoption, the provisions of SFAS No. 133 must be applied prospectively. At the present time, the Partnership cannot determine the impact that SFAS No. 133 will have on its financial statements upon adoption, as such impact will be based on the extent of derivative instruments, such as natural gas futures and options contracts, outstanding at the date of adoption.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
The response to this Item is set forth herein in a separate section of this Report, beginning on Page.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
NONE.
Part III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The Partnership has no directors or executive officers. The partnership is managed by Petroleum Development Corporation (the Managing General Partner). Petroleum Development Corporation's common stock is traded in the NASDAQ National Market and Form 10-K for 1998 has been filed with the Securities and Exchange Commission.
ITEM 11.
ITEM 11. MANAGEMENT REMUNERATIONS AND TRANSACTIONS.
NON-APPLICABLE.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
NON-APPLICABLE.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pursuant to the authorization contained in the Limited Partnership Agreement, PDC receives fees for services rendered and reimbursement of certain expenses from the Partnership. The following table presents compensation or reimbursements by the Partnership to PDC or other related parties during the years ended December 31.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements
See Index to Financial Statements on
(2) Financial Statement Schedules
See Index to Financial Statements on page. All financial statement schedules are omitted because they are not required, inapplicable, or the information is included in the Financial Statements or Notes thereto.
CONFORMED COPY
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, thereunto duly authorized.
PDC 1993-E Limited Partnership By its Managing General Partner Petroleum Development Corporation
By /s/ James N. Ryan James N. Ryan, Chairman
March 24, 1999
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 dates indicated:
Signature Title Date
/s/ James N. Ryan Chairman, Chief Executive James N. Ryan Officer and Director March 24, 1999
/s/ Steven R. Williams President and Director Steven R. Williams March 24, 1999
/s/ Dale G. Rettinger Executive Vice President, Dale G. Rettinger Treasurer and Director March 24, 1999 (principal financial and accounting officer)
/s/ Roger J. Morgan Secretary and Director Roger J. Morgan March 24, 1999
PDC 1993-E LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Financial Statements for Annual Report on Form 10-K to Securities and Exchange Commission
Years Ended December 31, 1998, 1997 and 1996
(With Independent Auditors' Report Thereon)
PDC 1993-E LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Independent Auditors' Report Balance Sheets - December 31, 1998 and 1997 Statements of Operations - Years Ended December 31, 1998, 1997 and 1996 Statements of Partners' Equity - Years Ended December 31, 1998, 1997 and 1996 Statements of Cash Flows - Years Ended December 31, 1998, 1997 and 1996 Notes to Financial Statements
All financial statement schedules have been omitted because they are not applicable or not required or for the reason that the required information is shown in the financial statements or notes thereto.
Independent Auditors' Report
To the Partners PDC 1993-E Limited Partnership:
We have audited the financial statements of PDC 1993-E Limited Partnership (a West Virginia limited partnership) as listed in the accompanying index. 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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 PDC 1993-E Limited Partnership as of December 31, 1998 and 1997, and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 1998, in conformity with generally accepted accounting principles.
KPMG LLP
Pittsburgh, Pennsylvania March 23, 1999
PDC 1993-E LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Balance Sheets
December 31, 1998 and 1997
See accompanying notes to financial statements.
PDC 1993-E LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Statements of Operations
Years Ended December 31, 1998, 1997 and 1996
See accompanying notes to financial statements.
PDC 1993-E LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Statements of Partners' Equity
Years Ended December 31, 1998, 1997 and 1996
See accompanying notes to financial statements.
PDC 1993-E LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Statements of Cash Flows
Years Ended December 31, 1998, 1997 and 1996
See accompanying notes to financial statements.
PDC 1993-E LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Notes to Financial Statements
Years Ended December 31, 1998, 1997 and 1996
(1) Summary of Significant Accounting Policies
Partnership Financial Statement Presentation Basis
The financial statements include only those assets, liabilities and results of operations of the partners which relate to the business of PDC 1993-E Limited Partnership (the Partnership). The statements do not include any assets, liabilities, revenues or expenses attributable to any of the partners' other activities.
Oil and Gas Properties
The Partnership follows the successful efforts method of accounting for the cost of exploring for and developing oil and gas reserves. Under this method, costs of development wells, including equipment and intangible drilling costs related to both producing wells and developmental dry holes, and successful exploratory wells are capitalized and amortized on an annual basis to operations by the units-of-production method using estimated proved developed reserves determined by the Managing General Partner's petroleum engineers at December 31, 1998, 1997 and 1996. If a determination is made that an exploratory well has not discovered economically producible reserves, then its costs are expensed as dry hole costs.
The Partnership assesses impairment of capitalized costs of proved oil and gas properties by comparing net capitalized costs to undiscounted future cash flows on a field-by-field basis using expected prices. Prices utilized in each years calculation for measurement purposes and expected costs are held constant. If net capitalized costs exceed undiscounted future net cash flow, the measurement of impairment is based on estimated fair value which would consider future discounted cash flows.
Based on the Managing General Partner's experience, management believes site restoration, dismantlement and abandonment costs, net of salvage to be immaterial in relation to operating costs. These costs are being expensed when incurred.
Other Assets
Other assets consist of costs incurred to organize the entity as a limited partnership. Other assets are fully amortized as of December 31, 1998.
