ITEM 1. BUSINESS.
General
PDC 1999-A Limited Partnership ("the Partnership") is a limited partnership formed on May 24, 1999 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 May 24, 1999, the Partnership has been engaged in onshore, domestic gas exploration exclusively in the northern Appalachian and Michigan Basins. A total of 3 limited partners contributed initial capital of $50,000 and a total of 219 additional general partners contributed initial capital of $4,750,739 and PDC (Managing General Partner) contributed $1,044,161 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 80% Managing General Partner 20%
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 80% by the additional general and limited partners and 20% by the Managing General Partner.
Employees
The Partnership has no employees, however, PDC has approximately 91 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 twenty-four gross wells and will continue to operate and produce its twenty-four 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 May 24, 1999 (date of inception) to March 15, 2000, of the Partnership which was conducted in the Continental United States.
Development Wells Gross Net Productive Dry Total Productive Dry Total Period Ended March 15, 2000. . . 24 - 24 16.32833 - 16.32833
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, 2000.
24 16.32833
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 what 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, 1999, PDC 1999-A Limited Partnership had one Managing General Partner and a total of 3 Limited Partners who fully paid for 2.50 units at $20,000 per unit of limited partnership interest, a total of 219 Additional General Partners who fully paid for 237.537 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.
Period from May 24, 1999 (date of inception) to December 31, 1999
Oil and Gas Sales . . . . . . . . . . . . . . . . . . $ 197,277 Costs and Expenses . . . . . . . . . . . . . . . . . . 288,925 Net Loss. . . . . . . . . . . . . . . . . . . . . . . (76,864) Allocation of Net income (loss): Managing General Partner. . . . . . . . . . . . . 8,631 Limited and Additional General Partners . . . . . (85,495) Per Limited and Additional General Partner Unit . (356) Total Assets. . . . . . . . . . . . . . . . . . . . . 5,244,972 Distributions: Managing General Partner. . . . . . . . . . . . . 6,300 Limited and Additional General Partners . . . . . 25,199
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 $4,800,739 and the Managing General Partner contributed $1,044,161 in accordance with the Agreement. Syndication cost and management fee of $624,096 were incurred leaving available capital of $5,220,804 for Partnership activities.
The Partnership began exploration and development activities subsequent to the funding of the Partnership and completed these activities by December 31, 1999. Twenty-four wells have been drilled, all of which have been completed as producers. No additional wells will be drilled.
The Partnership had net working capital at December 31, 1999 of $126,946.
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
1999 Results
Oil and gas sales production commenced during the third quarter of 1999 with revenue distributions to the partners commencing in November, 1999. Included in the net loss of $76,864 was depreciation, depletion and amortization of $115,291 which is a non-cash expense therefore the partnership was able to distribute cash to the partners which amounted to $31,499 during 1999.
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
The Partnership experienced no known disruptions as a result of the year date change and intends to continue monitoring its critical systems at various other date changes during the Year 2000.
The Partnership expenditures for addressing Year 2000 issues were not material, nor does the Partnership expect to incur any significant costs addressing Year 2000 issues in the future.
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. SFAS No. 133 standardized the accounting for derivative instruments, including certain derivative instruments embedded in other contracts. SFAS No. 133 is effective for years beginning after June 15, 2000; however, early adoption is permitted. On adoption, the provisions of SFAS No. 133 must be applied prospectively. At the present time, the Company 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 option 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 1999 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 period ended December 31, 1999.
Lease acquisitions at cost $ 161,436 Footage Drilling Contracts, Services, Chemicals, Supplies, and Equipment 5,059,368 Lifting costs 41,063 Syndication cost and management fee 624,096 Tax return preparation 2,865 Direct administrative cost 1,290
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 1999-A Limited Partnership By its Managing General Partner Petroleum Development Corporation
By /s/ James N. Ryan James N. Ryan, Chairman
March 22, 2000
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 22, 2000
/s/ Steven R. Williams President and Director Steven R. Williams March 22, 2000
/s/ Dale G. Rettinger Executive Vice President, Dale G. Rettinger Treasurer and Director March 22, 2000 (principal financial and accounting officer)
/s/ Roger J. Morgan Secretary and Director Roger J. Morgan March 22, 2000
PDC 1999-A LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Financial Statements for Annual Report on Form 10-K to Securities and Exchange Commission
Period from May 24, 1999 (Date of Inception) to December 31, 1999
(With Independent Auditors' Report Thereon)
PDC 1999-A LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Independent Auditors' Report Balance Sheet - December 31, 1999 Statement of Operations - Period from May 24, 1999 (Date of Inception) to December 31, 1999 Statement of Partners' Equity - Period from May 24, 1999 (Date of Inception) to December 31, 1999 Statement of Cash Flows - Period from May 24, 1999 (Date of Inception) to December 31, 1999 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 1999-A Limited Partnership:
We have audited the financial statements of PDC 1999-A 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 audit.
We conducted our audit 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 audit provides 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 1999-A Limited Partnership as of December 31, 1999, and the results of its operations and its cash flows for the period from May 24, 1999 (date of inception) to December 31, 1999, in conformity with generally accepted accounting principles.
KPMG LLP
Pittsburgh, Pennsylvania March 22, 2000
PDC 1999-A LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Balance Sheet
December 31, 1999
See accompanying notes to financial statements.
PDC 1999-A LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Statement of Operations
Period from May 24, 1999 (Date of Inception) to December 31, 1999
See accompanying notes to financial statements.
PDC 1999-A LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Statement of Partners' Equity
Period from May 24, 1999 (Date of Inception) to December 31, 1999
See accompanying notes to financial statements.
PDC 1999-A LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Statement of Cash Flows
Period from May 24, 1999 (Date of Inception) to December 31, 1999
See accompanying notes to financial statements.
PDC 1999-A LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Notes to Financial Statements
December 31, 1999
(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 1999-A 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 at year end by an independent petroleum engineer, Wright & Company, Inc. 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.
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 1999-A LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Notes to Financial Statements, Continued
Derivatives and Hedging Activities
The Managing General Partner utilizes commodity based derivative instruments as hedges to manage a portion of its and various limited partnerships' exposure to price volatility stemming from natural gas production and marketing activities. These instruments consist of natural gas futures and option contracts traded on the New York Mercantile Exchange. The futures and option contracts hedge committed and anticipated natural gas purchases and sales, generally forecasted to occur within a 12 month period. The Managing General Partner does not hold or issue derivatives for trading or speculative purposes and permits utilization of hedges only if there is an underlying physical position.
As of December 31, 1999 and 1998, the Managing General Partner had futures contracts for the purchase of $4,318,000 and $1,120,300 of natural gas, respectively relating to the Managing General Partner and the Managing General Partner's various limited partnerships. While these contracts have nominal carrying value, their fair value, represented by the estimated amount that would be received upon termination of the contracts, based on market quotes, was a net value of $350,000 at December 31, 1999 and $(105,400) at December 31, 1998. Realized gains and losses on these contracts are allocated to the Managing General Partner and the Managing General Partner's various limited partnerships.
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 liabilities 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 May 24, 1999, 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 the Northern Appalachian and Michigan Basins.
Purchasers of partnership units subscribed to and fully paid for 2.50 units of limited partner interest and 237.537 units of additional general partner interests at $20,000 per unit (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 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 completion of the drilling phase of the Partnership's wells, all additional general partners units are converted into units of limited partner interests 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.
PDC 1999-A LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Notes to Financial Statements, Continued
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:
Period from May 24, 1999 (date of inception) to December 31, 1999
Drilling and completion costs $5,059,368 Lease acquisitions, at cost 161,436 Offering and organization costs (includes reimbursements of syndication cost and management fee) 624,096 Lifting costs 41,063 Tax return preparation 2,865 Direct administrative cost 1,290
(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 a minimum of 20% of the Initial Operating Capital, in the costs and revenues of the Partnership. Managing Investor General Partners(2)(3) Partner (2)(3) Partnership Costs
Broker-dealer Commissions and Expenses(1). . 100% 0% Management Fee . . . . . . . . . . . . . . . 100% 0% Lease Costs. . . . . . . . . . . . . . . . . 0% 100% Tangible Well Costs. . . . . . . . . . . . . 0% 100% Intangible Drilling and Development Costs. . 100% 0% Total Drilling and Completion Costs. . . . . 80% 20% Operating Costs. . . . . . . . . . . . . . . 80% 20% Direct Costs . . . . . . . . . . . . . . . . 80% 20% Administrative Costs . . . . . . . . . . . . 0% 100%
Partnership Revenues
Sale of Oil and Gas Production . . . . . . . 80% 20% Sale of Productive Properties. . . . . . . . 80% 20% Sale of Equipment . . . . . . . . . . . . . 0% 100% Sale of Undeveloped Leases . . . . . . . . . 80% 20% Interest Income. . . . . . . . . . . . . . . 80% 20% ____________________
(1) Organization and Offering Costs, net of the Dealer Manager commissions, discounts, due diligence expenses, and wholesaling fees of the Partnership were paid by the Managing General Partner and not from Partnership funds. In addition, Organization and Offering Costs in excess of 10-1/2% of Subscriptions were paid by the Managing General Partner, without recourse to the Partnership.
PDC 1999-A LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Notes to Financial Statements, Continued
(2) To the extent that Investor Partners receive preferred cash distributions, the allocations for Investor Partners will be increased accordingly and the allocation for the Managing General Partner will likewise be decreased.
(3) As set forth in the following paragraph, the allocation of profits, losses and cash distributions of the Managing General Partner might be increased, and the allocation of profits, losses, and cash distributions of the Investor Partners might be decreased in the event that the Managing General Partner were to invest more than the Managing General Partner's minimum required Capital Contribution to cover tangible equipment and lease costs.
The Managing General Partner will pay for the Partnership's share of all Leases and tangible well equipment. The entire Capital Contribution of the Investor Partners, after payment of brokerage commissions, due diligence reimbursement, and the Management Fee, will be utilized to pay for intangible drilling costs. In the event that the Intangible Drilling Costs exceed the funds of the Investor Partners available for payment of Intangible Drilling Costs (herein "excess IDC"), a portion of the Capital Contribution of the Managing General Partner may be used to pay such excess IDC. If the cost of Leases and tangible well equipment were to exceed the Managing General Partner's Capital Contribution of 21-3/4 percent of the aggregate Capital Contribution of the Investor Partners, then the Managing General Partner will increase its Capital Contribution to fund such additional capital requirements and the Managing General Partner's allocation of profits, losses, and cash distributions will be increased to equal the percentage arrived at by dividing the Capital Contribution made by the Managing General Partner by the Capital Available for Investment; the allocation of the Investor Partners will be decreased accordingly.
(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 at December 31, 1999, are as follows:
Lease acquisitions at cost $ 161,436 Intangible development costs 4,213,663 Well equipment 845,705 $ 5,220,804
The following costs were incurred for the Partnership's oil and gas activities: Period from May 24, 1999 (date of inception) to December 31, 1999
Costs incurred: Property acquisition costs $ 161,436 Development costs 5,059,368 $5,220,804
PDC 1999-A LIMITED PARTNERSHIP (A West Virginia Limited Partnership)
Notes to Financial Statements
(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, 1999, the income tax basis of the Partnership's oil and gas properties was $966,551.
(7) Supplemental Reserve Information (Unaudited)
Proved oil and gas reserves of the Partnership have been estimated by an independent petroleum engineer, Wright & Company, Inc. 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 oil and gas reserves is shown below:
Natural gas (mcf)
Proved developed reserves as of May 24, 1999 (date of inception) - Extensions, discoveries and other additions 3,842,839 Production (73,639)
Proved developed reserves as of December 31, 1999 3,769,200