Income Taxes
Since the taxable income or loss of the Partnership is reported in the separate tax returns of the partners, no provision has been made for income taxes on the Partnership's books.
Under federal income tax laws, regulations and administrative rulings, certain types of transactions may be accorded varying interpretations. Accordingly, the Partnership's tax return and, consequently, individual tax returns of the partners may be changed to conform to the tax treatment resulting from a review by the Internal Revenue Service.
(Continued)
PDC 1993-E LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Notes to Financial Statements, Continued
Use of Estimates
Management of the Partnership has made a number of estimates and assumptions relating to the reporting of assets and liabilities and revenues and expenses and the disclosure of contingent assets and liablities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. Estimates which are particularly significant to the financial statements include estimates of oil and gas reserves and future cash flows from oil and gas properties.
(2) Organization
The Partnership was organized as a limited partnership on December 31, 1993 in accordance with the laws of the State of West Virginia for the purpose of engaging in the drilling, completion and operation of oil and gas development and exploratory wells in West Virginia.
Purchasers of partnership units subscribed to and fully paid for 5.5 units of limited partner interests and 362.44 units of additional general partner interests at $20,000 per unit (collectively, Investor Partners). Petroleum Development Corporation has been designated the Managing General Partner of the Partnership. Although costs, revenues and cash distributions allocable to the limited and additional general partners are shared pro rata based upon the amount of their subscriptions, including the Managing General Partner to the extent of its 10% capital contributions, there are significant differences in the federal income tax effects and liability associated with these different types of units in the Partnership.
Upon written notice to the Managing General Partner, additional general partners have the right to convert their units into units of limited partner interests at any time after one year and thereafter become limited partners of the Partnership. Limited partners do not have any rights to convert their units into units of additional general partner interests in the Partnership.
In accordance with the terms of the Partnership Agreement (the Agreement), the Managing General Partner manages all activities of the Partnership and acts as the intermediary for substantially all Partnership transactions.
(3) Transactions with Managing General Partner and Affiliates
The Partnership's transactions with the Managing General Partner include charges for the following:
(Continued)
PDC 1993-E LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Notes to Financial Statements, Continued
(4) Allocation
The table below summarizes the participation of the Managing General Partner and the Investor Partners, taking account of the Managing General Partner's capital contribution equal to 10% of the Initial Operating Capital, in the costs and revenues of the Partnership.
[FN] (1) Represents operating costs incurred after the completion of productive wells, including monthly per-well charges paid to the Managing General Partner.
(2) Direct costs were allocated 90% to the Investor Partners and 10% to the Managing General Partner during drilling. After drilling, allocations are made in accordance with the table above. The Managing General Partner receives monthly reimbursement from the Partnership for direct costs incurred by the Managing General Partner on behalf of the Partnership.
(3) Although borrowings by the Partnership are not anticipated, interest, associated expenses of borrowings, and deductions attributable to such borrowings if any, will be allocated and charged to the Investor Partners and the Managing General Partner according to the partners' shares of "economic risk of loss" in the loans, or, if no partner bears the economic risk of loss, in accordance with the partnership agreement.
(4) The revenues and expenses allocated to the partners are subject to a special provision in the partnership agreement, whereby the allocable share of revenues and expenses of the Investor Partners in each producing well may be increased and the interest of the Managing General Partner in each well may be decreased if such well fails to meet certain production levels. The shifting of the allocable share of revenues and expenses to the Investor Partners in the event that certain prescribed production levels are not attained may also serve to shift an increased amount of cash distributions to the Investor Partners and a decreased amount of cash distributions to the Managing General Partner.
(Continued)
PDC 1993-E LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Notes to Financial Statements, Continued
(5) In the event of the sale or other disposition of a productive well, a lease upon which such well is situated, or any equipment related to any such lease or well, the proceeds from such sale or disposition shall be allocated and credited to the partners as oil and gas revenues are allocated. The term "proceeds" above does not include revenues from a royalty, overriding royalty, lease interest reserved, or other promotional consideration received by the Partnership in connection with any sale or disposition, which revenues shall be allocated to the Investor Partners and the Managing General Partner in the same percentages that oil and gas revenues are allocated. No such sales have occurred.
(5) Costs Relating to Oil and Gas Activities
The Partnership is engaged solely in oil and gas activities, all of which are located in the continental United States. Information regarding aggregate capitalized costs and results of operations for these activities is located in the basic financial statements. Costs capitalized for these activities are presented below:
(6) Income Taxes
As a result of the differences in the treatment of certain items for income tax purposes as opposed to financial reporting purposes, primarily depreciation, depletion and amortization of oil and gas properties and the recognition of intangible drilling costs as an expense or capital item, the income tax basis of oil and gas properties differs from the basis used for financial reporting purposes. At December 31, 1998 and 1997, the income tax basis of the partnership's oil and gas properties was $546,346 and $723,978, respectively.
PDC 1993-E LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Notes to Financial Statements, Continued
(7) Supplemental Reserve Information (Unaudited)
Proved reserves of the Partnership have been estimated by the Managing General Partner's petroleum engineers at December 31, 1998, 1997 and 1996. These reserves have been prepared in compliance with the Securities and Exchange Commission rules based on year end prices. A copy of the reserve report has been made available to all partners. All of the partnership's reserves are proved developed. An analysis of the change in estimated quantities of proved developed reserves is shown below: