1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 2001.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PIONEER NATURAL RESOURCES COMPANY
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 1311 75-2702753
(State or Other Jurisdiction of (Primary standard industrial (I.R.S. Employer
Incorporation or Organization) classification code number) Identification No.)
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 77039
(972) 444-9001
(Address, including zip code, and
telephone number, including area code, of
registrant's principal executive offices)
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SCOTT D. SHEFFIELD
PIONEER NATURAL RESOURCES COMPANY
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 77039
(972) 444-9001
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
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COPIES TO:
ROBERT L. KIMBALL BRIAN M. LIDJI
VINSON & ELKINS L.L.P. SAYLES, LIDJI & WERBNER, A PROFESSIONAL
3700 TRAMMELL CROW CENTER CORPORATION
2001 ROSS AVENUE 4400 RENAISSANCE TOWER
DALLAS, TEXAS 75201 1201 ELM STREET
(214) 220-7700 DALLAS, TEXAS 75270
(214) 939-8700
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement which
relates to the merger of limited partnerships with and into Pioneer Natural
Resources USA, Inc. pursuant to the merger agreement described in the enclosed
proxy statement/prospectus.
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If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
=====================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) OFFERING PRICE(2) FEE(2)
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Common Stock, $0.01 par value 5,122,138 $6.09 $31,200,000 $7,800
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(1) Based upon the registrant's estimate of the maximum number of shares
that might be issued in connection with the proposed merger transaction.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f), based on the book value of the unaffiliated partnership
interests to be cancelled in the transaction, computed as of the latest
practicable date, less the amount of cash to be paid by the registrant in the
transaction. A filing fee of $20,500 is being paid pursuant to the filing on the
date hereof by the registrant and Pioneer Natural Resources USA, Inc. of a
preliminary Schedule 13e-3. Pursuant to Rule 240.0-11(a)(2) of the Securities
Exchange Act of 1934, this amount has been credited against the amount that
would otherwise be payable in connection with this filing, resulting in no
additional payment herewith.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
NOTICE OF SPECIAL MEETINGS OF LIMITED PARTNERS
TO BE HELD ON , 2001
To the Limited Partners of 46
Parker & Parsley Limited Partnerships:
This is a notice that a special meeting of the limited partners of each of
the following 46 limited partnerships will be held on , 2001, at 10:00
a.m., at the Dallas Marriott Las Colinas Hotel, Irving, Texas 75039:
Parker & Parsley 81-I, Ltd. Parker & Parsley 88-A Conv., L.P.
Parker & Parsley 81-II, Ltd. Parker & Parsley 88-A, L.P.
Parker & Parsley 82-I, Ltd. Parker & Parsley 88-B Conv., L.P.
Parker & Parsley 82-II, Ltd. Parker & Parsley 88-B, L.P.
Parker & Parsley 82-III, Ltd. Parker & Parsley 88-C Conv., L.P.
Parker & Parsley 83-A, Ltd. Parker & Parsley 88-C, L.P.
Parker & Parsley 83-B, Ltd. Parker & Parsley Producing Properties 88-A, L.P.
Parker & Parsley 84-A, Ltd. Parker & Parsley Private Investment 88, L.P.
Parker & Parsley 85-A, Ltd. Parker & Parsley 89-A Conv., L.P.
Parker & Parsley 85-B, Ltd. Parker & Parsley 89-A, L.P.
Parker & Parsley Private Investment 85-A, Ltd. Parker & Parsley 89-B Conv., L.P.
Parker & Parsley Selected 85 Private Investment, Ltd. Parker & Parsley 89-B, L.P.
Parker & Parsley 86-A, Ltd. Parker & Parsley Private Investment 89, L.P.
Parker & Parsley 86-B, Ltd. Parker & Parsley 90-A Conv., L.P.
Parker & Parsley 86-C, Ltd. Parker & Parsley 90-A, L.P.
Parker & Parsley Private Investment 86, Ltd. Parker & Parsley 90-B Conv., L.P.
Parker & Parsley 87-A Conv., Ltd. Parker & Parsley 90-B, L.P.
Parker & Parsley 87-A, Ltd. Parker & Parsley 90-C Conv., L.P.
Parker & Parsley 87-B Conv., Ltd. Parker & Parsley 90-C, L.P.
Parker & Parsley 87-B, Ltd. Parker & Parsley Private Investment 90, L.P.
Parker & Parsley Producing Properties 87-A, Ltd. Parker & Parsley 90 Spraberry Private Development, L.P.
Parker & Parsley Producing Properties 87-B, Ltd. Parker & Parsley 91-A, L.P.
Parker & Parsley Private Investment 87, Ltd. Parker & Parsley 91-B, L.P.
Parker & Parsley Petroleum USA, Inc. and other predecessors of Pioneer
Natural Resources USA, Inc., a Delaware corporation that we call Pioneer USA,
sponsored each of the partnerships. Pioneer USA is the managing or sole general
partner of each of the partnerships. Pioneer USA is a direct 100% owned
subsidiary of Pioneer Natural Resources Company, a Delaware corporation that we
call Pioneer.
The purpose of the special meeting for each partnership in which you own an
interest is for you to consider and vote on the following matters:
1. A proposal to approve an Agreement and Plan of Merger dated as of ,
2001, among Pioneer, Pioneer USA and each of the partnerships. Each partnership
that approves this proposal, which we call a participating partnership, will
merge with and into Pioneer USA, with Pioneer USA surviving the merger. Each
partnership interest of a participating partnership, other than Pioneer USA's
partnership interests, will be converted into shares of common stock, par value
$.01 per share, of Pioneer and an amount of cash. The number of shares of common
stock Pioneer will offer and the amount of cash to be paid for all partnership
interests of a participating partnership will be based on the participating
partnership's merger value. The merger value for a participating partnership is
equal to the sum of the present value of estimated future net revenues from the
partnership's oil and gas reserves and its net working capital, in each case as
of March 31, 2001. The amount of cash to be paid will equal 25% of the merger
value for a participating partnership. The remaining 75% of the merger value for
a participating partnership will be paid in shares of Pioneer common stock based
on the average closing price of the Pioneer common stock, as reported by the New
York Stock Exchange, for the ten trading days ending three business days before
the date of the special meeting for the partnership. For purposes of
illustration in this document, we have calculated the merger value based on each
partnership's working capital as of December 31, 2000, and the number of shares
to be issued based on an assumed average closing price of $18.00 per share of
Pioneer common stock. We will update the calculation of the merger value using
the March 31, 2001 working capital of each partnership before mailing this
document to the limited partners, and prior to the date of the special meeting
for each partnership, we will update the number of shares to be issued using the
actual average closing price of Pioneer common stock for the ten trading days
ending three business days before the date of the special meeting. The Pioneer
common stock and the cash payment will be allocated among the partners based on
the liquidation provisions of each partnership agreement. Pioneer will not issue
fractional shares to any limited partner upon completion of the merger of any
partnership. Instead, Pioneer will round any fractional shares of Pioneer common
stock up to the nearest whole share and will reduce the cash payment to a
limited partner of a participating partnership by the amount rounded up based on
the average closing price per share used in determining the number of shares of
Pioneer common stock to be offered. Pioneer USA will not receive any Pioneer
common stock or cash payment for its partnership interests in the participating
partnerships.
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2. A proposal to amend the partnership agreement of each partnership to
permit the partnership's merger with Pioneer USA. If the amendment is not
approved, that partnership cannot merge into Pioneer USA even if the partners of
that partnership approve the merger agreement.
3. A proposal (A) to approve the opinion issued to Pioneer USA by on behalf
of the limited partners of each partnership that neither the grant nor the
exercise of the right to approve the merger of the partnership by its limited
partners (1) will result in the loss of any limited partner's limited liability
or (2) will adversely affect the federal income tax classification of the
partnership or any of its limited partners and (B) to approve the selection of
as special legal counsel for the limited partners of each partnership to render
the legal opinion.
4. Other business that properly comes before the special meeting or any
adjournments or postponements of the special meeting. We are not aware of any
other business for the special meeting.
The accompanying proxy statement/prospectus contains information about each
merger, including the amount of Pioneer common stock that will be offered and
amount of cash that will be paid to limited partners per $1,000 initial
investment in each partnership, and descriptions of the merger agreement, the
merger amendment and the legal opinion of the special legal counsel for the
limited partners. The proxy statement/prospectus also contains a copy of the
merger agreement, the merger amendment and the legal opinion.
Pioneer USA set the close of business on , 2001, as the record date to
identify the limited partners who are entitled to notice of and to vote at each
special meeting or any adjournments or postponements of the special meeting.
During the ten business days before the special meeting, you may examine lists
of the limited partners of each partnership in which you own an interest at the
offices of Pioneer USA during normal business hours for any purpose relevant to
the special meeting for each partnership in which you own an interest.
ON , 2001, PIONEER USA'S BOARD OF DIRECTORS UNANIMOUSLY DETERMINED
THAT THE MERGER OF EACH PARTNERSHIP IN WHICH YOU OWN AN INTEREST IS ADVISABLE,
FAIR TO YOU AS AN UNAFFILIATED LIMITED PARTNER, AND IN YOUR BEST INTERESTS. THE
BOARD RECOMMENDS THAT YOU, AS AN UNAFFILIATED LIMITED PARTNER, VOTE FOR THE
MERGER AGREEMENT, THE MERGER AMENDMENT, THE SELECTION OF SPECIAL LEGAL COUNSEL
FOR THE LIMITED PARTNERS AND THAT COUNSEL'S LEGAL OPINION FOR EACH PARTNERSHIP
IN WHICH YOU OWN AN INTEREST. ALTHOUGH PIONEER USA'S BOARD OF DIRECTORS HAS
ATTEMPTED TO FULFILL ITS FIDUCIARY DUTIES TO YOU, PIONEER USA'S BOARD OF
DIRECTORS HAD CONFLICTING INTERESTS IN EVALUATING EACH MERGER BECAUSE EACH
MEMBER OF ITS BOARD OF DIRECTORS IS ALSO AN OFFICER OF PIONEER. Each partnership
requires a favorable vote of the holders of a majority of its limited
partnership interests to approve the merger agreement, the merger amendment, the
selection of special legal counsel for the limited partners and that counsel's
legal opinion, except that Parker & Parsley 91-A, L.P. and Parker & Parsley
91-B, L.P. each require the favorable vote of the holders, other than Pioneer
USA, of 66 2/3% of its limited partnership interests to approve those merger
proposals.
IF YOU DO NOT SEND IN YOUR PROXY CARD OR VOTE AT THE SPECIAL MEETING FOR A
PARTNERSHIP IN WHICH YOU OWN AN INTEREST, IT WILL HAVE THE SAME EFFECT AS IF YOU
VOTED AGAINST THE MERGER OF THAT PARTNERSHIP.
You are requested to sign, vote and date the enclosed proxy card and return
it promptly in the enclosed envelope, even if you expect to be present at each
special meeting for the partnerships in which you own an interest. If you give a
proxy, you can revoke it at any time before the special meeting for the
partnership as to which you are revoking your proxy. If you are present at the
special meeting for a partnership in which you own an interest, you may withdraw
your proxy and vote in person.
By Order of the Board of Directors,
, 2001
Mark L. Withrow
Director, Executive Vice President, General
Counsel and Secretary
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
[PIONEER NATURAL RESOURCES LOGO]
PRELIMINARY PROXY STATEMENT/PROSPECTUS, SUBJECT TO COMPLETION, DATED APRIL 17,
2001
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
, 2001
Dear Limited Partners:
We at Pioneer Natural Resources USA, Inc. invite you to attend the special
meeting of limited partners for each partnership described below in which you
own an interest. Each special meeting will be held on , 2001, at 10:00 a.m., at
the Dallas Marriott Las Colinas Hotel, Irving, Texas 75039. The purpose of each
special meeting is for you to vote on the merger of each partnership in which
you own partnership interests that, if completed, will result in your receiving
common stock of Pioneer Natural Resources Company, a Delaware corporation that
we call Pioneer, and cash for your partnership interests. If you and the other
limited partners of a partnership approve the merger of the partnership, the
partnership will be merged with and into Pioneer Natural Resources USA, Inc., a
Delaware corporation and 100% owned subsidiary of Pioneer that we call Pioneer
USA, with Pioneer USA surviving the merger.
Pioneer and Pioneer USA desire to acquire 46 limited partnerships. We are a
direct 100% owned subsidiary of Pioneer and we are the managing or sole general
partner of each of the partnerships. Our predecessors, including Parker &
Parsley Petroleum USA, Inc., originally sponsored each of the partnerships. The
partnerships are Texas and Delaware limited partnerships. They were formed from
1981 through 1991 to acquire, develop and produce oil and gas reserves.
We have retained Robert A. Stanger & Co., Inc., which we call Stanger, to
issue a fairness opinion in connection with the merger of each partnership.
Stanger's opinion is dated as of , 2001 and, subject to the qualifications
stated in that opinion, states that the merger value for each partnership and
the allocation of the merger value of the partnership (1) to the limited
partners of the partnership as a group, (2) to the general partners of the
partnership as a group, (3) to Pioneer USA as the managing or sole general
partner of the partnership, (4) to the unaffiliated limited partners of the
partnership as a group and (5) to the unaffiliated limited partners of the
nonmanaging general partner, if any, of the partnership as a group, is fair to
the unaffiliated limited partners of the partnership and the unaffiliated
limited partners of the nonmanaging general partner, if any, of the partnership,
from a financial point of view. The written opinion of Stanger is contained in
this document. You should read all of it carefully.
We can complete the merger of each partnership only if the holders of a
majority, or 66 2/3% for Parker & Parsley 91-A, L.P. and Parker & Parsley 91-B,
L.P., of its limited partnership interests approve the merger agreement, the
amendment to the partnership agreement to permit the merger, the selection of
special legal counsel for the limited partners and that counsel's legal opinion.
This document provides information about each proposed merger. It includes a
copy of the merger agreement, the merger amendment and the legal opinion of the
special legal counsel for the limited partners. This document also constitutes a
prospectus by Pioneer for up to an aggregate of 4,268,471 shares of Pioneer
common stock to be issued in the proposed merger transaction. Please give all of
this information your careful attention.
YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the special
meeting for each partnership in which you own an interest, please take the time
to vote by completing and mailing to us the enclosed proxy card. This will not
prevent you from revoking your proxy at any time prior to the special meeting
for each partnership in which you own an interest or from voting your
partnership interests in person if you later choose to attend the special
meeting for each partnership in which you own an interest.
We intend to mail certificates representing shares of Pioneer common stock
and checks to the partners of each partnership that approves the merger
transaction promptly after completing the merger of the partnership.
Certificates representing partnership interests will be automatically cancelled,
and you will not have to surrender your certificates to receive the Pioneer
common stock and the cash payment.
YOUR CERTIFICATE THAT YOU ARE NOT A FOREIGN PERSON, WHICH WE CALL A
CERTIFICATION OF NON-FOREIGN STATUS, IS IMPORTANT. Whether or not you plan to
vote on the merger of each partnership in which you own an interest, please take
the time to complete and return to us the enclosed certification of non-foreign
status. If we receive a properly completed certification of non-foreign status
from you, we will not withhold federal income taxes on the Pioneer common stock
and cash to be paid to you upon the merger of each partnership in which you own
an interest.
Sincerely,
Mark L. Withrow
Director, Executive Vice President, General
Counsel and Secretary
YOU SHOULD CAREFULLY CONSIDER THE RISKS RELATING TO THE MERGER OF EACH
PARTNERSHIP IN WHICH YOU OWN AN INTEREST DESCRIBED IN "RISK FACTORS" BEGINNING
ON PAGE 17. THESE INCLUDE:
o THE MERGER VALUE FOR THE PARTNERSHIP DETERMINES THE AMOUNT OF PIONEER
COMMON STOCK AND CASH YOU WILL RECEIVE IN THE MERGER OF THE
PARTNERSHIP. PIONEER AND PIONEER USA DETERMINED EACH MERGER VALUE AND
WILL NOT ADJUST IT FOR CHANGES IN PARTNERSHIP VALUE BEFORE THE MERGER
IS COMPLETED.
o YOU WERE NOT INDEPENDENTLY REPRESENTED IN ESTABLISHING THE TERMS OF
ANY MERGER.
o OUR BOARD OF DIRECTORS HAD CONFLICTING INTERESTS IN EVALUATING EACH
MERGER BECAUSE EACH MEMBER OF OUR BOARD OF DIRECTORS IS ALSO AN
OFFICER OF PIONEER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED ANY OF THE MERGERS, THE PIONEER COMMON STOCK TO BE
ISSUED IN EACH MERGER OR THE FAIRNESS OR THE MERITS OF EACH MERGER OR HAVE
DETERMINED WHETHER THE INFORMATION CONTAINED IN THIS DOCUMENT IS ACCURATE OR
ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement/prospectus is dated , 2001. It is first being
mailed to the limited partners on or about , 2001.
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PIONEER NATURAL RESOURCES COMPANY
o PROVED RESERVE BASE: 3.8 TRILLION CUBIC FEET EQUIVALENT OR 628 MILLION
BARRELS OF OIL EQUIVALENT
o RESERVE BALANCE: 50% GAS, 50% LIQUIDS (OIL AND NATURAL GAS LIQUIDS)
o RESERVES/PRODUCTION RATIO: 14 YRS
o DRILLING INVENTORY: 1,700+ LOCATIONS
o EXPLORATION PROGRAM EXPECTED TO ADD NEW RESERVES AND PRODUCTION:
o DEEPWATER GULF OF MEXICO
o SOUTH AFRICA
[MAP]
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TABLE OF CONTENTS
Page
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QUESTIONS AND ANSWERS ABOUT THE
MERGER OF EACH PARTNERSHIP .............................. --
SUMMARY .................................................... 1
RISK FACTORS ............................................... 17
Risk Factors Relating to the Merger of Each
Partnership ............................................. 17
The Merger Values Involve Estimates
that Will Not Be Adjusted ........................... 17
The Number of Shares of Pioneer Common
Stock the Limited Partners of Each
Partnership Will Receive May Decrease
Between Now and the Completion of the
Merger of the Partnership ........................... 17
Current Market Prices for Oil and Gas
May Be Higher than the Merger Value
for a Partnership, Which May Affect
Deliverability of the Fairness Opinion .............. 17
You Were Not Independently Represented
in Establishing the Terms of the Merger
of Each Partnership ................................. 17
The Interests of Pioneer, Pioneer USA and
Their Directors and Officers May Differ
From Your Interests ................................. 18
Pioneer USA Has Previously Offered Each
Partnership for Sale to Others, But It Did
Not Receive Any Formal Bids ......................... 18
Potential Litigation Challenging the Merger
of a Partnership May Delay or Block the
Merger .............................................. 18
Repurchase Rights Terminate On Completion
of the Mergers ...................................... 18
You Could be Bound by the Merger of Each
Partnership in Which You Own an Interest
Even If You Do Not Vote in Favor of
the Merger .......................................... 19
Risks Associated With an Investment in
Pioneer ................................................. 19
Limited Partners Who Become Pioneer
Stockholders Will Fundamentally Change
the Nature of Their Investment ...................... 19
Pioneer Might Not Declare Dividends ................... 19
Limited Partners Who Become Pioneer
Stockholders May Be Diluted ......................... 20
Dividends Paid to Pioneer Stockholders Are
Taxed at Two Levels ................................. 20
Pioneer's Business Activities Involve Risks ........... 20
SPECIAL FACTORS ............................................ 21
Background of the Merger of Each Partnership ............ 21
Reasons for the Merger of Each Partnership .............. 26
Pioneer's Disclosure Relating to the Merger
of Each Partnership ................................... 28
Recommendation of Pioneer USA ........................... 28
Fairness Opinion ........................................ 29
Summary Reserve Report .................................. 35
Alternative Transactions to the Merger of
Each Partnership ...................................... 36
FORWARD-LOOKING STATEMENTS ................................. 38
METHOD OF DETERMINING MERGER
VALUE FOR EACH PARTNERSHIP AND
AMOUNT OF PIONEER COMMON STOCK
AND CASH OFFERED ........................................ 39
Components of Merger Value for Each
Partnership ........................................... 39
Allocation of Merger Value for Each
Partnership Among Partners of the
Partnership ........................................... 40
Other Methods of Determining Merger
Values ................................................ 41
Information Sources ..................................... 41
THE MERGER OF EACH PARTNERSHIP ............................. 43
General ................................................. 43
Legal Opinion for Limited Partners ...................... 43
Distribution of Pioneer Common Stock and
Cash Payment .......................................... 44
Fractional Shares ....................................... 44
Material U.S. Federal Income Tax
Consequences .......................................... 44
Accounting Treatment .................................... 46
Effect of Merger of Each Partnership on
Limited Partners Who Do Not Vote in
Favor of the Merger; No Appraisal or
Dissenters' Rights .................................... 46
Future of Nonparticipating Partnerships ................. 47
Nonmanaging General Partners of Some
Partnerships .......................................... 47
Third Party Offers ...................................... 48
Merger Amendment ........................................ 48
Termination of Registration and Reporting
Requirements .......................................... 48
Elimination of a Fairness Opinion
Requirement That Would Otherwise
Benefit Pioneer USA ................................... 48
Source of Funds ......................................... 49
Payment of Expenses and Fees ............................ 50
THE MERGER AGREEMENT ....................................... 51
Structure; Effective Time ............................... 51
Effects of the Mergers .................................. 51
Conduct of Business Prior to the Mergers ................ 51
Other Agreements ........................................ 51
Representations and Warranties of
Pioneer, Pioneer USA and Each
Partnership ........................................... 52
Conditions to the Merger of Each Partnership ............ 52
Termination of the Merger Agreement and
the Merger of Any Partnership ......................... 53
Amendments; Waivers ..................................... 54
THE SPECIAL MEETINGS ....................................... 55
Time and Place; Purpose ................................. 55
Record Date; Voting Rights and Proxies .................. 55
Revocation of Proxies ................................... 56
Solicitation of Proxies ................................. 57
Quorum .................................................. 57
Required Vote; Broker Non-Votes ......................... 57
Participation by Assignees .............................. 58
Special Requirements for Some Limited
Partners .............................................. 58
Validity of Proxy Cards ................................. 58
Local Laws .............................................. 58
COMPARATIVE PER SHARE MARKET
PRICE AND DIVIDEND INFORMATION .......................... 59
INTERESTS OF PIONEER, PIONEER USA
AND THEIR DIRECTORS AND
OFFICERS ................................................ 60
Conflicting Duties of Pioneer USA, Individually
and as General Partner ................................ 60
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Pioneer USA's Employees Provide Services
to the Partnerships ................................... 60
Financial Interests of Directors and Officers ........... 60
The Partnerships Pay Operator Fees to
Pioneer USA ........................................... 60
OWNERSHIP OF PARTNERSHIP
INTERESTS ............................................... 61
TRANSACTIONS AMONG THE
PARTNERSHIPS, PIONEER, PIONEER USA
AND THEIR DIRECTORS AND
OFFICERS ................................................ 61
MANAGEMENT ................................................. 62
Pioneer ................................................. 62
Pioneer USA ............................................. 63
PIONEER .................................................... 65
Key Projects to Increase Production ..................... 65
More Information ........................................ 65
THE PARTNERSHIPS ........................................... 66
General ................................................. 66
The Drilling Partnerships ............................... 66
The Income Partnerships ................................. 67
COMPARISON OF RIGHTS OF
STOCKHOLDERS AND PARTNERS ............................... 68
General ................................................. 68
Summary Comparison of Terms of Shares of
Pioneer Common Stock and Partnership
Interests ............................................. 68
LEGAL MATTERS .............................................. 73
INDEPENDENT AUDITORS AND
INDEPENDENT PETROLEUM
CONSULTANTS ............................................. 73
WHERE YOU CAN FIND MORE
INFORMATION ............................................. 74
COMMONLY USED OIL AND
GAS TERMS ............................................... 76
UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS .................................... P-1
LIST OF APPENDICES
Appendix
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General Information Relating to Each Partnership.......................................... A
Table 1 Jurisdiction of Organization, Initial Subscription Price for Each
Unit, Initial Investment by Limited Partners and Number of
Limited Partners as of March 31, 2001
Table 2 Aggregate Merger Value as of March 31, 2001
Table 3 Merger Value Attributable to Partnership Interests of Limited
Partners Per $1,000 Investment as of March 31, 2001
Table 4 Ownership Percentage and Merger Value Attributable to Nonmanaging
General Partners Other Than Pioneer USA as of March 31, 2001
Table 5 Ownership Percentage and Merger Value Attributable to Pioneer USA
in Its Capacities as General Partner, Nonmanaging General Partner
and Limited Partner as of March 31, 2001
Table 6 Voting Percentage and Initial Investment Owned by Pioneer USA in
Its Capacity as a Limited Partner as of March 31, 2001
Table 7 Historical Quarterly Partnership Distributions to the Limited
Partners Per $1,000 Investment from Inception through March 31,
2001
Table 8 Annual Repurchase Prices and Aggregate Annual Repurchase Payments
Table 9 Participation in Costs and Revenues of Each Partnership
Table 10 Average Oil, Natural Gas Liquids and Gas Sales Prices and
Production Costs for the Three Months Ended March 31, 2001 and
2000 and the Years Ended December 31, 2000, 1999 and 1998
Table 11 Proved Reserves Attributable to Pioneer USA, Nonmanaging General
Partners and Limited Partners as of December 31, 2000
Table 12 Proved Reserves Attributable to Pioneer USA, Nonmanaging General
Partners and Limited Partners as of March 31, 2001
Table 13 Oil, Natural Gas Liquids and Gas Production for the Three Months
Ended March 31, 2001 and 2000 and the Years Ended December 31,
2000, 1999 and 1998
Table 14 Productive Wells and Developed Acreage as of December 31, 2000
Table 15 Recent Trades of Partnership Interests Per $1,000 Investment for
the Three Months Ended March 31, 2001 and the Years Ended
December 31, 2000 and 1999
Summary Reserve Report of Williamson Petroleum Consultants, Inc. for the Partnerships..... B
Form of Fairness Opinion of Robert A. Stanger & Co., Inc.................................. C
The Merger Proposals...................................................................... D
Form of Agreement and Plan of Merger...................................................... E
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8
WE HAVE PREPARED A SEPARATE SUPPLEMENT TO THIS DOCUMENT FOR EACH
PARTNERSHIP. EACH SUPPLEMENT INCLUDES:
o A TABLE CONTAINING:
- THE AGGREGATE INITIAL INVESTMENT BY THE LIMITED PARTNERS
- THE AGGREGATE HISTORICAL LIMITED PARTNER DISTRIBUTIONS THROUGH
MARCH 31, 2001
- THE AGGREGATE MERGER VALUE ATTRIBUTABLE TO PARTNERSHIP INTERESTS
OF LIMITED PARTNERS, EXCLUDING PIONEER USA
- THE MERGER VALUE PER $1,000 LIMITED PARTNER INVESTMENT AS OF
MARCH 31, 2001
- THE MERGER VALUE PER $1,000 LIMITED PARTNER INVESTMENT AS A
MULTIPLE OF DISTRIBUTIONS FOR THE 12 MONTHS ENDED MARCH 31, 2001
- THE BOOK VALUE PER $1,000 LIMITED PARTNER INVESTMENT AS OF MARCH
31, 2001 AND AS OF DECEMBER 31, 2000
- THE GOING CONCERN VALUE PER $1,000 LIMITED PARTNER INVESTMENT AS
OF MARCH 31, 2001
- THE LIQUIDATION VALUE PER $1,000 LIMITED PARTNER INVESTMENT AS OF
MARCH 31, 2001
- THE ORDINARY TAX LOSS PER $1,000 LIMITED PARTNER INVESTMENT IN
YEAR OF INITIAL INVESTMENT
o INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
o FOR EACH PARTNERSHIP THAT IS SUBJECT TO THE REPORTING REQUIREMENTS OF
THE SECURITIES AND EXCHANGE COMMISSION, WHICH WE CALL A REPORTING
PARTNERSHIP, THE PARTNERSHIP'S QUARTERLY REPORT ON FORM 10-Q,
INCLUDING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, FOR THE THREE MONTHS ENDED MARCH 31, 2001
o FOR EACH REPORTING PARTNERSHIP, THE PARTNERSHIP'S ANNUAL REPORT ON
FORM 10-K, INCLUDING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, FOR THE YEAR ENDED DECEMBER 31,
2000
o FOR EACH PARTNERSHIP THAT IS NOT SUBJECT TO THE REPORTING REQUIREMENTS
OF THE SECURITIES AND EXCHANGE COMMISSION, WHICH WE CALL A
NONREPORTING PARTNERSHIP, THE PARTNERSHIP'S FINANCIAL STATEMENTS,
INCLUDING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, FOR THE THREE MONTHS ENDED MARCH 31, 2001
o FOR EACH NONREPORTING PARTNERSHIP, THE PARTNERSHIP'S FINANCIAL
STATEMENTS, INCLUDING MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, FOR THE YEAR ENDED
DECEMBER 31, 2000
o SELECTED HISTORICAL FINANCIAL DATA FOR THE PARTNERSHIP FOR THE THREE
MONTHS ENDED MARCH 31, 2001 AND 2000 AND THE FIVE YEARS ENDED DECEMBER
31, 2000
THE SUPPLEMENT CONSTITUTES AN INTEGRAL PART OF THIS DOCUMENT FOR EACH
PARTNERSHIP. PLEASE CAREFULLY READ ALL OF THE SUPPLEMENTS FOR THE PARTNERSHIPS
IN WHICH YOU ARE A LIMITED PARTNER.
-iii-
9
QUESTIONS AND ANSWERS ABOUT THE MERGER OF EACH PARTNERSHIP
Q: HOW DO I VOTE?
A: After reading this document, please fill out and sign your proxy card. Then
mail your signed proxy card in the enclosed return envelope as soon as possible
so that your partnership interests will be represented at the special meeting
for each partnership in which you own an interest.
Q: WHAT HAPPENS IF I DO NOT RETURN A PROXY CARD?
A: The failure to return your proxy card will have the same effect as voting
against the merger for each partnership in which you own an interest.
Q: MAY I VOTE IN PERSON?
A: Yes. You may attend the special meeting for each partnership in which you own
an interest and vote your partnership interests in person, rather than signing
and mailing your proxy card.
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You may revoke your vote at any time before your proxy is voted at the
special meeting for each partnership in which you own an interest by following
the instructions beginning on page 55. You then may either change your vote by
sending in a new proxy card or by attending the special meeting for each
partnership in which you own an interest and voting in person.
Q: IF MY PARTNERSHIP INTERESTS ARE HELD IN A RETIREMENT ACCOUNT BY A CUSTODIAN,
WILL MY CUSTODIAN VOTE MY PARTNERSHIP INTERESTS FOR ME?
A: Your custodian will not be able to vote your partnership interests. You
should refer to the instructions included on your proxy card to vote your
partnership interests.
Q: SHOULD I SEND IN MY CERTIFICATES FOR MY PARTNERSHIP INTERESTS NOW?
A: No. If the merger of a partnership in which you own an interest is completed,
your certificates representing your partnership interests in that partnership
will be automatically cancelled. We will automatically mail checks and
certificates representing Pioneer common stock issued to you on completion of
the merger of that partnership.
Q: AM I ENTITLED TO APPRAISAL OR DISSENTERS' RIGHTS?
A: No. You will not have any appraisal or dissenters' rights in connection with
the merger of any partnership in which you own an interest.
Q: WHAT HAPPENS TO MY FUTURE CASH DISTRIBUTIONS?
A: Since your partnership interests in participating partnerships will be
cancelled upon completion of the merger of each such partnership, you will not
receive any future distributions on those interests. Pioneer's board of
directors did not declare dividends to the holders of Pioneer common stock
during 1999, 2000 or the three months ended March 31, 2001. The amount of
dividends, if any, paid by Pioneer in the future will depend on business
conditions, its financial condition and earnings, and other factors.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have any questions about the merger of any of the partnerships in
which you own an interest, please call Pioneer's information agent, ,
at ( ) - .
10
SUMMARY
This summary and the preceding questions and answers highlight some of the
information from this document and may not contain all of the information that
is important to you. To understand the merger of each partnership in which you
own an interest and to obtain a more detailed description of the legal terms of
each such merger, you should carefully read this entire document, the related
partnership supplements, and the documents described in "Where You Can Find More
Information" on page 74 . For definitions of oil and gas terms used in this
document, see "Commonly Used Oil and Gas Terms" on page 76.
When we use the terms "Pioneer USA," "we," "us" or "our," we are referring
to your sole or managing general partner, Pioneer Natural Resources USA, Inc.,
including its consolidated subsidiaries and predecessors, unless the context
otherwise requires. When we use the term "Pioneer," we are referring to Pioneer
Natural Resources Company. When we use the term "merger proposals," we are
referring to the proposals to approve the merger agreement, the merger
amendment, the selection of special legal counsel for the limited partners and
the legal opinion of that counsel. When we use the term "participating
partnership," we are referring to each partnership the limited partners of which
approve the merger proposals.
THE MERGERS
Pioneer proposes to acquire each partnership by merging each partnership
into us. We will be the survivor of each merger. The partnership interests of
each participating partnership, other than our interests, will be converted into
Pioneer common stock and cash.
The number of shares of common stock Pioneer will offer and the amount of
cash to be paid for all partnership interests of a participating partnership
will be based on the merger value for the partnership as described below. The
amount of cash to be paid will equal 25% of the merger value for a participating
partnership. The remaining 75% of the merger value for a participating
partnership will be paid in shares of Pioneer common stock based on the average
closing price of the Pioneer common stock, as reported by the New York Stock
Exchange, for the ten trading days ending three business days before the date of
the special meeting for the partnership. Pioneer and Pioneer USA determined the
merger value for each partnership primarily based on the present value of
estimated future net revenues from the partnership's oil and gas reserves at
March 31,2001. In determining the present value, Pioneer and Pioneer USA used
(1) a five-year New York Mercantile Exchange, or NYMEX, futures price for oil
and gas as of March 30, 2001 with prices held constant after year five at the
year five price, less standard industry adjustments, (2) historical operating
costs adjusted only for those items affected by commodity prices, such as
production taxes and ad valorem taxes, and (3) a 13.5% discount rate. For 2001,
the oil and gas prices were based on the average NYMEX futures price for the
nine-month period beginning on April 1, 2001 and ending December 31, 2001. See
the table on page 6 for the NYMEX futures prices. See "Method of Determining
Merger Value For Each Partnership and Amount of Pioneer Common Stock and Cash
Offered -- Components of Merger Value For Each Partnership" on page 39 of this
document for information on the basis of pricing. In addition, each
partnership's merger value includes its net working capital as of March 31,
2001. The Pioneer common stock and the cash payment will be allocated among the
partners of a participating partnership based on the liquidation provisions of
the partnership agreement of the partnership.
On pages 4 and 5 of this document is a table that shows important
information about each partnership, including the amount of Pioneer common stock
that will be offered and cash that will be paid in the merger for each $1,000 of
initial investment for that partnership. For purposes of illustration in this
document, we have calculated the merger value based on each partnership's
working capital as of December 31, 2000, and the number of shares to be issued
based on an assumed average closing price of $18.00 per share of Pioneer common
stock. We will update the calculation of the merger value using the March 31,
2001 working capital of each partnership before mailing this document to the
limited partners, and prior to the date of the special meeting for each
partnership, we will update the number of shares to be issued using the actual
average closing price of Pioneer common stock for the ten trading days ending
three business days before the date of the special meeting.
Pioneer and Pioneer USA agreed to structure the transaction as a merger of
each partnership instead of as a property sale followed by liquidation of each
partnership because the merger will:
o require fewer legal documents;
o reduce filing fees and other costs; and
o result in the same amount of Pioneer common stock and cash to the
limited partners as would a property sale and liquidation using the
same commodity prices.
Pioneer and Pioneer USA expect to sign the merger agreement as soon as the
Securities and Exchange Commission clears this document for mailing to the
limited partners. However, if the oil and gas commodity prices materially
increase or decrease from the prices used in calculating the merger value for
any partnership, Pioneer or Pioneer USA might abandon the proposed merger of the
partnership before submitting the merger proposals to the limited partners for
approval. In addition, Pioneer may abandon the proposed merger of any or all of
the partnerships if an event occurs that causes or results in a material adverse
effect, among other things, on the price of Pioneer common stock, on the market
prices for oil and gas generally or on the oil and gas industry generally.
11
THE COMPANIES
PIONEER NATURAL RESOURCES COMPANY
1400 Williams Square West
5205 North O'Connor Blvd.
Irving, Texas 75039
(972) 444-9001
Pioneer is a large, independent exploration and production company with
total proved reserves equivalent to 3.8 trillion cubic feet of natural gas, or
628 million barrels of oil. Pioneer's proved reserves are balanced equally
between natural gas and oil, and Pioneer has a reserves-to-production ratio of
14 years. Sixty-seven percent of Pioneer's proved reserves are in three U.S.
areas: the Hugoton gas field, the West Panhandle gas field, and the Spraberry
oil and natural gas field. Pioneer also has properties in East Texas, the Gulf
Coast, and the offshore Gulf of Mexico as well as in Argentina, Canada, South
Africa, and Gabon. Pioneer seeks to increase net asset value and production by
combining lower risk development drilling with higher-risk exploration activity.
Pioneer's common stock is traded on the New York Stock Exchange and the
Toronto Stock Exchange under the symbol "PXD." Pioneer prepared this document to
offer its common stock and cash to you. See "Pioneer" on page 65 of this
document for more information about Pioneer.
Pioneer files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. Those SEC filings
are available to you in the same manner as each reporting partnership's
information. See "Where You Can Find More Information" on page 74 of this
document.
PIONEER NATURAL RESOURCES USA, INC.
1400 Williams Square West
5205 North O'Connor Blvd.
Irving, Texas 75039
(972) 444-9001
We prepared this document to solicit your proxy. We are a 100% owned
subsidiary of Pioneer. We directly own almost all of Pioneer's United States oil
and gas properties.
THE PARTNERSHIPS
c/o Pioneer Natural Resources USA, Inc.
1400 Williams Square West
5205 North O'Connor Blvd.
Irving, Texas 75039
(972) 444-9001
The name of each partnership is found in the table beginning on page 4.
Each partnership produces and sells oil and gas. Each partnership was formed to
provide the general and limited partners cash flow from operations and, in some
cases, tax incentives. See the supplement to this document for each of your
partnerships for specific information about the partnership, including the
merger value as a multiple of distributions for the 12 months ended March 31,
2001. As a result of each partnership's oil and gas operations, each partnership
distributes cash to the limited and general partners from the partnership's net
cash flows. These distributions are made quarterly, unless sufficient cash is
not available.
The partnerships' properties consist of interests in approximately 1,100
oil and gas wells that are located primarily in the Spraberry field of the
Permian Basin of West Texas. We operate most of the partnerships' wells. At
December 31, 2000, the partnerships' combined total proved reserves were 33.6
million barrels of oil equivalent, or MMBOE, consisting of 27.3 million barrels,
or MMBbls, of oil and natural gas liquids and 37.6 billion cubic feet, or Bcf,
of natural gas. Approximately 93% of the reserves are attributable to the
limited partners' partnership interests, excluding partnership interests we
directly own. Approximately 81% of the total proved reserves attributable to the
properties are oil and liquids, and 19% are natural gas, based on six Mcf of gas
being equivalent to one Bbl of oil. See "The Partnerships" on page 66 of this
document for more information about the partnerships.
SUMMARY TABLE -- MERGER VALUE AND
AMOUNT OF INITIAL LIMITED PARTNER
INVESTMENT REPAID
The table on pages 4 and 5 contains the following summary information for
each partnership:
o the aggregate merger value attributable to:
- Pioneer USA's partnership interests, whether general or limited;
- the partnership interests of the unaffiliated limited partners of the
nonmanaging general partner, if any, of each partnership;
- the limited partners' partnership interests, including the number of
shares of Pioneer common stock and the amount of cash offered to the
limited partners other than Pioneer USA;
o for each $1,000 initial limited partner investment in the partnership:
- the number of shares of Pioneer common stock offered;
- the amount of cash that will be paid;
- the merger value;
- the total historical cash distributions through March 31, 2001; and
- the total amount of initial investment by the limited partners that
has been repaid, after giving effect to the merger of the partnership,
stated in dollars and as a percentage; and
o the aggregate reserve value attributable to the limited partners other than
Pioneer USA per barrel of oil equivalent, or BOE.
-2-
12
This information is based on assumptions. You should read the following
table together with the detailed information in Table 2 and Table 3 of Appendix
A to this document. For purposes of illustration in this document, we have
calculated the merger value based on each partnership's working capital as of
December 31, 2000, and the number of shares to be issued based on an assumed
average closing price of $18.00 per share of Pioneer common stock. We will
update the calculation of the merger value using the March 31, 2001 working
capital of each partnership before mailing this document to the limited
partners, and prior to the date of the special meeting for each partnership, we
will update the number of shares to be issued using the actual average closing
price of Pioneer common stock for the ten trading days ending three business
days before the date of the special meeting.
Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial investment
for ease of use and comparison among partnerships. You should not assume that
the amount shown per $1,000 investment is the same as the value or amount
attributable to a single unit investment. See Table 1 of Appendix A to this
document for the initial subscription price for each unit.
-3-
13
SUMMARY TABLE -- MERGER VALUE AND AMOUNT OF INITIAL
LIMITED PARTNER INVESTMENT REPAID
PER $1,000
INITIAL
LIMITED
PARTNER
AGGREGATE MERGER VALUE INVESTMENT
---------------------------------------------------------------------------- ------------
NONMANAGING
GENERAL
PIONEER USA PARTNERS LIMITED PARTNERS
------------ ------------ --------------------------------------------
NUMBER OF NUMBER OF
SHARES OF SHARES OF
PIONEER PIONEER
AGGREGATE AGGREGATE COMMON AGGREGATE COMMON
MERGER MERGER STOCK CASH MERGER STOCK
PARTNERSHIP NAME VALUE VALUE OFFERED(a) PAYMENT VALUE OFFERED(a)
---------------- ------------ ------------ ------------ ------------ ------------ ------------
Parker & Parsley 81-I, Ltd. $ 224,965 $ 16,195 26,023 $ 156,126 $ 624,540 3.73
Parker & Parsley 81-II, 145,382 5,948 19,939 119,617 478,519 3.11
Ltd.
Parker & Parsley 82-I, Ltd. 394,878 13,776 35,945 215,657 862,667 3.41
Parker & Parsley 82-II, 404,903 12,591 48,327 289,956 1,159,842 4.10
Ltd.
Parker & Parsley 82-III, 302,259 9,856 32,361 194,158 776,656 5.00
Ltd.
Parker & Parsley 83-A, Ltd. 922,900 36,351 108,794 652,761 2,611,053 5.78
Parker & Parsley 83-B, Ltd. 1,201,169 46,876 141,017 846,098 3,384,404 6.27
Parker & Parsley 84-A, Ltd. 1,236,369 54,433 153,519 921,093 3,684,435 8.07
Parker & Parsley 85-A, Ltd. 40,356 -- 55,790 334,727 1,338,947 5.92
Parker & Parsley 85-B, Ltd. 19,800 -- 47,173 283,024 1,132,138 5.95
Parker & Parsley Private
Investment 85-A, Ltd. 47,205 -- 56,294 337,744 1,351,036 11.54
Parker & Parsley Selected
85 Private Investment, Ltd. 24,312 -- 36,664 219,965 879,917 7.95
Parker & Parsley 86-A, Ltd. 23,089 -- 70,725 424,332 1,697,382 7.01
Parker & Parsley 86-B, Ltd. 65,880 -- 155,342 932,030 3,728,186 9.09
Parker & Parsley 86-C, Ltd. 41,460 -- 130,394 782,358 3,129,450 6.77
Parker & Parsley Private
Investment 86, Ltd. 12,414 -- 51,210 307,247 1,229,027 10.41
Parker & Parsley 87-A
Conv., Ltd. 13,894 -- 29,913 179,465 717,899 7.83
Parker & Parsley 87-A, Ltd. 87,422 -- 223,829 1,342,966 5,371,888 7.82
Parker & Parsley 87-B
Conv., Ltd. 11,819 -- 40,504 243,016 972,088 8.25
Parker & Parsley 87-B, Ltd. 49,125 -- 165,489 992,930 3,971,732 8.26
Parker & Parsley Producing
Properties 87-A, Ltd. 35,767 -- 109,019 654,091 2,616,433 8.96
Parker & Parsley Producing
Properties 87-B, Ltd. 58,764 -- 92,028 552,162 2,208,666 15.34
Parker & Parsley Private
Investment 87, Ltd. 27,958 -- 115,326 691,941 2,767,809 11.00
Parker & Parsley 88-A
Conv., L.P. 21,067 -- 37,204 223,208 892,880 9.94
Parker & Parsley 88-A, L.P. 72,602 -- 127,139 762,810 3,051,312 9.96
Parker & Parsley 88-B
Conv., L.P. 17,558 -- 46,635 279,800 1,119,230 12.90
Parker & Parsley 88-B, L.P. 57,127 -- 114,341 686,040 2,744,178 12.91
Parker & Parsley 88-C
Conv., L.P. 11,866 -- 37,825 226,943 907,793 11.12
PER $1,000 INITIAL LIMITED PARTNER INVESTMENT
----------------------------------------------------------------------------
AMOUNT OF INITIAL
INVESTMENT REPAID
----------------------------
LIMITED
DISTRIBUTIONS PARTNERS'
FROM AGGREGATE
INCEPTION RESERVE
CASH MERGER THROUGH VALUE
PARTNERSHIP NAME PAYMENT VALUE 3/31/01 $ % PER BOE
---------------- ------------ ------------ ------------- ------------ ------------ ------------
Parker & Parsley 81-I, Ltd. $ 22.38 $ 89.51 $ 642.79 $ 732.30 73.23% $ 3.46
Parker & Parsley 81-II, 18.68 74.71 828.66 903.37 90.34% 3.07
Ltd.
Parker & Parsley 82-I, Ltd. 20.47 81.87 970.46 1,052.33 105.23% 3.15
Parker & Parsley 82-II, 24.57 98.29 1,128.93 1,227.22 122.72% 3.55
Ltd.
Parker & Parsley 82-III, 30.00 120.01 967.35 1,087.36 108.74% 3.40
Ltd.
Parker & Parsley 83-A, Ltd. 34.67 138.67 1,307.66 1,446.33 144.63% 3.12
Parker & Parsley 83-B, Ltd. 37.62 150.46 1,512.86 1,663.32 166.33% 3.12
Parker & Parsley 84-A, Ltd. 48.44 193.75 1,444.57 1,638.32 163.83% 3.11
Parker & Parsley 85-A, Ltd. 35.51 142.05 734.28 876.33 87.63% 3.40
Parker & Parsley 85-B, Ltd. 35.69 142.77 929.52 1,072.29 107.23% 3.53
Parker & Parsley Private
Investment 85-A, Ltd. 69.21 276.85 1,096.30 1,373.15 137.32% 3.77
Parker & Parsley Selected
85 Private Investment, Ltd. 47.72 190.87 931.67 1,122.54 112.25% 3.35
Parker & Parsley 86-A, Ltd. 42.03 168.12 1,340.81 1,508.93 150.89% 3.34
Parker & Parsley 86-B, Ltd. 54.57 218.28 1,544.15 1,762.43 176.24% 3.63
Parker & Parsley 86-C, Ltd. 40.63 162.51 1,456.59 1,619.10 161.91% 3.37
Parker & Parsley Private
Investment 86, Ltd. 62.45 249.80 1,594.84 1,844.64 184.46% 3.52
Parker & Parsley 87-A
Conv., Ltd. 46.97 187.88 1,300.14 1,488.02 148.80% 3.55
Parker & Parsley 87-A, Ltd. 46.90 187.59 1,300.21 1,487.80 148.78% 3.57
Parker & Parsley 87-B
Conv., Ltd. 49.51 198.02 1,221.48 1,419.50 141.95% 3.42
Parker & Parsley 87-B, Ltd. 49.54 198.15 1,221.55 1,419.70 141.97% 3.42
Parker & Parsley Producing
Properties 87-A, Ltd. 53.75 214.99 958.64 1,173.63 117.36% 3.45
Parker & Parsley Producing
Properties 87-B, Ltd. 92.07 368.26 1,080.14 1,448.40 144.84% 3.63
Parker & Parsley Private
Investment 87, Ltd. 66.03 264.10 1,537.63 1,801.73 180.17% 3.32
Parker & Parsley 88-A
Conv., L.P. 59.64 238.55 1,079.24 1,317.79 131.78% 3.54
Parker & Parsley 88-A, L.P. 59.77 239.09 1,079.34 1,318.43 131.84% 3.54
Parker & Parsley 88-B
Conv., L.P. 77.38 309.52 1,082.16 1,391.68 139.17% 3.66
Parker & Parsley 88-B, L.P. 77.43 309.73 1,082.20 1,391.93 139.19% 3.66
Parker & Parsley 88-C
Conv., L.P. 66.73 266.92 1,010.63 1,277.55 127.76% 3.60
-4-
14
PER $1,000
INITIAL
LIMITED
PARTNER
AGGREGATE MERGER VALUE INVESTMENT
---------------------------------------------------------------------------- ------------
NONMANAGING
GENERAL
PIONEER USA PARTNERS LIMITED PARTNERS
------------ ------------ --------------------------------------------
NUMBER OF NUMBER OF
SHARES OF SHARES OF
PIONEER PIONEER
AGGREGATE AGGREGATE COMMON AGGREGATE COMMON
MERGER MERGER STOCK CASH MERGER STOCK
PARTNERSHIP NAME VALUE VALUE OFFERED(a) PAYMENT VALUE OFFERED(a)
---------------- ------------ ------------ ------------ ------------ ------------ ------------
Parker & Parsley 88-C, L.P. 7,833 -- 26,792 160,732 642,988 11.04
Parker & Parsley Producing
Properties 88-A, L.P. 33,093 -- 80,303 481,810 1,927,264 14.41
Parker & Parsley Private
Investment 88, L.P. 32,842 -- 135,475 812,830 3,251,380 13.60
Parker & Parsley 89-A
Conv., L.P. 8,987 -- 37,070 222,410 889,670 13.25
Parker & Parsley 89-A, L.P. 60,264 -- 109,097 654,580 2,618,326 13.29
Parker & Parsley 89-B
Conv., L.P. 23,144 -- 72,427 434,559 1,738,245 11.52
Parker & Parsley 89-B, L.P. 39,272 -- 79,140 474,830 1,899,350 11.51
Parker & Parsley Private
Investment 89, L.P. 28,935 -- 76,034 456,191 1,824,803 10.83
Parker & Parsley 90-A
Conv., L.P. 8,862 -- 22,890 137,329 549,349 9.76
Parker & Parsley 90-A, L.P. 50,684 -- 65,215 391,285 1,565,155 9.79
Parker & Parsley 90-B
Conv., L.P. 51,712 -- 127,199 763,173 3,052,755 10.76
Parker & Parsley 90-B, L.P. 105,775 -- 346,860 2,081,160 8,324,640 10.78
Parker & Parsley 90-C
Conv., L.P. 25,338 -- 74,661 447,944 1,791,842 9.95
Parker & Parsley 90-C, L.P. 35,557 -- 119,880 719,265 2,877,105 9.92
Parker & Parsley Private
Investment 90, L.P. 51,077 -- 135,935 815,593 3,262,423 12.46
Parker & Parsley 90
Spraberry Private 14,400 -- 59,399 356,386 1,425,568 11.42
Development, L.P.
Parker & Parsley 91-A, L.P. 62,309 -- 185,073 1,110,427 4,441,741 15.99
Parker & Parsley 91-B, L.P. 52,293 -- 198,084 1,188,501 4,754,013 17.62
------------ ------------ ------------ ------------ ------------ ------------
TOTAL $ 6,264,687 $ 196,026 4,260,303 $ 25,561,270 $102,246,724 446.30
============ ============ ============ ============ ============ ============
PER $1,000 INITIAL LIMITED PARTNER INVESTMENT
----------------------------------------------------------------------------
AMOUNT OF INITIAL
INVESTMENT REPAID
----------------------------
LIMITED
DISTRIBUTIONS PARTNERS'
FROM AGGREGATE
INCEPTION RESERVE
CASH MERGER THROUGH VALUE
PARTNERSHIP NAME PAYMENT VALUE 3/31/01 $ % PER BOE
---------------- ------------ ------------ ------------- ------------ ------------ ------------
Parker & Parsley 88-C, L.P. 66.26 265.04 1,010.22 1,275.26 127.53% 3.60
Parker & Parsley Producing
Properties 88-A, L.P. 86.47 345.88 1,186.76 1,532.64 153.26% 3.67
Parker & Parsley Private
Investment 88, L.P. 81.61 326.44 1,141.98 1,468.42 146.84% 3.73
Parker & Parsley 89-A
Conv., L.P. 79.52 318.08 1,019.82 1,337.90 133.79% 3.79
Parker & Parsley 89-A, L.P. 79.71 318.84 1,019.88 1,338.72 133.87% 3.79
Parker & Parsley 89-B
Conv., L.P. 69.12 276.48 885.85 1,162.33 116.23% 3.58
Parker & Parsley 89-B, L.P. 69.05 276.19 885.86 1,162.05 116.21% 3.58
Parker & Parsley Private
Investment 89, L.P. 64.99 259.94 769.01 1,028.95 102.90% 3.70
Parker & Parsley 90-A
Conv., L.P. 58.57 234.26 871.10 1,105.36 110.54% 3.69
Parker & Parsley 90-A, L.P. 58.72 234.87 871.16 1,106.03 110.60% 3.69
Parker & Parsley 90-B
Conv., L.P. 64.58 258.34 692.65 950.99 95.10% 3.73
Parker & Parsley 90-B, L.P. 64.67 258.68 692.73 951.41 95.14% 3.72
Parker & Parsley 90-C
Conv., L.P. 59.72 238.88 620.92 859.80 85.98% 3.68
Parker & Parsley 90-C, L.P. 59.54 238.17 620.93 859.10 85.91% 3.68
Parker & Parsley Private
Investment 90, L.P. 74.76 299.03 775.28 1,074.31 107.43% 3.77
Parker & Parsley 90
Spraberry Private 68.54 274.15 717.51 991.66 99.17% 3.27
Development, L.P.
Parker & Parsley 91-A, L.P. 95.93 383.74 800.73 1,184.47 118.45% 3.89
Parker & Parsley 91-B, L.P. 105.75 422.99 687.51 1,110.50 111.05% 4.02
------------ ------------ ------------ ------------ ------------ ------------
TOTAL $ 2,677.87 $ 10,711.32 $ 47,654.70 $ 58,366.02
============ ============ ============ ============
(a) For this preliminary document, the number of shares of Pioneer common stock
offered is based upon an assumed average closing price of $18.00 per share
of Pioneer common stock.
-5-
15
NYMEX FUTURES PRICES
The following table shows the NYMEX futures price for oil and gas as of
March 30, 2001, which Pioneer and Pioneer USA used in the calculation of the
reserve value portion of the merger value for each partnership:
DATE OILS ($/Bbl) GAS ($/Mcf)(1)
---- ------------ ---------------
Apr - Dec 2001 26.17 5.18
2002 24.36 4.61
2003 22.83 4.16
2004 22.31 4.09
2005 21.97 4.12
Thereafter 21.97 4.12
----------
(1) The NYMEX price for gas is quoted in dollars per million British thermal
units, or MMBTU. We converted those prices to dollars per thousand cubic
feet, or Mcf.
The reserve value portion of the merger value for each partnership was
calculated using a 13.5% discount rate.
EXAMPLE CALCULATION OF MERGER VALUE FOR PARKER & PARSLEY 81-I, LTD.
Aggregate merger value for limited partners as set forth
in Table 2 of Appendix A to this document:
Reserve value (1) $ 552,609
Plus working capital value (2) 71,931
----------
Merger value (3) $ 624,540
==========
Initial investment as set forth in Table 1 and Table 6
of Appendix A to this document:
Initial investment by limited partners $7,410,000
Less initial investment by Pioneer USA 433,000
----------
Initial investment without Pioneer USA $6,977,000
==========
Number of per $1,000 limited partner investments: (4) 6,977
==========
Per $1,000 limited partner investment as set forth in
Table 3 of Appendix A to this document:
Reserve value $ 79.20 (1) divided by (4)
Working capital value 10.31 (2) divided by (4)
----------
Merger value $ 89.51 (3) divided by (4)
==========
Allocation between cash and Pioneer common stock before
adjustment for fractional shares:
Aggregate cash payment to limited partners (5) $ 156,135 (3) multiplied by 25%
Aggregate value of Pioneer common stock to limited partners
(6) 468,405 (3) multiplied by 75%
----------
$ 624,540
==========
Aggregate number of shares of Pioneer common stock offered to
limited partners of the partnership 26,022.5 (6) divided by $18.00
==========
Aggregate number of shares of Pioneer common stock offered to
limited partners of the partnership rounded up to the nearest
whole share (7) 26,023
==========
Adjustment to cash for rounding up of fractional shares:
Merger value $ 624,540
Less: Aggregate value of Pioneer common stock to limited
partners 468,414 (7) multiplied by $18.00
----------
Aggregate cash payment to limited partners $ 156,126
==========
Number of shares of Pioneer common stock offered per $1,000
limited partner investment 3.73 (7) divided by (4)
==========
-6-
16
BENEFITS TO THE LIMITED PARTNERS
We believe the merger of each partnership provides the following benefits
to the limited partners of the partnership:
Liquidity. None of the partnership interests of any of the partnerships are
traded on a national stock exchange or in any other significant market. No
liquid market exists for interests in any of the partnerships. Although some
partnership interests are occasionally sold in private or an informal secondary
market for limited partner securities, we believe the potential buyers in such
transactions are few and the prices generally reflect a significant discount for
illiquidity. See Table 15 of Appendix A for historical information about recent
trades of partnership interests in each partnership. Repurchase obligations
exist in only a few of the partnerships and are limited in both amount and price
by formula in the partnership agreements. See Table 8 of Appendix A for
repurchase information.
The merger of each partnership provides liquidity to the limited partners
of that partnership at a price based on oil and gas reserve values, not on
limited market demand for illiquid partnership interests. All limited partners
of a participating partnership will receive Pioneer common stock and cash in
exchange for their partnership interests shortly after completion of the merger
of the partnership. Shares of Pioneer common stock are freely transferable and
listed on the New York Stock Exchange and the Toronto Stock Exchange. On April
16, 2001, the last full trading day prior to the announcement of the proposed
merger of each partnership, the last reported sales price of Pioneer common
stock, as reported by the New York Stock Exchange, was $17.27.
Superior Oil and Gas Investment Vehicle. Pioneer's common stock provides an
oil and gas investment vehicle that is superior to the partnership interests in
each partnership because:
o Expansion and Balancing of Reserves. The limited partners will have the
opportunity to benefit from Pioneer's efforts (1) to expand its reserve
base through acquisitions and development or exploratory drilling, and (2)
to maintain a strategic balance between oil and natural gas reserves. At
December 31, 2000, Pioneer's reserve mix was 50% oil and NGLs and 50%
natural gas compared to the combined partnerships' reserve mix of 81% oil
and NGLs and 19% natural gas at such date.
o Geographic Diversification and Larger Oil and Gas Reserve Base. By
combining each participating partnership into a single ownership entity,
the merger of the partnership provides the limited partners of the
partnership with an investment portfolio substantially larger and more
geographically diversified than the portfolio of the partnership
individually. This increased size and the resulting consolidation of
operations spread the risk of an investment in Pioneer over a broader group
of assets and reduces the dependence of the investment upon the performance
of any particular asset or group of assets, such as assets in the same
geographical area.
Liquidation Value. The merger value for each partnership is based on the
value of the underlying properties, which we believe is essentially the same
value or a higher value than that could be achieved by selling the partnership's
property interests and liquidating the partnership at that time. In addition, we
believe that the value of Pioneer common stock and cash distributed to each
limited partner in the merger of each partnership is higher than what the
limited partners would otherwise receive over the life of the partnership,
assuming the same oil and gas commodity prices and operating costs as used to
determine the reserve value for each partnership and giving effect to the time
value of money, for the following reasons:
o The partnership agreement for each partnership requires cash distributions
to be reduced by general and administrative expenses allocable to the
partnership. The merger value for each partnership reflects a liquidation
value based on a reserve value that has not been reduced for general and
administrative expenses.
o The merger value for each partnership is based primarily upon the reserve
value for the partnership, which was determined using recent NYMEX futures
oil and gas prices that are, on average, higher than historical oil and gas
prices. It is likely that actual oil and gas prices will vary often and
possibly widely, as has been demonstrated historically, from the prices
used to prepare these estimates. In that way, the merger value for each
partnership eliminates the potential loss in value that could occur if oil
and gas prices decline.
Acceleration of Realization of Value. Pioneer's common stock and the cash
payment provide the limited partners of each participating partnership with
liquidity earlier than if the limited partners remain in the partnership and
receive the expected ordinary cash distributions from oil and gas production.
Because each partnership's properties are mature producing properties, we
believe that production from those properties will continue to decline at the
rate predicted in the partnership's oil and gas engineering reserve reports.
Accordingly, cash distributions from each partnership are also expected to
decline, subject to variation for changes in oil and gas prices.
Elimination of Partnership Tax Reports. The merger of each participating
partnership will eliminate the limited partners' Schedule K-1 tax reports for
the partnership for tax years after the merger occurs. This is expected to
simplify the limited partners' individual tax return preparation and reduce
preparation costs.
FRACTIONAL SHARES
Pioneer will not issue fractional shares to any limited partner upon
completion of the merger of any partnership. Instead, Pioneer will round any
fractional shares of Pioneer common stock up to the nearest whole share and will
reduce the cash payment to a
-7-
17
limited partner of a participating partnership by the amount rounded up based on
the average closing price per share used in determining the number of shares of
Pioneer common stock to be offered.
RISKS FACTORS
You should carefully consider the risks relating to the merger of each
partnership in which you own an interest described in "Risk Factors" on page 17
of this document. These include:
o The merger value for the partnership determines the amount of Pioneer
common stock and cash you will receive in the merger of the partnership.
Pioneer and Pioneer USA determined each merger value and will not adjust it
for changes in partnership value before the merger is completed.
o You were not independently represented in establishing the terms of any
merger.
o Our board of directors had conflicting interests in evaluating each merger
because each member of our board of directors is also an officer of
Pioneer.
RECOMMENDATION TO LIMITED PARTNERS
(SEE PAGE 28)
On , 2001, our board of directors unanimously determined that
the merger of each partnership in which you own an interest is advisable, fair
to you, as an unaffiliated limited partner, and in your best interests. Our
board recommends that you, as an unaffiliated limited partner, vote for the
merger proposals for each partnership in which you own an interest. Although our
board of directors has attempted to fulfill its fiduciary duties to you, our
board of directors had conflicting interests in evaluating each merger because
each member of our board of directors is also an officer of Pioneer.
FAIRNESS
In deciding to approve the merger of each partnership on , 2001,
our board of directors decided that each merger of a partnership in which you
own an interest is advisable, fair to you, as an unaffiliated limited partner,
and in your best interests based on a variety of factors. These factors include:
o the form and amount of consideration offered to you;
o the comparison of the amount of Pioneer common stock offered and cash that
will be paid in each merger to the future cash distributions otherwise
expected as oil and gas production continues to decline and general and
administrative expenses continue to be incurred;
o the elimination after the merger of each participating partnership of its
limited partners' tax preparation costs relating to partnership tax
information;
o the belief that the price offered by Pioneer is a competitive price because
of:
- the commodity pricing used in determining the merger value for each
partnership;
- Pioneer USA's position as operator of most of each partnership's
wells; and
- Pioneer USA's significant ownership of nearby properties; and
o the fairness opinion from Stanger.
FAIRNESS OPINION OF FINANCIAL ADVISOR
(SEE PAGE 29)
Stanger has issued a fairness opinion dated , 2001, that,
subject to the qualifications expressed in the opinion, the merger value for
each partnership and the allocation of the merger value of the partnership (1)
to the limited partners of the partnership as a group, (2) to the general
partners of the partnership as a group, (3) to Pioneer USA as the managing or
sole general partner of the partnership, (4) to the unaffiliated limited
partners of the partnership as a group and (5) to the unaffiliated limited
partners of the nonmanaging general partner, if any, of the partnership as a
group, is fair to the unaffiliated limited partners of the partnership and the
unaffiliated limited partners of the nonmanaging general partner, if any, of the
partnership, from a financial point of view. The full text of the form of
written opinion of Stanger is attached to this document as Appendix C. You
should read all of it carefully. THE OPINION OF STANGER IS DIRECTED TO OUR BOARD
OF DIRECTORS. IT IS NOT A RECOMMENDATION TO YOU ABOUT HOW YOU SHOULD VOTE ON
MATTERS RELATING TO THE PROPOSED MERGER OF ANY PARTNERSHIP IN WHICH YOU OWN AN
INTEREST.
MATERIAL U.S. FEDERAL INCOME
TAX CONSEQUENCES
(SEE PAGE 44)
You will generally recognize gain or loss equal to the difference between
(1) the sum of the amount of cash and the value of the Pioneer common stock you
receive in the merger of each partnership in which you own interests and (2)
your adjusted tax basis in your partnership interests in that participating
partnership. Your gain or loss will be capital or ordinary depending on the
nature of the assets held by each participating partnership in which you own an
interest and the amount of depletion and intangible drilling and development
costs that must be recaptured. You must calculate your ordinary and capital gain
or loss separately for each partnership in which you own an interest.
TAX MATTERS ARE VERY COMPLICATED. THE TAX CONSEQUENCES OF EACH MERGER OF A
PARTNERSHIP IN WHICH YOU OWN AN INTEREST TO YOU WILL DEPEND ON THE FACTS OF YOUR
OWN SITUATION. YOU SHOULD SEEK TAX ADVICE FOR A FULL UNDERSTANDING OF THE
PARTICULAR TAX CONSEQUENCES OF EACH SUCH MERGER TO YOU.
CERTIFICATION OF NON-FOREIGN STATUS
YOUR CERTIFICATE THAT YOU ARE NOT A FOREIGN PERSON, WHICH WE CALL A
CERTIFICATION OF NON-FOREIGN
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18
STATUS, IS IMPORTANT. Whether or not you plan to vote on the merger of each
partnership in which you own an interest, please take the time to complete and
return to us the enclosed certification of non-foreign status. If we receive a
properly completed certification of non-foreign status from you, we will not
withhold federal income taxes on the Pioneer common stock and cash to be paid to
you upon the merger of each partnership in which you own an interest.
RECORD DATE; VOTING POWER
You may vote at the special meeting for each partnership in which you own
an interest if you owned partnership interests as of the close of business on ,
2001. We call this date the record date. For each partnership in which you own a
partnership interest, you may cast one vote representing your percentage of
partnership interests in that partnership. The percentage of partnership
interests that you own is determined by comparing the amount of:
o your, or your predecessor's, initial investment, including any additional
assessments, in the partnership; to
o the total investment of all partners, including any additional assessments,
in the partnership.
YOUR VOTE IS IMPORTANT. Whether or not you plan to attend the special
meeting for each partnership in which you own an interest, please take the time
to vote by completing and mailing to us the enclosed proxy card. This will not
prevent you from revoking your proxy at any time prior to the special meeting
for each partnership in which you own an interest or from voting your
partnership interests in person if you later choose to attend the special
meeting for each partnership in which you own an interest.
PARTNER VOTE REQUIRED TO APPROVE THE MERGERS
The favorable vote of the holders of a majority of the limited partnership
interests in a partnership is required to approve the merger proposals for that
partnership, except that Parker & Parsley 91-A, L.P. and Parker & Parsley 91-B,
L.P. each require the favorable vote of the holders, other than Pioneer USA, of
66 2/3% of its limited partnership interests to approve the merger proposals.
We are generally entitled under the partnership agreements to vote
partnership interests we hold as limited partners at the special meeting for
each partnership in which we hold an interest. See "The Special Meetings --
Record Date; Voting Rights and Proxies" on page 55 of this document. We plan to
vote all our partnership interests for the merger proposals. The voting interest
that we hold in each partnership is found in Table 6 of Appendix A.
Except as set forth above and in "Ownership of Partnership Interests" on
page 61 of this document, none of Pioneer, Pioneer USA, or, to the knowledge of
Pioneer USA, any of their directors or executive officers, or any associate or
subsidiary of Pioneer, Pioneer USA or any such director or officer beneficially
owns any partnership interests of any partnership or is otherwise entitled to
vote any partnership interests.
If limited partners of a partnership approve the merger agreement, but do
not approve the merger amendment, or vice versa, the partnership will not be
able to merge. LIMITED PARTNERS WHO WANT THEIR PARTNERSHIP TO PARTICIPATE IN THE
MERGER SHOULD VOTE FOR EACH OF THE MERGER PROPOSALS.
CONDITIONS TO EACH MERGER
(SEE PAGE 52)
We will complete the merger of each partnership only if the conditions of
the merger agreement are satisfied or, if permitted, waived. These conditions
include:
o the limited partners' adoption and approval of the merger proposals;
o the absence of any law or court order that prohibits the merger; and
o the absence of any lawsuit challenging the legality or any aspect of the
merger.
So long as the law allows us to do so, Pioneer and we may choose to
complete a merger of any partnership even though a condition has not been
satisfied if the limited partners have approved the merger proposals. Pioneer
and we may complete the merger of any one or some of the partnerships, even if
limited partners in other partnerships do not approve the merger proposals.
TERMINATION OF THE MERGER OF A PARTNERSHIP
(SEE PAGE 53)
Pioneer and Pioneer USA may jointly terminate the merger agreement, for any
or all of the partnerships, at any time, even after limited partner approval.
Either Pioneer or Pioneer USA may terminate the merger agreement for any or all
of the partnerships in some circumstances, including the following:
o the limited partners of a partnership fail to approve that partnership's
merger; or
o if any of the other parties is in material breach of the merger agreement.
In addition, (1) Pioneer USA may terminate the merger agreement for any
partnership, if Pioneer USA determines that termination of the merger agreement
is required for its board of directors to comply with its fiduciary duties and
(2) Pioneer may abandon the proposed merger of any or all of the partnerships if
an event occurs that causes or results in a material adverse effect, among other
things, on the price of Pioneer common stock, on the market prices for oil and
gas generally or on the oil and gas industry generally.
-9-
19
EFFECTS OF THE MERGER OF A PARTNERSHIP
ON ITS LIMITED PARTNERS WHO DO NOT VOTE
IN FAVOR OF THE MERGER
You will be bound by the merger of a partnership in which you own interests
if the limited partners in your partnership vote a majority, or 66 2/3% for
Parker & Parsley 91-A, L.P. and Parker & Parsley 91-B, L.P., of their
partnership interests in favor of the merger, even if you vote against the
merger. If the merger of your partnership occurs, you will be entitled to
receive only an amount of Pioneer common stock and cash based on the merger
value for your partnership interests. You will not have appraisal, dissenters'
or similar rights in connection with the merger, even if you vote against the
merger.
FUTURE OF A PARTNERSHIP THAT DOES NOT
PARTICIPATE IN THE MERGER
(SEE PAGE 47)
If your partnership does not participate in the merger of that partnership
for any reason, that partnership will remain in existence. Some reasons your
partnership might not participate in the merger are (1) that the limited
partners vote against the merger, (2) that a condition in the merger agreement
is not satisfied, or (3) that Pioneer or we exercise a termination right with
respect to the merger for that partnership.
At about the same time that we mail certificates representing shares of
Pioneer common stock and checks to the partners of each participating
partnership in payment of the merger value for that partnership, we will mail
any cash distributions that were delayed for administrative purposes prior to
the completion of the merger of each participating partnership to the partners
of each nonparticipating partnership.
We have not formulated an alternative business plan for any
nonparticipating partnership. The business objectives of each nonparticipating
partnership will continue as they are. We plan to continue to manage each
nonparticipating partnership and operate it in accordance with the terms of its
current partnership agreement. Each nonparticipating partnership will continue
to operate as a separate legal entity with its own assets and liabilities.
Distributions from any nonparticipating partnership are expected to continue to
decline since its production revenues are expected to continue to decline more
quickly than its production costs. Regardless of whether any nonparticipating
partnership distributes cash, limited partners must continue to include their
share of partnership income and loss in their individual tax returns.
The board of directors of each of Pioneer and Pioneer USA will decide what,
if any, actions Pioneer or Pioneer USA, respectively, will take regarding any
nonparticipating partnership. Potential activities might include a tender offer
for partnership interests of limited partners or a proposal to acquire the
assets of, or merge with, one or more of the nonparticipating partnerships. The
proposal may be on terms similar to or different from those of the mergers
described in this document.
EXPENSES AND FEES
The expenses and fees that we will incur in connection with the merger of
each partnership are expected to be approximately $1.9 million in total. Pioneer
has agreed to pay all expenses and fees of each partnership in connection with
the merger of that partnership, whether or not the merger is completed.
REGULATORY APPROVAL
No federal or state regulatory requirements must be satisfied or approvals
obtained in connection with the merger of any of the partnerships as described
in this document, except (1) filing and clearing this document with the
Securities and Exchange Commission and (2) filing certificates of merger with
the Secretary of State of the State of Delaware and the Secretary of the State
of the State of Texas.
SIMILAR TRANSACTIONS
During March 2001, Pioneer offered to acquire all of the direct oil and gas
interests owned by some former officers and employees of Pioneer and Pioneer USA
in properties in which Pioneer and Pioneer USA own interests. The terms of those
purchases and the method of establishing the purchase price payable to such
individuals are the same as those used to determine the reserve value portion of
the merger value for each partnership described in this document, except that
the NYMEX futures prices were as of a different date in March 2001, and the
consideration to be paid in the purchases of the direct oil and gas interests is
all cash since offering and registering Pioneer common stock in those purchases
is cost-prohibitive due to the small size of such transactions. Similarly,
during 2000, Pioneer purchased all of the direct oil and gas interests held by
Scott D. Sheffield, its chairman of the board of directors and chief executive
officer, for $0.2 million.
Additionally, in December 2000, Pioneer received the approval of the
partners of 13 employee limited partnerships to merge with Pioneer USA for
aggregate merger consideration of $2.0 million. Of the total merger
consideration, $0.3 million was paid to current Pioneer employees. The terms of
those mergers and the method of establishing the merger values for those
partnerships were the same as those used to determine the merger value for each
partnership described in this document, except that the NYMEX futures prices
were as of August 25, 2000, and the consideration paid in those mergers was all
cash. As with the purchases of the direct oil and gas interests described above,
offering and registering Pioneer common stock in those mergers was
cost-prohibitive due to the small size of such transactions.
THIRD PARTY OFFERS
(SEE PAGE 48)
We will consider any offers from third parties to purchase any partnership
or its assets. Those who wish to make an offer for any partnership or its assets
must demonstrate to our reasonable satisfaction their financial ability and
willingness to complete such a
-10-
20
transaction. Before reviewing non-public information about a partnership, a
third party will need to enter into a customary confidentiality agreement.
Offers should be at prices and on terms that are fair to the partners of the
partnership and more favorable to the unaffiliated limited partners than the
prices and terms proposed in the merger for that partnership described in this
document. Pioneer has the right to match or top any such offer. Since first
announcing our willingness to consider third party offers in September 1999, we
have not received any third party offer for any partnership or its assets.
COMPARATIVE PER SHARE MARKET PRICE
INFORMATION (SEE PAGE 59)
On April 16, 2001, the last full trading day before the public announcement
of the proposed merger of each partnership, Pioneer common stock closed at
$17.27 per share. On , 2001, Pioneer common stock closed at $ per
share.
No liquid market exists for interests in any of the partnerships. See Table
15 of Appendix A for historical information about recent trades per $1,000
initial limited partner investment in each partnership and Table 7 of Appendix A
for the average historical quarterly cash distributions per $1,000 initial
limited partner investment for each partnership.
-11-
21
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF PIONEER
The following table sets forth summary financial information of Pioneer for
the three months ended March 31, 2001 and 2000 and the five years ended December
31, 2000. This financial information was derived from the consolidated financial
statements of Pioneer. This data should be read in conjunction with the
consolidated financial statements of Pioneer and Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
reports incorporated by reference in this document.
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
--------------------- -------------------------------------------------------------
2001 2000 2000 1999 1998 1997(a) 1996
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
(IN MILLIONS EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues:
Oil and gas $ $ 174.4 $ 852.7 $ 644.6 $ 711.5 $ 536.8 $ 396.9
Natural gas processing -- -- -- -- -- 23.8
Interest and other(b) 3.7 25.8 89.7 10.4 4.3 17.5
Gain (loss) on disposition of
assets, net 8.4 34.2 (24.2) (.4) 4.9 97.1
--------- --------- --------- --------- --------- --------- ---------
186.5 912.7 710.1 721.5 546.0 535.3
--------- --------- --------- --------- --------- --------- ---------
Costs and expenses:
Oil and gas production 43.1 189.3 159.5 223.5 144.2 110.3
Natural gas processing -- -- -- -- -- 12.5
Depletion, depreciation and
amortization 51.9 214.9 236.1 337.3 212.4 112.1
Impairment of properties and
facilities -- -- 17.9 459.5 1,356.4 --
Exploration and abandonments 13.1 87.5 66.0 121.9 77.2 23.0
General and administrative 9.7 33.3 40.2 73.0 48.8 28.4
Reorganization -- -- 8.5 33.2 -- --
Interest 39.8 162.0 170.3 164.3 77.5 46.2
Other(c) 14.4 67.2 34.7 39.6 7.1 2.5
--------- --------- --------- --------- --------- --------- ---------
172.0 754.2 733.2 1,452.3 1,923.6 335.0
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes
and extraordinary item 14.5 158.5 (23.1) (730.8) (1,377.6) 200.3
Income tax benefit (provision) .3 6.0 .6 (15.6) 500.3 (60.1)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary
item 14.8 164.5 (22.5) (746.4) (877.3) 140.2
Extraordinary item -- (12.3) -- -- (13.4) --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) $ $ 14.8 $ 152.2 $ (22.5) $ (746.4) $ (890.7) $ 140.2
========= ========= ========= ========= ========= ========= =========
Income (loss) before extraordinary
item per share:
Basic $ $ .15 $ 1.65 $ (.22) $ (7.46) $ (16.88) $ 3.95
========= ========= ========= ========= ========= ========= =========
Diluted $ $ .15 $ 1.65 $ (.22) $ (7.46) $ (16.88) $ 3.47
========= ========= ========= ========= ========= ========= =========
Net income (loss) per share:
Basic $ $ .15 $ 1.53 $ (.22) $ (7.46) $ (17.14) $ 3.95
========= ========= ========= ========= ========= ========= =========
Diluted $ $ .15 $ 1.53 $ (.22) $ (7.46) $ (17.14) $ 3.47
========= ========= ========= ========= ========= ========= =========
Dividends per share $ $ -- $ -- $ -- $ .10 $ .10 $ .10
========= ========= ========= ========= ========= ========= =========
Weighted average basic shares
outstanding 100.2 99.4 100.3 100.1 52.0 35.5
STATEMENT OF CASH FLOWS DATA:
Cash flows from operating activities $ $ 47.2 $ 430.1 $ 255.2 $ 314.1 $ 228.2 $ 230.1
Cash flows from (used in) investing
activities $ $ (39.9) $ (194.5) $ 199.0 $ (517.0) $ (341.2) $ 13.7
Cash flows from (used in) financing
activities $ $ (8.9) $ (244.1) $ (479.1) $ 190.9 $ 166.0 $ (245.4)
BALANCE SHEET DATA (AS OF DECEMBER 31):
Working capital (deficit)(d) $ $ 3.1 $ (25.1) $ (13.7) $ (324.8) $ 46.6 $ 26.1
Property, plant and equipment, net $ $ 2,511.3 $ 2,515.0 $ 2,503.0 $ 3,034.1 $ 3,515.8 $ 1,040.4
Total assets $ $ 2,969.9 $ 2,954.4 $ 2,929.5 $ 3,481.3 $ 4,153.0 $ 1,199.9
Long-term obligations $ $ 1,913.8 $ 1,804.5 $ 1,914.5 $ 2,101.2 $ 2,124.0 $ 329.0
Preferred stock of subsidiary $ $ -- $ -- $ -- $ -- $ -- $ 188.8
Total stockholders' equity $ $ 816.6 $ 904.9 $ 774.6 $ 789.1 $ 1,548.8 $ 530.3
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22
----------
(a) Includes amounts relating to the acquisition of MESA Inc. and Chauvco
Resources Ltd. in August and December 1997, respectively.
(b) 1999 includes $41.8 million of option fees and liquidated damages related
to an unsuccessful asset sale and $30.2 million of income associated with
an excise tax refund.
(c) The three month periods ended March 31, 2001 and 2000 and the years ended
December 31, 2000, 1999, 1998 and 1997 include non-cash mark-to-market
charges for changes in the fair values of non-hedge financial instruments
of $ million, $13.5 million, $58.5 million, $27.0 million, $21.2 million
and $5.2 million, respectively.
(d) The 1998 working capital deficit includes $306.5 million of current
maturities of long-term debt.
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SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA OF PIONEER
The following table sets forth summary unaudited pro forma combined
financial data of Pioneer that is presented to give effect to the merger of each
of the partnerships. The information was prepared based on the following
assumptions:
o The merger of each partnership will be accounted for as a purchase
business combination under generally accepted accounting principles.
o The income statement data is presented as if the merger of each
partnership had been consummated on January 1, 2000.
o The balance sheet data is presented as if the merger of each
partnership had been consummated on December 31, 2000.
You should consider the following:
o The unaudited pro forma combined financial data are not necessarily
indicative of the results of operations or the financial position of
Pioneer that would have occurred had the merger of each partnership in
which you own an interest been consummated on January 1, 2000, nor are
they necessarily indicative of future results of operations or
financial position of Pioneer.
o The unaudited pro forma combined revenue and expense data exclude the
cost savings expected to be realized through the consolidation of
operations of Pioneer and each partnership and the elimination of
duplicate expenses.
The unaudited pro forma combined financial statements should be read
together with (1) the historical consolidated financial statements of Pioneer
incorporated by reference in this document, (2) the historical financial
statements of each partnership contained in the supplement to this document for
the partnership, and (3) the unaudited pro forma combined financial statements
contained elsewhere in this document. With respect to future cash distributions,
see "Questions and Answers About the Merger of Each Partnership -- What Happens
to My Future Cash Distributions?" See also "Where You Can Find More Information"
on page 74.
PRO FORMA
YEAR ENDED
DECEMBER 31, 2000
--------------------
(IN THOUSANDS EXCEPT
PER SHARE DATA)
STATEMENTS OF OPERATIONS:
Revenues:
Oil and gas ........................................................... $ 901,382
Interest and other .................................................... 26,231
Gain on disposition of assets, net .................................... 34,425
------------
962,038
Costs and Expenses:
Oil and gas production ................................................ 202,176
Depletion, depreciation and amortization .............................. 221,942
Exploration and abandonments .......................................... 87,619
General and administrative ............................................ 40,406
Interest .............................................................. 163,781
Other ................................................................. 67,231
------------
783,155
------------
Income from continuing operations before income taxes ..................... 178,883
Income tax benefit ........................................................ 6,000
------------
Income from continuing operations ......................................... $ 184,883
============
Income from continuing operations per common share, basic and diluted ..... $ 1.78
Weighted average number of shares outstanding ............................. 103,646
BALANCE SHEET DATA (AT PERIOD END)
Property, plant and equipment, net ........................................ $ 2,606,671
Total assets .............................................................. $ 3,058,810
Long-term debt ............................................................ $ 1,606,319
Stockholders' equity ...................................................... $ 981,737
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SUMMARY OIL AND GAS RESERVE INFORMATION
The following table sets forth summary information on Pioneer's and the
combined partnerships' proved oil and gas reserves at December 31, 2000, and the
summary pro forma combined information of Pioneer on proved oil and gas reserves
assuming the merger of each partnership had taken place on December 31, 2000.
Pioneer's and the combined partnerships' historical and Pioneer's pro forma
combined proved oil and gas reserve information set forth below and incorporated
by reference in this document are only estimates based primarily on reports
prepared by Pioneer's engineers for Pioneer's proved reserves and independent
petroleum engineers for the combined partnerships' proved reserves as of
December 31, 2000. The reserve information as of December 31, 2000 is based on
the prices of oil and gas as of that time. The discounted future net cash flows
set forth or incorporated by reference in this document should not be considered
as the current market value of the estimated oil and gas reserves attributable
to Pioneer's, the combined partnerships' or any partnership's properties. Under
the applicable requirements of the Securities and Exchange Commission, the
estimated discounted future net cash flows from proved reserves are based on
prices and costs as of the date of the estimate, while actual future prices and
costs may be materially higher or lower. In addition, the 10% discount factor,
which is required by the Securities and Exchange Commission to be used to
calculate discounted future net cash flows for reporting purposes, is not
necessarily the most appropriate discount factor based on interest rates
periodically in effect and risks associated with Pioneer, any partnership or the
oil and gas industry in general.
SUMMARY HISTORICAL AND PRO FORMA OIL AND GAS RESERVE INFORMATION
AT DECEMBER 31, 2000
OIL AND NATURAL BARRELS OF
NGLS GAS EQUIVALENTS
(MMBBLS) (BCF) (MMBOE)
------------ ------------ ------------
NET PROVED RESERVES (HISTORICAL):
PIONEER:
Developed ..................................................... 232.5 1,507.8 483.8
Undeveloped ................................................... 79.8 387.7 144.4
------------ ------------ ------------
Total ....................................................... 312.3 1,895.5 628.2
============ ============ ============
COMBINED PARTNERSHIPS:
Developed ..................................................... 27.3 37.6 33.6
============ ============ ============
NET PROVED RESERVES (PRO FORMA COMBINED):
Developed ..................................................... 261.8 1,546.8 519.6
Undeveloped ................................................... 79.8 387.7 144.4
------------ ------------ ------------
Total ....................................................... 341.6 1,934.5 664.0
============ ============ ============
RESERVE VALUATION INFORMATION (IN MILLIONS):
PIONEER:
Estimated future net cash flows ............................... $ 10,864
Standardized measure of discounted future net cash flows ...... $ 5,646
COMBINED PARTNERSHIPS:
Estimated future net cash flows ............................... $ 423
Standardized measure of discounted future net cash flows(1) ... $ 207
PRO FORMA COMBINED:
Estimated future net cash flows ............................... $ 11,267
Standardized measure of discounted future net cash flows ...... $ 5,838
----------
(1) The combined partnerships do not reflect a federal income tax provision
since the partners of each partnership include the income of the
partnership in their respective individual federal income tax returns.
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COMPARATIVE PER SHARE DATA
The following table summarizes the per share information for Pioneer and
the per $1,000 limited partner investment for the combined partnerships on a
historical, equivalent pro forma combined and pro forma combined basis. The pro
forma information gives effect to the merger of each partnership accounted for
by Pioneer as a purchase business combination. You should read this information
together with the historical financial statements (1) included in the annual
reports on Form 10-K and other information that Pioneer has filed with the
Securities and Exchange Commission and (2) included in the supplement to this
document for each partnership. See "Where You Can Find More Information" on page
74. With respect to future cash distributions, see "Questions and Answers About
the Merger of Each Partnership -- What Happens to My Future Cash Distributions?"
and "Risk Factors -- Pioneer Might Not Declare Dividends." You should not rely
on the pro forma combined information as being indicative of the results that
would have occurred had the merger of each partnership been completed on January
1, 2000, or the future results that Pioneer will experience after the merger of
each partnership. In addition, because Pioneer has both a different legal
structure and purpose from each partnership, the information about Pioneer and
the information about the combined partnerships are not necessarily comparable.
YEAR ENDED
DECEMBER 31, 2000
-----------------
HISTORICAL -- PIONEER:
Income from continuing operations per share, basic and diluted ................. $ 1.65
Book value per share ........................................................... 9.19
Cash dividends per common share ................................................ 0.00
HISTORICAL -- COMBINED PARTNERSHIPS:
Income per $1,000 limited partner investment ................................... $ 55.15
Book value per $1,000 limited partner investment ............................... 124.45
Cash distributions per $1,000 limited partner investment ....................... 57.22
EQUIVALENT PRO FORMA COMBINED PARTNERSHIPS PER $1,000 LIMITED PARTNER INVESTMENT
ON AN EQUIVALENT PER SHARE BASIS(1):
Income per $1,000 limited partner investment ................................... $ 5.96
Book value per $1,000 limited partner investment ............................... 13.44
Cash distributions per $1,000 limited partner investment ....................... 6.18
PRO FORMA COMBINED -- PIONEER:
Income from continuing operations per share, basic and diluted ................. $ 1.78
Book value per share ........................................................... 9.56
Cash dividends per common share(2) ............................................. .26
----------
(1) Represents the "Historical -- Combined Partnerships" amounts divided by
9.26, which represents the weighted average number shares of Pioneer common
stock to be received per $1000 limited partner investment. This information
does not reflect the benefit to any limited partner of the cash portion of
the merger value to be paid.
(2) Pioneer's board of directors did not declare dividends to the holders of
Pioneer common stock during 2000. The amount of dividends, if any, paid by
Pioneer in the future will depend on business conditions, its financial
condition and earnings, and other factors.
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RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN DETERMINING
WHETHER TO VOTE TO APPROVE THE MERGER PROPOSALS FOR EACH PARTNERSHIP IN WHICH
YOU OWN INTERESTS.
RISK FACTORS RELATING TO THE MERGER OF EACH PARTNERSHIP
THE MERGER VALUES INVOLVE ESTIMATES THAT WILL NOT BE ADJUSTED
Proved Reserves and Future Net Revenues Are Estimates. The calculations of
each partnership's proved reserves of crude oil, natural gas liquids and natural
gas and future net revenues from those reserves included in this document are
only estimates. Actual prices, production, operating expenses and quantities of
recoverable oil and natural gas reserves may vary from those assumed in the
estimates. Any significant variance from the assumptions used could result in
the actual quantity of each partnership's reserves and future net revenues being
materially different from the estimates used in the calculation of the merger
value for that partnership.
The Merger Value for a Partnership Will Not Be Adjusted For Changes Before
the Completion of Its Merger. The merger value for each partnership in which you
own an interest determines the amount of Pioneer common stock and cash you will
receive in the merger of that partnership. The merger value for each partnership
is equal to the sum of the present value of estimated future net revenues from
the partnership's oil and gas reserves and its net working capital, in each case
as of March 31, 2001. Although oil and gas prices have fluctuated greatly in the
recent past and may continue to do so, the merger value for a partnership will
not be adjusted as of the closing date of the merger of that partnership to
reflect any general changes in oil or gas prices, or any other matter generally
affecting the oil and gas industry, occurring after March 31, 2001 and prior to
the closing date of the merger.
THE NUMBER OF SHARES OF PIONEER COMMON STOCK THE LIMITED PARTNERS OF EACH
PARTNERSHIP WILL RECEIVE MAY DECREASE BETWEEN NOW AND THE COMPLETION OF THE
MERGER OF THE PARTNERSHIP
The number of shares of Pioneer common stock to be issued to the limited
partners of each partnership upon the merger of the partnership will be
determined by dividing 75% of the merger value assigned to the partnership by
the value of one share of Pioneer common stock determined as described below. As
discussed above, the merger value for each partnership will not be changed
between now and the completion of the merger for the partnership. In addition,
for purposes of example in this document, a share of Pioneer common stock has
been valued at an assumed average closing price of $18.00. However, the value of
a share of Pioneer common stock will be recalculated by computing the average
closing price of the Pioneer common stock, as reported by the New York Stock
Exchange, for the ten trading days ending three business days before the date of
the special meeting for each partnership. This recalculated value, and not the
assumed closing average closing price of $18.00 per share of Pioneer common
stock used for illustration purposes in this document and on each limited
partner's voting form, will be used to determine the actual number of shares of
Pioneer common stock to be issued in the merger of each partnership. The
recalculated value may be more or less than the assumed average closing price of
$18.00 per share of Pioneer common stock. If it is more than $18.00, you will
receive fewer shares of Pioneer common stock than the illustrations in this
document show. For historical and current market prices of Pioneer common stock,
see "Comparative Per Share Market Price and Dividend Information" on page 59.
CURRENT MARKET PRICES FOR OIL AND GAS MAY BE HIGHER THAN THE MERGER VALUE FOR A
PARTNERSHIP, WHICH MAY AFFECT DELIVERABILITY OF THE FAIRNESS OPINION
Oil and gas prices have fluctuated greatly in the recent past and may
continue to do so in the future. Pioneer calculated each merger value based on
oil and gas prices that it believes to be fair and that are supported by current
market prices. Changes in current oil and gas prices may affect the ability of
Pioneer to obtain an opinion at the time this document is mailed to the limited
partners of each partnership as to the fairness of the consideration to be
received by limited partners. If the prices used in the calculation of each
merger value significantly differ from current prices and if Pioneer does not
modify its offer, the fairness opinion provider may be unable to render its
opinion.
YOU WERE NOT INDEPENDENTLY REPRESENTED IN ESTABLISHING THE TERMS OF THE MERGER
OF EACH PARTNERSHIP
Pioneer and Pioneer USA determined the terms of the merger of each
partnership, including the method for determining the merger value for that
partnership, and the type and allocation among the partners of the consideration
to be given in exchange for partnership interests. We did not seek
recommendations about the type of transaction or the terms or prices from any
independent underwriter, financial advisor or other securities professional
prior to accepting the consideration Pioneer offered. The only independent
representatives in the mergers were Sayles, Lidji & Werbner, A Professional
Corporation, which provided legal services to Pioneer USA's board of directors,
Robert A. Stanger & Co., Inc., which will render its fairness opinion to Pioneer
USA's board of directors, and , which will render the legal opinion required
under the partnership agreement for each partnership, other than Parker &
Parsley Producing Properties 88-A, L.P. No representative group of limited
partners
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and no outside experts or consultants, such as investment bankers, legal
counsel, accountants or financial experts, were engaged solely to represent the
independent interests of the limited partners of any partnership in structuring
and negotiating the terms of the merger for the partnership. If you had been
separately represented, the terms of the merger for a partnership in which you
own interests might have been different and possibly more favorable to you.
THE INTERESTS OF PIONEER, PIONEER USA AND THEIR DIRECTORS AND OFFICERS MAY
DIFFER FROM YOUR INTERESTS
The interests of Pioneer, Pioneer USA, and their directors and officers may
differ from your interests as a result of the relationships among them. For
example, Pioneer USA, as general or managing partner of each partnership, has a
duty to manage the partnership in the best interests of the limited partners.
Additionally, Pioneer USA has a duty to operate its business for the benefit of
its sole stockholder, Pioneer. Also, the members of Pioneer USA's board of
directors have duties to both the limited partners of each partnership and to
Pioneer. All of the members of Pioneer USA's board of directors are officers of
Pioneer and have duties to Pioneer's stockholders. Pioneer USA's board of
directors was aware of these interests and considered them in approving the
merger proposals for each partnership. See "Interests of Pioneer, Pioneer USA
and Their Directors and Officers" on page 60 of this document.
PIONEER USA HAS PREVIOUSLY OFFERED EACH PARTNERSHIP FOR SALE TO OTHERS, BUT IT
DID NOT RECEIVE ANY FORMAL BIDS
In September 1999, we first announced our willingness to consider third
party offers to purchase any partnership or its assets at prices that are higher
than the 1999 merger value for the partnership, but subject to our right to
continue operation of the properties. We believe this limited form of auction
would result in a better price to the limited partners of each partnership than
if we merely offered the partnership or its assets for sale at any price. Since
that time, we have not received any third party offer for any partnership or its
assets. As a result, we cannot be sure what the market demand is for any
partnership or its assets, individually or as a whole with the other
partnerships, or what a third party would offer for any partnership. Also,
although we do not have any plans to sell or relinquish our operating rights in
any third party sale, we cannot be sure what the market demand is for any
partnership or its assets if we also sold or relinquished our operating rights.
No assurance may be given that the terms of the merger of each partnership are
as favorable as could be obtained from a sale of any partnership or its assets,
individually or as a whole with the other partnerships, to an unrelated party.
POTENTIAL LITIGATION CHALLENGING THE MERGER OF A PARTNERSHIP MAY DELAY OR BLOCK
THE MERGER
One or more of the partners opposed to the merger of a partnership in which
such partner or partners own an interest may initiate legal action to stop the
merger of the partnership or to seek damages for alleged violations of federal
and state laws. Litigation challenging the merger of any partnership may delay
or block the closing of the merger for one or more of the partnerships. In
addition, if any lawsuits are filed, Pioneer or Pioneer USA may decide to
terminate one or more of the mergers.
REPURCHASE RIGHTS TERMINATE ON COMPLETION OF THE MERGERS
The limited partners of each of the partnerships listed below may require
us to repurchase their partnership interests for cash at the times and under the
conditions described in the partnership agreements for the partnership:
Parker & Parsley 82-I, Ltd.
Parker & Parsley 82-II, Ltd.
Parker & Parsley 82-III, Ltd.
Parker & Parsley 83-A, Ltd.
Parker & Parsley 83-B, Ltd.
Parker & Parsley 84-A, Ltd.
The repurchase rights may be exercised only once a year. A limited partner
may exercise its repurchase right by delivering a written request to us no later
than March 31 of each year. On or before May 31 of each year, we must notify
each limited partner who has exercised its repurchase right of the amount of
limited partnership interests to be repurchased and the method of calculating
the repurchase price. The aggregate amount of limited partnership interests
required to be repurchased in any one year is limited to $100,000 per
partnership. A repurchase price is calculated by multiplying:
o the present value of the estimated future net revenues, calculated
using a discount rate equal to prime plus 1% as of December 31 of each
year, from a partnership's proved reserves, as determined by
independent petroleum consultants; by
o 66 2/3%.
Each limited partner who has exercised its repurchase right has 60 days to
accept our repurchase offer. We must pay the repurchase price to each limited
partner who accepts the repurchase offer within 30 days after acceptance.
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If the limited partners of a partnership with repurchase rights vote a
majority of their partnership interests in favor of the merger of the
partnership, those repurchase rights will terminate on completion of the merger.
As a result, if the oil and gas prices used in calculating the repurchase prices
in the future were high enough to offset the additional 33 1/3% discount factor
used in the repurchase calculation, the limited partners would not have the
opportunity to require Pioneer USA to repurchase the limited partners'
partnership interests for a price higher than the merger value for the
partnership.
The 2001 repurchase offers will be commenced and completed before the date
of this document. In each of the partnerships with a repurchase obligation, the
repurchase price in 2001 is higher than the price being offered in the merger of
the partnership. For a list of the repurchase prices in 2001 and the prior two
years, see Table 8 of Appendix A.
YOU COULD BE BOUND BY THE MERGER OF EACH PARTNERSHIP IN WHICH YOU OWN AN
INTEREST EVEN IF YOU DO NOT VOTE IN FAVOR OF THE MERGER.
You will be bound by the merger of each partnership in which you own an
interest if the limited partners in the partnership vote a majority, or 66 2/3%
for Parker & Parsley 91-A, L.P. and Parker & Parsley 91-B, L.P., of their
partnership interests in favor of the merger, even if you vote against the
merger or do not vote. If the merger of the partnership occurs, you will be
entitled to receive only an amount of cash and Pioneer common stock based on the
merger value of your partnership interests in the partnership. Under the laws of
the State of Delaware and the State of Texas, which are the states of formation
of the partnerships, you are not entitled to appraisal or dissenters' rights
with respect to the merger of any partnership.
RISKS ASSOCIATED WITH AN INVESTMENT IN PIONEER
LIMITED PARTNERS WHO BECOME PIONEER STOCKHOLDERS WILL FUNDAMENTALLY CHANGE THE
NATURE OF THEIR INVESTMENT
Limited partners of a participating partnership will become stockholders of
Pioneer and will fundamentally change the nature of their investment. Each
partnership was generally formed as finite-life investment, with partners to
receive regular cash distributions out of the partnership's net operating income
and special distributions upon liquidation of the partnership's oil and gas
assets. In contrast, Pioneer intends to operate for an indefinite period of time
and has no specific plans for the sale of its investments. Because Pioneer will
spend a portion of its cash flow on acquisitions, drilling and other activities,
the activities of Pioneer may involve higher levels of risk than those
associated with the present or future operations of each partnership. Instead of
having their investments liquidated through the liquidation of Pioneer's assets,
stockholders should expect to be able to liquidate their investment in Pioneer
only through the sale of their investments in the market. The amount realized
through the sale of shares of Pioneer common stock may not be equal to the
amount that would have been realized by stockholders through the sale of
Pioneer's assets. Stockholders will thus be subject to the market risks of all
public companies, particularly in that the value of their equity securities may
fluctuate from time to time depending upon general market conditions, conditions
in the oil and gas industry, and Pioneer's future performance.
PIONEER MIGHT NOT DECLARE DIVIDENDS
Limited partners of a participating partnership will become stockholders of
Pioneer and will not receive cash distributions or will receive distributions
much smaller than the distributions received from the partnership. Pioneer's
board of directors did not declare dividends to its stockholders during 1999 and
2000. The determination of the amount of future cash dividends, if any, to be
declared and paid is in the sole discretion of Pioneer's board of directors and
will depend on the following factors:
o Pioneer's financial condition;
o earnings and funds from operations;
o the level of Pioneer's capital and exploration expenditures;
o dividend restrictions in Pioneer's financing agreements;
o Pioneer's future business prospects; and
o other matters that Pioneer's board of directors deems relevant.
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LIMITED PARTNERS WHO BECOME PIONEER STOCKHOLDERS MAY BE DILUTED
If all partnerships participate in the mergers, the shares of Pioneer
common stock to be issued will represent approximately 4.3% of the shares of
Pioneer common stock outstanding on the date of this document. Because of the
increased liquidity afforded to the limited partners of each partnership after
the merger of the partnership, all of those shares of Pioneer common stock may
be offered for sale in a relatively short period of time, which could result in
the price at which shares of Pioneer common stock trade after completion of the
merger of each partnership being less than the price at which such shares traded
immediately prior to the completion of the merger of each partnership. In
addition, limited partners of a partnership who become Pioneer stockholders will
be subject to the risk that their equity interests in Pioneer may be diluted
through the issuance of additional equity securities. Pioneer has the right to
issue, at the discretion of its board of directors, shares other than those to
be issued in the merger of each partnership, upon such terms and conditions and
at such prices as its board of directors may establish. In addition, Pioneer may
in the future issue preferred stock that might have priority over the Pioneer
common stock as to distributions and liquidation proceeds.
DIVIDENDS PAID TO PIONEER STOCKHOLDERS ARE TAXED AT TWO LEVELS
Pioneer is taxed on its income, after deduction of expenses, at both the
federal and state levels. Pioneer stockholders, including limited partners who
become Pioneer stockholders, are separately taxed on the receipt, if any, of
dividends.
PIONEER'S BUSINESS ACTIVITIES INVOLVE RISKS
The nature of the business activities conducted by Pioneer subjects it to
hazards and risks. In evaluating an investment in shares of Pioneer common
stock, prospective investors should consider carefully, among other things, the
risk factors set forth in "Item 1. Business -- Risks Associated with Business
Activities" contained in Pioneer's annual report on Form 10-K for the year ended
December 31, 2000 (File No. 1-13245) that Pioneer filed with the SEC on February
27, 2001.
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SPECIAL FACTORS
BACKGROUND OF THE MERGER OF EACH PARTNERSHIP
The partnerships were formed from 1981 through 1991 under the sponsorship
of various affiliated companies collectively known as Parker & Parsley. On
February 19, 1991, Parker & Parsley's principal company converted from limited
partnership form to corporate form and acquired most of the assets of five oil
and gas limited partnerships. The new corporation was called Parker & Parsley
Petroleum Company, and it owned the sole or managing general partners of the
partnerships.
In early 1992, Parker & Parsley Petroleum Company decided that it could not
fully realize the benefits of the properties it had acquired while continuing to
devote substantial resources to the sponsorship of and drilling for each
partnership. It stopped sponsoring oil and gas development drilling and income
partnerships and focused on its corporate development. In 1997, Parker & Parsley
Petroleum Company and MESA Inc. combined their businesses in a merger that
created Pioneer Natural Resources Company. That same year, Pioneer combined many
of its U.S. subsidiaries, including the managing or sole general partner of each
of the partnerships, into its main subsidiary, Pioneer USA.
From time to time since 1992, Pioneer and its predecessors have had
general, internal discussions about whether to consolidate each partnership
pursuant to a transaction such as the merger of each partnership. On several
occasions, Pioneer or its predecessors engaged outside legal counsel and had
discussions with investment banks about a possible combination with each of the
partnerships. Some of those discussions were with Stanger. The contemplated
structure of the combination has varied significantly during these internal
discussions and has included issuances of common stock, combinations of common
stock and cash, and cash-only transactions through asset sales, mergers, tender
offers, and combinations of those types of transactions. In general, the
contemplated transactions would have been taxable to the limited partners of
each partnership because of the difficulties involved in structuring a tax-free
transaction for the partnership. Until 1999, every time Pioneer or its
predecessors considered such a transaction, it decided not to complete the
transaction. The reasons Pioneer and its predecessors did not previously
complete a transaction varied. In some early cases, they wanted to collect and
fully distribute proceeds to the limited partners of each partnership from
litigation against an oilfield services company before trying to value any
partnership. In other cases, they wanted to avoid periods of volatility in oil
and gas prices or in Pioneer's stock price. On several occasions, Pioneer was
involved in other corporate transactions that could not be completed timely if a
transaction with each partnership was also pending.
In early 1998, Pioneer was formulating a strategic plan to focus on its 25
core area oil and gas fields and to eliminate ancillary operations. Pioneer
began discussions internally to consider a transaction involving each
partnership, including the basis for valuing each partnership and whether the
consideration should be Pioneer common stock, cash or some combination of both.
During the second quarter of 1998, Pioneer and Pioneer USA began to discuss
the methods for valuing each partnership. At that time, the board of directors
of Pioneer USA engaged Sayles, Lidji & Werbner, A Professional Corporation (then
known as Sayles & Lidji, A Professional Corporation) based in Dallas, Texas, as
its independent legal counsel to assist the board in evaluating a potential
transaction with Pioneer. Pioneer USA's board also engaged Stanger as its
financial advisor to review any proposed transaction and to render an opinion as
to the fairness of the offer price, from a financial point of view, to the
unaffiliated limited partners of each partnership. In May 1998, Pioneer
submitted an offer to merge each partnership into Pioneer USA using Pioneer
common stock or a combination of Pioneer common stock and cash. The pricing for
that offer was primarily based on oil and gas prices and the present value of
estimated future net revenues from each partnership's oil and gas reserves, in
each case as of December 31, 1997. The present value of estimated future net
revenues was determined in accordance with the SEC's reporting convention that
provides a common basis for comparing oil and gas companies and requires the use
of oil and gas prices as of the date of computation, but using a 15% discount
rate. After some negotiation with Pioneer USA, Pioneer withdrew the May 1998
offer due to the decline in oil prices. In July 1998, Pioneer submitted a second
offer using Pioneer common stock, or at its option upon the occurrence of
specified events, a combination of Pioneer common stock and cash. The oil and
gas pricing for the second offer was lower than the pricing in the May 1998
offer due to the continued decline in oil prices, but the discount rate for the
second offer was the same as the May 1998 offer. Pioneer and Pioneer USA decided
to discontinue further discussions and not to submit the proposed transaction to
the limited partners of any partnership because of:
o the continued decline in oil prices, which in turn would reduce any
merger value to be paid to the limited partners of each partnership;
o the decline in Pioneer's stock price; and
o the tight lending environment for many oil and gas companies,
including Pioneer.
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As oil and gas prices improved, in June 1999, Pioneer and Pioneer USA again
began discussions internally to consider a transaction involving each
partnership. At that time, Scott Sheffield, the President and Chief Executive
Officer of Pioneer, contacted members of Pioneer USA's board regarding
consideration of a potential transaction involving each partnership. Pioneer did
not submit a written offer to Pioneer USA at that time.
During the second quarter of 1999, Pioneer and Pioneer USA attempted to
formally address the conflicting interests inherent in the relationships among
Pioneer, Pioneer USA, each partnership and the officers and directors of Pioneer
and Pioneer USA. Pioneer USA caused Scott D. Sheffield to resign from Pioneer
USA's board of directors because he is also a member of Pioneer's board of
directors. He was not replaced. Pioneer USA did not consider replacing Mr.
Sheffield with an unaffiliated director because Pioneer USA is a 100% subsidiary
of Pioneer and typically such wholly-owned subsidiaries do not have unaffiliated
directors. Because all of the board members of Pioneer USA are also employees of
Pioneer, an inherent conflict exists with respect to their duties to the limited
partners of each partnership in their capacity as directors of Pioneer USA, on
the one hand, and their duties to Pioneer as employees, on the other hand. This
separation of board processes may lessen, but does not eliminate, the inherent
conflicting interests of the Pioneer USA directors in this transaction. We
believe, however, that this separation enables our directors to consider and
focus on the interests of each partnership more effectively.
Shortly thereafter, Pioneer USA's board again engaged Sayles, Lidji &
Werbner to advise the board in connection with a proposed transaction with
Pioneer and any other alternative transaction that the board determined was
worth consideration.
Pioneer USA's board also engaged, on behalf of each partnership, Stanger,
as its financial advisor to advise the board on the fairness from a financial
point of view of the merger value for each partnership to be paid to the
unaffiliated limited partners in the partnership for the limited partnership
interests in the partnership and to assist in Pioneer USA's evaluation of the
merger transaction and other strategic alternatives. Stanger was familiar with
the circumstances from its 1998 engagement.
On July 14, 1999, Pioneer USA's board met with its counsel and Stanger to
discuss the proposed merger of each partnership. Stanger presented an overview
of the analysis it planned to perform in evaluating the fairness of the proposed
transaction. Stanger advised Pioneer USA's board that Stanger would review the
following for each partnership:
o the reserve report to be prepared by Williamson Petroleum Consultants,
Inc. as of September 30, 1999;
o the most recent quarterly financial statements;
o the estimated cash distributions;
o the estimated net asset value, going concern value and liquidation
value;
o secondary market prices;
o tender offers; and
o repurchase offers.
Sayles, Lidji & Werbner then reviewed and discussed with the board the
procedures that would be involved in completing the proposed transaction with
Pioneer. The discussion topics included:
o the process in which Pioneer USA's board of directors would approve
the proposed transaction;
o the submission of the proposed merger of each partnership to the
limited partners of the partnership for approval;
o the evaluation of offers from third parties;
o the application of and compliance with the requirements of the federal
securities laws; and
o the timing of the proposed transaction.
Members of the Pioneer USA board met informally on several occasions during
July and early August to discuss among each other the proposed terms of the
merger transaction and other potential alternative transactions, including the
formation of a royalty trust or a master limited partnership.
On August 16, 1999, at a special meeting of the Pioneer USA board, the
board met with representatives of Sayles, Lidji & Werbner and Stanger to discuss
the proposed merger of each partnership into Pioneer USA. Pioneer USA's board
discussed with the representatives of Stanger and Sayles, Lidji & Werbner the
proposed terms of the offer expected from Pioneer, including the expected
pricing parameters of $18 per Bbl of oil and $2.40 per Mcf of gas and the
expected timing of receipt of Pioneer's formal written offer. Stanger discussed
the progress it was making on its financial analysis of each partnership and its
determination of the fairness from a financial point of view of the merger value
for each partnership to be paid in cash for the limited partners' interests in
the partnership. Stanger's discussion centered on (1) the price to be paid for
the oil and gas reserves, (2) the discount rate, (3) the application of overhead
charges and administrative charges, and (4) the responsibility for any
transaction expenses. Following this discussion, the board and its counsel
discussed the board's fiduciary duties in evaluating the proposed transaction
with Pioneer and the making of a recommendation to the unaffiliated limited
partners. Finally, the board decided to request that Pioneer make a formal
written offer outlining the terms of the proposed merger transaction.
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On August 17, 1999, in response to Pioneer USA's request for a written
offer, Pioneer delivered to Pioneer USA's board a written proposal which
outlined the terms of the proposed merger transaction. The written offer
specified that the pricing for the oil and gas reserves would be based on 95% of
the arithmetic average of a four-year or five-year NYMEX futures price. The
future cash flows generated by this pricing structure would then be discounted
using a 15% discount rate. At a special meeting that day of Pioneer USA's board,
the board, its counsel and Stanger met to discuss the specifics of Pioneer's
offer, including oil and gas pricing, the present value discount rate, the right
to allow others to bid on the property, and the costs of the merger of each
partnership. Following the board meeting, Pioneer USA's directors determined
that it would be advantageous to each partnership to seek more favorable pricing
terms and a lower discount rate. Thus, the board decided to continue discussions
of the written offer.
On August 23, 1999, at a special meeting of Pioneer USA's board, the board
updated its counsel and Stanger on the status of its discussions with Pioneer.
As a result of continued discussions, Pioneer and Pioneer USA agreed, in
response to requests by Stanger, (1) to reduce the discount rate from 15% to
12.5%, (2) to increase the pricing of the oil reserves from 95% of the
arithmetic average of a four-year or five-year NYMEX futures price to 100% of
the arithmetic average of the five-year NYMEX futures price, (3) to a fixed
price of $2.40 per Mcf of gas instead of a floating NYMEX futures price and (4)
to allocate the merger expenses and fees to each participating partnership.
On September 2, 1999, at a special meeting of Pioneer USA's board, the
board and representatives of Stanger and Sayles, Lidji & Werbner reviewed the
terms of a revised proposal submitted by Pioneer which incorporated these
changes. The parties discussed the revised terms of the merger of each
partnership and the strategic rationale for and benefits of the merger of each
partnership. At this meeting, Stanger reviewed with the board its financial
analysis and its evaluation of the merger consideration and the feasibility of
other strategic alternatives. Stanger also orally presented to the board the
status of its findings and its preliminary evaluation of the proposed
transaction.
After considering Stanger's evaluation of the proposed merger transaction,
Pioneer USA's board, together with representatives of Stanger, engaged in a
general discussion of other possible transactions it had considered over the
last six to eight months. This discussion included anticipated ongoing
operations of each partnership under its current structure and the operation of
each partnership through a master limited partnership structure, as well as
through a royalty trust. The board discussed selling the oil and gas properties
of each partnership at auction and potentially soliciting other buyers or merger
partners. The board also considered the fact that other potential buyers of each
partnership would have an opportunity to make an offer for each partnership
before the board submitted the merger transaction to the limited partners of
each partnership for their consideration and approval.
At a special meeting held on September 8, 1999, Pioneer USA's board
continued discussions with Sayles, Lidji & Werbner and Stanger regarding the
merger proposals for each partnership. After considering the alternatives
discussed in the preceding paragraph, including the advantages and disadvantages
of each, the board concluded that none of the alternatives was more advantageous
to the limited partners of any partnership than the terms of the proposed merger
of the partnership. The board then unanimously approved proceeding with the
merger of each partnership, subject to determination of September 30, 1999
pricing, its receipt of Stanger's fairness opinion, and the board's
determination that the merger consideration of each partnership is fair to the
unaffiliated limited partners of that partnership based on all circumstances as
of September 30, 1999, including without limitation, the then current market
conditions and the existence, if any, of any other proposal for the partnership
on terms more favorable to the limited partners.
On September 8, 1999, in connection with the proposed merger transaction,
Pioneer and Pioneer USA filed a preliminary proxy statement and preliminary
Schedule 13e-3s with the Securities and Exchange Commission. In addition,
Pioneer and Pioneer USA publicly announced the proposed merger of each
partnership. In that announcement, Pioneer USA also announced that it would
consider proposals from other potential buyers of one or more of the
partnerships.
On or about October 19, 1999, Pioneer submitted a verbal offer to Pioneer
USA to revise the oil reserve component of the pricing used in the preliminary
proxy statement to $18.35 per Bbl of oil. On or about November 3, 1999, Pioneer
submitted a second verbal offer to Pioneer USA to further revise the oil reserve
pricing to $18.40 per Bbl of oil. Later that month, due to the increase in oil
and gas prices over the previous several months and in response to a request
from Pioneer USA, Pioneer proposed to Pioneer USA that the merger value
calculation for each partnership be further modified (1) to increase the pricing
to $18.90 per Bbl for oil and $2.55 per Mcf of gas and (2) to increase the
discount rate to 15%.
On November 17, 1999, in connection with the approval of Pioneer's capital
budget for 2000, Pioneer's board of directors met and voted to approve the
merger of each partnership and to proceed with the completion of each merger,
subject to the pricing information and other relevant conditions at the time.
At a special board meeting held on November 22, 1999, Pioneer USA's board
of directors met with representatives from Stanger and Sayles, Lidji & Werbner
to discuss Pioneer's proposed pricing. Pioneer USA's
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board agreed that an increase in the merger value for each partnership based on
Pioneer's proposed pricing was warranted to more closely reflect the current oil
and gas prices. Similarly, in view of increases in interest rates during the
months since the original proposal was made and in view of the volatility of oil
and gas prices over the previous year, Pioneer USA's board agreed to increase
the discount rate used to determine the merger value for each partnership from
12.5% to 15%. Pioneer USA's board reported that management had worked to reduce
the expected merger expenses and fees from an estimated $4.6 million to an
estimated $1.8 million, thereby increasing the merger value for each partnership
to be received by the limited partners of the partnership. The board also
received a status report on whether or not any third party offers had been
received since September 8, 1999, the date on which Pioneer and Pioneer USA
announced that it would consider such offers. In that regard, Pioneer and
Pioneer USA had not received any formal offers, but did receive a few inquiries
from third parties expressing an interest in possibly making a bid on one or
more of the partnerships or the assets of one or more of the partnerships. None
of the third parties who made inquiries have pursued the matter further. The
board then voted to extend the period it would be willing to consider third
party offers from November 1, 1999 to December 31, 1999. Stanger then reviewed
for the board Stanger's analysis of the fairness of the merger transaction using
the new terms agreed to by Pioneer and Pioneer USA. Stanger expressed its
preliminary view that the revised merger value for each partnership to be paid
in cash for the limited partnership interests in each partnership would be fair
from a financial point of view to the unaffiliated limited partners of the
partnership under recent market conditions, but stated that whether or not the
transaction would be considered fair by Stanger at the time its fairness opinion
was sought would depend on market conditions at that time. Following this
discussion, the board approved proceeding with the merger of each partnership on
the new terms, subject to (1) its receipt of a fairness opinion from Stanger,
and (2) its determination that the merger value to be paid in cash for the
limited partnership interests in each partnership is fair to the unaffiliated
limited partners of the partnership based on all circumstances, including
without limitation, the then current market conditions and the existence, if
any, of any other proposal for such partnership or its assets on terms more
favorable to the unaffiliated limited partners than the proposed merger
transaction.
In December 1999, Pioneer became involved in another corporate transaction
which could not be completed timely without its management's dedicated time and
attention. Meanwhile, during December 1999 and the first quarter of 2000, oil
and gas prices continued to increase. As a result, during the first quarter of
2000, Pioneer and Pioneer USA began to discuss revising the pricing terms of the
proposed merger transaction to (1) an arithmetic average of the five-year NYMEX
futures price for oil and for gas and (2) a 15% discount rate. Pioneer also
proposed to offer Pioneer common stock instead of cash to the limited partners
of each participating partnership. In April 2000, Pioneer and Pioneer USA
discontinued these discussions and did not submit the proposed merger
transaction to the limited partners of any partnership because of:
o the decline in Pioneer's stock price;
o the increase in interest rates; and
o Pioneer's involvement in replacing existing debt with new
publicly-held debt and a new credit facility.
In September 2000, Pioneer and Pioneer USA began internal discussions to
consider a merger transaction involving 13 privately-held employee limited
partnerships. Pioneer offered to pay an amount of cash to the limited partners
of each participating partnership equal to the sum of the present value of
estimated future net revenues from the partnership's oil and gas reserves and
its net working capital, in each case as of September 30, 2000, less the cash
distributions on October 15, 2000 and November 15, 2000, by the partnership to
its partners. Pioneer and Pioneer USA calculated the present value of the
estimated future net revenues from each partnership's oil and gas reserves using
(1) a five-year NYMEX futures price for oil and gas as of August 25, 2000, with
prices held constant after year five at the year five price, less standard
industry adjustments, (2) historical operating costs adjusted only for those
items affected by commodity prices, such as production taxes and ad valorem
taxes, and (3) a 13.5% discount rate. Pioneer also agreed to bear the merger
expenses and fees. In December 2000, Pioneer and Pioneer USA completed the
merger of each of the 13 privately-held employee limited partnerships with and
into Pioneer USA.
In October 2000, Pioneer terminated the preliminary proxy statement and
preliminary Schedule 13e-3s filed with the Securities and Exchange Commission on
September 8, 1999 in connection with the proposed merger transaction.
As oil and gas prices continued to improve, in January 2001, Pioneer and
Pioneer USA renewed their internal discussions to consider a transaction
involving each of the partnerships described in this document. Pioneer offered a
combination of its common stock and cash. Pioneer and Pioneer USA agreed on a
merger value for each participating partnership equal to the sum of the present
value of estimated future net revenues from the partnership's oil and gas
reserves and its net working capital, in each case as of March 31, 2001. Pioneer
and Pioneer USA agreed to calculate the present value of the estimated future
net revenues from each partnership's oil and gas reserves using (1) a five-year
NYMEX futures price for oil and gas as of March 30, 2001, with prices held
constant after year five at the year five price, less standard industry
adjustments, (2) historical operating costs adjusted only for those items
affected by commodity prices, such as production taxes and ad valorem taxes, and
(3) a 13.5% discount rate. For 2001, the oil and gas prices would be based on
the average NYMEX futures price for the nine-
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month period beginning on April 1, 2001 and ending December 31, 2001. Pioneer
also agreed to bear the merger expenses and fees.
On February 15, 2001, Pioneer's board of directors met and voted to approve
the merger of each partnership, the issuance of Pioneer common stock and the
payment of cash upon each such merger, and to otherwise proceed with the
completion of each merger, subject to the pricing information and other relevant
conditions at the time.
During March 2001, Pioneer offered to acquire all of the direct oil and gas
interests owned by some former officers and employees of Pioneer and Pioneer USA
in properties in which Pioneer and Pioneer USA own interests. The terms of those
purchases and the method of establishing the purchase price payable to such
individuals are the same as those used to determine the reserve value portion of
the merger value for each partnership described in this document, except that
the NYMEX futures prices were as of a different date in March 2001, and the
consideration to be paid in the purchases of the direct oil and gas interests is
all cash since offering and registering Pioneer common stock in those purchases
is cost-prohibitive due to the small size of such transactions. Similarly,
during 2000, Pioneer purchased all of the direct oil and gas interests held by
Scott D. Sheffield, its chairman of the board of directors and chief executive
officer, for $0.2 million.
In April 2001, Pioneer USA contacted Sayles, Lidji & Werbner and Stanger to
advise them of the proposed merger transaction, pricing terms and merger
consideration.
On April 9, 2001, Pioneer USA's board met with Sayles, Lidji & Werbner to
discuss the proposed merger of each partnership into Pioneer USA. The board
members reviewed the terms of the merger transaction, including the pricing
terms, the merger consideration and the terms and conditions of the proposed
merger agreement. The board members also discussed the engagement of special
legal counsel to render the legal opinion required by each partnership's
partnership agreement. Finally, Pioneer USA's board discussed the fairness
opinion to be delivered by Stanger and decided to hold another board meeting at
which Stanger would present in detail its methodology in determining that the
merger value for each partnership and the allocation of the merger value of the
partnership (1) to the limited partners of the partnership as a group, (2) to
the general partners of the partnership as a group, (3) to Pioneer USA as the
managing or sole general partner of the partnership, (4) to the unaffiliated
limited partners of the partnership as a group and (5) to the unaffiliated
limited partners of the nonmanaging general partner, if any, of the partnership
as a group, is fair to the unaffiliated limited partners of the partnership and
the unaffiliated limited partners of the nonmanaging general partner, if any, of
the partnership, from a financial point of view. The board decided to proceed
with the merger transaction, but would withhold recommending the merger
transaction to the limited partners or executing the merger agreement until it
received the fairness opinion from Stanger and determined that the merger of
each partnership is advisable, fair to the unaffiliated limited partners and in
the unaffiliated limited partners' best interests
On April , 2001, in connection with the proposed merger transaction,
Pioneer and Pioneer USA filed a registration statement on Form S-4 and
preliminary Schedule 13e-3s with the Securities and Exchange Commission. In
addition, Pioneer and Pioneer USA publicly announced the proposed merger of each
partnership. In that announcement, Pioneer USA also announced that it would
continue to consider proposals from other potential buyers of any partnership or
its assets.
At a special meeting held on April , 2001, Pioneer USA's board continued
discussions with Sayles, Lidji & Werbner and Stanger regarding the merger
proposals for each partnership. Stanger also orally presented to the board the
status of its findings and its preliminary evaluation of the proposed
transaction. The board then unanimously approved proceeding with the merger of
each partnership, subject to (1) the execution of a definitive merger agreement,
(2) its receipt of Stanger's fairness opinion, and (3) clearing this document
with the Securities and Exchange Commission for mailing to the limited partners
of each partnership.
In a special meeting of the board of Pioneer USA held on , 2001, Stanger
presented its opinion dated , 2001, that the merger value for each
partnership and the allocation of the merger value of the partnership (1) to the
limited partners of the partnership as a group, (2) to the general partners of
the partnership as a group, (3) to Pioneer USA as the managing or sole general
partner of the partnership, (4) to the unaffiliated limited partners of the
partnership as a group and (5) to the unaffiliated limited partners of the
nonmanaging general partner, if any, of the partnership as a group, is fair to
the unaffiliated limited partners of the partnership and the unaffiliated
limited partners of the nonmanaging general partner, if any, of the partnership,
from a financial point of view. The board of Pioneer USA then unanimously
determined that the merger proposals for each partnership are advisable, fair to
the unaffiliated limited partners and in the unaffiliated limited partners' best
interests. Accordingly, the board recommended that the unaffiliated limited
partners of each partnership vote for the merger proposals. References to
Pioneer USA's board's recommendation of the merger of each partnership and its
finding that the merger consideration is fair from a financial point of view are
stated in this preliminary document conditioned on (1) the execution of a
definitive merger agreement, (2) its receipt of Stanger's fairness opinion, and
(3) clearing this document with the Securities and Exchange Commission for
mailing to the limited partners of each partnership.
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REASONS FOR THE MERGER OF EACH PARTNERSHIP
General. For all of the reasons listed below, Pioneer believes that it is
the party in the position to pay the highest price for the limited partnership
interests of each partnership. Pioneer USA also believes that Pioneer is the
most likely buyer for each partnership's properties in light of:
o Pioneer USA's operation of most of the properties;
o Pioneer USA's extensive property holdings in the same fields; and
o Pioneer's ability to achieve efficiencies by consolidating operations
with its existing operations in the same areas.
Pioneer's Reasons. Pioneer believes that completion of the merger of each
partnership is advantageous to it for the following reasons:
o Consolidate Core Area of Operations. The Spraberry field of the
Permian Basin is one of Pioneer's 25 fields of focus in its strategic
plan. Acquisition of each partnership's properties would help
consolidate Pioneer's operations in the Spraberry field and achieve
operating efficiencies. Pioneer USA operates most of each
partnership's wells, and Pioneer has extensive properties around each
partnership's properties, including interests in most of each
partnership's wells.
o Achieve Operating Efficiencies. Pioneer expects to improve operating
efficiencies with respect to the properties acquired in the merger of
each partnership because it will be able to co-mingle production of
oil from each participating partnership's properties with production
of oil from other Pioneer properties for storage, transportation and
sale. Production of oil from each partnership's properties is
predominantly segregated from Pioneer's production of oil until sale.
Gas production is currently, and will continue to be, metered.
o Achieve Administrative Efficiencies. Pioneer will eliminate the costs,
including time spent by Pioneer employees, related to preparing and
filing each partnership's separate tax returns, financial statements
and, for each reporting partnership, reports with the SEC, as well as
dealing with the concerns of approximately 29,000 record limited
partners. The merger of each partnership will result in administrative
efficiencies and cost reductions in the management and operation of
the properties now owned by each partnership, particularly in the
areas of audit, accounting and tax services, engineering services,
bookkeeping, data processing, record maintenance and mailing
information to the partners. Although Pioneer will lose the benefit of
each partnership's reimbursement for general and administrative
expenses, it will be able to use the additional time of its personnel
to help achieve its corporate strategic goals.
Pioneer USA's Reasons. In considering the merger of each partnership, the
board of directors of Pioneer USA considered the benefits to the limited
partners of each partnership set forth on page 7 as well as the following
factors:
o Maturity of Partnerships and Properties. Although each partnership's
properties were long-lived at the formation of the partnership,
Pioneer and Pioneer USA anticipated that at some point each
partnership would need to be liquidated. Pioneer USA is recommending
the merger transaction for each partnership at this time because:
- Pioneer is the most likely buyer and is the only potential buyer
with an offer outstanding. While third parties have made
inquiries, no one except Pioneer has made an offer to Pioneer USA
to acquire any of the partnerships.
- Oil and gas prices have recovered from significant lows in 1998.
As a result, Pioneer USA believes that Pioneer's pricing is
higher than it would have been otherwise.
- Administrative expenses for each partnership are increasing.
Moreover, the administrative cost of continuing to produce each
partnership to depletion could be significant, especially if no
buyer is available at the time each partnership is shut down.
- Each partnership's properties are mature, ranging from
approximately 10 to approximately 20 years old. The benefits for
which each partnership was originally formed have been realized.
o Declining Cash Flows. As each partnership's properties have matured,
the net cash flows from operations for the partnership have generally
declined, except in periods of substantially increasing commodity
prices. See Table 7 of Appendix A for each partnership's historical
cash distributions. The marginal benefit of continuing the operations
of each partnership is offset by the related administrative costs.
These
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administrative costs consume an increasing amount, and ultimately will
consume the entire amount, of the cash flows of each partnership as
production declines.
o Tax Incentives Have Been Realized. To the extent that each partnership
was intended to provide tax incentives to its partners, those
incentives have been realized, or the tax purposes for which the
partnership was originally formed are no longer applicable as a result
of changes in laws.
o Partnership Tax Burdens May Now Exceed Benefits. As net cash flow
available for distribution of each partnership has declined or, at
times, disappeared, some limited partners of the partnership may incur
greater costs to include their share of the tax information of the
partnership in their returns than they receive in cash distributions.
In any event, all limited partners of each partnership are expected to
benefit by the elimination of the obligation to include partnership
information in their tax returns for the years after the merger of
each partnership in which they own interests.
o Each Partnership is Unable to Access Additional Capital. Pioneer,
through its subsidiary, Pioneer USA, has the ability, financial and
otherwise, to take advantage of corporate opportunities to expand its
reserve base through acquisitions. None of the partnerships has the
ability to raise capital for reserve acquisitions. The partnership
agreements of the partnerships do not authorize the partnerships to
raise additional capital, whether debt or equity. Even if the
partnership agreement of each partnership is amended to authorize
additional capital, Pioneer does not believe that the limited partners
of the partnership would desire to contribute additional capital or to
apply all cash flow to debt service, while remaining taxable on the
related income.
o Fairness of Procedures. Pioneer USA considered the following factors
in making its recommendation that the unaffiliated limited partners
vote for the merger proposals for each partnership in which they own
interests:
- None of the partnerships has any employees or directors, and all
of Pioneer USA's directors are officers of Pioneer USA and of
Pioneer. As a result, there has been no approval by directors who
are not Pioneer employees.
- Pioneer USA did not retain an unaffiliated representative to act
solely on behalf of the unaffiliated limited partners of each
partnership for purposes of negotiating the terms of the merger
of the partnership or preparing a report concerning the fairness
of the merger of the partnership.
- Since Pioneer USA is entitled to vote its limited partnership
interests other than as described below, the transaction is not
structured so that the approval of at least a majority of
unaffiliated limited partnership interests is required. Pioneer
USA intends to vote in favor of the transaction for the
partnership interests it holds as a limited partner of each
partnership as permitted by the partnership agreement of each
partnership except in the following partnerships where the
partnership agreement does not allow Pioneer USA to vote on the
proposed transaction:
Parker & Parsley 85-A, Ltd.
Parker & Parsley 85-B, Ltd.
Parker & Parsley Private Investment 85-A, Ltd
Parker & Parsley Selected 85 Private Investment, Ltd
Parker & Parsley Private Investment 86, Ltd.
Parker & Parsley 91-A, L.P.
Parker & Parsley 91-B, L.P.
Despite the foregoing factors, Pioneer USA believes each merger is
procedurally fair to the unaffiliated limited partners of each
partnership because:
- Pioneer USA has been willing to consider any offer from third
parties to purchase any partnership or the assets of any
partnership since September 8, 1999, and will continue to do so
through July 31, 2001; and
- Pioneer does not directly own any partnership interests in the
partnerships. Pioneer beneficially owns all of Pioneer USA's
partnership interests in the partnerships. Pioneer USA does not
beneficially own more than 5% of the outstanding limited
partnership interests in any partnership, except Parker & Parsley
81-I, Ltd., Parker & Parsley 82-I, Ltd. and Parker & Parsley
82-III, Ltd. In those partnerships, Pioneer USA repurchased and
now owns partnership interests representing the following
beneficial ownership percentages:
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Parker & Parsley 81-I, Ltd. 5.84%
Parker & Parsley 82-1, Ltd. 10.73%
Parker & Parsley 82-III, Ltd. 5.97%
Except as set forth above, none of Pioneer, Pioneer USA, or, to
the knowledge of Pioneer USA, any of their directors or executive
officers, or any associate or subsidiary of Pioneer, Pioneer USA
beneficially owns any partnership interests of any partnership.
As a result, Pioneer USA believes that neither it nor its
affiliates have a meaningful voting percentage for any
partnership, other than Parker & Parsley 81-I, Ltd., Parker &
Parsley 82-I, Ltd. and Parker & Parsley 82-III, Ltd. See
"Ownership of Partnership Interests" on page 61 of this document
and Table 6 of Appendix A to this document.
o Fairness of Transaction. Pioneer USA's board of directors determined
that the merger of each partnership is advisable, fair to the
unaffiliated limited partners of the partnership and in their best
interests. In reaching this determination for each partnership,
Pioneer USA's board of directors considered the following factors:
- The form and amount of consideration offered to the partners of
the partnership;
- The objectives of the merger of the partnership, including
providing liquidity to the partners;
- Pioneer USA's right to consider third party offers;
- The current market prices for oil and gas, including the increase
in market prices, and the subsequent increase in merger value for
the partnership, since the merger transaction was initially
proposed in 1999;
- The historical market prices for oil and gas;
- The net book value, going concern value and liquidation value of
the partnership;
- The purchase prices paid in previous repurchases by Pioneer USA;
- The trading price of limited partnership interests in secondary
market transactions
- The analysis of alternative transactions to the proposed merger
of each partnership; and
- The fairness opinion of Stanger, including the analyses conducted
by Stanger in rendering the fairness opinion.
PIONEER'S DISCLOSURE RELATING TO THE MERGER OF EACH PARTNERSHIP
As directors of a company that is not the general partner of any of the
partnerships, Pioneer's board of directors believes that neither they nor
Pioneer has any fiduciary duties to the limited partners of any of the
partnerships. Accordingly, Pioneer's board has not made any determination as to
the fairness of the merger of each partnership to the unaffiliated limited
partners of the partnership. Pioneer's board believes that such a determination
is within the scope of the duties of Pioneer USA's board and not within the
scope of the duties of Pioneer's board. Nevertheless, Pioneer's board did take
note of the price negotiations between Pioneer and Pioneer USA on behalf of the
limited partners, as well as a number of the factors considered by Pioneer USA's
board, including (1) the reasons for the merger of each partnership set forth
above in "Special Factors -- Reasons for the Merger of Each Partnership," such
as the fairness opinion and analyses conducted by Stanger and the amount of
common stock and cash offered by Pioneer, and (2) the matters described under
"Risk Factors" beginning on page 17 of this document.
RECOMMENDATION OF PIONEER USA
On , 2001, Pioneer USA's board of directors unanimously determined
that the merger of each partnership is advisable, fair to the unaffiliated
limited partners of the partnership, and in their best interests. PIONEER USA'S
BOARD OF DIRECTORS RECOMMENDS THAT THE UNAFFILIATED LIMITED PARTNERS VOTE FOR
THE MERGER PROPOSALS FOR EACH PARTNERSHIP IN WHICH THEY OWN INTERESTS.
In making this recommendation, Pioneer USA's board of directors considered
a number of factors, including (1) the reasons for the merger of each
partnership set forth above in "Special Factors -- Reasons for the Merger of
Each Partnership," such as the fairness opinion and analyses conducted by
Stanger, and (2) the matters described under "Risk Factors" beginning on page 17
of this document, such as its conflicting interests. Pioneer USA's board of
directors also considered the likelihood, benefits and costs of other
transactions, including possible third party offers. Pioneer USA will consider
any offers from third parties to purchase any partnership or its assets. See
"The Merger of Each Partnership -- Third Party Offers" on page 48 of this
document for a description of the procedures for these offers. In view of the
numerous factors taken into consideration, Pioneer USA's board of directors did
not
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consider it practical to, and did not attempt to, quantify or assign relative
weights to the factors considered by it in reaching its decision to recommend
the merger of each partnership. Rather, the board viewed its position and
recommendation as being based on the total information presented to and
considered by the board.
FAIRNESS OPINION
Pioneer USA, on behalf of each partnership, engaged Robert A. Stanger &
Co., Inc., an independent financial advisory firm, to conduct an independent
review and deliver a written opinion in connection with the merger of each
partnership that the merger value for each partnership and the allocation of the
merger value of the partnership (1) to the limited partners of the partnership
as a group, (2) to the general partners of the partnership as a group, (3) to
Pioneer USA as the managing or sole general partner of the partnership, (4) to
the unaffiliated limited partners of the partnership as a group and (5) to the
unaffiliated limited partners of the nonmanaging general partner, if any, of the
partnership as a group, is fair to the unaffiliated limited partners of the
partnership and the unaffiliated limited partners of the nonmanaging general
partner, if any, of the partnership, from a financial point of view. The full
text of Stanger's fairness opinion, which sets forth the assumptions,
limitations and qualifications applicable to the review by Stanger, is attached
as Appendix C to this document and is incorporated into this document by
reference. Limited partners of each partnership are urged to read the opinion in
its entirety. This summary of Stanger's fairness opinion is qualified in its
entirety by reference to the full text of the opinion. Stanger has advised us
that arriving at a fairness opinion is a complex analytical process not
necessarily susceptible to partial analysis or amenable to summary description.
For a more complete description of the assumptions and qualifications to the
fairness opinion see "Qualifications to Fairness Opinion" and "Assumptions"
below.
Except for assumptions which Pioneer USA advised Stanger would be
reasonable and appropriate in its view, neither Pioneer USA nor any partnership
imposed any conditions or limitations on the scope of the investigation by
Stanger or the methods and procedures to be followed by Stanger in rendering the
fairness opinion. In addition, each partnership has agreed to indemnify Stanger
against some liabilities arising out of Stanger's engagement to prepare and
deliver its opinion upon consummation of the merger of the partnership, and such
indemnification obligations will become obligations of Pioneer USA.
Experience of Stanger. Since its founding in 1978, Stanger has provided
information, research, investment banking and consulting services to clients
located throughout the United Sates, including major New York Stock Exchange
member firms and insurance companies and over seventy companies engaged in the
management and operation of partnerships. The investment banking activities of
Stanger include financial advisory and fairness opinion services, asset and
securities valuations, industry and company research and analysis, litigation
support and expert witness services, and due diligence investigations in
connection with both publicly registered and privately placed securities
transactions.
Stanger was selected because of its experience in the valuation of
businesses and their securities in connection with mergers, acquisitions,
reorganizations and for estate, tax, corporate and other purposes, including the
valuation of partnerships, partnership securities and the assets typically held
through partnerships including oil and gas assets. Pioneer USA has previously
engaged Stanger to provide financial advisory services in connection with
proposed transactions between each partnership and Pioneer which were never
consummated.
Qualifications to Fairness Opinion. In the fairness opinion, Stanger
specifically states that it was not requested to, and did not:
o make any recommendations to Pioneer USA, any partnership or the
limited partners of any partnership with respect to whether to approve
or reject the merger of any partnership;
o determine or negotiate the amount or form of the merger value for any
partnership to be paid for limited partners' interests in the merger
of the partnership;
o offer the assets of any partnership for sale to any third party;
o express any opinion as to:
- the impact on Pioneer USA or the limited partners of any
partnership that does not participate in the proposed merger
transaction;
- the tax consequences of the merger of any partnership for Pioneer
USA, the nonmanaging general partner, if any, of the partnership
or the limited partners of the partnership;
- Pioneer USA's or Pioneer's ability to finance their obligations
under the merger agreement or the impact of a failure to obtain
financing on the financial performance of Pioneer USA, Pioneer or
any partnership;
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- Pioneer USA's decision to estimate the reserve value of the oil
and gas reserves of each partnership based upon the continued
operation of the properties by Pioneer USA and the payment of
overhead charges in accordance with existing operating agreements
or the impact, if any, on the estimated value of each
partnership's oil and gas reserves if Pioneer and Pioneer USA
determined to offer or operate the assets subject to revised
operating agreements;
- whether or not alternative methods of determining the merger
value for each partnership would have also provided fair results
or results substantially similar to the methodology used;
- alternatives to the merger of each partnership, including the
offering of such assets for sale to third party buyers;
- the trading price of shares of Pioneer common stock immediately
following the closing of the merger of each partnership and the
distribution of shares of Pioneer common stock in connection with
the merger of each partnership;
- the fairness of the termination of the repurchase obligations of
Pioneer USA with respect to some partnerships, which repurchase
obligations require Pioneer USA to offer to repurchase limited
partnership interests annually based upon a formula which in some
circumstances, including the repurchase offers based upon
December 31, 2000 oil and gas prices, result in repurchase offer
prices above the market value for the reserves of any such
partnership; or
- any other terms of the merger of any partnership.
Summary of Material Considered and Investigation Undertaken. Stanger's
analysis of the merger of each partnership involved a review of the following
information:
o a draft of this preliminary document;
o a draft of the merger agreement which Pioneer USA has indicated is
substantially the form which will be executed in connection with the
merger of each partnership;
o financial statements of each partnership, including, if applicable,
the partnership's Form 10-K, for the years ended December 31, 2000,
1999 and 1998;
o the reserve analysis for each partnership prepared by Pioneer and
Pioneer USA as of March 31, 2001;
o the summary reserve report prepared by Williamson Petroleum
Consultants, Inc., as of December 31, 2000, relating to the reserves
of each partnership;
o calculations prepared by Pioneer and Pioneer USA of the merger value
per $1,000 of limited partner investment in each partnership;
o Pioneer USA's analysis of other alternatives to the merger of each
partnership, including going concern value, liquidation value, royalty
trust and production payment;
o estimates prepared by Pioneer and Pioneer USA of the merger value,
going concern value and liquidation value per $1,000 of limited
partner investment in each partnership;
o the financial statements of Pioneer included in its Form 10-K for the
years ended December 31, 2000, 1999 and 1998;
o pro forma financial data for Pioneer assuming the completion of the
proposed merger transaction; and
o recent trading activity in shares of Pioneer common stock.
In the course of its analysis, Stanger conducted interviews of senior
management personnel of Pioneer USA in April 2001. During such interviews,
Stanger and the senior management personnel reviewed the status of the merger of
each partnership, the reserve pricing and related value estimates, the estimated
timing of the merger of each partnership and other matters.
Stanger reviewed estimates of the merger value, going-concern value, and
liquidation value prepared by Pioneer USA with respect to each partnership. In
addition, Stanger reviewed secondary market prices, as tracked by Stanger, for
limited partnership interests in each partnership along with tender offers
received by limited partners as derived from data provided by Pioneer USA.
Stanger's analysis is summarized below.
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Review of Merger Value for Each Partnership. Stanger reviewed the
calculation of the merger value for each partnership prepared by Pioneer USA.
Stanger observed that such calculation includes the reserve value, as described
below, and other current assets as of December 31, 2000, as reduced by other
current liabilities as of December 31, 2000. Stanger reviewed the balance sheet
of each partnership as of December 31, 2000 as prepared by Pioneer USA, and
reconciled the current assets and current liabilities on such financial
statements to the balances included in the merger value calculation for each
partnership.
Stanger reviewed the summary reserve analysis for each partnership prepared
by Pioneer and Pioneer USA as of March 31, 2001. Stanger noted that the summary
reserve analysis was prepared based upon a pricing case of (1) a five-year NYMEX
futures price for oil and gas as of March 30, 2001, with prices held constant
after year five at the year five price and (2) historical operating costs
adjusted only for those items affected by commodity prices, such as production
taxes and ad valorem taxes. For 2001, the oil and gas prices were based on the
average NYMEX futures price for the nine-month period beginning on April 1, 2001
and ending December 31, 2001. The standard industry adjustments reflect oil
quality, BTU content, oil and gas gathering and transportation costs, and gas
processing costs and shrinkage.
Stanger further observed that the reserve analysis utilized a discount rate
of 13.5% and resulted in a per barrel of oil equivalent, or BOE, value of the
reserves for each of the partnerships ranging from $3.07 to $4.02. Stanger
observed that such BOE values are low by general industry averages. However,
Stanger observed that such properties are long-lived, generally low-volume
properties, not operated by any of the partnerships, and are subject to overhead
charges by the operator, Pioneer USA. In the course of its engagement, Stanger
reviewed selected comparable transactions in the BOE value range described above
for long-lived, generally low-volume properties.
Stanger reviewed the summary reserve report prepared by Williamson
Petroleum Consultants, Inc. dated as of December 31, 2000, relating to the
reserves of each partnership. Such report indicated that the analysis prepared
by Pioneer and Pioneer USA was prepared using industry standards and procedures,
based upon the pricing case provided.
Going Concern Value. Stanger reviewed the going concern value calculation
prepared for each partnership by Pioneer USA. The going concern value was based
upon:
o The sum of (1) the estimated net cash flow from sale of the reserves
during a 10-year operating period plus (2) the estimated residual
value from the sale of the remaining reserves at the end of the
operating period, in each case using the same pricing and discount
rate as in the merger value calculation; less
o Partnership level general and administrative expenses, calculated as
follows and, consistent with the calculation of 2000 and 1999
expenses, generally representing the maximum expense percentages
permitted under the partnership agreements:
- The partnership agreement for each of Parker & Parsley 81-I,
Ltd., Parker & Parsley 81-II, Ltd., Parker & Parsley 82-I, Ltd.,
Parker & Parsley 82-II, Ltd. and Parker & Parsley 82-III, Ltd.
permits Pioneer USA to allocate to the partnership (1) general
and administrative expenses and (2) all expenses directly
attributable to the partnership as a result of fees or charges by
parties other than Pioneer USA or its affiliates, including
legal, auditing and engineering fees. However, for purposes of
clause (1) and for administrative ease and to the benefit of each
of those partnerships, Pioneer USA allocates to each of those
partnerships general and administrative expenses based on 3% of
the revenues of the partnership.
- The partnership agreement for each of Parker & Parsley 83-A, Ltd.
and Parker & Parsley 83-B, Ltd. permits Pioneer USA to allocate
to the partnership (1) general and administrative expenses in an
annual amount not to exceed the sum of 2% of the initial partner
capital for the partnership, plus 2.25% of the drilling and
completion expenses, of which there are none, and (2) all
expenses directly attributable to the partnership as a result of
fees or charges by parties other than Pioneer USA or its
affiliates, including legal, auditing and engineering fees.
However, for purposes of clause (1) and for administrative ease
and to the benefit of each of those partnerships, Pioneer USA
allocates to each of those partnerships general and
administrative expenses based on 3% of the revenues of the
partnership.
- The partnership agreement for Parker & Parsley 84-A, Ltd. permits
Pioneer USA to allocate to the partnership (1) general and
administrative expenses in an annual amount not to exceed the sum
of 3.25% of the revenues of the partnership, plus 2.25% of the
drilling and completion expenses, of which there are none, and
(2) all expenses directly attributable to the partnership as a
result of fees or charges by parties other than Pioneer USA or
its affiliates, including legal, auditing and engineering fees.
However, for purposes of clause (1) and for administrative ease
and to the benefit of the partnership, Pioneer USA allocates to
the partnership general and administrative expenses based on 3%
of the revenues of the partnership.
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- The partnership agreement for each of the following partnerships
permits Pioneer USA to allocate to the partnership general and
administrative expenses, including all expenses directly
attributable to the partnership as a result of fees or charges by
parties other than Pioneer USA or its affiliates, such as legal,
auditing and engineering fees, in an annual amount not to exceed
2% of the revenues of the partnership.
Parker & Parsley Private Investment 85-A, Ltd.
Parker & Parsley Selected 85 Private Investment, Ltd.
Parker & Parsley Private Investment 86, Ltd.
- The partnership agreement for each of the following partnerships
permits Pioneer USA to allocate to the partnership general and
administrative expenses, including all expenses directly
attributable to the partnership as a result of fees or charges by
parties other than Pioneer USA or its affiliates, such as legal,
auditing and engineering fees, in an annual amount not to exceed
3% of the revenues of the partnership.
Parker & Parsley 85-A, Ltd.
Parker & Parsley 85-B, Ltd.
Parker & Parsley 86-A, Ltd.
Parker & Parsley 86-B, Ltd.
Parker & Parsley 86-C, Ltd.
Parker & Parsley 87-A Conv., Ltd.
Parker & Parsley 87-A, Ltd.
Parker & Parsley 87-B Conv., Ltd.
Parker & Parsley 87-B, Ltd.
Parker & Parsley Producing Properties 87-A, Ltd.
Parker & Parsley Producing Properties 87-B, Ltd.
Parker & Parsley Private Investment 87, Ltd.
Parker & Parsley 88-A Conv., L.P.
Parker & Parsley 88-A, L.P.
Parker & Parsley 88-B Conv., L.P.
Parker & Parsley 88-B, L.P.
Parker & Parsley 88-C Conv., L.P.
Parker & Parsley 88-C, L.P.
Parker & Parsley Producing Properties 88-A, L.P.
Parker & Parsley Private Investment 88, L.P.
- The partnership agreement for each of the following partnerships
permits Pioneer USA to allocate to the partnership (1) general
and administrative expenses in an annual amount not to exceed 3%
of the revenues of the partnership, and (2) all expenses directly
attributable to the partnership as a result of fees or charges by
parties other than Pioneer USA or its affiliates, including
legal, auditing and engineering fees.
Parker & Parsley 89-A Conv., L.P.
Parker & Parsley 89-A, L.P.
Parker & Parsley 89-B Conv., L.P.
Parker & Parsley 89-B, L.P.
Parker & Parsley 90-A Conv., L.P.
Parker & Parsley 90-A, L.P.
Parker & Parsley 90-B Conv., L.P.
Parker & Parsley 90-B, L.P.
Parker & Parsley 90-C Conv., L.P.
Parker & Parsley 90-C, L.P.
Parker & Parsley 91-A, L.P.
Parker & Parsley 91-B, L.P.
- The partnership agreement for each of the following partnerships
permits Pioneer USA to allocate to the partnership (1) general
and administrative expenses in an annual amount not to exceed 5%
of the revenues of the partnership, and (2) all expenses directly
attributable to the partnership as a result of fees or charges by
parties other than Pioneer USA or its affiliates, including
legal, auditing and engineering fees. However, for purposes of
clause (1) and for administrative ease and to the benefit of each
of the partnerships, Pioneer USA allocates to the partnership
general and administrative expenses based on 3% of the revenues
of the partnership.
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Parker & Parsley Private Investment 89, L.P.
Parker & Parsley Private Investment 90, L.P.
Parker & Parsley 90 Spraberry Private Development, L.P.
Stanger observed that the going concern value of each partnership ranged
from 7.2% to 11.5% less than the merger value for each partnership. See the
supplemental information table on the second page of the supplement for each
partnership for its merger value and its going concern value, in each case per
$1,000 limited partner investment.
Liquidation Value. Stanger reviewed the liquidation value calculation
prepared for each partnership by Pioneer USA. Such liquidation value was based
upon the sale of the reserves at the reserve value, less merger expenses
estimated at 3% of reserve value. The 3% estimate of merger expenses was based
upon the estimated costs to retain an investment banker or broker to sell the
assets of each partnership and the legal and other closing costs associated with
such transaction. Stanger observed that such merger expenses are intended to
reflect Pioneer USA's estimate of the cost associated with brokers' commissions
on asset sales and the additional wind-down costs of the partnership. Stanger
observed that the liquidation value for each partnership ranged from 2.5% to
2.7% less than the merger value for each partnership. See the supplemental
information table on the second page of the supplement for each partnership for
its merger value and its liquidation value, in each case per $1,000 limited
partner investment.
Secondary Market Prices. To determine the most up-to-date secondary market
prices, Stanger reviewed the secondary market prices for units of limited
partnership interests in each of the partnerships during the 12 months ended
February 28, 2001, collected from data maintained on partnerships by Stanger.
Stanger observed that secondary market transactions were reported for 24 of the
partnerships during such period. Stanger observed that for all partnerships
except Parker & Parsley Producing Properties 87-A, Ltd., the weighted average
secondary market price on a per $1,000 original investment basis was less than
the merger value per $1,000 original investment. For such other partnerships,
the range of discount to the merger value per $1,000 investment was 3.6% to
53.7%, averaging 32.1%. For Parker & Parsley Producing Properties 87-A, Ltd.,
Stanger observed that only one transaction involving $10,000 of original
investment (20 units) was at a price in excess of the merger value per $1,000 of
original investment. All other secondary market transactions for Parker &
Parsley Producing Properties 87-A, Ltd. were reported at prices below the merger
value. Stanger also observed secondary market transactions at prices in excess
of the merger value for two additional partnerships. Secondary market firms
reported a single transaction during the twelve months ended February 28, 2001
for each of Parker & Parsley 85-B, Ltd. and Parker & Parsley 90-B, L.P. at a
price in excess of merger value. Each such transaction involved ten units
($10,000) of original investment. All other transactions reported for such
partnerships were at amounts less than the merger value during the twelve months
ended February 28, 2001.
Stanger also reviewed the secondary market data obtained by Pioneer USA
from Partnership Spectrum and included in Table 15 of Appendix A to this
document. Stanger observed that such data included three partnerships which
reported a secondary market transaction price in excess of the high-end
transaction price Stanger observed in its data. In all cases, such high-end
range was lower than the merger value.
Selected Tender Offers. Stanger observed that Pioneer USA reported
unsolicited tender offers from unaffiliated third parties for less than 5% of
the interests in the following partnerships during the period June 1998 through
March 2001. Stanger observed that the tender offers and related merger value per
limited partnership interest for each of those partnerships were as follows:
MERGER VALUE TENDER OFFER
(PER $1,000 (PER $1,000 DISCOUNT TO
PARTNERSHIP INVESTMENT) INVESTMENT) MERGER VALUE
------------ ---------------- ----------------
Parker & Parsley 82-II, Ltd. $ 98.29 $ 13.75 (86.0)%
Parker & Parsley 82-III, Ltd. 120.01 26.25 (78.1)
Parker & Parsley 83-A, Ltd.(a) 138.67 40.00 to 70.00 (49.5) to (71.2)
Parker & Parsley 83-B, Ltd.(a) 150.46 50.00 to 55.00 (63.4) to (66.8)
Parker & Parsley 84-A, Ltd. 193.75 60.00 (69.0)
Parker & Parsley 86-A, Ltd. 168.12 40.00 (76.2)
Parker & Parsley 86-B, Ltd. 218.28 115.00 (47.3)
Parker & Parsley 86-C, Ltd.(a) 162.51 65.00 to 67.50 (58.5) to (60.0)
Parker & Parsley 87-A, Ltd.(a) 187.59 90.00 to 105.00 (44.0) to (52.0)
Parker & Parsley 87-B, Ltd.(a) 198.15 60.00 to 65.00 (83.4) to (84.7)
Parker & Parsley 88-A, L.P. 239.09 80.00 (66.5)
Parker & Parsley 88-B, L.P. 309.73 50.00 (83.8)
Parker & Parsley Private Investment 89, L.P. 259.94 162.50 (32.5)
Parker & Parsley 90-B, L.P.(a) 258.68 102.50 to 160.00 (38.2) to (60.4)
Parker & Parsley 90-C, L.P.(a) 238.17 30.00 to 40.00 (83.2) to (87.4)
Parker & Parsley 90 Spraberry Private Dev., L.P. 274.15 162.50 (40.7)
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----------
(a) More than one tender offer for partnership interests was made. Amounts
shown represent the range of tender offer prices.
Stanger observed that the above tender offers represent a discount to the
merger value for each of those partnerships of 32.5% to 87.4%. Stanger also
observed that tender offers for limited partnership securities are generally at
prices which represent a substantial discount to the underlying value of the
assets held by such partnerships. Furthermore, the tender offer prices are based
on oil prices prevailing at the time of the tender offer, which prices may have
been lower than oil prices prevailing at March 30, 2001 or as of the date of
mailing this document.
Repurchase Offers. Stanger observed that for each of the six partnerships
listed below, which Stanger calls the repurchase partnerships, Pioneer USA is
required under the partnership agreement for the partnership to offer to
repurchase units of limited partnership interests in the partnership annually at
a formula price based upon the December 31 year end reserve report. Stanger
observed that the repurchase offer pricing at December 31, 2000 tends to
overstate the value of units of the repurchase partnerships due primarily to the
oil and gas prices in effect on such date and the effect of such pricing on the
cash flows and recoverable reserves. Stanger observed that the repurchase offers
for 2000 for the repurchase partnerships are at premiums to the merger value
ranging from 25.5% to 68.5% as follows:
PER $1,000 ORIGINAL INVESTMENT
----------------------------------------------------
MERGER VALUE REPURCHASE OFFER PREMIUM
-------------- ---------------- --------------
Parker & Parsley 82-I, Ltd. $ 81.87 $ 137.97 68.5%
Parker & Parsley 82-II, Ltd. 98.29 133.72 36.0
Parker & Parsley 82-III, Ltd. 120.01 150.59 25.5
Parker & Parsley 83-A, Ltd. 138.67 196.67 41.8
Parker & Parsley 83-B, Ltd. 150.46 210.15 39.7
Parker & Parsley 84-A, Ltd. 193.75 267.03 37.8
Stanger further observed that Pioneer USA's obligation is limited to
$100,000 in repurchases per year per repurchase partnership. Stanger further
advised Pioneer USA and the repurchase partnerships that no adjustment was made
to the merger value offered to the repurchase partnerships to reflect the
repurchase offer obligation and Stanger's opinion does not include an opinion as
to the fairness of the termination of Pioneer USA's repurchase obligation.
Assumptions. Pioneer and Pioneer USA advised Stanger that the oil and gas
properties owned by each partnership are subject to operating agreements with
Pioneer USA and that:
o such operating agreements provide for the payment of overhead charges
and that such charges are reasonable compared with amounts charged for
similar services by third party operators;
o except for cause, such operating agreements do not provide for the
termination of Pioneer USA as operator; and
o such operating agreements do not provide for the revision of the
overhead charges, except as escalated under the terms of such
operating agreements.
Furthermore, Pioneer and Pioneer USA advised Stanger that if each partnership's
reserves were offered for sale to a third party, a condition of such sale would
be that the oil and gas reserves would continue to be subject to the operating
agreements with Pioneer USA which provide for the payment of overhead charges,
and that it would be appropriate to assume, when estimating the value of such
reserves, that such charges would continue.
In addition, Pioneer and Pioneer USA advised Stanger that the reserve value
and working capital balance of each partnership has been properly allocated
between the general partners and the limited partners of each partnership in
accordance with the partnership agreement with respect to a liquidation.
Stanger did not conduct any engineering studies and has relied on estimates
of Pioneer and Pioneer USA with respect to oil and gas reserve volumes, prices,
operating costs and overhead charges with respect to the reserve value
estimates.
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Stanger also relied on the assurance of Pioneer, Pioneer USA and each
partnership that:
o the reserve analysis provided to Stanger was in the judgement of
Pioneer USA and each partnership reasonably prepared on bases
consistent with actual historical experience and reflect their best
currently available estimates and good faith judgements;
o there are no estimates of costs to remediate environmental conditions
included in the reserve analysis;
o any historical financial data, balance sheet data, merger value
analyses, going concern value analyses and liquidation value analyses
are accurate and complete in all material respects;
o all allocations included in the calculations of merger values, going
concern values and liquidation values have been made in accordance
with the partnership agreement of each partnership;
o no material changes have occurred in the information reviewed or in
the value of the oil and gas reserves or working capital balances of
each partnership between the date the information was provided to
Stanger and the date of Stanger's opinion;
o the relative ownership interests of (1) the limited partners of each
partnership, (2) the unaffiliated limited partners of each
partnership, (3) the general partners of each partnership, (4) the
unaffiliated limited partners of the nonmanaging general partner, if
any, of each partnership and (5) Pioneer USA, as the managing or sole
general partner of each partnership, is accurately included in
accordance with the partnership agreement for each partnership in the
analyses provided to Stanger by Pioneer USA;
o neither Pioneer or any of its affiliates has during the thirty days
prior to the date hereof commenced or continued a share repurchase
program or similar transaction which could affect the price of shares
of Pioneer common stock to be used in the proposed merger transaction;
and
o Pioneer, Pioneer USA and each partnership are not aware of any
information or facts regarding the partnership, the oil and gas
properties, the reserve analysis or the working capital balances of
the partnership that would cause the information supplied to Stanger
to be incomplete or misleading in any material respect.
Stanger's opinion is based upon business, economic, oil and gas market and
other conditions as of the date of its analysis and addresses the merger value
for each partnership in the context of information available as of the date of
Stanger's analysis. Events occurring after the date of Stanger's analysis could
affect the value of the assets of each partnership or the assumptions used in
the preparation of Stanger's fairness opinion.
Conclusions. Stanger concluded that, based upon and subject to its
analysis, assumptions, limitations and qualifications cited in its opinion, and
as of the date of the fairness opinion, the merger value for each partnership
and the allocation of the merger value of the partnership (1) to the limited
partners of the partnership as a group, (2) to the general partners of the
partnership as a group, (3) to Pioneer USA as the managing or sole general
partner of the partnership, (4) to the unaffiliated limited partners of the
partnership as a group and (5) to the unaffiliated limited partners of the
nonmanaging general partner, if any, of the partnership as a group, is fair to
the unaffiliated limited partners of the partnership and the unaffiliated
limited partners of the nonmanaging general partner, if any, of the partnership,
from a financial point of view.
Compensation and Material Relationships. Stanger has been paid a total fee
of $350,000 in connection with the rendering of the fairness opinion. Such fee
was not conditioned on Stanger's findings and is payable whether or not the
merger of each partnership is consummated. In addition, Stanger will be
reimbursed for all reasonable out-of-pocket expenses, including legal fees, and
will be indemnified against some liabilities, including some liabilities under
the securities laws. To the extent that such indemnification includes
liabilities arising under the federal securities laws, it may not be enforceable
as it may be determined to be against public policy.
During the past two years, Pioneer USA engaged Stanger to render financial
advisory services in connection with proposed transactions which were withdrawn
and never consummated. In connection with such assignments Stanger was paid fees
aggregating $175,000.
SUMMARY RESERVE REPORT
Pioneer USA engaged Williamson Petroleum Consultants, Inc., an independent
petroleum engineering consulting firm based in Midland, Texas, to provide a
summary reserve report of the property interests of each of the partnerships as
of December 31, 2000. THE FULL TEXT OF THE SUMMARY RESERVE REPORT OF WILLIAMSON
PETROLEUM CONSULTANTS, INC. EFFECTIVE AS OF DECEMBER 31, 2000, WHICH SETS FORTH
THE MATTERS CONSIDERED, ASSUMPTIONS MADE AND LIMITATIONS, IS ATTACHED AS
APPENDIX B. WE ENCOURAGE YOU TO READ IT CAREFULLY IN ITS ENTIRETY.
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Qualifications and Method of Selection. Williamson is engaged solely in the
business of petroleum evaluation and engineering studies for public and private
oil and gas companies. Williamson is widely recognized in its field. Williamson
is an independent consulting firm as provided in the Standards Pertaining to the
Estimating and Auditing of Oil and Gas Reserves Information promulgated by the
Society of Petroleum Engineers.
Pioneer USA engaged Williamson based upon Pioneer USA's assessment of their
professional reputations and qualifications, capabilities, experience and
responsiveness. In addition, Williamson is the independent petroleum engineering
firm most familiar with the properties in which each partnership has interests
and has prepared the annual independent reserve report for each partnership's
reserves since the inception of each partnership.
Summary of Procedures, Scope and Findings. Williamson calculated the
estimated total net proved reserves for each partnership and the present value
of the estimated future net revenues from the estimated proved reserves for each
partnership as of December 31, 2000, based on the financial reporting
requirements of the SEC, including using NYMEX spot oil and gas prices as of
December 31, 2000, which were $26.69 per Bbl of oil and $9.95 per Mcf of gas.
Williamson's estimated total net proved reserves and the present value of the
estimated future net revenues from the reserves for each partnership are set
forth in the exhibits to the summary reserve report attached as Appendix B to
this document.
Pioneer determined the amount of Pioneer common stock and cash to be
offered. Williamson did not opine on the fairness of the transaction.
In preparing its summary reserve report, Williamson assumed the accuracy
and completeness of all information provided by Pioneer USA or information which
was publicly available and did not attempt to independently verify such
information. Williamson did not make field inspections or judgments relative to
environmental or other legal liabilities. Except as described below, Pioneer USA
did not instruct Williamson as to the pricing, cost or other economic parameters
or methods or the assessment of reserves characteristics, nor did it limit the
scope of Williamson's investigation for purposes of preparing its summary
reserve report.
Pioneer USA provided Williamson with all evaluation data with respect to
interests, reversionary status, oil and gas prices, gas categories, gas contract
terms, operating expenses, investments, salvage values, abandonment costs, net
profit interests, well information and current operating conditions for
Williamson's use in determining each partnership's reserves. Williamson used
production data provided by Pioneer USA, and where information was not provided
by Pioneer USA, Williamson used production data from public records. Williamson
prepared its own reserve estimates of the property interests.
Prior Material Relationships. Williamson has estimated total proved
reserves and the present value of estimated future revenues from those reserves
for each of the partnerships since their respective inceptions. In addition,
Pioneer USA engaged Williamson to prepare a summary reserve report in connection
with a proposed transaction in 1999, similar to the one described in this
document, which was withdrawn and never consummated. Pioneer USA and its
affiliates have paid $112,700 over the past two years to Williamson. Neither
Williamson nor any of its personnel has any direct or indirect interest in
Pioneer USA or any of the partnerships, and Williamson's compensation is not
contingent upon the results of its summary reserve report.
ALTERNATIVE TRANSACTIONS TO THE MERGER OF EACH PARTNERSHIP
We considered the following alternative types of transactions before
selecting the merger transaction described in this document. As discussed below,
we believe that the merger of each partnership is the best available alternative
for each partnership to maximize the consideration to the limited partners.
Comparison of the Merger of Each Partnership to Continuing Operations.
Because each partnership's properties are mature, producing properties, we
believe that production from those properties will continue to decline at the
rate predicted in the partnership's oil and gas engineering reserve reports.
Accordingly, cash distributions from each partnership will also decline, subject
to variation for changes in oil and gas prices. The marginal benefit of
continuing operations of each partnership is offset by the general and
administrative costs related to continuing operations. See "Special Factors --
Reasons for the Merger of Each Partnership" beginning on page 26 of this
document.
We also believe there is a substantial advantage in receiving the
liquidating distribution at present in the form of Pioneer common stock and a
lump sum cash payment, rather than continuing to receive decreasing levels of
cash distributions over a long period of time. We believe that the reserve value
included in the merger value for each partnership is higher than the net present
value of estimated future cash distributions to the limited partners from
continued operations because the reserve value has not been reduced for the
reimbursement of Pioneer USA's general and administrative expenses allocable to
the partnership. In addition, continued operations over a long period of time
subject the limited partners of each partnership to the risk of receiving lower
levels of cash distributions if oil and gas prices over this period are lower on
average than those used in preparing the estimates of
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cash distributions from continued operations. Continued operations also subject
the limited partners of each partnership to possible changes in costs or need
for workover or similar significant remedial work on each partnership's
properties. In contrast, the Pioneer common stock is a liquid tradeable security
which can be sold and redeployed in other investments. The Pioneer common stock
provides the limited partners of each partnership the opportunity to participate
in a larger entity having more diversified producing reserves and other oil and
gas properties, with the resulting spreading of risks.
We expect that any nonparticipating partnership will continue operations
and will produce its reserves until depletion with steadily decreasing rates of
cash flow and, as a result, decreasing cash distributions.
Comparison of the Merger of Each Partnership to Master Limited Partnership.
We considered accomplishing the consolidation of each partnership through a
master limited partnership, pursuant to which the partnership interests of the
limited partners of the partnership would be exchanged for interests in the
master limited partnership. However, each partnership's oil and gas properties
are not of sufficient size, individually or in the aggregate with the other
partnerships, to attract new capital through a master limited partnership. In
addition, the partnership interests in a master limited partnership might not be
traded on a national stock exchange or in any other significant market. Some
master limited partnership interests might be sold from time to time in private
or over-the-counter transactions, but the prices would likely reflect a discount
for illiquidity. As a result, a master limited partnership would not provide the
limited partners with immediate and complete liquidity for their investment in
each partnership. Finally, a master limited partnership would still be burdened
with general and administrative expenses, which would reduce any cash
distributions paid to the partners of the master limited partnership. The merger
value for each partnership reflects a liquidation value and has not been reduced
for any reimbursement of Pioneer USA's general and administrative expenses
allocable to the partnership.
Comparison of the Merger of Each Partnership to Royalty Trust. We also
considered a royalty trust, pursuant to which the partnership interests of each
partnership would be exchanged for beneficial ownership interests in the trust.
Like the master limited partnership alternative discussed above, each
partnership's oil and gas properties are not of sufficient size, individually or
in the aggregate with the other partnerships, to attract new capital through a
royalty trust. In addition, the beneficial ownership interests in a royalty
trust might not be publicly traded in a significant market. As a result, this
alternative was not selected because it would not result in immediate and
complete liquidity for the limited partners' investments in any partnership.
Finally, a royalty trust would still be burdened with general and administrative
expenses, which would reduce any cash distributions paid to the beneficiaries of
the royalty trust. The merger value for each partnership reflects a liquidation
value and has not been reduced for any reimbursement of Pioneer USA's general
and administrative expenses allocable to the partnership.
Comparison of the Merger of Each Partnership to Production Payment. We also
considered whether each partnership would benefit from attempting to sell a
production payment against its future oil and gas production in exchange for
cash. Like the master limited partnership and royalty trust alternatives
discussed above, each partnership's oil and gas properties are not of a
sufficient size, individually or in the aggregate with the other partnerships,
to attract new capital from lenders or investors. In addition, lenders or
investors that provide production payment alternatives will not advance funds
against 100% of future oil and gas production, and typically limit any
production payment transaction to less than 70% of estimated future oil and gas
production. As a result, this alternative was not selected because it would not
provide the limited partners with immediate and complete liquidity for their
investment in each partnership. Even with a production payment transaction, each
partnership would continue to be burdened with general and administrative
expenses which would reduce any cash distributions paid to the limited partners.
The merger value for each partnership reflects a liquidation value and has not
been reduced for any reimbursement of Pioneer USA's general and administrative
expenses allocable to the partnership.
Comparison of the Merger of Each Partnership to Negotiated Sale. We also
considered whether each partnership would benefit from attempting to sell its
property interests in negotiated transactions. Buyers would be purchasing the
partnership's property interests which they would neither control nor operate. A
portion of the properties in which each partnership owns interests would
continue to be operated by Pioneer USA because Pioneer USA controls other
interests in fields in which the partnership's properties are located. Because
of Pioneer USA's control of such properties, Pioneer and Pioneer USA believe
Pioneer is the party in the position to pay the highest price for such interests
and the one most likely to do so. In contrast, Pioneer USA's control of such
properties could negatively affect the amount a third party is willing to pay
and the overall interest of third parties in buying such properties.
In addition, sale of each partnership's properties on a direct basis often
involves substantial periods of time for due diligence, negotiation and
execution of agreements and closings, often with different purchasers for
different properties. Satisfying due diligence requests requires large amounts
of time to create and supervise data rooms or disseminate data to possible
purchasers, plus the time needed to deal directly with multiple prospective
purchasers. Furthermore, some issues, such as environmental and title matters,
may come to light in the late stages of a negotiated sale, which may delay or
preclude the consummation of the sale.
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The transaction costs for offering properties in a negotiated sale could be
substantial, and often are higher than other means of sale. Those costs include:
o preparing and disseminating information on properties to be offered;
o soliciting attendance by prospective purchasers; and
o screening and qualifying purchasers.
In a third party sale, we expect that each partnership would have to pay
its own expenses or that the price would be reduced to take the expenses into
account. In contrast, Pioneer is paying all the expenses of the proposed merger
of each partnership.
Although we believe the factors described above to be true, we are
conducting a limited form of auction. That is, in September 1999 we established
a price and publicly announced that we will consider third party offers to
purchase any partnership or its assets at prices that are higher than the 1999
merger value for such partnership. We have repeated our willingness to consider
third party offers in connection with the merger of each partnership we now
propose, so long as the prices offered exceed those we are offering. We believe
this process would result in a better price to the limited partners than if we
merely offered the partnership or its assets for sale at any price. See "The
Merger of Each Partnership -- Third Party Offers" on page 48. Although we
received some preliminary indications of interest from third parties during the
last quarter of 1999, none of those third parties has ever made a formal bid for
any partnership or its assets.
FORWARD-LOOKING STATEMENTS
This document includes "forward looking statements" as defined by the
Securities and Exchange Commission. These statements concern Pioneer's, Pioneer
USA's and each partnership's plans, expectations and objectives for future
operations. All statements, other than statements of historical facts, included
in this document that address activities, events or developments that Pioneer,
Pioneer USA and each partnership expect, believe or anticipate will or may occur
in the future are forward looking statements and include the following:
o completion of the proposed merger of each partnership;
o reserve estimates;
o future production of oil and gas; and
o future financial performance.
These forward looking statements are based on assumptions, which Pioneer,
Pioneer USA and each partnership believe are reasonable, but which are open to a
wide range of uncertainties and business risks. Factors that could cause actual
results to differ materially from those anticipated are discussed in (1)
periodic filings with the Securities and Exchange Commission, including Annual
Reports on Form 10-K for the year ended December 31, 2000, for Pioneer and each
partnership subject to the informational requirements of the Securities Exchange
Act of 1934, and (2) "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for the year ended December 31, 2000
included in the supplement to this document for each partnership not subject to
the informational requirements of the Securities Exchange Act of 1934.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995: Statements in this document regarding each company's business which are
not historical facts are "forward looking statements" that involve risks and
uncertainties. For a discussion of these risks and uncertainties, which could
cause actual results to differ from those contained in the forward looking
statements, see "Risk Factors" beginning on page 17 of this document.
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METHOD OF DETERMINING MERGER VALUE FOR EACH PARTNERSHIP
AND AMOUNT OF PIONEER COMMON STOCK AND CASH OFFERED
Pioneer and Pioneer USA agreed to a merger value for each partnership for
purposes of the merger of the partnership. The merger value for each partnership
has not been reduced by the projected costs and expenses of the partnership's
merger, which Pioneer will pay. The method of determining the merger value for
each partnership was not determined by arm's-length negotiations. See "Risk
Factors -- You Were Not Independently Represented in Establishing the Terms of
the Merger of Each Partnership" on page 17 and "Interests of Pioneer, Pioneer
USA and Their Directors and Officers" on page 60.
Pioneer and Pioneer USA agreed to use March 31, 2001 to determine the
merger value for each partnership and to base the number of shares of Pioneer
common stock to be offered on the average closing price of the Pioneer common
stock, as reported by the New York Stock Exchange, for the ten trading days
ending three business days before the date of the special meeting for each
partnership. For purposes of illustration in this document, we have calculated
the merger value based on each partnership's working capital as of December 31,
2000, and the number of shares to be issued based on an assumed average closing
price of $18.00 per share of Pioneer common stock. We will update the
calculation of the merger value using the March 31, 2001 working capital of each
partnership before mailing this document to the limited partners, and prior to
the date of the special meeting for each partnership, we will update the number
of shares to be issued using the actual average closing price of Pioneer common
stock for the ten trading days ending three business days before the date of the
special meeting. Neither Pioneer nor Pioneer USA will adjust any of the other
components of the merger value for any partnership.
COMPONENTS OF MERGER VALUE FOR EACH PARTNERSHIP
Pioneer and Pioneer USA calculated the merger value assigned to each
partnership as follows:
o Pioneer and Pioneer USA calculated the volumes of the partnership's
proved reserves as of March 31, 2001, based on a future production
curve consistent with the production curve used in the summary reserve
report of Williamson Petroleum Consultants, Inc. as of December 31,
2000. The reserve value component of the merger value for each
partnership is also set forth in Table 12 of Appendix A to this
document. Pioneer and Pioneer USA believe it is appropriate to use the
production costs, excluding those items affected by commodity prices
such as production taxes and ad valorem taxes, assumed in the 2000
Williamson reserve report because such costs have been fairly stable
and predictable over the last several years. However, Pioneer and
Pioneer USA recalculated the economic limit, or point at which
production would become unprofitable, otherwise assumed in the 2000
Williamson reserve report because that reserve report used NYMEX spot
oil and gas prices as of December 31, 2000, which were $26.69 per Bbl
of oil and $9.95 per Mcf of gas. In contrast, Pioneer and Pioneer USA
used the pricing case as of March 30, 2001, as described below. Based
on this pricing, production would not be profitable for as long of a
period of time as assumed in the 2000 Williamson reserve report.
o Pioneer and Pioneer USA calculated the present value of estimated
future net revenues for each partnership from the estimated reserves
for each partnership at March 31, 2001. Pioneer and Pioneer USA used
the following parameters: (1) a five-year NYMEX futures price for oil
and gas as of March 30, 2001, with prices held constant after year
five at the year five price, less standard industry adjustments, (2)
historical operating costs adjusted only for those items affected by
commodity prices, such as production taxes and ad valorem taxes, and
(3) a discount rate of 13.5%. For 2001, the oil and gas prices were
based on the average NYMEX futures price for the nine-month period
beginning on April 1, 2001 and ending December 31, 2001. See the table
on page 6 for the NYMEX futures prices. Pioneer and Pioneer USA
believe that the five-year NYMEX futures prices provide a reasonable
benchmark on the outlook for energy prices and are regularly used by
financial markets, industry participants, and lenders in evaluating
transactions.
- The standard industry price adjustments include:
(1) the effects of oil quality;
(2) British thermal unit, or BTU, content for gas;
(3) any bonus paid;
(4) oil and gas gathering and transportation costs; and
(5) gas processing costs and shrinkage.
Those adjustments reflect assumptions about the costs to extract,
transport and process, if necessary, crude oil, natural gas
liquids and natural gas to their point of sale.
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- Pioneer and Pioneer USA believe the 13.5% discount rate is within
the range of discount rates commonly used in the oil and gas
industry in property acquisitions of producing properties,
although it is higher than the 10% rate that the Securities and
Exchange Commission requires for comparative purposes in the
year-end reports of publicly owned oil and gas companies.
o Pioneer and Pioneer USA added the present value of the partnership's
estimated future net revenues as of March 31, 2001 to the
partnership's net working capital as of March 31, 2001. For purposes
of illustration in this document, Pioneer and Pioneer USA calculated
the net working capital portion of each merger value as of December
31, 2000. Pioneer and Pioneer USA intend to update each net working
capital value as of March 31, 2001, before mailing this document to
the limited partners. Since the merger value for each partnership
includes net working capital, the merger value assigned to the
partnership includes the partnership's assets and liabilities other
than its oil and gas reserves. Each partnership's other assets and
liabilities consist mainly of cash, accounts receivable from the sale
of oil and gas production and accounts payable.
o The number of shares of Pioneer common stock to be issued to the
limited partners of each partnership upon the merger of the
partnership will be determined by dividing 75% of the merger value
assigned to the partnership by the value of one share of Pioneer
common stock determined as described below. For purposes of example in
this document, a share of Pioneer common stock has been valued at an
assumed average closing price of $18.00. However, on the closing date
of the merger of each partnership, the value of a share of Pioneer
common stock will be recalculated by computing the average closing
price of the Pioneer common stock, as reported by the New York Stock
Exchange, for the ten trading days ending three business days before
the date of the special meeting for each partnership. This
recalculated value, and not the assumed average closing price of
$18.00 per share of Pioneer common stock, used for illustration
purposes in this document and on each limited partner's voting form,
will be used to determine the actual number of shares of Pioneer
common stock to be issued in the merger of each partnership. The
recalculated value may be more or less than the assumed average
closing price of $18.00 per share of Pioneer common stock. Pioneer may
abandon the proposed merger of any or all of the partnerships if an
event occurs that causes or results in a material adverse effect,
among other things, on the price of Pioneer common stock, on the
market prices for oil and gas generally or on the oil and gas industry
generally.
Distributions. No cash distributions will be made by any partnership to its
partners after the distribution in March 2001 through the closing date or
termination date of the merger of the partnership. The Pioneer common stock and
the cash payment to be distributed as payment of the merger value of each
participating partnership already reflect the expected amount of those
distributions. However, any cash distributions by a nonparticipating partnership
which would have been paid during that time period in the ordinary course of
that partnership's business will be distributed to its partners at about the
same time that the certificates representing Pioneer common stock and checks are
mailed to the partners of each participating partnership.
Liabilities. Pioneer USA will assume all of the liabilities, including
contingent liabilities and obligations, of each participating partnership as of
the closing date of the merger of the partnership. As of the date of this
document, Pioneer USA is not aware of any material contingent liabilities to
which any partnership is subject.
Expenses. We have not reduced the merger value for any partnership for
expenses of the transaction. Pioneer will pay those expenses.
ALLOCATION OF MERGER VALUE FOR EACH PARTNERSHIP AMONG PARTNERS OF THE
PARTNERSHIP
In determining the portion of the merger value attributable to each $1,000
of initial limited partner investment in a partnership, Pioneer determined the
amount payable per $1,000 investment as if the assets of the partnership had
been sold on March 31, 2001 for cash equal to the merger value of the
partnership and the proceeds distributed in accordance with the liquidation
provisions of the partnership's partnership agreement. The limited partners of
each participating partnership would receive the same amounts if the merger
value of the partnership was allocated among the partners based on the
revenue-sharing provisions of the partnership agreement except for each of the
following partnerships which will receive more proceeds under the liquidation
provisions of its respective partnership agreement due to certain
prospect-by-prospect payout provisions not being met:
Parker & Parsley 81-I, Ltd.
Parker & Parsley 81-II, Ltd.
Parker & Parsley 82-I, Ltd.
Parker & Parsley 82-II, Ltd.
Parker & Parsley 82-III, Ltd.
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OTHER METHODS OF DETERMINING MERGER VALUES
Pioneer and Pioneer USA believe that the method used to determine the
merger value for each partnership is a fair and reasonable method of valuing the
partnership's properties. Pioneer and Pioneer USA considered a number of
alternative methods of determining the merger value for each partnership before
selecting a method. However, the selected method might not accurately reflect
the value of each partnership's assets. See "Risk Factors -- Risk Factors
Relating to the Merger of Each Partnership -- The Merger Values Involve
Estimates that Will Not Be Adjusted" on page 17. The following alternative
methods for determining the merger value for each partnership should be taken
into account in assessing the adequacy of the selected method.
Book Value of Assets. Pioneer and Pioneer USA did not base the calculation
of merger value for each partnership on the net book value of the partnership's
assets. The net book value of each partnership's assets are based upon the
financial statements reported in accordance with generally accepted accounting
principles. The net book value is not adjusted for estimates in changes in the
fair market value of the assets. For this reason, Pioneer and Pioneer USA
believe that the merger value for each partnership is more indicative of the
fair market value of the assets of each partnership than the net book value of
the partnership's assets. See the supplemental information table on the second
page of the supplement for each partnership for the partnership's merger value
and its book value, in each case per $1,000 limited partner investment. In all
cases except Parker & Parsley 81-II, Ltd., the merger value is higher than the
book value. For Parker & Parsley 81-II, Ltd., the merger value is lower than
book value because of the long-lived nature of the oil and gas properties owned
by Parker & Parsley 81-II, Ltd. The merger value of Parker & Parsley 81-II, Ltd.
takes into account the discounting effect of owning long-lived oil and gas
reserves that is not reflected in a book value computation for the partnership.
Nonetheless, Pioneer USA has determined that the merger transaction is fair to
the limited partners of Parker & Parsley 81-II, Ltd. for the reasons noted
above.
Trading Price of Units. None of the partnership interests are traded on a
national stock exchange or in any other significant market. Although some
partnership interests are occasionally sold in private or an informal secondary
market for limited partner securities, Pioneer and Pioneer USA believe any
market for the partnership interests is not reliable as an indicator of value
because any such market is highly illiquid and generally reflects an illiquidity
discount. As a result, Pioneer and Pioneer USA did not base the calculation of
the merger value for any partnership on recent trading prices of partnership
interests in the partnership. See Table 15 of Appendix A for historical
information about recent trades of partnership interests in each partnership.
Repurchase Offers. Pioneer and Pioneer USA did not base the calculation of
the merger value for any partnership on the price of recent repurchase offers in
the partnership. Most partnerships do not have a repurchase offer obligation, so
no repurchase price information was available for those partnerships. Of the
partnerships with a repurchase offer obligation, the most recent repurchase
offers will be based on December 31, 2000 oil and gas prices. The merger value
for each partnership with repurchase offer obligations is lower than the 2001
repurchase offer price for the partnership because the repurchase price was
based on NYMEX oil and gas prices as of December 31, 2000, which were $26.69 per
Bbl of oil and $9.95 per Mcf of gas. Pioneer and Pioneer USA believe that the
repurchase obligation is not an indicator of fair value because it is calculated
annually on December 31 using oil and gas prices for that specific day. The
value determined under the repurchase obligation does not adequately reflect
future demand and supply fundamentals which have historically resulted in
significant volatility to oil and gas prices. See "Risk Factors -- Risk Factors
Relating to the Merger of Each Partnership -- Repurchase Rights Terminate on
Completion of the Mergers" on page 18 of this document and Table 8 of Appendix A
to this document for information on each partnership with repurchase offer
obligations.
Timing of Pricing. Oil and gas prices have recovered from NYMEX oil and gas
prices of $12.00 per Bbl of oil and $2.00 per Mcf of gas as of December 31,
1998, to the five-year NYMEX futures prices for oil and gas as of March 30,
2001, set forth in the table on page 6 of this document. Pioneer and Pioneer USA
used those recovered oil and gas prices to calculate the merger value for each
partnership. Future oil and gas prices could be higher or lower than the prices
on March 30, 2001 which were used in calculating the merger value for each
partnership. Significant increases in future prices would increase cash
available for distribution from each partnership and could, in retrospect,
suggest that the merger value for such partnership was low by comparison. If
those current prices were to continue to prevail in the future, the merger value
for each partnership would appear low by comparison. In contrast, however, if
those current prices decline in the future, the merger value for each
partnership would appear high by comparison.
INFORMATION SOURCES
Pioneer and Pioneer USA used the records of Pioneer USA and each
partnership to derive the information regarding:
o the ownership interests;
o prices being received or contracted for;
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o costs;
o production;
o allocation of revenues and costs between classes of partners of each
partnership;
o capital accounts of partners of each partnership; and
o other factual data used by Pioneer and Pioneer USA:
- to prepare the estimate of proved reserves for each partnership;
- to compute the merger value for each partnership; and
- to determine the allocation among partners of each partnership of
the Pioneer common stock and cash to be received.
While Pioneer and Pioneer USA have implemented procedures designed to
verify some of this information, the nature and volume of data preclude
verification of all information. In addition, information relating to prices,
costs and production history frequently is estimated based on incomplete data
and is subject to varying interpretations. Likewise, the provisions of some of
the partnership agreements are subject to different interpretations. In
allocating the merger value assigned to a partnership among its partners,
Pioneer and Pioneer USA attempted to apply a reasonable interpretation of those
provisions.
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THE MERGER OF EACH PARTNERSHIP
GENERAL
Immediately before the effective time of the merger of each participating
partnership, the partnership agreement for the partnership will be amended by
the merger amendment to permit the merger of the partnership with and into us.
At the effective time of the merger of each participating partnership, the
partnership will be merged with and into us. We will be the surviving entity. In
addition, at the effective time of the merger of each participating partnership,
each of your partnership interests in the partnership will be converted into the
right to receive Pioneer common stock and cash.
LEGAL OPINION FOR LIMITED PARTNERS
Each of the partnership agreements, except the partnership agreement for
Parker & Parsley Producing Properties 88-A, L.P., requires that special legal
counsel render an opinion on behalf of the limited partners of each partnership
to Pioneer USA that neither the grant nor the exercise of the right to approve
the merger of the partnership by its limited partners will adversely affect the
federal income tax classification of the partnership or any of its limited
partners. In addition, the partnership agreement for each of the following
partnerships requires an opinion that neither the grant nor exercise of such
right will result in the loss of any limited partner's limited liability:
Parker & Parsley 81-1, Ltd. Parker & Parsley Selected 85 Private Investment, Ltd.
Parker & Parsley 81-II, Ltd. Parker & Parsley 86-A, Ltd.
Parker & Parsley 82-I, Ltd. Parker & Parsley 86-B, Ltd.
Parker & Parsley 82-II, Ltd. Parker & Parsley 86-C, Ltd.
Parker & Parsley 82-III, Ltd. Parker & Parsley Private Investment 86, Ltd.
Parker & Parsley 83-A, Ltd. Parker & Parsley 87-A Conv., Ltd.
Parker & Parsley 83-B, Ltd. Parker & Parsley 87-A, Ltd.
Parker & Parsley 84-A, Ltd. Parker & Parsley 87-B, Ltd.
Parker & Parsley 85-A, Ltd. Parker & Parsley Producing Properties 87-A, Ltd.
Parker & Parsley 85-B, Ltd. Parker & Parsley Producing Properties 87-B, Ltd.
Parker & Parsley Private Investment 85-A, Ltd.
For each of the partnerships, other than those listed below, the counsel
designated to render the opinion described above must be counsel other than
counsel to Pioneer USA or any partnership:
Parker & Parsley 88-A Conv., L.P. Parker & Parsley 90-A Conv., L.P.
Parker & Parsley 88-A, L.P. Parker & Parsley 90-A, L.P.
Parker & Parsley 88-B Conv., L.P. Parker & Parsley 90-B Conv., L.P.
Parker & Parsley 88-B, L.P. Parker & Parsley 90-B, L.P.
Parker & Parsley 88-C Conv., L.P. Parker & Parsley 90-C Conv., L.P.
Parker & Parsley 88-C, L.P. Parker & Parsley 90-C, L.P.
Parker & Parsley Private Investment 88, L.P. Parker & Parsley Private Investment 90, L.P.
Parker & Parsley 89-A Conv., L.P. Parker & Parsley 90 Spraberry Private Dev., L.P.
Parker & Parsley 89-A, L.P. Parker & Parsley 91-A, L.P.
Parker & Parsley 89-B Conv., L.P. Parker & Parsley 91-B, L.P.
Parker & Parsley 89-B, L.P.
Parker & Parsley Private Investment 89, L.P.
In all cases, the designated counsel and the legal opinion must be approved
by the limited partners of each partnership.
In all cases, Pioneer USA has retained of Dallas, Texas for the
purpose of rendering the legal opinions described above on behalf of the limited
partners of each partnership to Pioneer USA. is not affiliated to Pioneer,
Pioneer USA or any of the partnerships. The merger proposals for each
partnership include an approval of that counsel and the form of its opinion. See
"The Special Meetings -- Time and Place; Purpose" on page 55 of this document. A
copy of the opinion is attached as an exhibit to the merger proposals for each
partnership.
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DISTRIBUTION OF PIONEER COMMON STOCK AND CASH PAYMENT
Upon completion of the merger of each participating partnership, the
partners of the partnership will have no continuing interest in, or rights as
partners of, the partnership. The transfer books of each participating
partnership will be closed on the closing date of the merger of the partnership.
All partnership interests in each participating partnership will cease to be
outstanding, will automatically be cancelled and retired, and will cease to
exist. The certificates previously representing partnership interests in each
participating partnership held by record partners will represent only the right
to receive Pioneer common stock and cash.
We intend to mail certificates representing Pioneer common stock and checks
to the partners of record of each participating partnership promptly following
the effectiveness of the merger of the partnership in payment of the merger
value for the partnership. Partners of each participating partnership will not
be required to surrender partnership interest certificates to receive the
Pioneer common stock and the cash payment.
FRACTIONAL SHARES
Pioneer will not issue fractional shares to any limited partner upon
completion of the merger of any partnership. For each fractional share that
would otherwise be issued, Pioneer will round any fractional shares of Pioneer
common stock up to the nearest whole share and will reduce the cash payment to a
limited partner of a participating partnership by the amount rounded up based on
the average closing price per share used in determining the number of shares of
Pioneer common stock to be offered.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences of a conversion of partnership interests into Pioneer common stock
and cash pursuant to the merger of each participating partnership. The federal
tax consequences of each merger will vary for each limited partner because of
the different circumstances of each participating partnership and the individual
federal income tax position of each limited partner.
The following discussion is based upon current law. Future legislative,
judicial or administrative changes or interpretations could alter or modify the
following statements and conclusions, and any of these changes or
interpretations could be retroactive and could affect the tax consequences to
the limited partners of each partnership.
The following discussion is not exhaustive of all possible tax
consequences. It does not address any state, local or foreign tax consequences,
nor does it discuss all of the aspects of federal income taxation that may be
relevant to specific partners in light of their particular circumstances. The
discussion below describes material federal income tax consequences applicable
to individuals who are citizens or residents of the United States, and therefore
has limited application to domestic corporations and persons subject to
specialized federal income tax treatment, such as foreign persons, tax-exempt
entities, regulated investment companies and insurance companies.
THE FOLLOWING DISCUSSION DOES NOT ADDRESS THE PARTICULAR FACTS AND
CIRCUMSTANCES OF ANY PARTICULAR LIMITED PARTNER. YOU ARE ADVISED TO CONSULT YOUR
OWN TAX ADVISOR TO DETERMINE ALL OF THE RELEVANT FEDERAL, STATE AND LOCAL TAX
CONSEQUENCES OF EACH MERGER TO YOU.
Tax Consequences of a Conversion of Partnership Interests.
o Generally. As more fully described below, if you own partnership
interests in a participating partnership, you will generally recognize an
aggregate amount of net gain or loss equal to the difference between (1) the sum
of the amount of cash and the fair market value of Pioneer common stock you
receive in the merger of that partnership and (2) your adjusted tax basis in
your partnership interests exclusive of any basis attributable to liabilities of
the partnership immediately prior to the merger. That net gain or loss may be
comprised of ordinary income or ordinary loss depending upon the extent of any
recapture of depletion or intangible drilling and development costs and any
appreciation or depreciation in the ordinary assets of the partnership. The
recognition of ordinary income will decrease the capital gain component or
increase the capital loss component of the net gain or loss otherwise
recognizable as a consequence of the merger.
o Characterization of the Merger of Each Partnership. The merger of a
participating partnership into Pioneer USA should be treated for federal income
tax purposes as a sale by such partnership of its assets for Pioneer common
stock and cash followed by a distribution of the Pioneer common stock and cash
received in liquidation of the limited partnership interests. Under Section 613A
of the Internal Revenue Code, each of the partners of such partnership must:
- maintain the partner's share of the basis in the partnership's
oil and gas properties at the partner level;
- adjust such basis for depletion deductions; and
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- use such basis to calculate gain or loss at the partner level on
any sale by the partnership of its oil and gas properties.
Accordingly, each of the mergers should be generally treated for tax
computation purposes as:
- a taxable sale by you of your interest in a participating
partnership's oil and gas properties for Pioneer common stock and
cash and the assumption of liabilities; and
- a taxable sale of any remaining partnership assets by the
participating partnership for Pioneer common stock and cash
followed by a liquidation of the participating partnership.
o Gain or Loss on Sale of Partnership Oil and Gas Properties. Upon the
deemed sale of a partnership's oil and gas properties in the merger of the
partnership, you will recognize gain or loss equal to the difference between:
- the portion of the partnership's "amount realized" on the sale of
its oil and gas properties allocated to you; and
- your adjusted tax basis in the partnership oil and gas properties
sold, which must be reduced to reflect depletion claimed during
the current year in respect of production prior to the date of
the merger.
The amount realized will include the amount of cash and the fair market
value of Pioneer common stock received and the amount of any liability assumed
by Pioneer USA in connection with the merger of the partnership which is
attributable to the partnership's oil and gas properties. If gain is recognized
on such sale, the portion of the gain that is treated as recapture of intangible
drilling and development costs or depletion will be treated as ordinary income.
See "Recapture of Intangible Drilling and Development Costs" and "Recapture of
Depletion" below. The remainder of such gain generally will constitute "Section
1231 gain." If loss is recognized on such sale, such loss generally will
constitute "Section 1231 loss." See "Section 1231 Gains and Losses" below. You
must take into account your share of the portion of the gain that constitutes
recapture income, if any, as ordinary income and must aggregate your share of
the Section 1231 gains and losses along with the Section 1231 gains and losses
you realize from other sources.
o Other Gain or Loss. You will also recognize your allocable share of the
partnership's gain or loss, if any, on the deemed sale of its assets other than
oil and gas properties. Such gain or loss will be equal to the difference
between the amount realized by the partnership on the sale of such assets and
the partnership's adjusted tax basis in such assets. Such gain or loss will be
capital or ordinary depending on the nature of the assets sold.
Finally, in the event that the amount of cash and the fair market value of
Pioneer common stock you receive in the merger of the partnership is more or
less than the adjusted tax basis in your partnership interests, as adjusted to
reflect gains and losses described in the two preceding paragraphs as well as
the effects of the partnership's current year activities, then upon the deemed
liquidation of a partnership, you will recognize capital gain or loss equal to
the difference between such amounts. See "Tax Consequences of Partnership
Operations" below.
You will be provided with information necessary to make the calculations
described above for purposes of filing your own federal income tax return. In
order to simplify your federal income tax reporting, this information will
include a calculation of the amount and character of your gain on the deemed
sale of the partnership's oil and gas properties based upon our estimates. You
should verify the accuracy of these calculations based upon your own records.
o Section 1231 Gains and Losses. Generally, if the total amount of the
Section 1231 gains exceeds the total amount of Section 1231 losses, all such
gains and losses will be treated as capital gains and losses, and if the total
amount of the Section 1231 losses exceeds the total amount of the gains, all
such gains and losses will be treated as ordinary income and losses. However,
your net Section 1231 gains will be treated as ordinary income to the extent of
your net Section 1231 losses during the immediately preceding five years,
reduced by any amount of net Section 1231 losses that have been previously
"recaptured" by you pursuant to this rule.
o Recapture of Intangible Drilling and Development Costs. Generally, all or
a portion of the amounts previously deducted for intangible drilling and
development costs for a property must be recaptured upon the disposition of such
property by treating the gain, if any, realized on such disposition as ordinary
income to the extent of such amounts. For a property placed in service prior to
1987, the potential recapture amount is equal to the excess of the aggregate
amounts previously deducted for intangible drilling and development costs for
such property over the amount by which the deduction for depletion for such
property would have been increased had the intangible drilling and development
costs been capitalized and recovered through depletion rather than deducted in
the year incurred. It should be noted that, if percentage depletion, rather than
cost depletion, has been claimed for such property, the hypothetical
capitalization of intangible drilling and development costs may result in little
or no increase in depletion deductions and, as a consequence, most or all of the
intangible drilling and development costs for such
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property may be subject to recapture. For property placed in service during 1987
or thereafter, the full amount of intangible drilling and development costs
previously deducted, unreduced by depletion, is subject to recapture to the
extent of any gain.
o Recapture of Depletion. Upon the disposition of a property that was
placed in service during 1987 or thereafter, all amounts previously deducted for
depletion, whether cost depletion or percentage depletion, to the extent such
amounts reduced the basis in the property, must be recaptured by treating the
gain, if any, recognized on such disposition as ordinary income to the extent of
such amounts. No such recapture rule is applicable to a property placed in
service before 1987.
o Tax Rates. The capital gains rate for individuals and other non-corporate
taxpayers is 20% if the capital asset has been held for more than one year at
the time of consummation of the merger of each partnership. Corporate taxpayers
are taxed at a maximum marginal rate of 35% for both capital gains and ordinary
income. The maximum marginal federal income tax rate for ordinary income of
individuals and other non-corporate taxpayers is 39.6%. Capital losses are
deductible only to the extent of capital gains, except that, subject to the
passive activity loss limitation discussed below, non-corporate taxpayers may
deduct up to $3,000 of capital losses in excess of the amount of their capital
gains against ordinary income. Excess capital losses generally can be carried
forward to succeeding years. A corporation is permitted to carry back excess
capital losses to the three preceding years, provided the carryback does not
increase or produce a net operating loss for any of those years. A corporation's
carryforward period is five years and a non-corporate taxpayer can carry such
losses forward indefinitely.
o Passive Activity Loss Limitation. Under Section 469 of the Internal
Revenue Code, any losses from any participating partnership that have been
suspended under the passive loss rules will become fully deductible as a result
of the merger of any such partnership.
FIRPTA Withholding. Gain recognized by a foreign limited partner on the sale by
a participating partnership which is effectively connected with the conduct of a
U.S. trade or business of its assets pursuant to the merger of the partnership
will be subject to federal income tax. Gain realized on the sale of U.S. real
property, including a participating partnership's oil and gas properties, is
treated as effectively connected with the conduct of a U.S. trade or business
for this purpose. Under Internal Revenue Code Section 1446, a participating
partnership in which an interest is held by a foreign person generally is
required to deduct and withhold a tax equal to the highest marginal federal
income tax rate applicable to the partner multiplied by such partner's allocable
share of effectively connected income. In order to comply with this requirement,
each participating partnership will withhold the prescribed percentage of the
effectively connected income allocated to you unless you properly complete and
sign a certification of non-foreign status certifying your taxpayer
identification number and address, and that you are not a foreign person.
Amounts withheld will be creditable against a limited partner's federal income
tax liability and, if in excess thereof, a refund may be obtained from the
Internal Revenue Service by filing a U.S. income tax return.
Tax Consequences of Partnership Operations. The federal income tax consequences
of the merger of each partnership, described above, are in addition to the tax
consequences of a participating partnership for the taxable year ending on the
closing date of the merger of the partnership. You must include your allocable
share of a participating partnership's items of income, gain, loss, deduction
and credit for that taxable year, including your allocable share through the
closing date of the merger of the partnership, on your federal income tax return
for that taxable year. That information will be provided to you on a Schedule
K-1 as required by tax law. The results of partnership operations for such
period will impact your tax basis in a participating partnership, and your
computation of gain or loss resulting from the merger of the partnership.
ACCOUNTING TREATMENT
The merger of each participating partnership will be accounted for as a
purchase under generally accepted accounting principles. Under those rules,
Pioneer USA will record the assets and liabilities of each participating
partnership on its books at its estimated fair market value.
EFFECT OF MERGER OF EACH PARTNERSHIP ON LIMITED PARTNERS WHO DO NOT VOTE IN
FAVOR OF THE MERGER; NO APPRAISAL OR DISSENTERS' RIGHTS
You will be bound by the merger of each partnership in which you own an
interest if the limited partners in the partnership vote a majority, or 66 2/3%
for Parker & Parsley 91-A, L.P. and Parker & Parsley 91-B, L.P., of their
partnership interests in favor of the merger, even if you vote against the
merger or do not vote. If the merger of the partnership occurs, you will be
entitled to receive only an amount of cash and Pioneer common stock based on the
merger value of your partnership interests in the partnership. Under the laws of
the State of Delaware and the State of Texas, which are the states of formation
of the partnerships, you are not entitled to appraisal or dissenters' rights
with respect to the merger of any partnership.
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FUTURE OF NONPARTICIPATING PARTNERSHIPS
If the limited partners of a partnership do not approve the merger of that
partnership, the partnership will remain in existence. Each nonparticipating
partnership will continue to operate as a separate legal entity with its own
assets and liabilities. There will be no immediate change in its business
objectives, and Pioneer USA plans to continue to manage and operate each
nonparticipating partnership in accordance with the terms of its current
partnership agreement. A limited partner in a nonparticipating partnership will
retain the rights, privileges and obligations that the limited partner currently
has pursuant to the partnership agreement of the nonparticipating partnership.
At about the same time that Pioneer USA mails certificates for Pioneer common
stock and checks for the cash payment to the partners of each participating
partnership in payment of the merger value for the partnership, Pioneer USA will
mail any cash distributions that were delayed for administrative purposes prior
to the completion of the merger of each participating partnership to the
partners of each nonparticipating partnership.
Pioneer USA's board of directors will determine each nonparticipating
partnership's business plan. In addition, the board of directors of each of
Pioneer and Pioneer USA will decide what, if any, actions they will take with
respect to each nonparticipating partnership. Potential activities may include a
tender offer for partnership interests of limited partners or a proposal to
acquire the assets of, or merge with, one or more of the nonparticipating
partnerships. Such proposals may be on terms similar to or different from those
of the merger of each partnership described in this document.
Pioneer USA plans to continue to manage each nonparticipating partnership
until such partnership is dissolved or Pioneer USA is replaced as the general
partner of such partnership. The replacement of Pioneer USA as general partner
would require compliance with the partnership agreement of such nonparticipating
partnership, including the requisite vote of the limited partners thereof. A
nonparticipating partnership may be dissolved in the future in accordance with
its partnership agreement if Pioneer USA or any substituted general partner
withdraws from the nonparticipating partnership, or in some cases, otherwise
elects to dissolve that partnership. Pioneer USA might withdraw from, or
otherwise elect to dissolve, a nonparticipating partnership if Pioneer USA
determines that the nonparticipating partnership's continued operation is
uneconomical or its dissolution and liquidation are in the best interests of the
partners of that partnership. Upon dissolution, the nonparticipating
partnership's assets may be sold for cash or securities, which may be more or
less than the merger value assigned to that partnership, or distributed in kind
to the partners of the nonparticipating partnership. Any such sale may be to
Pioneer or an affiliate of Pioneer and may involve cash or securities of
Pioneer.
NONMANAGING GENERAL PARTNERS OF SOME PARTNERSHIPS
Eight of the partnerships described in this document have two general
partners. In those eight partnerships, Pioneer USA is the managing general
partner. The second general partner in those partnerships is a parallel
partnership whose limited partners are former affiliates of Pioneer's
predecessors. The names of the eight partnerships and the names of the
nonmanaging general partner in each of those partnerships are:
PARTNERSHIP NONMANAGING GENERAL PARTNER
----------- ---------------------------
Parker & Parsley 81-I, Ltd. Parker & Parsley Employees 81-I, Ltd.
Parker & Parsley 81-II, Ltd. Parker & Parsley Employees 81-II, Ltd.
Parker & Parsley 82-I, Ltd. Parker & Parsley Employees 82-I, Ltd.
Parker & Parsley 82-II, Ltd. Parker & Parsley Employees 82-II, Ltd.
Parker & Parsley 82-III, Ltd. Parker & Parsley Employees 82-III, Ltd.
Parker & Parsley 83-A, Ltd. Parker & Parsley Employees 83-A, Ltd.
Parker & Parsley 83-B, Ltd. Parker & Parsley Employees 83-B, Ltd.
Parker & Parsley 84-A, Ltd. Parker & Parsley Employees 84-A, Ltd.
Pioneer USA is the sole general partner of each of the nonmanaging general
partners. In that capacity, Pioneer USA has authority:
o to cause the nonmanaging general partner to perform its obligations
relating to the partnership described above; and
o to exercise on behalf of the nonmanaging general partner all of the
rights and elections granted to the nonmanaging general partner by the
partnership described above.
None of the nonmanaging general partners has the right to vote on the
merger of any partnership. However, Pioneer USA, as the general partner of each
nonmanaging general partner, has approved the merger of each partnership and the
distribution of this document to the limited partners of each partnership and to
the unaffiliated limited partners of each nonmanaging general partner, if any,
of each partnership. The aggregate merger value attributable to the unaffiliated
limited partners of the nonmanaging general partners is $196,026, consisting of
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approximately 8,168 shares of Pioneer common stock in the aggregate and a cash
payment of approximately $49,000 in the aggregate. Pioneer USA will not receive
any Pioneer common stock or cash in any merger for its partnership interests in
any nonmanaging general partner.
THIRD PARTY OFFERS
Pioneer USA will consider offers from third parties to purchase any
partnership or its assets. Those who wish to make an offer for any partnership
or its assets must demonstrate to Pioneer USA's reasonable satisfaction their
financial ability and willingness to complete such a transaction. Before
reviewing non-public information about a partnership, a third party will need to
enter into a customary confidentiality agreement. Offers should be at prices and
on terms that are fair to the partners of the partnership for which the offer is
being made and more favorable to the unaffiliated limited partners than the
prices and terms proposed for the merger of that partnership in this document.
Pioneer reserves the right to match or top any such offer. Since first
announcing our willingness to consider third party offers in September 1999,
Pioneer USA has not received any third party offer for any partnership or its
assets. Persons desiring to make an offer for any partnership should contact
Timothy L. Dove or Mark L. Withrow, Board of Directors, Pioneer Natural
Resources USA, Inc., 1400 Williams Square West, 5205 North O'Connor Boulevard,
Irving, Texas 75039 by July 31, 2001.
MERGER AMENDMENT
In order to complete the merger of each partnership, the partnership
agreement for the partnership requires an amendment to add a provision
permitting the merger of the partnership with and into Pioneer USA. See the
merger proposals, which include the merger amendment, set forth in Appendix D to
this document. At the special meeting for each partnership, the limited partners
of the partnership will vote upon the merger amendment, which, if approved, will
be effective immediately prior to the effectiveness of the merger of the
partnership.
TERMINATION OF REGISTRATION AND REPORTING REQUIREMENTS
As a result of the merger of each participating partnership, the
partnership interests in the partnership, as well as the partnership itself,
will cease to exist. Twenty-five of the partnerships described in this document
have registered their partnership interests under, or are otherwise subject to
the informational requirements of, the Securities Exchange Act of 1934. See
"Where You Can Find More Information" for a list of those partnerships. Upon the
completion of the merger of each reporting partnership, Pioneer USA intends to
terminate:
o registration of the partnership interests of the partnership under the
Securities Exchange Act of 1934; and
o the partnership's obligations to file reports and other information
under the Securities Exchange Act of 1934.
Pioneer USA plans to cause each nonparticipating partnership that is also a
reporting partnership to continue to file reports and other information under
the Securities Exchange Act of 1934. However, Pioneer USA's board of directors
could determine in the future to cause each such partnership to terminate its
reporting obligations as permitted by federal securities laws.
The advantages of remaining registered, or remaining obligated to file
reports, under the Securities Exchange Act of 1934 include the informational and
reporting requirements under that act, including requirements related to tender
offers, proxy solicitation and consents and insiders' transactions in
partnership interests. Those reporting requirements may provide limited partners
with more detailed information on a more frequent basis than might otherwise be
required under the partnership agreement for the partnership. In addition, a
partnership's filings under the Securities Exchange Act of 1934 are available to
the public over the Internet at the SEC's web site at http://www.sec.gov and are
also available at the SEC's public reference rooms in Washington, D.C., New
York, New York and Chicago, Illinois.
The disadvantages of remaining registered, or remaining obligated to file
reports, include the partnership's cost to prepare and distribute the various
reports and other information required under the Securities Exchange Act of
1934. Deregistering the partnership interests of a nonparticipating partnership
or otherwise terminating its filing and reporting obligations could reduce that
partnership's general and administrative expenses because the reporting
obligations of the partnership under its partnership agreement require annual
and semi-annual reports, but not quarterly reports.
ELIMINATION OF A FAIRNESS OPINION REQUIREMENT THAT WOULD OTHERWISE BENEFIT
PIONEER USA
Pioneer USA, as the sole general partner of each of Parker & Parsley 91-A,
L.P. and Parker & Parsley 91-B, L.P., is entitled to receive an opinion as to
the fairness of the proposed merger transaction to Pioneer USA in its capacity
as sole general partner of each of those partnerships. However, since Pioneer
and Pioneer USA are the parties making the offer for the proposed merger
transaction, Pioneer USA will not seek such fairness opinion. In
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addition, Pioneer USA, as the sole general partner of each of those two
partnerships, is entitled to amend, and Pioneer USA will amend, the partnership
agreement for the partnership to eliminate the requirement for such fairness
opinion for Pioneer USA in connection with the proposed merger of the
partnership.
SOURCE OF FUNDS
Pioneer USA will need approximately $27.5 million in the aggregate to
complete the mergers for all of the partnerships. Pioneer USA will borrow that
amount from Pioneer as an intercompany loan. Pioneer USA plans to repay that
intercompany loan with cash flows from operations. Immediately after completion
of the merger of each participating partnership, the cash portion of the working
capital in the partnership will be used to repay a portion of the intercompany
loan. There are no material conditions to the intercompany loan other than it is
conditioned upon the occurrence of the proposed merger transaction. Pioneer USA
does not have any alternative financing arrangements or financing plans in the
event such intercompany loan falls through.
Pioneer, in turn, will obtain such funds from its credit facility agreement
with a syndicate of banks, including Bank of America, N.A. and Credit Suisse
First Boston. Pioneer plans to repay amounts borrowed under its credit facility
with cash flows from operations. As of December 31, 2000, the outstanding
borrowings due under Pioneer's credit facility were $225.0 million, and the
borrowing capacity available under Pioneer's credit facility was $575.0 million.
Such borrowings bear interest, at Pioneer's option, based on:
o a base rate equal to the eurodollar margin then in effect (125 basis
points as of December 31, 2000) less 125 basis points plus the higher
of (1) the prime rate of Bank of America, N.A., which was 9.50% at
December 31, 2000, or (2) a rate per annum based on the weighted
average of the rates on overnight federal funds transactions with
members of the Federal Reserve System (6.50% at December 31, 2000),
plus 50 basis points;
o a eurodollar rate, substantially equal to the London Interbank Offered
Rate, or LIBOR, plus the eurodollar margin then in effect based on a
grid of Pioneer's debt ratings and its total leverage ratio, which is
the ratio of Pioneer's total debt to earnings before gain or loss on
the disposition of assets, interest expense, depreciation, depletion
and amortization expense, income taxes, exploration expense and other
noncash expenses; or
o for aggregate advances not exceeding $50 million, a fixed rate as
quoted by the lending banks at Pioneer's request.
Eurodollar rate borrowings under Pioneer's credit facility have periodic
maturities, at Pioneer's option, of one, two, three, six, nine or 12 months.
Pioneer's obligations under its credit facility are secured by a guaranty of
certain United States subsidiaries of Pioneer and a pledge of a portion of the
capital stock of foreign subsidiaries of Pioneer. For purposes of its credit
facility those subsidiaries have been designated by Pioneer as restricted
subsidiaries.
The terms of Pioneer's credit facility also contain various restrictive
covenants and compliance requirements, which include:
o limits on the incurrence of additional indebtedness;
o restrictions as to merger, sale or transfer of assets without the
banks' prior consent; and
o the maintenance of leverage ratios.
For example, Pioneer must maintain (1) a total leverage ratio not to exceed 4.00
to 1.00 through September 30, 2002, and 3.75 to 1.00 thereafter, (2) an annual
ratio of the net present value of Pioneer's oil and gas properties to total debt
of at least 1.25 to 1.00, (3) limitations on Pioneer's total debt and (4)
restrictions on some types of payments.
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PAYMENT OF EXPENSES AND FEES
Pioneer will pay all expenses and fees of the merger of each partnership
even if the merger of the partnership is not completed. Pioneer estimates that
its aggregate expenses will be as follows:
Filing fee with SEC .............................................. $ 20,500
Legal fees ....................................................... 350,000
Accounting fees .................................................. 50,000
Financial advisor fees ........................................... 350,000
Independent petroleum consultant fees ............................ 25,000
Printing and mailing fees ........................................ 900,000
Information agent fees and solicitation and tabulation expenses .. 225,000
Miscellaneous .................................................... 12,300
------------
Total expenses ............................................... $ 1,932,800
============
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THE MERGER AGREEMENT
The following describes the material terms of the merger agreement. Pioneer
and Pioneer USA expect to sign the merger agreement after the Securities and
Exchange Commission clears this document for mailing to the limited partners of
each partnership. The full text of the form of the merger agreement is attached
as Appendix E to this document and is incorporated by reference in this
document. We encourage you to read the entire merger agreement.
STRUCTURE; EFFECTIVE TIME
The merger agreement provides for the merger of each participating
partnership with and into Pioneer USA, with Pioneer USA surviving each merger.
Each merger will become effective at the time of the filing of the certificate
of merger for each participating partnership with the Secretary of State of the
State of Delaware and, for each participating partnership formed in Texas, with
the Secretary of State of the State of Texas. Each certificate of merger is
expected to be filed as soon as practicable after the last condition precedent
to the related merger set forth in the merger agreement has been satisfied or
waived. We estimate that the closing of the merger of each partnership will be
in July 2001.
EFFECTS OF THE MERGERS
As a result of the merger of each participating partnership, the partners
in the partnership will have no continuing interest in that partnership.
Following the merger of each participating partnership, there will be no trading
market for the partnership interests in, and no further distributions paid to
the former partners of, the partnership. In addition, following the consummation
of the merger of each participating partnership that is also a reporting
partnership, the registration of any partnership interests in the partnership
under the Securities Exchange Act of 1934 will be terminated.
CONDUCT OF BUSINESS PRIOR TO THE MERGERS
From the date of the merger agreement until the effective time of the
merger of each partnership, each partnership is required:
o to conduct its business only in the ordinary course consistent with
past practice; and
o to use its reasonable best efforts:
- to preserve intact its business organization;
- to keep available the services of its officers, employees and
consultants; and
- to preserve its relationships with customers, suppliers and other
persons with which it has significant business dealings.
Pioneer USA has suspended cash distributions to the partners of each
partnership until after the effective time of the merger of the partnership.
Partners of each nonparticipating partnership will receive cash distributions
that are delayed for administrative purposes at the same time Pioneer USA mails
certificates for Pioneer common stock and checks to the partners of each
participating partnership in payment of merger value for each partnership.
OTHER AGREEMENTS
Special Meetings; Proxies. Pioneer USA has agreed to cause the special
meeting of the limited partners of each partnership to be duly called and held
as soon as reasonably practicable for the purpose of voting on the approval and
adoption of the merger proposals for the partnership. Pioneer USA has also
agreed to use its reasonable best efforts to solicit from the limited partners
of each partnership proxies in favor of the merger proposals and to take all
other action necessary or advisable to secure any vote or consent of the limited
partners of the partnership required by the partnership agreement of the
partnership or the merger agreement or by law in connection with the merger of
the partnership.
Reasonable Commercial Efforts. Each party has agreed to use all reasonable
commercial efforts:
o to obtain in a timely manner all necessary waivers, consents and
approvals and to effect all necessary registrations and filings; and
o to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws
and regulations to consummate as promptly as practicable the
transactions contemplated by the merger agreement.
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REPRESENTATIONS AND WARRANTIES OF PIONEER, PIONEER USA AND EACH PARTNERSHIP
The merger agreement contains substantially reciprocal representations and
warranties of Pioneer, Pioneer USA and each of the partnerships, including the
following matters:
o due organization or formation, standing, corporate or partnership
power and qualification;
o absence of any conflict, breach, notice requirement or default under
organizational documents and material agreements as a result of each
contemplated merger;
o authority to enter into and the validity and enforceability of the
merger agreement;
o absence of any material adverse change since March 31, 2001; and
o accuracy of information.
In addition, the merger agreement contains representations and warranties
by:
o each of the partnerships as to capitalization;
o each of Pioneer and each reporting partnership, as to the absence in
its reports filed with the SEC of any untrue statement of a material
fact or any omission to state a material fact necessary to make the
statements in such reports not misleading;
o each of Pioneer and each partnership, that its financial statements
have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis and fairly present its
financial condition and results of operations; and
o Pioneer USA as to its capacity as the managing or sole general partner
of each partnership and as the sole general partner of each
nonmanaging general partner.
CONDITIONS TO THE MERGER OF EACH PARTNERSHIP
Conditions to the Obligations of Each Party. The obligations of Pioneer,
Pioneer USA and each partnership to complete the merger of the partnership are
dependent on the satisfaction of the following conditions:
o the merger agreement shall have been approved by the requisite vote of
the limited partners of the partnership entitled to vote at the
partnership's special meeting;
o Pioneer USA shall have received the fairness opinion from Stanger
that, as of the date of that opinion, that the merger value for each
partnership and the allocation of the merger value of the partnership
(1) to the limited partners of the partnership as a group, (2) to the
general partners of the partnership as a group, (3) to Pioneer USA as
the managing or sole general partner of the partnership, (4) to the
unaffiliated limited partners of the partnership as a group and (5) to
the unaffiliated limited partners of the nonmanaging general partner,
if any, of the partnership as a group, is fair to the unaffiliated
limited partners of the partnership and the unaffiliated limited
partners of the nonmanaging general partner, if any, of the
partnership, from a financial point of view;
o Pioneer USA shall have received the opinion of counsel to the limited
partners of each partnership that (1) neither the grant nor the
exercise of the right to approve the merger of the partnership by its
limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners and
(2) neither the grant nor exercise of such right will result in the
loss of any limited partner's limited liability;
o the absence of any law, regulation, judgment, injunction, order or
decree that would prohibit the consummation of any merger;
o the absence of any pending suit, action or proceeding challenging the
legality or any aspect of the merger of any partnership or the
transactions related to the merger;
o the authorization for listing on the New York Stock Exchange and the
Toronto Stock Exchange upon official issuance of notice shall have
been received for the shares of Pioneer common stock to be issued upon
the merger of each partnership;
o all material filings and registrations with, and notifications to,
third parties shall have been made and all material approvals and
consents of third parties shall have been received; and
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o the absence of any opinion of counsel that the exercise by the limited
partners of each partnership of the right to approve the merger of the
partnership is not permitted by state law.
Conditions to the Obligations of Pioneer. The obligations of Pioneer to
complete the merger of each partnership are further subject to the satisfaction
of the following conditions:
o each of Pioneer USA and each partnership having performed in all
material respects its agreements contained in the merger agreement;
and
o the representations and warranties of Pioneer USA and each partnership
being true and correct in all material respects at the closing date of
the merger of the partnership as if made at that time unless they
relate to another specified time.
Conditions to the Obligations of Pioneer USA and Each Partnership. The
obligations of Pioneer USA and each partnership to complete the merger of the
partnership are further subject to the satisfaction of the following conditions:
o Pioneer having performed in all material respects its agreements
contained in the merger agreement; and
o the representations and warranties of Pioneer being true and correct
in all material respects at the closing date of the merger of the
partnership as if made at that time unless they relate to another
specified time.
TERMINATION OF THE MERGER AGREEMENT AND THE MERGER OF ANY PARTNERSHIP
The merger agreement may be terminated and the merger of any partnership
abandoned at any time prior to the effective time, whether before or after
approval by the limited partners:
o by the mutual written consent of the parties;
o by any party, if:
- any applicable law, rule or regulation makes consummation of any
merger illegal or otherwise prohibited or any final and
non-appealable judgment, injunction, order or decree enjoining
any party from consummating any merger is entered;
- the requisite limited partner approval for a partnership is not
obtained by a vote at the special meeting for the partnership or
at any adjournment or postponement of the special meeting; or
- any suit, action or proceeding is filed against Pioneer, Pioneer
USA, any partnership or any officer, director or affiliate of
Pioneer or Pioneer USA challenging the legality or any aspect of
the merger of any partnership or the transactions related to the
merger;
o by Pioneer, if Pioneer USA or any partnership is in material breach of
the merger agreement;
o by Pioneer USA or any partnership as to that partnership's merger, if
Pioneer is in material breach of the merger agreement;
o by Pioneer USA, if Pioneer USA's board of directors determines that
termination of the merger agreement is required in order for the board
to comply with its fiduciary duties; or
o by Pioneer, if there shall have occurred any event, circumstance,
condition, development or occurrence causing, resulting in or having,
or reasonably expected to cause, result in or have, a material adverse
effect (1) on any partnership's business, operations, properties,
taken as a whole, condition, financial or otherwise, results of
operations, assets, taken as a whole, liabilities, cash flows or
prospects, (2) on market prices for oil and gas prevailing generally
in the oil and gas industry since the date of determination of the oil
and gas commodity prices used in the determination of the merger value
for each partnership, (3) on the price of Pioneer common stock or (4)
on the oil and gas industry generally.
If the merger agreement is validly terminated or the merger of any
partnership is abandoned, none of Pioneer, Pioneer USA nor any such partnership
shall have any liabilities or obligations to the other parties based on the
merger agreement or such merger except:
o Pioneer will pay all expenses and fees of each partnership in
connection with the merger of that partnership incurred before the
termination of the merger agreement or abandonment of the merger of
the partnership; and
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o a party will be liable if that party is in breach of the merger
agreement.
AMENDMENTS; WAIVERS
Any provision of the merger agreement may be amended prior to the effective
time if the amendment is in writing and signed by Pioneer and Pioneer USA;
provided, that after the approval of the merger proposals by the limited
partners of each partnership, no amendment shall, without the further approval
of the limited partners of each partnership:
o adversely change the type or amount of, or the method of determining,
the consideration to be received in exchange for any partnership
interests in the partnership; or
o materially and adversely affect the rights of the limited partners of
the partnership, other than a termination of the merger agreement or
abandonment of the merger of the partnership.
Prior to the effective time, the parties may:
o extend the time for the performance of any of the obligations of the
parties;
o waive any inaccuracies in the representations and warranties in the
merger agreement or in a document delivered pursuant to the merger
agreement; and
o waive compliance with any agreement or condition in the merger
agreement.
Any such extension or waiver will be valid only if it is in writing and signed
by the party against whom the extension or waiver is to be effective.
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THE SPECIAL MEETINGS
TIME AND PLACE; PURPOSE
The special meeting of the limited partners of each partnership will be
held on , 2001, at 10:00 a.m., at the Dallas Marriott Las Colinas Hotel,
Irving, Texas 75039. The purpose of each special meeting, and any adjournment or
postponement of the special meeting for each partnership, is for the limited
partners of each partnership to consider and vote on the following matters:
o A proposal to approve an Agreement and Plan of Merger dated as of ,
2001, to be effective as of the closing date, among Pioneer, Pioneer USA and
each of the partnerships. Each partnership that approves this proposal will
merge with and into Pioneer USA, with Pioneer USA surviving the merger. Each
partnership interest of a participating partnership will be converted into
Pioneer common stock and an amount of cash. The number of shares of common stock
Pioneer will offer and the amount of cash to be paid for all partnership
interests of a participating partnership will be based on (1) the participating
partnership's merger value and (2) the average closing price of the Pioneer
common stock, as reported by the New York Stock Exchange, for the ten trading
days ending three business days before the date of the special meeting for the
partnership. The merger value for a participating partnership is equal to the
sum of the present value of estimated future net revenues from the partnership's
oil and gas reserves and its net working capital, in each case as of March 31,
2001. For purposes of illustration in this document, we have calculated the
merger value based on each partnership's working capital as of December 31,
2000, and the number of shares to be issued based on an assumed average closing
price of $18.00 per share of Pioneer common stock. We will update the
calculation of the merger value using the March 31, 2001 working capital of each
partnership before mailing this document to the limited partners, and prior to
the date of the special meeting for each partnership, we will update the number
of shares to be issued using the actual average closing price of Pioneer common
stock for the ten trading days ending three business days before the date of the
special meeting. The Pioneer common stock and the cash payment will be allocated
among the partners based on the liquidation provisions of each partnership
agreement. Pioneer USA will not receive any Pioneer common stock or cash payment
for its partnership interests in the participating partnerships. However, as a
result of each merger, Pioneer USA will own 100% of the properties of each
participating partnership, including properties attributable to its partnership
interests in those partnerships.
o A proposal to amend the partnership agreement of each partnership to
permit the partnership's merger with Pioneer USA. If the amendment is not
approved, that partnership cannot merge into Pioneer USA even if the partners of
that partnership approve the merger agreement.
o A proposal (A) to approve the opinion issued to Pioneer USA by
on behalf of the limited partners of each partnership that neither the grant nor
the exercise of the right to approve the merger of the partnership by its
limited partners (1) will result in the loss of any limited partner's limited
liability or (2) will adversely affect the federal income tax classification of
the partnership or any of its limited partners and (B) to approve the selection
of as special legal counsel for the limited partners of each partnership to
render such legal opinion.
o Other business that properly comes before the special meeting or any
adjournments or postponements of the special meeting. Pioneer USA is not aware
of any other business for the special meeting.
The Delaware Revised Uniform Limited Partnership Act and the Texas Revised
Limited Partnership Act require limited partner approval and adoption of the
merger agreement and the merger amendment. Generally, the partnership agreement
of each partnership requires that special legal counsel for the limited partners
render its legal opinion related to the limited partners' approval of the merger
of that partnership. See "The Merger of Each Partnership -- Legal Opinion for
Limited Partners" on page 43 of this document.
PIONEER USA'S BOARD OF DIRECTORS UNANIMOUSLY DETERMINED THAT THE MERGER OF
EACH PARTNERSHIP IS ADVISABLE, FAIR TO THE UNAFFILIATED LIMITED PARTNERS OF THE
PARTNERSHIP, AND IN THEIR BEST INTERESTS. THE BOARD RECOMMENDS THAT THE
UNAFFILIATED LIMITED PARTNERS VOTE FOR THE MERGER PROPOSALS FOR EACH PARTNERSHIP
IN WHICH THEY OWN AN INTEREST. ALTHOUGH PIONEER USA'S BOARD OF DIRECTORS HAS
ATTEMPTED TO FULFILL ITS FIDUCIARY DUTIES TO THE LIMITED PARTNERS OF EACH
PARTNERSHIP, PIONEER USA'S BOARD OF DIRECTORS HAD CONFLICTING INTERESTS IN
EVALUATING EACH MERGER BECAUSE EACH MEMBER OF ITS BOARD OF DIRECTORS IS ALSO AN
OFFICER OF PIONEER.
RECORD DATE; VOTING RIGHTS AND PROXIES
Only limited partners of record of each partnership at the close of
business on , 2001 are entitled to notice of and to vote at the special
meeting for the partnership in which they own partnership interests, or any
adjournments or postponements of such special meeting. Pioneer USA is entitled
to vote partnership interests it holds as a limited partner in all of the
partnerships except:
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Parker & Parsley 85-A, Ltd.
Parker & Parsley 85-B, Ltd.
Parker & Parsley Private Investment 85-A, Ltd.
Parker & Parsley Selected 85 Private Investment, Ltd.
Parker & Parsley Private Investment 86, Ltd.
Parker & Parsley 91-A, L.P.
Parker & Parsley 91-B, L.P.
Pioneer USA's affiliates are also entitled to vote partnership interests they
hold as limited partners in all but the seven partnerships listed above.
However, no affiliates of Pioneer USA own such interests. See "Ownership of
Partnership Interests" on page 61 of this document.
Limited partners of record of each partnership are entitled to vote at the
partnership's special meeting based on the limited partners' respective
percentage of partnership interests in the partnership. Each limited partner
will receive a proxy card for all partnerships in which that limited partner
holds partnership interests. The proxy card will indicate the amount of Pioneer
common stock and cash offered with respect to such partnership interests in each
partnership. Although the number of shares of Pioneer common stock offered as
shown on the proxy card may change, the value of Pioneer common stock offered as
shown on the proxy card will not be adjusted. The percentage of partnership
interests that a limited partner holds in a partnership is determined by
comparing the amount of the limited partner's initial investment, including any
additional assessments, in the partnership to the total investment of all
partners, including any additional assessments, in the partnership. The
aggregate initial investment, including any additional assessments, in each of
the partnerships by the limited partners is set forth in Table 1 of Appendix A.
A limited partner of record may grant a proxy to vote for or against, or
may abstain from voting on, the merger proposals applicable to each of the
partnerships in which the limited partner holds partnership interests. To be
effective for purposes of granting a proxy to vote on the merger proposals
applicable to each partnership, a proxy card must be properly completed,
executed and delivered to Pioneer USA in person or by mail, telegraph, telex or
facsimile before the special meeting for the partnership. All partnership
interests represented by properly executed proxies will, unless these proxies
have been previously revoked, be voted in accordance with the instructions
indicated in these proxies. If no instructions are indicated, the partnership
interests will be voted for approval and adoption of the merger proposals. A
properly executed proxy card for a partnership marked abstain is counted as
present for purposes of determining the presence or absence of a quorum at the
special meeting for the partnership, but will not be voted. Accordingly,
abstentions will have the same effect as a vote against the merger proposals.
Unrevoked proxies granted in the proxy cards for a partnership will be
voted at the special meeting for that partnership or at any adjournment or
postponement of the special meeting, if received by Pioneer USA before the
special meeting for the partnership. Proxies granted in the proxy cards for a
partnership will remain valid until the completion of the special meeting for
the partnership. Each partnership agreement requires that a meeting be held
within 60 days of the date of mailing of the notice of meeting. None of the
partnership agreements specifically addresses, and Pioneer USA has not sought
any opinions of counsel as to, whether proxies may be voted at a meeting
originally scheduled to be held within 60 days of the sending of the notice and
adjourned or postponed to a date more than 60 days after the date of notice.
Pioneer USA will not accept a vote of the limited partners of any partnership in
such circumstances unless it receives an opinion of counsel that such a vote
would be valid.
The inspector of election appointed for the special meeting for each
partnership will tabulate the votes cast by proxy or in person at the special
meeting.
Pioneer USA does not know of any matters other than the approval of the
merger proposals for each partnership that are to come before the special
meeting for the partnership. If any other matter or matters are properly
presented for action at the special meeting for each partnership, the persons
named in the enclosed form of proxy and acting under the proxy will have the
discretion to vote on those matters in accordance with their best judgment.
REVOCATION OF PROXIES
You may revoke a proxy you have given at any time before that proxy is
voted at the special meeting for each partnership in which you own an interest
by:
- giving written notice of revocation to Pioneer USA;
- signing and returning a later dated proxy; or
- voting in person at the special meeting.
Your notice of revocation will not be effective until Pioneer USA receives it at
or before the special meeting for each partnership in which you own an interest.
Your presence at any such special meeting will not automatically
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revoke your proxy in a proxy card. Revocation during any such special meeting
will not affect votes previously taken.
You may deliver your written notice of revocation in person or by mail,
telegraph, telex, or facsimile. Any written notice of revocation must specify
your name and limited partner number as shown on your proxy card and the name of
the partnership to which your revocation relates.
SOLICITATION OF PROXIES
We are soliciting your proxy pursuant to this document. Pioneer will pay
all expenses, including those described below, incurred in connection with
solicitation of the enclosed proxy.
Pioneer USA has retained to assist in the solicitation of proxies
from the limited partners of each partnership. The total fees and expenses of
are estimated to aggregate $225,000 and will be paid by Pioneer. In
addition to solicitation by use of the mail, proxies may be solicited by
, by other outside contractors and by directors, officers and employees of
Pioneer and Pioneer USA in person or by telephone, telegram, facsimile or
e-mail. Pioneer will pay the fees and expenses of any outside contractors which
may be retained to solicit proxies, which fees and expenses are estimated to
aggregate $ . The directors, officers and employees will not be
additionally compensated, but may be reimbursed for out-of-pocket expenses
incurred in connection with the solicitation.
Arrangements may also be made with other brokerage firms, banks,
custodians, nominees and fiduciaries for the forwarding of proxy solicitation
materials to owners of limited partnership interests held of record by those
persons. Pioneer will reimburse those persons for reasonable expenses incurred
in forwarding those materials.
Pioneer USA has also retained to act as information agent to perform
consulting, administration and clerical work with respect to the merger of each
partnership. Pioneer USA has agreed to indemnify against certain liabilities,
including liabilities under the federal securities laws. will also be
responsible for the receipt and tabulation of the proxy cards. The fees and
expenses of for its services as information agent and tabulator are included
in the aggregate amount set forth above.
We intend to mail certificates representing shares of Pioneer common stock
and checks for the cash payment to the partners of record of each participating
partnership promptly after completing the merger of that partnership.
Certificates representing partnership interests will be automatically canceled,
and you will not have to surrender your certificates to receive the Pioneer
common stock and cash payment.
QUORUM
The presence in person or by properly executed proxy of a majority of
limited partnership interests entitled to vote in each partnership is necessary
to constitute a quorum at that partnership's special meeting.
If a quorum is not present at any special meeting, the limited partners
entitled to vote who are present or represented by proxy at that special meeting
may adjourn or postpone that special meeting without notice until a quorum is
present. If a quorum is present at the adjourned or postponed meeting, any
business may be transacted that may have been transacted at the special meeting
had a quorum originally been present. If the adjournment or postponement is for
more than 30 days or if after the adjournment or postponement a new record date
is fixed for the adjourned or postponed meeting, a notice of the adjourned or
postponed meeting shall be given to each limited partner of record entitled to
vote at the adjourned or postponed meeting. The persons named as proxies intend
to vote in favor of any motion to adjourn or postpone the special meeting of any
partnership if, prior to the special meeting, they have not received sufficient
proxies to approve the merger of the partnership as described in this document.
This process will be repeated at any adjourned or postponed meeting until
sufficient proxies to vote in favor of the merger of the partnership have been
received or it appears that sufficient proxies will not be received.
REQUIRED VOTE; BROKER NON-VOTES
Approval of the merger proposals for each partnership requires the
affirmative vote of the limited partners holding a majority of limited
partnership interests in that partnership, except that Parker & Parsley 91-A,
L.P. and Parker & Parsley 91-B, L.P. each require the favorable vote of the
holders, other than Pioneer USA, of 66 2/3% of its limited partnership interests
to approve those merger proposals. Pioneer USA is entitled to vote its
partnership interests on the merger proposals for each partnership except as set
forth under "The Special Meetings -- Record Date; Voting Rights and Proxies" on
page 55. Therefore, approval of at least a majority, and for Parker & Parsley
91-A, L.P. and Parker & Parsley 91-B, L.P., at least 66 2/3%, of the
unaffiliated limited partners is not required to approve the merger proposals
except for the partnerships listed under "The Special Meetings -- Record Date;
Voting Rights and Proxies" on page 55 of this document, in which Pioneer USA has
no voting rights.
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Brokers, if any, who hold partnership interests in street name for
customers have the authority to vote on "routine" proposals when they have not
received instructions from beneficial owners. However, these brokers are
precluded from exercising their voting discretion with respect to the approval
and adoption of non-routine matters such as the merger proposals and thus,
absent specific instructions from the beneficial owner of the partnership
interests, brokers are not empowered to vote the partnership interests with
respect to the merger proposals. These "broker non-votes" will have the effect
of a vote against the merger proposals.
PARTICIPATION BY ASSIGNEES
Pioneer USA has the discretionary authority granted to it under each
partnership agreement to withhold its consent to the substitution of any
assignees as partners of the partnership. To facilitate the notification given
to limited partners of each partnership about the merger of the partnership,
Pioneer USA intends to exercise that authority and withhold its consent to the
substitution of any assignees as partners of the partnership from the date on
which this document is initially filed with the SEC until the earlier to occur
of the closing date of the merger of the partnership, or the termination or
abandonment of the transaction by Pioneer and Pioneer USA.
SPECIAL REQUIREMENTS FOR SOME LIMITED PARTNERS
Pioneer USA may require that any proxy card executed by an entity, such as
a trust, corporation, or partnership, be accompanied by evidence or an opinion
of counsel that such entity:
o has met all requirements of its governing instruments; and
o is authorized to execute and deliver the proxy card under the laws of
the jurisdiction under which the entity was organized.
Pioneer USA will require the named trustee and the beneficial owner of
trusts, including individual retirement accounts, to execute the proxy card. In
some cases, Pioneer USA may provide a limited partner with an envelope,
pre-addressed to his individual retirement account trustee, so that the limited
partner may forward his executed proxy card to the trustee for the trustee's
signature, if necessary, and subsequent delivery to Pioneer USA. Delivery of a
proxy card to the trustee, with or without the use of a pre-addressed envelope,
and delivery of a proxy card from the trustee to Pioneer USA are at the risk of
the limited partner.
VALIDITY OF PROXY CARDS
A proxy card will not be valid unless it has been properly completed and
executed and timely delivered to Pioneer USA's information agent with all other
required documents. Pioneer USA will determine all questions as to the validity,
form, eligibility, time of receipt and acceptance of a proxy card and its
determination will be final and binding. Pioneer USA's interpretation of the
terms and conditions of the merger of each partnership, including the
instructions for the proxy card, will also be final and binding.
A proxy card will not be valid until any irregularities have been cured or
waived. If Pioneer USA does not waive the irregularities, it will return the
defective proxy card to the limited partner as soon as practicable. Pioneer USA
is under no duty to give notification of defects in a proxy card and will incur
no liability if it fails to give such notification.
Delivery of a proxy card is at the risk of the limited partner. A proxy
card will be effective for purposes of voting only when it is actually received
by Pioneer USA's information agent. To ensure receipt of the proxy card and all
other required documents, Pioneer USA suggests that limited partners use
overnight courier delivery or certified or registered mail, return receipt
requested.
LOCAL LAWS
Proxy solicitations will not be made to, nor will proxy cards be accepted
from, limited partners of any partnership in any jurisdiction in which the
solicitations would not be in compliance with federal and state securities or
other laws.
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COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
The table below sets forth, for the calendar quarters indicated, the
reported high and low closing prices of Pioneer common stock as reported on the
New York Stock Exchange Composite Transaction Tape, in each case based on
published financial sources. Pioneer's board of directors did not declare
dividends to the holders of Pioneer common stock during 1999, 2000 or the three
months ended March 31, 2001. None of the partnership interests of any
partnership are traded on a national stock exchange or in any other significant
market. No liquid market exists for interests in any of the partnerships. See
Table 15 of Appendix A for historical information about recent trades per $1,000
limited partner investment in each partnership for the three months ended March
31, 2001 and the years ended December 31, 2000 and 1999. The average quarterly
cash distributions per $1,000 limited partner investment in each partnership for
1999, 2000 and the year-to-date in 2001 are set forth in Table 7 of Appendix A.
On April 16, 2001, the last full trading day prior to the announcement of
the proposed merger of each partnership, Pioneer common stock closed at $17.27
per share. On , 2001, Pioneer common stock closed at $ per share.
PIONEER COMMON STOCK
MARKET PRICE
-------------------------
HIGH LOW
---------- ----------
2001
First quarter $ 20.24 $ 15.45
2000
Fourth quarter 20.63 12.44
Third quarter 16.06 10.63
Second quarter 15.63 9.00
First quarter 10.75 6.75
1999
Fourth quarter 11.50 7.63
Third quarter 12.81 9.38
Second quarter 13.19 7.06
First quarter 9.75 5.00
We urge the limited partners of each partnership to obtain current market
quotations prior to making any decision with respect to the merger of the
partnership.
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INTERESTS OF PIONEER, PIONEER USA
AND THEIR DIRECTORS AND OFFICERS
A number of conflicts of interest are inherent in the relationships among
each partnership, Pioneer, Pioneer USA and their respective directors and
officers.
CONFLICTING DUTIES OF PIONEER USA, INDIVIDUALLY AND AS GENERAL PARTNER
Pioneer USA, as general partner of each partnership, has a duty to manage
each partnership in the best interests of the limited partners. Pioneer USA also
has a duty to operate its business for the benefit of its sole stockholder,
Pioneer. Consequently, Pioneer USA's duties to the limited partners of each
partnership may conflict with its duties to Pioneer.
The members of the board of directors of Pioneer USA have a duty to cause
Pioneer USA to manage each partnership in the best interests of the limited
partners. All members of the board of directors of Pioneer USA are officers of
Pioneer and Pioneer USA. Thus, the members of the board of directors of Pioneer
USA have duties to operate Pioneer USA's business for the benefit of its sole
stockholder, Pioneer, and, as officers of Pioneer, to operate Pioneer's business
in its best interests. Consequently, the duties of the members of the board of
directors of Pioneer USA to the limited partners may conflict with the duties of
those members to Pioneer, Pioneer USA and their stockholders.
Neither Pioneer nor Pioneer USA retained an independent representative to
negotiate on behalf of the limited partners of each partnership because:
o neither the partnership agreement for any partnership nor any
applicable law provides for any procedure to identify and select an
independent representative, unless each limited partner of the
partnership agrees to the independent representative;
o Pioneer USA, as sole or managing general partner of each partnership,
still has its fiduciary duty to the limited partners; and
o it would be (1) cost-prohibitive to find one or more persons to
represent the limited partners in all of the partnerships because no
one other than Pioneer USA owns an interest in all of the partnerships
and (2) impractical to have 46 independent representatives.
PIONEER USA'S EMPLOYEES PROVIDE SERVICES TO THE PARTNERSHIPS
None of the partnerships currently has any employees. Each partnership
relies on Pioneer USA's personnel. Pioneer USA provides all management functions
on behalf of each partnership. Therefore, each partnership currently competes
with Pioneer USA for the time and resources of Pioneer USA's employees.
FINANCIAL INTERESTS OF DIRECTORS AND OFFICERS
The directors and officers of Pioneer and Pioneer USA have equity interests
in Pioneer through stock ownership, stock options and other stock-based
compensation, but do not have financial or equity interests in any partnership.
See "Ownership of Partnership Interests" on page 61. The boards of directors of
Pioneer and Pioneer USA believe that any economic benefit their directors and
officers may obtain from the merger of each partnership will be minimal, if any,
and will not result in a material economic benefit, if any, to their directors
and officers individually.
THE PARTNERSHIPS PAY OPERATOR FEES TO PIONEER USA
Pioneer USA operates most of each partnership's wells. Each partnership has
entered into one or more standard industry operating agreements with Pioneer
USA. Those operating agreements establish the base fee paid by the partnership
to Pioneer USA for its lease operating services. That base fee adjusts annually
based on a rate established by the Council of Petroleum Accountants Society, or
COPAS, for the oil and gas industry.
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OWNERSHIP OF PARTNERSHIP INTERESTS
Pioneer does not directly own any partnership interests in any partnership.
Pioneer beneficially owns all of Pioneer USA's partnership interests in each
partnership. Table 6 of Appendix A to this document contains the voting
percentage as of March 31, 2001, of the outstanding limited partnership
interests for each partnership that are beneficially owned by Pioneer USA as a
limited partner. As of March 31, 2001, no person or entity known by Pioneer USA
beneficially owns more than 5% of the outstanding limited partnership interests
in any partnership, except in Parker & Parsley 81-I, Ltd., Parker & Parsley
82-I, Ltd. and Parker and Parsley 82-III, Ltd. In those partnerships, Pioneer
USA repurchased and now owns partnership interests representing the following
beneficial ownership percentages:
Parker & Parsley 81-I, Ltd. 5.84%
Parker & Parsley 82-1, Ltd. 10.73%
Parker & Parsley 82-III, Ltd. 5.97%
Pioneer USA has sole investment and voting power with respect to partnership
interests it beneficially owns.
Except as set forth above, none of Pioneer, Pioneer USA, or, to the
knowledge of Pioneer USA, any of their directors or executive officers, or any
associate or majority-owned subsidiary of Pioneer, Pioneer USA or any such
director or officer:
o beneficially owns any partnership interests of any partnership; or
o has effected any transactions in any partnership interests of any
partnership during the past 60 days.
TRANSACTIONS AMONG THE PARTNERSHIPS, PIONEER, PIONEER USA
AND THEIR DIRECTORS AND OFFICERS
Except as described in this document, there have not been any transactions,
negotiations or material contacts between Pioneer, Pioneer USA, any of their
respective subsidiaries, or, to the knowledge of Pioneer and Pioneer USA, any
director or executive officer of Pioneer or Pioneer USA or any associate of any
such persons, on the one hand, and any partnership or any of its general
partners, including Pioneer USA, directors, officers or affiliates, on the other
hand, that are required to be disclosed pursuant to the rules and regulations of
the SEC. Except as described in this document, none of Pioneer, Pioneer USA, or,
to the knowledge of Pioneer and Pioneer USA, any director or executive officer
of Pioneer or Pioneer USA, has any agreement, arrangement or understanding with
any other person with respect to any securities of any partnership.
During March 2001, Pioneer offered to acquire all of the direct oil and gas
interests owned by some former officers and employees of Pioneer and Pioneer USA
in properties in which Pioneer and Pioneer USA own interests. The terms of those
purchases and the method of establishing the purchase price payable to such
individuals are the same as those used to determine the reserve value portion of
the merger value for each partnership described in this document, except that
the NYMEX futures prices were as of a different date in March 2001, and the
consideration to be paid in the purchases of the direct oil and gas interests is
all cash since offering and registering Pioneer common stock in those purchases
is cost-prohibitive due to the small size of such transactions. Similarly,
during 2000, Pioneer purchased all of the direct oil and gas interests held by
Scott D. Sheffield, its chairman of the board of directors and chief executive
officer, for $0.2 million.
Additionally, in December 2000, Pioneer received the approval of the
partners of 13 employee limited partnerships to merge with Pioneer USA for
aggregate merger consideration of $2.0 million. Of the total merger
consideration, $0.3 million was paid to current Pioneer employees. The terms of
those mergers and the method of establishing the merger values for those
partnerships were the same as those used to determine the merger value for each
partnership described in this document, except that the NYMEX futures prices
were as of August 25, 2000, and the consideration paid in those mergers was all
cash. As with the purchases of the direct oil and gas interests described above,
offering and registering Pioneer common stock in those mergers was
cost-prohibitive due to the small size of such transaction.
If you approve the merger of each partnership in which you own an interest,
there are various ways that Pioneer USA may use the properties. Pioneer USA may
continue to operate the properties, it may sell the properties to third parties,
including a royalty trust, or it may spin-off the properties to its stockholder.
Although Pioneer USA plans to operate the properties in the immediate future
following completion of the merger of each partnership, it has not decided how
to use the properties in the long-term.
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MANAGEMENT
PIONEER
The following information sets forth the age, business experience during
the past five years, positions and offices with Pioneer, and periods of service
of each director and executive officer of Pioneer.
NAME AGE POSITION
---- --- --------
Scott D. Sheffield 48 Chairman of the Board of Directors, President and Chief
Executive Officer
Timothy L. Dove 44 Executive Vice President and Chief Financial Officer
Dennis E. Fagerstone 52 Executive Vice President
Mark L. Withrow 53 Executive Vice President, General Counsel and Secretary
Danny L. Kellum 46 Executive Vice President -- Domestic Operations
James R. Baroffio 69 Director
R. Hartwell Gardner 66 Director
James L. Houghton 70 Director
Jerry P. Jones 69 Director
Charles E. Ramsey, Jr. 64 Director
Robert L. Stillwell 64 Director
Scott D. Sheffield. Mr. Sheffield, a distinguished graduate of the
University of Texas with a Bachelor of Science degree in Petroleum Engineering,
has been the Chairman of the Board of Directors of Pioneer since August 1999 and
the President and Chief Executive Officer of Pioneer since August 1997. He was
the President and a director of Parker & Parsley Petroleum Company since May
1990 and was the Chairman of the Board of Directors and Chief Executive Officer
of Parker & Parsley Petroleum Company since October 1990. Mr. Sheffield was the
sole director of Parker & Parsley Petroleum Company from May 1990 until October
1990. Mr. Sheffield joined Parker & Parsley Development Company, a predecessor
of Parker & Parsley Petroleum Company, as a petroleum engineer in 1979. Mr.
Sheffield served as Vice President -- Engineering of Parker & Parsley
Development Company from September 1981 until April 1985, when he was elected
President and a director. In March 1989, Mr. Sheffield was elected Chairman of
the Board of Directors and Chief Executive Officer of Parker & Parsley
Development Company. Before joining Parker & Parsley Development Company 's
predecessor, Mr. Sheffield was employed as a production and reservoir engineer
for Amoco Production Company.
Timothy L. Dove. Mr. Dove, a graduate of Massachusetts Institute of
Technology with a Bachelor of Science degree in Mechanical Engineering and the
University of Chicago with an M.B.A., has been Executive Vice President and
Chief Financial Officer of Pioneer since February 2000. He was Executive Vice
President -- Business Development of Pioneer from August 1997 until February
2000. Mr. Dove joined Parker & Parsley Petroleum Company in May 1994 as Vice
President -- International and was promoted to Senior Vice President -- Business
Development in October 1996, in which position he served until August 1997.
Before joining Parker & Parsley Petroleum Company, Mr. Dove was employed with
Diamond Shamrock Corp., and its successor, Maxus Energy Corp., in various
capacities in international exploration and production, marketing, refining, and
planning and development.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, has been an Executive Vice President
of Pioneer since August 1997. Mr. Fagerstone served as Executive Vice President
and Chief Operating Officer of MESA Inc. from March 1997 until August 1997. Mr.
Fagerstone served as Senior Vice President and Chief Operating Officer of MESA
Inc. from October 1996 to February 1997, and served as Vice President --
Exploration and Production of MESA Inc. from May 1991 to October 1996. Mr.
Fagerstone served as Vice President -- Operations of MESA Inc. from June 1988
until May 1991.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a Bachelor of Science degree in Accounting and Texas Tech University with a
J.D. degree, has been the Executive Vice President, General Counsel and
Secretary of Pioneer since August 1997. He served as Vice President -- General
Counsel of Parker & Parsley Petroleum Company from February 1991 until January
1995, and served as Senior Vice President and General Counsel of Parker &
Parsley Petroleum Company from January 1995 until August 1997. He was Parker &
Parsley Petroleum Company's Secretary from August 1992 until August 1997. Mr.
Withrow joined Parker & Parsley Development Company in January 1991. Before
joining Parker & Parsley Development Company, Mr. Withrow was the managing
partner of the law firm of Turpin, Smith, Dyer, Saxe & MacDonald, Midland,
Texas.
Danny L. Kellum. Mr. Kellum, a graduate of Texas Tech University with a
Bachelor of Science degree in Petroleum Engineering in 1979, has been Executive
Vice President -- Domestic Operations of Pioneer since May 2000. From January
2000 until May 2000, Mr. Kellum served as Vice President - Domestic Operations.
From August 1997 until December 1999, Mr. Kellum served as Vice President --
Permian Division. Mr. Kellum served as Spraberry District Manager for Parker &
Parsley Petroleum Company from 1989 until 1994 and as Vice President of
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the Spraberry and Permian Divisions for Parker & Parsley Petroleum Company until
August of 1997. He joined Parker & Parsley Petroleum Company in 1981 as
Operations Engineer after a brief career with Mobil Oil Corporation.
James R. Baroffio. Dr. Baroffio received a B.A. in Geology at the College
of Wooster, Ohio, an M.S. in Geology at Ohio State University, and a Ph.D. in
Geology at the University of Illinois. Before becoming a director of Pioneer in
December 1997, Dr. Baroffio enjoyed a long career with Standard Oil Company of
California, the predecessor of Chevron Corporation, where he served as
President, Chevron Research and Technology Center from 1980 to 1985 and
eventually retired as President of Chevron Canada Resources in 1994. Dr.
Baroffio was a member of the Board of Directors of the Rocky Mountain Oil & Gas
Association and Chairman of the U.S. National Committee of the World Petroleum
Congress. His community leadership positions included membership on the Board of
Directors of Glenbow Museum and the Nature Conservancy of Canada, as well as
serving as President of the Alberta Nature Conservancy.
R. Hartwell Gardner. Mr. Gardner, a graduate of Colgate University with a
Bachelor of Arts degree in Economics and Harvard University with an M.B.A.,
became a director of Pioneer in August 1997. He served as a director of Parker &
Parsley Petroleum Company from November 1995 until August 1997. Until October
1995, Mr. Gardner was the Treasurer of Mobil Oil Corporation and Mobil
Corporation from 1974 and 1976, respectively. Mr. Gardner is a member of the
Financial Executives Institute of which he served as Chairman in 1986/1987 and
is a Director of Oil Investment Corporation Ltd. and Oil Casualty Investment
Corporation Ltd., Pembroke, Bermuda.
James L. Houghton. Mr. Houghton is a certified public accountant and a
graduate of Kansas University with a Bachelor of Science degree in Accounting,
as well as a Bachelor of Laws degree. Mr. Houghton has served as a director of
Pioneer since August 1997, and as a director of Parker & Parsley Petroleum
Company from October 1991 until August 1997. Until October 1991, Mr. Houghton
was the lead oil and gas tax specialist for the accounting firm of Ernst & Young
LLP, was a member of Ernst & Young's National Energy Group, and had served as
its Southwest Regional Director of Tax. Mr. Houghton is a member of the American
Institute of Certified Public Accountants, a member of the Oklahoma Society of
Certified Public Accountants, a former Chairman of its Federal and Oklahoma
Taxation Committee and past President of the Oklahoma Institute of Taxation. He
has also served as a Director for the Independent Petroleum Association of
America and as a member of its Tax Committee.
Jerry P. Jones. Mr. Jones earned a Bachelor of Science degree from West
Texas State College in 1953 and a Bachelor of Law degree from the University of
Texas School of Law in 1959. Mr. Jones has served as a director of Pioneer since
August 1997, and as a director of Parker & Parsley Petroleum Company from May
1991 until August 1997. Mr. Jones has been an attorney with the law firm of
Thompson & Knight, P.C., Dallas, Texas, since September 1959 and was a
shareholder in that firm until January 1998, when he retired and became of
counsel to the firm. Mr. Jones specialized in civil litigation, especially in
the area of energy disputes.
Charles E. Ramsey, Jr. Mr. Ramsey is a graduate of the Colorado School of
Mines with a Petroleum Engineering degree and a graduate of the Smaller Company
Management program at the Harvard Graduate School of Business Administration.
Mr. Ramsey has served as a director of Pioneer since August 1997. Mr. Ramsey
served as a director of Parker & Parsley Petroleum Company from October 1991
until August 1997. Since October 1991, he has operated an independent management
and financial consulting firm. From June 1958 until June 1986, Mr. Ramsey held
various engineering and management positions in the oil and gas industry and,
for six years before October 1991, was a Senior Vice President in the Corporate
Finance Department of Dean Witter Reynolds Inc. in Dallas, Texas. His industry
experience includes 12 years of senior management experience in the positions of
President, Chief Executive Officer and Executive Officer and Executive Vice
President of May Petroleum Inc. Mr. Ramsey is also a former director of MBank
Dallas, the Dallas Petroleum Club and Lear Petroleum Corporation.
Robert L. Stillwell. Mr. Stillwell, a graduate of the University of Texas
with a B.B.A. and the University of Texas School of Law with a J.D., has served
as a director of Pioneer since August 1997. He served as a director of MESA Inc.
from January 1992 until August 1997, as a member of the Advisory Committee of
Mesa, L.P., a predecessor of MESA Inc., from December 1985 until December 1991,
and as a director of MESA Inc. in its original corporate form from 1968 until
January 1987. Mr. Stillwell has been a partner in the law firm of Baker & Botts,
L.L.P., Houston, Texas, for more than five years.
PIONEER USA
The following information sets forth the age, business experience during
the past five years, positions and offices with Pioneer USA, and periods of
service of each director and executive officer of Pioneer USA.
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NAME AGE POSITION
---- --- --------
Scott D. Sheffield 48 President
Timothy L. Dove 44 Director, Executive Vice President and
Chief Financial Officer
Dennis E. Fagerstone 52 Director and Executive Vice President
Mark L. Withrow 53 Director, Executive Vice President,
General Counsel and Secretary
Danny L. Kellum 46 Director and Executive Vice President
Scott D. Sheffield. Mr. Sheffield has been the President of Pioneer USA
since August 1997 and served as the Chairman of the Board of Directors of
Pioneer USA from August 1997 until June 1999. He served as a Director of Pioneer
USA's predecessor, Parker & Parsley Petroleum USA, Inc., from January 1991 until
August 1997. He was an Executive Vice President of Parker & Parsley Petroleum
USA, Inc. from December 1995 until August 1997. He was the President of Parker &
Parsley Petroleum USA, Inc. from December 1993 until December 1995. Mr.
Sheffield was President and Chief Executive Officer of Parker & Parsley
Petroleum USA, Inc. from January 1991 until December 1993. Mr. Sheffield's other
business experience and biographical information are set forth above under
"Management -- Pioneer."
Timothy L. Dove. Mr. Dove has been a Director of Pioneer USA since August
1997 and has been Executive Vice President and Chief Financial Officer of
Pioneer USA since February 2000. He was the Executive Vice President -- Business
Development of Pioneer USA from August 1997 until February 2000. He served as a
Director of Parker & Parsley Petroleum USA, Inc. from June 1997 until August
1997. He was a Senior Vice President of Parker & Parsley Petroleum USA, Inc.
from October 1996 until August 1997. He was a Vice President of Parker & Parsley
Petroleum USA, Inc. from December 1995 until October 1996. Mr. Dove's other
business experience and biographical information are set forth above under
"Management -- Pioneer."
Dennis E. Fagerstone. Mr. Fagerstone has been a Director of Pioneer USA
since August 1997 and an Executive Vice President of Pioneer USA since August
1997. Mr. Fagerstone's other business experience and biographical information
are set forth above under "Management -- Pioneer."
Mark L. Withrow. Mr. Withrow has been a Director of Pioneer USA since
August 1997. He became an Executive Vice President, the General Counsel and the
Secretary of Pioneer USA in August 1997. He served as a Director of Parker &
Parsley Petroleum USA, Inc. from January 1996 until August 1997. He was a Senior
Vice President and the Secretary of Parker & Parsley Petroleum USA, Inc. from
January 1995 until August 1997. He was a Vice President and the Secretary of
Parker & Parsley Petroleum USA, Inc. from December 1993 until January 1995. He
was a Vice President of Parker & Parsley Petroleum USA, Inc. from January 1991
until December 1993. Mr. Withrow's other business experience and biographical
information are set forth above under "Management -- Pioneer."
Danny L. Kellum. Mr. Kellum has been a Director of Pioneer USA since
February 2000, and has been Executive Vice President of Pioneer USA since May
2000. He served as Vice President -- Domestic Operations of Pioneer USA from
January 2000 until May 2000, as Vice President -- Permian Division of Pioneer
USA from April 1998 until December 1999 and as Vice President -- Spraberry
Division of Pioneer USA from December 1997 until March 1998. Mr. Kellum's other
business experience and biographical information are set forth above under
"Management -- Pioneer."
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PIONEER
Pioneer is a large independent exploration and production company with
total proved reserves equivalent to 3.8 trillion cubic feet of natural gas, or
628 million barrels of oil. Pioneer's proved reserves are balanced equally
between natural gas and oil, and Pioneer has a reserves-to-production ratio of
14 years. Three core areas in the United States comprise 67% of Pioneer's
reserve base: the Hugoton gas field, the West Panhandle gas field, and the
Spraberry oil and natural gas field. Pioneer also has domestic properties in
East Texas, the Gulf Coast, and the offshore Gulf of Mexico as well as a
significant international presence through its properties in Argentina, Canada,
South Africa, and Gabon.
Pioneer seeks to increase net asset value and production by combining lower
risk development drilling with higher risk exploration activity. Pioneer has
identified over 1,700 development drilling locations on its properties in the
U.S., Argentina and Canada. Pioneer's exploration program is focused in the
deepwater Gulf of Mexico, the Gulf Coast shelf, South Africa and Gabon. Pioneer
expects significant new production from the deepwater Gulf of Mexico and South
Africa in 2002 and 2003 as it builds on its recent exploration successes in
those areas. The production from Pioneer's long-lived reserves in the Spraberry,
Hugoton and West Panhandle fields are expected to provide stable cash flows to
fund Pioneer's development and exploration activities.
During 2000, Pioneer spent $340 million for capital expenditures to add 437
billion cubic feet of natural gas equivalent reserves. As a consequence, in 2000
Pioneer replaced 167% of its production at an all-in finding and development
cost of $.78 per Mcf equivalent. Pioneer drilled 296 wells with 90% success
worldwide, including 83 exploration and extension wells with 73% success.
For 2001, Pioneer has budgeted $430 million of capital expenditures, a 26%
increase over 2000 capital expenditures but less than expected available cash
flow. Approximately 73% of the 2001 capital expenditure budget is for
development activities with the remaining 27% for exploration. Pioneer plans to
drill approximately 460 development wells and 26 exploratory wells in its 2001
program, and approximately 65% of the capital expenditures will be for drilling
activities in the U.S.
KEY PROJECTS TO INCREASE PRODUCTION
Pioneer expects to increase its production of oil and gas from current
levels by 25% to 30% on a gas equivalent basis by early to mid 2003, primarily
from four projects. The projects in general build on Pioneer's recent
exploration successes.
o The Canyon Express project is a joint development of three deepwater
Gulf of Mexico discoveries, including Pioneer's Aconcagua and Camden
Hills fields. The project is being developed with a capacity to
deliver 500 million cubic feet of natural gas per day by the summer of
2002. Pioneer owns an 18% interest in the Canyon Express project and
expects that production from the project will increase Pioneer's North
American natural gas production by 30% from current levels.
o Pioneer's first well in offshore South Africa confirmed the presence
of commercial oil reserves and resulted in Pioneer's plans to develop
the Sable oil field. First production from the field is expected in
late 2002 or early 2003 at daily rates of 25 to 30 thousand barrels
per day. Pioneer has a 35% working interest in the field, and
production from the project is expected to increase Pioneer's total
oil production by more than 20%. Pioneer has also discovered oil and
natural gas at its Boomslang prospect in offshore South Africa and
plans a second well on the prospect later in 2001.
o The Devils Tower discovery was Pioneer's second in the deepwater Gulf
of Mexico. The oil field has been successfully appraised, and
development plans call for first production in early 2003 with
additional drilling planned this year. Pioneer has a 25% working
interest in the field, and production from the field is expected to
increase Pioneer's total oil production by approximately 20% from
current levels.
o In the East Texas Bossier natural gas play, Pioneer holds interests in
over 130,000 acres and plans to drill or participate in over 35 wells
during 2001. The play's strong initial natural gas flow rates are
expected to provide significant new production growth.
MORE INFORMATION
Pioneer's business, and its expectations about its future, are subject to
many risks. A more complete description of Pioneer, its business, and risks is
found in the reports that Pioneer files with the SEC. Please see "Where You Can
Find More Information" on page 74 of this document. Please also read "Risks
Associated with an Investment in Pioneer" under the caption "Risk Factors"
beginning on page 17 of this document.
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THE PARTNERSHIPS
GENERAL
Pioneer USA's predecessor, Parker & Parsley Petroleum USA, Inc. or its
predecessors or affiliates, sponsored each partnership. As a result of the
merger of Parker & Parsley Petroleum Company and MESA Inc. to form Pioneer on
August 7, 1997, Pioneer USA became the managing or sole general partner of each
partnership.
Appendix A to this document sets forth information about each partnership,
including proved reserves, oil and gas production, average sales prices and
production costs, productive wells and developed acreage, and historical cash
distributions. In addition, the supplement for each partnership constitutes an
integral part of this document. You should read Appendix A and the supplement
carefully in their entirety.
THE DRILLING PARTNERSHIPS
The drilling partnerships consist of the following 43 limited partnerships
that were formed from 1981 through 1991:
NAME STATE OF FORMATION
---- ------------------
Parker & Parsley 81-I, Ltd. Texas
Parker & Parsley 81-II, Ltd. Texas
Parker & Parsley 82-I, Ltd. Texas
Parker & Parsley 82-II, Ltd. Texas
Parker & Parsley 82-III, Ltd. Texas
Parker & Parsley 83-A, Ltd. Texas
Parker & Parsley 83-B, Ltd. Texas
Parker & Parsley 84-A, Ltd. Texas
Parker & Parsley 85-A, Ltd. Texas
Parker & Parsley 85-B, Ltd. Texas
Parker & Parsley Private Investment 85-A, Ltd. Texas
Parker & Parsley Selected 85 Private Investment, Ltd. Texas
Parker & Parsley 86-A, Ltd. Texas
Parker & Parsley 86-B, Ltd. Texas
Parker & Parsley 86-C, Ltd. Texas
Parker & Parsley Private Investment 86, Ltd. Texas
Parker & Parsley 87-A Conv., Ltd. Texas
Parker & Parsley 87-A, Ltd. Texas
Parker & Parsley 87-B Conv., Ltd. Texas
Parker & Parsley 87-B, Ltd. Texas
Parker & Parsley Private Investment 87, Ltd. Texas
Parker & Parsley 88-A Conv., L.P. Delaware
Parker & Parsley 88-A, L.P. Delaware
Parker & Parsley 88-B Conv., L.P. Delaware
Parker & Parsley 88-B L.P. Delaware
Parker & Parsley 88-C Conv., L.P. Delaware
Parker & Parsley 88-C, L.P. Delaware
Parker & Parsley Private Investment 88, L.P. Delaware
Parker & Parsley 89-A Conv., L.P. Delaware
Parker & Parsley 89-A, L.P. Delaware
Parker & Parsley 89-B Conv., L.P. Delaware
Parker & Parsley 89-B, L.P. Delaware
Parker & Parsley Private Investment 89, L.P. Delaware
Parker & Parsley 90-A Conv., L.P. Delaware
Parker & Parsley 90-A, L.P. Delaware
Parker & Parsley 90-B Conv., L.P. Delaware
Parker & Parsley 90-B, L.P. Delaware
Parker & Parsley 90-C Conv., L.P. Delaware
Parker & Parsley 90-C, L.P. Delaware
Parker & Parsley Private Investment 90, L.P. Delaware
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NAME STATE OF FORMATION
---- ------------------
Parker & Parsley 90 Spraberry Private Development, L.P. Delaware
Parker & Parsley 91-A, L.P. Delaware
Parker & Parsley 91-B, L.P. Delaware
Each drilling partnership was formed to establish long-lived oil and gas
reserves primarily by drilling low-risk development wells in the Spraberry field
of the Permian Basin of West Texas. The oil and gas properties of each drilling
partnership consist primarily of leasehold interests in producing properties
located in Texas. The partners of a drilling partnership received a tax benefit
from drilling activities in the partnership's first year. Subsequently, each
drilling partnership has regularly distributed its net cash flow. As of the date
of this document, each drilling partnership has expended all of its initial
capital contributions.
For a discussion of transactions between each drilling partnership and
Pioneer USA, see the notes to the financial statements of each drilling
partnership included in the supplement for the partnership.
THE INCOME PARTNERSHIPS
The income partnerships consist of the following three limited partnerships
that were formed in 1987 and 1988:
NAME STATE OF FORMATION
---- ------------------
Parker & Parsley Producing Properties 87-A, Ltd. Texas
Parker & Parsley Producing Properties 87-B, Ltd. Texas
Parker & Parsley Producing Properties 88-A, L.P. Delaware
The primary objective of each income partnership was to acquire long-lived,
producing oil and gas properties in the Spraberry Field of the Permian Basin of
West Texas. Subsequently, each income partnership has regularly distributed its
net cash flow. As of the date of this document, each income partnership has
expended all of its initial capital contributions.
For a discussion of transactions between each income partnership and
Pioneer USA, see the notes to the financial statements of each income
partnership included in the supplement for the partnership.
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COMPARISON OF RIGHTS OF STOCKHOLDERS AND PARTNERS
GENERAL
The rights of Pioneer stockholders are currently governed by the Delaware
General Corporation Law and the certificate of incorporation and bylaws of
Pioneer. The rights of the limited partners of each partnership are currently
governed by the Delaware Revised Uniform Limited Partnership Act or the Texas
Revised Limited Partnership Act and, in either case, the partnership agreement
of the partnership. Accordingly, on completion of the merger of each
partnership, the rights of Pioneer stockholders and of limited partners who
become Pioneer stockholders in the merger of their partnerships will be governed
by the Delaware General Corporation Law, Pioneer's certificate of incorporation
and Pioneer's bylaws. The following is a summary of the material differences
between the current rights of Pioneer stockholders and those of the limited
partners of each partnership.
The following summary of the material differences between the Pioneer
certificate of incorporation, the Pioneer bylaws and the partnership agreement
for each partnership may not contain all the information that is important to
you. To review all provisions and differences of such documents in full detail,
please read the full text of these documents, the Delaware General Corporation
Law, the Delaware Revised Uniform Limited Partnership Act and the Texas Revised
Limited Partnership Act. Copies of the Pioneer certificate of incorporation, the
Pioneer bylaws and the partnership agreement for each partnership in which you
own an interest will be sent to you upon request. For information on how these
documents may be obtained, see "Where You Can Find More Information" on page 74.
Pioneer's certificate of incorporation and bylaws will not be amended in
conjunction with the merger of any partnership.
SUMMARY COMPARISON OF TERMS OF SHARES OF PIONEER COMMON STOCK AND PARTNERSHIP
INTERESTS
SHARES PARTNERSHIP INTERESTS
------ ---------------------
LIQUIDITY AND MARKETABILITY
---------------------------------------------------------------------------------------------------------------------
Shares of Pioneer common stock are generally freely The partnership interests of each partnership may not
transferable. The shares of Pioneer common stock that are be transferred if, in the opinion of counsel to the
currently outstanding are traded on the New York Stock partnership, (1) such transfers would result in the
Exchange and the Toronto Stock Exchange, and the shares of termination of the partnership for federal income tax
Pioneer common stock to be issued in the merger of each purposes under Section 708 of the Internal Revenue
participating partnership have been approved for listing Code, or (2) such transfers may not be effected without
on the New York Stock Exchange and the Toronto Stock registration under the Securities Act of 1933 or would
Exchange upon official notice of issuance. result in the violation of any applicable state
securities laws. Clause (1) is not applicable to
Parker & Parsley 85-A, Ltd., Parker & Parsley 85-B,
Ltd., Parker & Parsley Private Investment 85-A, Ltd.,
Parker & Parsley Selected 85 Private Investment, Ltd.,
Parker & Parsley Private Investment 86, Ltd., Parker &
Parsley 87-A Conv., Ltd., Parker & Parsley 87-A, Ltd.,
Parker & Parsley 87-B Conv., Ltd. and Parker & Parsley
87-B, Ltd. and Parker & Parsley Private Investment 87,
Ltd. In addition, no transferee of a partnership
interest has the right to become a substitute limited
partner unless, among other things, such substitution
is approved by Pioneer USA, who may grant or withhold
such consent in its absolute discretion. In view of
the foregoing restrictions, it was never intended that
the partnership interests would be actively traded. No
broad-based secondary market for the partnership
interests of any partnership exists.
---------------------------------------------------------------------------------------------------------------------
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SHARES PARTNERSHIP INTERESTS
---------------------------------------------------------------------------------------------------------------------
RIGHTS OF REPURCHASE
---------------------------------------------------------------------------------------------------------------------
Pioneer's stockholders have no right to present their Within the time periods specified in the partnership
shares of Pioneer common stock for repurchase by Pioneer agreements of Parker & Parsley 82-I, Ltd., Parker &
or any other person. Parsley 82-II, Ltd., Parker & Parsley 82-III, Ltd.,
Parker & Parsley 83-A, Ltd., Parker & Parsley 83-B,
Ltd. and Parker & Parsley 84-A, Ltd., a limited
partner of any of those partnerships may tender all
or, subject to some limitations, part of his
partnership interests in the partnership to Pioneer
USA for repurchase in accordance with the partnership
agreement for the partnership. See "Risk Factors --
Risk Factors Relating to the Merger of Each
Partnership -- Repurchase Rights Terminate on
Completion of the Mergers." A comparison of the merger
value for each of these partnerships and the
repurchase prices in 2001 is set forth in Table 8 of
Appendix A.
---------------------------------------------------------------------------------------------------------------------
MANAGEMENT, MANAGEMENT LIABILITY AND INDEMNIFICATION
----------------------------------------------------------------------------------------------------------------------
Pioneer is managed by a board of directors elected by its Each of the partnerships is managed by Pioneer USA, which
stockholders. Under Delaware law, the directors are generally has exclusive authority over each of the
accountable to Pioneer and its stockholders as fiduciaries partnership's operations. The limited partners may not
and are required to perform their duties (1) in good participate in management of the partnerships. Under
faith, (2) in a manner believed to be in the best Delaware and Texas law, Pioneer USA and any nonmanaging
interests of Pioneer and its stockholders and (3) with general partners of any of the partnerships are
such care, including reasonable inquiry, as an ordinarily accountable to the partnership as fiduciaries and
prudent person in a like position would use under similar consequently are required to exercise good faith and
circumstances. The liability of the directors is limited integrity in all of their dealings with respect to the
pursuant to the provisions of Delaware law and Pioneer's affairs of the partnership. Under Texas or Delaware law,
certificate of incorporation, which limits a director's as applicable, Pioneer USA and any nonmanaging general
liability for monetary damages to Pioneer or its partners of any of the partnerships have liability for the
stockholders for breach of the director's duty of care, payment of partnership obligations and debts, unless
where a director fails to exercise sufficient care in limitations upon such liability are expressly stated in
carrying out the responsibilities of office. Such the obligation. The partnership agreement of each
provisions, however, would not protect a director for (1) partnership provides generally that Pioneer USA, any
a breach of duty of loyalty, (2) intentional misconduct or nonmanaging general partners of the partnership and, in
knowing violations of law, (3) unlawful dividend payments some cases, their affiliates will be indemnified for
or redemption of stock, or (4) any transaction in which losses relating to acts performed or omitted to be
the director derived an improper personal benefit. Such performed in good faith and in the best interests of the
provisions do not foreclose any other remedy which might partnership; provided that the conduct of Pioneer USA, any
be available to Pioneer or its stockholders. Pioneer's such nonmanaging general partner or affiliate, as
certificate of incorporation and Delaware law provide applicable, did not constitute negligence or misconduct.
broad indemnification rights to directors and officers who Pioneer USA and any nonmanaging general partners of the
partnership may be removed by an affirmative vote of
o act in good faith, limited partners holding a majority of the outstanding
limited partnership interests in the partnership;
o in a manner reasonably believed to be in or not provided, that an opinion of counsel to the limited
opposed to the best interests of Pioneer and, partners and acceptable to the partnership is delivered to
the partnership to the effect that the exercise of such
o with respect to criminal actions or proceedings, rights by the limited partners (1) will not result in the
without reasonable cause to believe their loss of the limited partners' limited liability and (2)
conduct was unlawful. will not adversely affect the tax status of the
partnership, Pioneer USA or the other partners.
----------------------------------------------------------------------------------------------------------------------
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SHARES PARTNERSHIP INTERESTS
---------------------------------------------------------------------------------------------------------------------
Pioneer's certificate of incorporation also requires
Pioneer to indemnify its officers and directors under
some circumstances for expenses or liabilities incurred
as a result of litigation. In addition, Pioneer's
certificate of incorporation authorizes Pioneer to
advance expenses incurred in the defense of its
directors and officers. Pioneer intends to take full
advantage of those provisions and has entered into
agreements with Pioneer's directors and officers
indemnifying them to the fullest extent permitted by
Delaware law.
----------------------------------------------------------------------------------------------------------------------
MANAGEMENT CONTROL
----------------------------------------------------------------------------------------------------------------------
Pioneer's board of directors has exclusive control over Under the partnership agreement of each partnership,
Pioneer's business and affairs subject only to the Pioneer USA is generally vested with all management
restrictions in Pioneer's certificate of incorporation and authority to manage, control, administer and operate
bylaws. Pioneer's stockholders have the right to elect the business, properties and affairs of the
members of the board of directors by a plurality vote at partnership, including authority and responsibility for
each annual meeting of the stockholders. The directors overseeing all executive, supervisory and
are accountable to Pioneer and its subsidiaries as administrative services rendered to the partnership.
fiduciaries. Pioneer USA and any nonmanaging general partners have
the right to continue to serve in such capacity unless
Pioneer USA or such nonmanaging general partner is
removed upon the affirmative vote of limited partners
holding a majority of the outstanding limited
partnership interests in the partnership; provided,
that an opinion of counsel to the limited partners,
and acceptable to the partnership, is delivered to the
partnership to the effect that the exercise of such
rights by the limited partners (1) will not result in
the loss of the limited partners' limited liability
and (2) will not adversely affect the tax status of
the partnership, Pioneer USA or the other partners.
The limited partners of each partnership have no right
to participate in the management and control of the
partnership and have no voice in the partnership's
affairs except for some limited matters that may be
submitted to a vote of the limited partners under the
terms of the partnership agreement of the partnership.
See "Voting Rights and Amendments" below. Pioneer USA
is accountable as a fiduciary to each partnership.
----------------------------------------------------------------------------------------------------------------------
VOTING RIGHTS AND AMENDMENTS
----------------------------------------------------------------------------------------------------------------------
Pioneer's certificate of incorporation provides that (1) Generally, meetings of each partnership may be called
stockholders of Pioneer may act only at annual or special by Pioneer USA or by limited partners owning at least
meetings of stockholders and not by written consent, (2) 10% of the outstanding limited partnership interests.
Pioneer will hold an annual meeting each calendar year at The limited partners may conduct any partnership
which its stockholders will elect directors, (3) special business at such meeting which is permitted under the
meetings of stockholders may be called only by the board partnership agreement for such partnership and is
of directors, and (4) only business proposed by the board specified in the notice of such meeting, but the
of directors may be considered at special meetings of limited partners may not engage in any activity which
stockholders. would be deemed taking part in the management or
control of the partnership's business.
----------------------------------------------------------------------------------------------------------------------
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SHARES PARTNERSHIP INTERESTS
---------------------------------------------------------------------------------------------------------------------
Most amendments to Pioneer's certificate of incorporation Amendments to the partnership agreement of each
require the approval of the stockholders who own a partnership generally require the approval by limited
majority of the outstanding shares of Pioneer common partners holding a majority of outstanding limited
stock. A number of fundamental amendments, however, partnership interests in the partnership. An amendment
require approval by a greater percentage of stockholders. that has any of the following effects requires the
For example, any amendment to the following provisions unanimous approval of Pioneer USA and the limited
requires the approval of two-thirds of the stockholders: partners: (1) increases the liability or duties of any
(1) election of directors, (2) authority of the board of of the partners, (2) changes the contributions required
directors, (3) stockholder meetings and (4) limitation on of the partners, (3) provides for any reallocation of
the liability of directors. Any amendment to the profits, losses or deductions to the detriment of a
provision that prohibits action by the written consent of partner, (4) establishes any new priority in one or
the stockholders in lieu of a meeting requires the more partners as to the return of capital contributions
approval of 80% of the stockholders. In addition, the or as to profits, losses, deductions or distribution to
following actions require the approval of 80% of the the detriment of a partner, or (5) causes the
stockholders and the approval of two-thirds of the partnership to be taxed as a corporation. Pioneer USA
disinterested stockholders: (1) any merger, consolidation may, in its sole discretion, adopt any of the following
or share exchange involving any person, other than Pioneer amendments: (1) change the name of the partnership, (2)
or a subsidiary of Pioneer, who beneficially owns 10% or change the location of the principal place of business
more of the outstanding voting securities of Pioneer, of the partnership, (3) admit a new or substitute
which person we call a related party, (2) some sales, limited partner, (4) modify its general partnership
leases, exchanges or similar transactions with related interest as a result of a transfer of a portion of such
parties, (3) some issuances of securities to related interest, (5) correct a typographical error, or (6) any
parties, (4) adoption of any plan or proposal for other similar change where the Pioneer USA determines
liquidation of Pioneer initiated by related parties, or that the amendment will not adversely affect the
(5) any series or combination of any of the actions limited partners and Pioneer USA believes the amendment
described in clauses (1) through (4). is necessary or advisable to qualify the partnership
under the laws of a state in which it engages or
proposes to engage in business or to keep the
partnership from being treated as a corporation for
tax purposes.
----------------------------------------------------------------------------------------------------------------------
LIMITED LIABILITY
----------------------------------------------------------------------------------------------------------------------
A stockholder's liability will generally be limited to Assuming the limited partners of a partnership do not take
such stockholder's contribution to Pioneer's capital. part in the management or control of the business of such
Under Delaware law, Pioneer's stockholders will not be partnership, a limited partner's liability is generally
liable for Pioneer's debts or obligations. The shares of limited to the limited partner's contribution to the
Pioneer common stock offered by Pioneer under this capital of the partnership and such limited partner's
document, upon issuance, will be fully paid and share of assets and undistributed profits of the
nonassessable. partnership. A limited partner will receive a return of
the limited partner's capital contribution to the
partnership to the extent that a distribution to the
limited partner reduces the limited partner's share of the
fair value of the partnership's net assets below the value
of the limited partner's unreturned capital
contributions. A substituted limited partner is subject
to the liabilities and obligations of the substituted
limited partner's assignor, except those liabilities of
which the substituted limited partner was unaware at the
time he became a substituted limited partner and which
could not be ascertained from the partnership agreement of
the partnership.
----------------------------------------------------------------------------------------------------------------------
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SHARES PARTNERSHIP INTERESTS
---------------------------------------------------------------------------------------------------------------------
BUSINESS ACTIVITIES AND FINANCING
----------------------------------------------------------------------------------------------------------------------
Pioneer's mission is to provide its stockholders with The business operations of each partnership have
superior investment returns through strategies that consisted of the development and production of oil and
maximize Pioneer's long-term profitability and net asset gas reserves. Each partnership has expended its
values. The strategies employed to achieve this mission initial partnership capital, and additional properties
are anchored by Pioneer's long-lived Spraberry oil and gas cannot be acquired. Operations can be financed only
field and Hugoton and West Panhandle gas fields' reserves through permitted borrowings, reinvestment of earnings
and production. Underlying these fields are approximately not distributed, permitted assessments, or permitted
67% of Pioneer's proved oil and gas reserves which have a sales of assets. Each partnership generally is
remaining productive life in excess of 40 years. The required to distribute to its partners all or
stable base of oil and gas production from these fields substantially all its net cash flow from operations,
generates operating cash flows that allow Pioneer the after provision for any reserves deemed appropriate by
financial flexibility to selectively reinvest capital: Pioneer USA.
o to develop and increase production from existing
properties through low-risk development drilling
activities;
o to leverage cost containment opportunities to
achieve operating and technical efficiencies; and
o to pursue strategic acquisitions in Pioneer's core
areas that will complement Pioneer's existing
asset base and provide additional growth
opportunities.
Pioneer also has the financial flexibility to use
portions of its operating cash flows:
o to selectively expand into new geographic areas
that feature producing properties and provide
exploration or exploitation opportunities;
o to invest in the personnel and technology
necessary to increase Pioneer's exploration
opportunities; and
o to enhance liquidity.
This flexibility allows Pioneer to take advantage of
future exploration, development and acquisition
opportunities.
Pioneer may engage in any phase of the oil and gas
business and any other lawful business. Pioneer may
finance its operations and the acquisition of
additional properties through, among other things, the
issuance of additional shares of Pioneer common stock,
borrowings, and the reinvestment of earnings not
distributed to stockholders.
----------------------------------------------------------------------------------------------------------------------
FINANCIAL REPORTING
----------------------------------------------------------------------------------------------------------------------
Pioneer is subject to the reporting requirements of the For a list of the partnerships that are subject to the
Securities Exchange Act of 1934. reporting requirements of the Securities Exchange Act
of 1934, see "Where You Can Find More Information" on
page 74. In addition, the partnership agreement of
each partnership requires that some reports be
delivered to the limited partners.
----------------------------------------------------------------------------------------------------------------------
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SHARES PARTNERSHIP INTERESTS
---------------------------------------------------------------------------------------------------------------------
TAX INFORMATION
----------------------------------------------------------------------------------------------------------------------
"Double taxation" at the corporate and stockholder levels None of the partnerships is a taxable entity for
typically results when a corporation such as Pioneer earns federal income tax purposes. The partners of each
income and distributes that income to its stockholders in partnership are required to take into account their pro
the form of dividends. Stockholders will only recognize rata share of the partnership's income, gains, losses,
income on amounts actually distributed by Pioneer. and deductions, regardless of whether they receive any
Distributions made by Pioneer out of current or cash distributions from the partnership. Some partners
accumulated earnings and profits are taxed as dividend may be entitled to percentage depletion. A partner
income. Distributions in excess of current or accumulated will be required to recapture some deductions and
earnings and profits are treated as a non-taxable return credits upon the sale of all or a portion of his
of basis to the extent of stockholders' adjusted basis in partnership interests.
their shares, with the excess taxed as capital gain.
Dividends, if any, received by stockholders from A partner's share of a partnership's income and loss
Pioneer generally will constitute portfolio income, will be subject to the "passive activity" limitations.
and cannot be offset with losses from "passive Under the passive activity rules, losses of a partner
activities." Losses and credits generated within arising from his ownership of partnership interests
Pioneer do not pass through to the stockholders. After may be used to offset passive income from another
the end of Pioneer's taxable year, stockholders will passive investment and income of a partner arising
receive Form 1099-DIV to report their dividend income. from his ownership of partnership interests may only
be offset with passive losses from another passive
investment. For a discussion of the tax consequences
associated with the merger of each partnership, see
"The Merger of Each Partnership -- Material U.S.
Federal Income Tax Consequences."
----------------------------------------------------------------------------------------------------------------------
DIVIDEND OR DISTRIBUTION POLICY AND PARTICIPATION IN PROFITS AND LOSSES
----------------------------------------------------------------------------------------------------------------------
The shares of Pioneer common stock constitute equity For a description of the distribution policies of each
interests in Pioneer. Each stockholder will be entitled partnership, see "Risk Factors -- Risks Associated with
to his pro rata share of the dividends made with respect an Investment in Pioneer -- Pioneer Might Not Declare
to the Pioneer common stock. The dividends payable to the Dividends." The average quarterly cash distributions by
stockholders are not fixed in amount and are only paid if, each partnership for 1999, 2000 and the year-to-date in
as and when declared by Pioneer's board of directors. 2001 are set forth in Table 7 of Appendix A. For a
Dividends payable with respect to the shares of Pioneer description of the provisions of the partnership
common stock depend upon the performance of Pioneer. agreement of each partnership governing the allocation
of costs and revenues among the partnership's partners,
see Table 9 of Appendix A.
----------------------------------------------------------------------------------------------------------------------
LEGAL MATTERS
Vinson & Elkins L.L.P., counsel to Pioneer, will pass upon the validity of
the Pioneer common stock to be issued upon the merger of each partnership. The
limited partners' special legal counsel, , Dallas, Texas, will deliver
the legal opinion referred to in "The Merger of Each Partnership -- Legal
Opinion for Limited Partners" on page 43 of this document. That special counsel
may rely as to matters of law of jurisdictions other than the United States and
the State of Texas on the opinion of counsel in such other jurisdictions.
INDEPENDENT AUDITORS AND INDEPENDENT PETROLEUM CONSULTANTS
The consolidated financial statements of Pioneer appearing in its Annual
Report (Form 10-K) for the year ended December 31, 2000, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report, which is
incorporated by reference into this document. Such consolidated financial
statements are incorporated by reference in reliance upon such report given on
the authority of such firm as experts in accounting and auditing.
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83
The financial statements of each partnership listed on pages 4 and 5 of this
document at December 31, 2000 and 1999 and for each of the three years in the
period ended December 31, 2000 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports included in the supplemental
information to this document for each partnership. Such financial statements are
included in the supplemental information of each partnership in reliance upon
such reports given on the authority of such firm as experts in accounting and
auditing.
Williamson Petroleum Consultants, Inc., independent petroleum consultants,
prepared the estimates of each partnership's proved reserves as of December 31,
2000 and the present value of the estimated future net revenues from those
estimated reserves included in the summary reserve report included in this
document and such summary reserve report and estimates are included in this
document in reliance upon their report given upon their authority as experts on
the matters covered by the summary reserve report.
WHERE YOU CAN FIND MORE INFORMATION
Pioneer and each of the 25 partnerships listed below file annual, quarterly
and special reports, proxy statements and other information with the Securities
and Exchange Commission:
Parker & Parsley 82-I, Ltd. Parker & Parsley Producing Properties 87-B, Ltd.
Parker & Parsley 82-II, Ltd. Parker & Parsley 88-A, L.P.
Parker & Parsley 83-A, Ltd. Parker & Parsley 88-B, L.P.
Parker & Parsley 83-B, Ltd. Parker & Parsley Producing Properties 88-A, L.P.
Parker & Parsley 84-A, Ltd. Parker & Parsley 89-A, L.P.
Parker & Parsley 85-A, Ltd. Parker & Parsley 90-A L.P.
Parker & Parsley 85-B, Ltd. Parker & Parsley 90-B Conv., L.P.
Parker & Parsley 86-A, Ltd. Parker & Parsley 90-B, L.P.
Parker & Parsley 86-B, Ltd. Parker & Parsley 90-C Conv., L.P.
Parker & Parsley 86-C, Ltd. Parker & Parsley 90-C, L.P.
Parker & Parsley 87-A, Ltd. Parker & Parsley 91-A, L.P.
Parker & Parsley 87-B, Ltd. Parker & Parsley 91-B, L.P.
Parker & Parsley Producing Properties 87-A, Ltd.
You may read and copy any reports, statements or other information that Pioneer
or any reporting partnership files at the SEC's public reference room at 450
Fifth Street, N.W., Washington, D.C. 20549, or at the SEC's public reference
rooms at 7 World Trade Center, Suite 1300 New York, New York 10048 and at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of these
materials may also be obtained from the SEC at prescribed rates by writing to
the Public Reference Section of the Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. Pioneer's
and each reporting partnership's filings with the SEC are also available to the
public from commercial document retrieval services and at the web site
maintained by the SEC at http://www.sec.gov.
Pioneer's common stock is listed on the New York Stock Exchange and the
Toronto Stock Exchange, under the symbol "PXD." Pioneer's reports and other
information filed with the SEC can also be inspected at the offices of the New
York Stock Exchange and the Toronto Stock Exchange.
Pioneer filed a registration statement on Form S-4 to register with the SEC
Pioneer common stock to be issued to the limited partners of each participating
partnership. This document is a part of that registration statement and
constitutes the prospectus of Pioneer in addition to being the proxy statement
of each partnership. As allowed by SEC rules, this document does not contain all
the information you can find in the registration statement or the exhibits to
the registration statement.
The SEC allows Pioneer to incorporate by reference information into this
document, which means that Pioneer can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this document, except for any
information superseded by information in this document. This document
incorporates by reference the documents set forth below that Pioneer has
previously filed with the SEC and that contain important information about
Pioneer and its finances:
o Annual Report on Form 10-K for the year ended December 31, 2000
o Quarterly Report on Form 10-Q for the three months ended March 31,
2001
o Proxy Statement on Schedule 14A for 2001 Annual Meeting filed April 2,
2001
o The description of Pioneer common stock contained in Pioneer's
registration statement on Form 8-A filed on August 5, 1997, as amended
by Form 8-A/A filed on August 8, 1997.
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84
Pioneer is also incorporating by reference additional documents that it
files with the SEC between the date of this document and the date of the special
meeting for each partnership.
The supplement to this document for each partnership contains financial
information for the partnership. The information supplement for each partnership
constitutes an integral part of this document. Please carefully read the
supplement for each partnership in which you are a limited partner.
Pioneer has supplied all information contained or incorporated by reference
in this document relating to Pioneer, and each partnership has supplied all the
information contained in this document relating to the partnership.
You can obtain any of the documents incorporated by reference through
Pioneer or the SEC. Documents incorporated by reference are available from
Pioneer without charge. Exhibits to the documents will not be sent, however,
unless those exhibits have specifically been incorporated by reference as
exhibits in this document. Limited partners of each partnership may obtain
documents incorporated by reference in this document by requesting them in
writing or by telephone at the following address:
Pioneer Natural Resources Company
1400 Williams Square West
5205 North O'Connor Blvd.
Irving, Texas 77039
Telephone: (972) 444-9001
Attention: Investor Relations
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM PIONEER OR ANY PARTNERSHIP IN
WHICH YOU OWN AN INTEREST, PLEASE DO SO BY , 2001 [INSERT 5TH
BUSINESS DAY BEFORE MEETING] TO RECEIVE THEM BEFORE THE SPECIAL MEETING FOR THE
PARTNERSHIP.
You should rely only on the information contained or incorporated by
reference in this document to vote on the merger of each partnership in which
you own an interest. We have not authorized anyone to give any information that
is different from what is contained in this document. This document is dated
, 2001. You should not assume that the information contained in
this document is accurate as of any date other than that date, and neither the
mailing of this document to you nor the issuance of Pioneer common stock and the
payment of cash in the merger of each partnership shall create an implication to
the contrary.
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COMMONLY USED OIL AND GAS TERMS
The definitions set forth below shall apply to the indicated terms as used
in this document. All volumes of natural gas referred to herein are stated at
the legal pressure base of the state or area where the reserves exist and at 60
degrees Fahrenheit and in most instances are rounded to the nearest major
multiple.
"Bbl" means a standard barrel of 42 U.S. gallons and represents the basic
unit for measuring the production of crude oil, natural gas liquids and
condensate.
"Bcf" means one billion cubic feet under prescribed conditions of pressure
and temperature and represents the basic unit for measuring the production of
natural gas.
"BOE" means a barrel-of-oil-equivalent and is a customary convention used
in the United States to express oil and gas volumes on a comparable basis. It is
determined on the basis of the estimated relative energy content of natural gas
to oil, being approximately six Mcf of natural gas per Bbl of oil.
"BTU" means British thermal unit.
"Mbbl" means one thousand Bbls.
"MBOE" means one thousand BOEs.
"Mcf" means one thousand cubic feet under prescribed conditions of pressure
and temperature and represents the basic unit for measuring the production of
natural gas.
"MMBbl" means one million Bbls.
"MMcf" means one million cubic feet under prescribed conditions of pressure
and temperature and represents the basic unit for measuring the production of
natural gas.
"NGLs" means natural gas liquids.
"proved reserves" means the estimated quantities of crude oil, natural gas,
and natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions, i.e., prices and costs as of
the date the estimate is made. Prices include consideration of changes in
existing prices provided only by contractual arrangements, but not on
escalations based upon future conditions.
(i) Reservoirs are considered proved if economic producibility is
supported by either actual production or conclusive formation test. The
area of a reservoir considered proved includes (A) that portion delineated
by drilling and defined by gas-oil and/or oil-water contacts, if any; and
(B) the immediately adjoining portions not yet drilled, but which can be
reasonably judged as economically productive on the basis of available
geological and engineering data. In the absence of information on fluid
contacts, the lowest known structural occurrence of hydrocarbons controls
the power proved limit of the reservoir.
(ii) Reserves which can be produced economically through
application of improved recovery techniques (such as fluid injection) are
included in the "proved" classification when successful testing by a pilot
project, or the operation of an installed program in the reservoir,
provides support for the engineering analysis on which the project or
program was based.
(iii) Estimates of proved reserves do not include the following:
(A) oil that may become available from known reservoirs but is classified
separately as "indicated additional reserves"; (B) crude oil, natural gas,
and natural gas liquids, the recovery of which is subject to reasonable
doubt because of uncertainty as to geology, reservoir characteristics, or
economic factors; (C) crude oil, natural gas, and natural gas liquids, that
may occur in undrilled prospects; and (D) crude oil, natural gas, and
natural gas liquids, that may be recovered from oil shales, coal, gilsonite
and other such sources.
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PIONEER NATURAL RESOURCES COMPANY
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
INTRODUCTORY STATEMENTS
The unaudited pro forma combined financial statements of Pioneer have been
prepared to give effect to Pioneer's offer to acquire 46 limited partnerships
(collectively, the "Combined Partnerships") that Pioneer USA serves as the sole
or managing general partner.
The unaudited pro forma combined statements of operations of Pioneer for
the year ended December 31, 2000 has been prepared to give effect to the
acquisition of the Combined Partnerships as if it had occurred on January 1,
2000.
The unaudited pro forma combined balance sheet of Pioneer for the year
ended December 31, 2000 has been prepared to give effect to the acquisition of
the Combined Partnerships as if it had occurred on December 31, 2000.
The unaudited pro forma combined financial statements included herein are
not necessarily indicative of the results that might have occurred had the
transaction taken place on the date that is assumed for the pro forma
presentations and are not intended to be a projection of future results. Future
results may vary significantly from the results reflected in the accompanying
unaudited pro forma combined financial statements because of normal production
declines, changes in product prices, future acquisitions and divestitures,
future development and exploration activities, and other factors.
The following unaudited pro forma combined financial statements should be
read in conjunction with the Consolidated Financial Statements (and the related
notes) of Pioneer included in the Annual Report on Form 10-K for the year ended
December 31, 2000 and the historical financial statements of each partnership in
which you own an interest contained in the supplement to this document for the
partnership.
P-1
87
PIONEER NATURAL RESOURCES COMPANY
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
COMBINED PRO FORMA PRO FORMA
PIONEER PARTNERSHIPS ADJUSTMENTS PIONEER
----------- ------------ ------------ -----------
Current assets:
Cash and cash equivalents ........................ $ 26,159 $ 5,528 $ $ 31,687
Accounts receivable:
Trade, net ..................................... 123,497 7,856 131,353
Affiliates ..................................... 2,157 -- (725)(b) 1,432
Inventories ...................................... 14,842 -- 14,842
Deferred income taxes ............................ 4,800 -- 4,800
Other current assets ............................. 19,936 -- 19,936
----------- ----------- -----------
Total current assets .......................... 191,391 13,384 204,050
----------- ----------- -----------
Property, plant and equipment, at cost:
Oil and gas properties, using the successful
efforts method of accounting:
Proved properties ............................ 3,187,889 357,514 (265,798)(a) 3,279,605
Unproved properties .......................... 229,205 -- 229,205
Accumulated depletion, depreciation and
amortization ................................... (902,139) (310,329) 310,329 (a) (902,139)
----------- ----------- -----------
2,514,955 47,185 2,606,671
----------- ----------- -----------
Deferred income taxes .............................. 84,400 -- 84,400
Other property and equipment, net .................. 25,624 -- 25,624
Other assets, net .................................. 138,065 -- 138,065
----------- ----------- -----------
$ 2,954,435 $ 60,569 $ 3,058,810
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade .......................................... $ 96,646 $ -- $ $ 96,646
Affiliates ..................................... 5,629 725 (725)(b) 5,629
Interest payable ................................. 38,142 -- 38,142
Other current liabilities:
Derivative obligations ......................... 24,957 -- 24,957
Other .......................................... 51,140 -- 51,140
----------- ----------- -----------
Total current liabilities ..................... 216,514 725 216,514
----------- ----------- -----------
Long-term debt, less current maturities ............ 1,578,776 -- 27,543 (a) 1,606,319
Other noncurrent liabilities ....................... 225,740 -- 225,740
Deferred income taxes .............................. 28,500 -- 28,500
Partners' capital .................................. -- 59,844 59,844 (a) --
Stockholders' equity:
Preferred stock .................................. -- -- --
Common stock ..................................... 1,013 -- 43 (a) 1,056
Additional paid-in capital ....................... 2,352,608 -- 76,789 (a) 2,429,397
Treasury stock ................................... (37,682) -- (37,682)
Accumulated deficit .............................. (1,422,703) -- (1,422,703)
Accumulated other comprehensive income:
Unrealized gain on available for sale
securities .................................... 8,154 -- 8,154
Cumulative translation adjustment .............. 3,515 -- 3,515
----------- ----------- -----------
Total stockholders' equity and
partners' capital ............................ 904,905 59,844 981,737
Commitments and contingencies ......................
----------- ----------- -----------
$ 2,954,435 $ 60,569 $ 3,058,810
=========== =========== ===========
The accompanying notes are an integral part of these unaudited
pro forma combined financial statements.
P-2
88
PIONEER NATURAL RESOURCES COMPANY
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
COMBINED PRO FORMA PRO FORMA
PIONEER PARTNERSHIPS ADJUSTMENTS PIONEER
-------- ------------ ------------ ----------
Revenues:
Oil and gas .......................................... $852,738 $ 52,013 $ (3,369)(c) $901,382
Interest and other ................................... 25,775 484 (28)(c) 26,231
Gain on disposition of assets, net ................... 34,184 247 (6)(c) 34,425
-------- -------- --------
912,697 52,744 962,038
-------- -------- --------
Cost and expenses:
Oil and gas production ............................... 189,265 19,958 (1,392)(c)
(5,655)(d) 202,176
Depletion, depreciation and
amortization ......................................... 214,938 3,236 3,768 (e) 221,942
Impairment of oil and gas properties ................. -- 663 (663)(f) --
Exploration and abandonments ......................... 87,550 72 (3)(c) 87,619
General and administrative ........................... 33,262 1,599 (110)(c) 40,406
5,655 (d)
Interest ............................................. 161,952 -- 1,829 (g) 163,781
Other ................................................ 67,231 -- 67,231
-------- -------- --------
754,198 25,528 783,155
-------- -------- --------
Income from continuing operations before
income taxes ........................................ 158,499 27,216 178,883
Income tax benefit ..................................... 6,000 -- -- (h) 6,000
-------- -------- --------
Income from continuing operations ...................... $164,499 $ 27,216 $184,883
======== ======== ========
Income from continuing operations per
common share:
Basic .............................................. $ 1.65 $ 1.78
======== ========
Diluted ............................................ $ 1.65 $ 1.78
======== ========
Weighted average basic shares
outstanding .......................................... 99,378 4,268 (i) 103,646
======== ========
See accompanying notes to unaudited pro forma
combined financial statements.
P-3
89
PIONEER NATURAL RESOURCES COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
DECEMBER 31, 2000
NOTE 1. BASIS OF PRESENTATION
The unaudited pro forma combined financial information of Pioneer Natural
Resources Company ("Pioneer") has been prepared to give effect to Pioneer's
offer to acquire 46 limited partnerships (collectively, the "Combined
Partnerships") that Pioneer USA serves as the sole or managing general partner.
The unaudited pro forma combined statement of operations for the year ended
December 31, 2000 is presented as if the acquisition of the Combined
Partnerships occurred on January 1, 2000. The unaudited pro forma combined
balance sheet as of December 31, 2000 has been prepared to give effect to the
acquisition of the Combined Partnerships as if it had occurred on December 31,
2000.
Following is a description of the individual columns included in these
unaudited pro forma combined financial statements:
Pioneer - Represents the consolidated balance sheet and consolidated
statement of operations of Pioneer Natural Resources Company as of December
31, 2000 and for the year ended December 31, 2000, respectively.
Combined Partnerships - Represents the combined balance sheet of the 46
limited partnerships as of December 31, 2000 and the combined statement of
operations of such limited partnerships for the year ended December 31, 2000.
NOTE 2. PRO FORMA ADJUSTMENTS
Following are descriptions of the pro forma adjustments used in the
preparation of the accompanying unaudited pro forma combined financial
statements:
(a) To record the acquisition of the Combined Partnerships for cash
consideration of $27.5 million, including transaction costs, and Pioneer
common stock having a market value of $76.8 million using the purchase
method of accounting. The allocation of the purchase price to the
acquired assets and liabilities is preliminary and, therefore, subject to
change. Any future adjustments to the allocation of the purchase price
are not anticipated to be material to Pioneer's financial statements.
(b) To eliminate affiliate receivables and affiliate payables between Pioneer
and the Combined Partnerships.
(c) To eliminate Pioneer's proportionate share of the Combined Partnerships
that is already reflected in Pioneer's consolidated statement of
operations for the year ended December 31, 2000.
(d) To reclassify the Combined Partnership's share of operating overhead
charged by Pioneer that was recorded by the Combined Partnerships as an
increase in lease operating expenses and by Pioneer as a reduction to
general and administrative expense.
(e) To adjust depreciation, depletion and amortization expense for the basis
allocated to the oil and gas properties acquired and accounted for using
the successful efforts method of accounting.
(f) To eliminate the Combined Partnerships impairment of oil and gas
properties that would not occur on a pro forma basis with Pioneer.
(g) To increase interest expense for the year ended December 31, 2000 to
reflect the increase in outstanding bank indebtedness as a result of
funding the acquisition of the Combined Partnerships through additional
borrowings under Pioneer's revolving credit facility. The adjustments for
the year ended December 31, 2000 are based on Pioneer's average annual
interest rate of 6.64 percent incurred on bank indebtedness.
P-4
90
PIONEER NATURAL RESOURCES COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
DECEMBER 31, 2000
(h) Pioneer has unused net operating loss carryovers in the United States
that could be used to offset any incremental earnings of the Combined
Partnerships. Accordingly, no pro forma adjustment was recorded for
additional income tax expense. See Note 3. below.
(i) To adjust the weighted average shares outstanding for the acquisition of
the Combined Partnerships.
NOTE 3. INCOME TAXES
Pioneer will account for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". In accordance therewith, Pioneer will prepare separate tax calculations
for each tax jurisdiction in which Pioneer will be subject to income taxes.
Pioneer has unused net operating loss carryovers and alternative minimum tax net
operating loss carryovers that would be utilized to reduce incremental United
States income taxes that would otherwise be incurred as a result of pro forma
pre-tax earnings of the Combined Partnerships. Accordingly, Pioneer has not
recognized incremental income tax expense in the accompanying unaudited pro
forma combined statement of operations for the year ended December 31, 2000.
NOTE 4. OIL AND GAS RESERVE DATA
The following unaudited pro forma supplemental information regarding the
oil and gas activities of Pioneer is presented pursuant to the disclosure
requirements promulgated by the Securities and Exchange Commission and Statement
of Financial Accounting Standards No. 69, "Disclosures About Oil and Gas
Producing Activities". The pro forma combined reserve information is presented
as if the acquisition of the Combined Partnerships had occurred on January 1,
2000. Information for oil and NGLs are presented in barrels (Bbls) and for gas
in thousands of cubic feet (Mcf).
Pioneer emphasizes that reserve estimates are inherently imprecise and
subject to revision and that estimates of new discoveries are more imprecise
than those of producing oil and gas properties. Accordingly, the estimates are
expected to change as future information becomes available and such changes
could be significant.
P-5
91
PIONEER NATURAL RESOURCES COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
DECEMBER 31, 2000
QUANTITIES OF OIL AND GAS RESERVES
Set forth below is a pro forma summary of the changes in the net quantities
of oil, NGL and natural gas reserves for the year ended December 31, 2000.
OIL
& NGLS GAS
(Mbbls) (Mmcf) MBOE
---------- ---------- ----------
TOTAL PROVED RESERVES:
UNITED STATES
Balance, January 1 ............................... 290,683 1,365,530 518,271
Revisions of previous estimates .................. 18,704 54,518 27,790
Purchases of minerals-in-place ................... 1,237 28,071 5,916
New discoveries and extensions ................... 4,819 66,486 15,900
Production ....................................... (18,571) (86,206) (32,939)
Sales of minerals-in-place ....................... (743) (35,054) (6,586)
---------- ---------- ----------
Balance, December 31 ............................. 296,129 1,393,345 528,352
ARGENTINA
Balance, January 1 ............................... 29,797 415,620 99,067
Revisions of previous estimates .................. 1,411 (15,558) (1,182)
Purchases of minerals-in-place ................... -- -- --
New discoveries and extensions ................... 8,066 43,914 15,385
Production ....................................... (3,431) (35,694) (9,380)
Sales of minerals-in-place ....................... -- -- --
---------- ---------- ----------
Balance, December 31 ............................. 35,843 408,282 103,890
CANADA
Balance, January 1 ............................... 3,970 145,251 28,179
Revisions of previous estimates .................. 429 (10,013) (1,240)
Purchases of minerals-in-place ................... 140 7,768 1,435
New discoveries and extensions ................... 138 6,132 1,160
Production ....................................... (611) (16,219) (3,315)
Sales of minerals-in-place ....................... -- -- --
---------- ---------- ----------
Balance, December 31 ............................. 4,066 132,919 26,219
SOUTH AFRICA
Balance, January 1 ............................... -- -- --
New discoveries and extensions ................... 5,552 -- 5,552
---------- ---------- ----------
Balance, December 31 ............................. 5,552 -- 5,552
TOTAL
Balance, January 1 ............................... 324,450 1,926,401 645,517
Revisions of previous estimates .................. 20,544 28,947 25,368
Purchases of minerals-in-place ................... 1,377 35,839 7,351
New discoveries and extensions ................... 18,575 116,532 37,997
Production ....................................... (22,613) (138,119) (45,634)
Sales of minerals-in-place ....................... (743) (35,054) (6,586)
---------- ---------- ----------
Balance, December 31 ............................. 341,590 1,934,546 664,013
========== ========== ==========
PROVED DEVELOPED RESERVES:
United States .................................. 241,253 1,169,664 436,198
Argentina ...................................... 22,931 358,124 82,618
Canada ......................................... 2,598 61,210 12,800
---------- ---------- ----------
January 1 .................................... 266,782 1,588,998 531,616
========== ========== ==========
United States .................................. 236,249 1,120,610 423,018
Argentina ...................................... 22,679 345,281 80,226
Canada ......................................... 2,930 80,953 16,422
---------- ---------- ----------
December 31 .................................. 261,858 1,546,844 519,666
========== ========== ==========
P-6
92
PIONEER NATURAL RESOURCES COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
DECEMBER 31, 2000
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The pro forma standardized measure of discounted future net cash flow is
computed by applying year-end prices of oil and gas (with consideration of price
changes only to the extent provided by contractual arrangements) to the
estimated future production of oil and gas reserves less estimated future
expenditures (based on year-end costs) to be incurred in developing and
producing the proved reserves discounted using a rate of 10 percent per year to
reflect the estimated timing of the future cash flows. Future income taxes are
calculated by comparing undiscounted future cash flows to the tax basis of oil
and gas properties plus available carryforwards and credits and applying the
current tax rate to the difference.
DECEMBER 31, 2000
-----------------
(IN THOUSANDS)
UNITED STATES
Oil and gas producing activities:
Future cash inflows ........................................... $ 19,615,577
Future production costs ....................................... (5,290,990)
Future development costs ...................................... (479,290)
Future income tax expenses .................................... (3,945,569)
------------
9,899,728
10% annual discount factor .................................... (4,991,172)
------------
Standardized measure of discounted future net cash flows ...... $ 4,908,556
============
ARGENTINA
Oil and gas producing activities:
Future cash inflows ........................................... $ 1,183,652
Future production costs ....................................... (215,853)
Future development costs ...................................... (114,606)
Future income tax expenses .................................... (81,705)
------------
771,488
10% annual discount factor .................................... (264,126)
------------
Standardized measure of discounted future net cash flows ...... $ 507,362
============
CANADA
Oil and gas producing activities:
Future cash inflows ........................................... $ 1,029,007
Future production costs ....................................... (104,189)
Future development costs ...................................... (35,443)
Future income tax expenses .................................... (306,399)
------------
582,976
10% annual discount factor .................................... (168,441)
------------
Standardized measure of discounted future net cash flows ...... $ 414,535
============
SOUTH AFRICA
Oil and gas producing activities:
Future cash inflows ........................................... $ 126,134
Future production costs ....................................... (65,232)
Future development costs ...................................... (47,970)
Future income tax expenses .................................... --
------------
12,932
10% annual discount factor .................................... (5,782)
------------
Standardized measure of discounted future net cash flows ...... $ 7,150
============
TOTAL
Oil and gas producing activities:
Future cash inflows ........................................... $ 21,954,370
Future production costs ....................................... (5,676,264)
Future development costs ...................................... (677,309)
Future income tax expenses .................................... (4,333,673)
------------
11,267,124
10% annual discount factor .................................... (5,429,521)
------------
Standardized measure of discounted future net cash flows ...... $ 5,837,603
============
P-7
93
PIONEER NATURAL RESOURCES COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
DECEMBER 31, 2000
CHANGES RELATING TO THE PRO FORMA STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET
CASH FLOWS
The principal sources of the change in the pro forma combined standardized
measure of discounted future net cash flows for the year ended December 31, 2000
are as follows (in thousands):
Oil and gas sales, net of production costs $ (699,206)
Net changes in prices and production costs 3,920,249
Extension and discoveries 525,361
Sales of minerals-in-place (72,624)
Purchases of mineral-in-place 187,097
Revisions of estimated future development costs (99,384)
Revisions of previous quantity estimates 329,124
Accretion of discount 313,281
Changes in production rates, timing and other (270,400)
-----------
Change in present value of future net revenues 4,133,498
Net change in present value of future income taxes (1,428,700)
-----------
2,704,798
Balance, beginning of year 3,132,805
-----------
Balance, end of year $ 5,837,603
===========
P-8
94
APPENDIX A
TO
PROXY STATEMENT/PROSPECTUS
GENERAL INFORMATION RELATING TO EACH PARTNERSHIP
Table 1 Jurisdiction of Organization, Initial Subscription Price for
Each Unit, Initial Investment by Limited Partners and Number
of Limited Partners as of March 31, 2001
Table 2 Aggregate Merger Value as of March 31, 2001
Table 3 Merger Value Attributable to Partnership Interests of Limited
Partners Per $1,000 Investment as of March 31, 2001
Table 4 Ownership Percentage and Merger Value Attributable to
Nonmanaging General Partners Other Than Pioneer USA as of
March 31, 2001
Table 5 Ownership Percentage and Merger Value Attributable to Pioneer
USA in Its Capacities as General Partner, Nonmanaging General
Partner and Limited Partner as of March 31, 2001
Table 6 Voting Percentage and Initial Investment Owned by Pioneer USA
in Its Capacity as a Limited Partner as of March 31, 2001
Table 7 Historical Quarterly Partnership Distributions to the Limited
Partners Per $1,000 Investment from Inception through March
31, 2001
Table 8 Annual Repurchase Prices and Aggregate Annual Repurchase
Payments
Table 9 Participation in Costs and Revenues of Each Partnership
Table 10 Average Oil, Natural Gas Liquids and Gas Sales Prices and
Production Costs for the Three Months Ended March 31, 2001 and
2000 and the Years Ended December 31, 2000, 1999 and 1998
Table 11 Proved Reserves Attributable to Pioneer USA, Nonmanaging
General Partners and Limited Partners as of December 31, 2000
Table 12 Proved Reserves Attributable to Pioneer USA, Nonmanaging
General Partners and Limited Partners as of March 31, 2001
Table 13 Oil, Natural Gas Liquids and Gas Production for the Three
Months Ended March 31, 2001 and 2000 and the Years Ended
December 31, 2000, 1999 and 1998
Table 14 Productive Wells and Developed Acreage as of December 31, 2000
Table 15 Recent Trades of Partnership Interests Per $1,000 Investments
for the Three Months Ended March 31, 2001 and the Years Ended
December 31, 2000 and 1999
A-1
95
TABLE 1
JURISDICTION OF ORGANIZATION, INITIAL SUBSCRIPTION PRICE FOR EACH UNIT,
INITIAL INVESTMENT BY LIMITED PARTNERS AND NUMBER OF LIMITED PARTNERS
AS OF MARCH 31, 2001
INITIAL
INITIAL INVESTMENT
SUBSCRIPTION BY LIMITED NUMBER OF
JURISDICTION OF PRICE FOR PARTNERS LIMITED
ORGANIZATION EACH UNIT (IN THOUSANDS) PARTNERS
--------------- ------------- -------------- ------------
PARKER & PARSLEY 81-I, LTD. Texas $ 5,000 $ 7,410 135
PARKER & PARSLEY 81-II, LTD. Texas 5,000 6,440 158
PARKER & PARSLEY 82-I, LTD. Texas 2,000 11,805 600
PARKER & PARSLEY 82-II, LTD. Texas 2,000 12,252 772
PARKER & PARSLEY 82-III, LTD. Texas 2,000 6,882 422
PARKER & PARSLEY 83-A, LTD. Texas 1,000 19,505 1,273
PARKER & PARSLEY 83-B, LTD. Texas 1,000 23,370 1,379
PARKER & PARSLEY 84-A, LTD. Texas 1,000 19,435 1,268
PARKER & PARSLEY 85-A, LTD. Texas 1,000 9,613 820
PARKER & PARSLEY 85-B, LTD. Texas 1,000 7,988 717
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. Texas 40,000 5,000 107
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. Texas 40,000 4,690 79
PARKER & PARSLEY 86-A, LTD. Texas 1,000 10,131 962
PARKER & PARSLEY 86-B, LTD. Texas 1,000 17,208 1,409
PARKER & PARSLEY 86-C, LTD. Texas 1,000 19,317 1,332
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. Texas 40,000 4,920 103
PARKER & PARSLEY 87-A CONV., LTD. Texas 1,000 3,856 214
PARKER & PARSLEY 87-A, LTD. Texas 1,000 28,811 2,148
PARKER & PARSLEY 87-B CONV., LTD. Texas 1,000 4,919 259
PARKER & PARSLEY 87-B, LTD. Texas 1,000 20,089 1,468
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. Texas 500 12,213 1,104
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. Texas 500 6,096 550
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. Texas 40,000 10,480 197
PARKER & PARSLEY 88-A CONV., L.P. Delaware 1,000 3,793 236
PARKER & PARSLEY 88-A, L.P. Delaware 1,000 12,935 981
PARKER & PARSLEY 88-B CONV., L.P. Delaware 1,000 3,636 240
PARKER & PARSLEY 88-B, L.P. Delaware 1,000 8,954 690
PARKER & PARSLEY 88-C CONV., L.P. Delaware 1,000 3,411 221
PARKER & PARSLEY 88-C, L.P. Delaware 1,000 2,431 191
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. Delaware 500 5,611 507
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. Delaware 40,000 9,960 153
PARKER & PARSLEY 89-A CONV., L.P. Delaware 1,000 2,797 191
PARKER & PARSLEY 89-A, L.P. Delaware 1,000 8,317 609
PARKER & PARSLEY 89-B CONV., L.P. Delaware 1,000 6,307 341
PARKER & PARSLEY 89-B, L.P. Delaware 1,000 6,949 458
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. Delaware 40,000 7,060 129
PARKER & PARSLEY 90-A CONV., L.P. Delaware 1,000 2,359 139
PARKER & PARSLEY 90-A, L.P. Delaware 1,000 6,811 525
PARKER & PARSLEY 90-B CONV., L.P. Delaware 1,000 11,897 665
PARKER & PARSLEY 90-B, L.P. Delaware 1,000 32,264 2,201
PARKER & PARSLEY 90-C CONV., L.P. Delaware 1,000 7,531 505
PARKER & PARSLEY 90-C, L.P. Delaware 1,000 12,107 901
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. Delaware 40,000 10,970 197
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEV., L.P. Delaware 40,000 5,200 107
PARKER & PARSLEY 91-A, L.P. Delaware 1,000 11,620 724
PARKER & PARSLEY 91-B, L.P. Delaware 1,000 11,249 677
------------
TOTAL 29,064
============
A-2
96
TABLE 2
AGGREGATE MERGER VALUE
AS OF MARCH 31, 2001
NONMANAGING
GENERAL LIMITED
PIONEER USA(a) PARTNERS(b) PARTNERS(c) TOTAL
-------------- ------------ ------------ ------------
PARKER & PARSLEY 81-I, LTD. $ 224,965 $ 16,195 $ 624,540 $ 865,700
PARKER & PARSLEY 81-II, LTD. 145,382 5,948 478,519 629,849
PARKER & PARSLEY 82-I, LTD. 394,878 13,776 862,667 1,271,321
PARKER & PARSLEY 82-II, LTD. 404,903 12,591 1,159,842 1,577,336
PARKER & PARSLEY 82-III, LTD. 302,259 9,856 776,656 1,088,771
PARKER & PARSLEY 83-A, LTD. 922,900 36,351 2,611,053 3,570,304
PARKER & PARSLEY 83-B, LTD. 1,201,169 46,876 3,384,404 4,632,449
PARKER & PARSLEY 84-A, LTD. 1,236,369 54,433 3,684,435 4,975,237
PARKER & PARSLEY 85-A, LTD. 40,356 -- 1,338,947 1,379,303
PARKER & PARSLEY 85-B, LTD. 19,800 -- 1,132,138 1,151,938
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. 47,205 -- 1,351,036 1,398,241
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. 24,312 -- 879,917 904,229
PARKER & PARSLEY 86-A, LTD. 23,089 -- 1,697,382 1,720,471
PARKER & PARSLEY 86-B, LTD. 65,880 -- 3,728,186 3,794,066
PARKER & PARSLEY 86-C, LTD. 41,460 -- 3,129,450 3,170,910
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. 12,414 -- 1,229,027 1,241,441
PARKER & PARSLEY 87-A CONV., LTD. 13,894 -- 717,899 731,793
PARKER & PARSLEY 87-A, LTD. 87,422 -- 5,371,888 5,459,310
PARKER & PARSLEY 87-B CONV., LTD. 11,819 -- 972,088 983,907
PARKER & PARSLEY 87-B, LTD. 49,125 -- 3,971,732 4,020,857
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. 35,767 -- 2,616,433 2,652,200
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. 58,764 -- 2,208,666 2,267,430
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. 27,958 -- 2,767,809 2,795,767
PARKER & PARSLEY 88-A CONV., L.P. 21,067 -- 892,880 913,947
PARKER & PARSLEY 88-A, L.P. 72,602 -- 3,051,312 3,123,914
PARKER & PARSLEY 88-B CONV., L.P. 17,558 -- 1,119,230 1,136,788
PARKER & PARSLEY 88-B, L.P. 57,127 -- 2,744,178 2,801,305
PARKER & PARSLEY 88-C CONV., L.P. 11,866 -- 907,793 919,659
PARKER & PARSLEY 88-C, L.P. 7,833 -- 642,988 650,821
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. 33,093 -- 1,927,264 1,960,357
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. 32,842 -- 3,251,380 3,284,222
PARKER & PARSLEY 89-A CONV., L.P. 8,987 -- 889,670 898,657
PARKER & PARSLEY 89-A, L.P. 60,264 -- 2,618,326 2,678,590
PARKER & PARSLEY 89-B CONV., L.P. 23,144 -- 1,738,245 1,761,389
PARKER & PARSLEY 89-B, L.P. 39,272 -- 1,899,350 1,938,622
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. 28,935 -- 1,824,803 1,853,738
PARKER & PARSLEY 90-A CONV., L.P. 8,862 -- 549,349 558,211
PARKER & PARSLEY 90-A, L.P. 50,684 -- 1,565,155 1,615,839
PARKER & PARSLEY 90-B CONV., L.P. 51,712 -- 3,052,755 3,104,467
PARKER & PARSLEY 90-B, L.P. 105,775 -- 8,324,640 8,430,415
PARKER & PARSLEY 90-C CONV., L.P. 25,338 -- 1,791,842 1,817,180
PARKER & PARSLEY 90-C, L.P. 35,557 -- 2,877,105 2,912,662
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. 51,077 -- 3,262,423 3,313,500
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEV., L.P. 14,400 -- 1,425,568 1,439,968
PARKER & PARSLEY 91-A, L.P. 62,309 -- 4,441,741 4,504,050
PARKER & PARSLEY 91-B, L.P. 52,293 -- 4,754,013 4,806,306
----------
(a) Represents Pioneer USA's partnership interests in each partnership as: (1)
the sole or managing general partner of the partnership; (2) a limited
partner of the partnership; and (3) the sole general partner of each
nonmanaging general partner. Pioneer USA will not receive any Pioneer
common stock or cash payment for its partnership interests in any
participating partnership. However, as a result of the merger of each
participating partnership, Pioneer USA will own 100% of the properties of
the partnership including properties attributable to its partnership
interests in the partnership.
(b) Represents four unaffiliated individuals' partnership interests as limited
partners of each nonmanaging general partner. Excludes Pioneer USA's
partnership interests as general partner of each nonmanaging general
partner.
(c) Represents the partnership interests of unaffiliated limited partners of
each partnership. Excludes Pioneer USA's partnership interests as a limited
partner of any partnership.
A-3
97
TABLE 3
MERGER VALUE ATTRIBUTABLE TO PARTNERSHIP INTERESTS
OF LIMITED PARTNERS
PER $1,000 INVESTMENT
AS OF MARCH 31, 2001
LIMITED PARTNERS
PER $1,000 INVESTMENT
------------------------------------------------
RESERVE WORKING CAPITAL MERGER
VALUE VALUE VALUE
------------ ------------ ------------
PARKER & PARSLEY 81-I, LTD. $ 79.20 $ 10.31 $ 89.51
PARKER & PARSLEY 81-II, LTD. 63.63 11.08 74.71
PARKER & PARSLEY 82-I, LTD. 71.29 10.58 81.87
PARKER & PARSLEY 82-II, LTD. 86.50 11.79 98.29
PARKER & PARSLEY 82-III, LTD. 107.54 12.47 120.01
PARKER & PARSLEY 83-A, LTD. 121.34 17.33 138.67
PARKER & PARSLEY 83-B, LTD. 130.87 19.59 150.46
PARKER & PARSLEY 84-A, LTD. 172.55 21.20 193.75
PARKER & PARSLEY 85-A, LTD. 125.01 17.04 142.05
PARKER & PARSLEY 85-B, LTD. 123.57 19.20 142.77
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. 249.82 27.03 276.85
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. 168.86 22.01 190.87
PARKER & PARSLEY 86-A, LTD. 150.08 18.04 168.12
PARKER & PARSLEY 86-B, LTD. 191.52 26.76 218.28
PARKER & PARSLEY 86-C, LTD. 140.59 21.92 162.51
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. 221.21 28.59 249.80
PARKER & PARSLEY 87-A CONV., LTD. 163.41 24.47 187.88
PARKER & PARSLEY 87-A, LTD. 162.88 24.71 187.59
PARKER & PARSLEY 87-B CONV., LTD. 169.09 28.93 198.02
PARKER & PARSLEY 87-B, LTD. 169.09 29.06 198.15
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. 179.24 35.75 214.99
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. 336.93 31.33 368.26
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. 240.50 23.60 264.10
PARKER & PARSLEY 88-A CONV., L.P. 208.54 30.01 238.55
PARKER & PARSLEY 88-A, L.P. 208.53 30.56 239.09
PARKER & PARSLEY 88-B CONV., L.P. 273.58 35.94 309.52
PARKER & PARSLEY 88-B, L.P. 273.59 36.14 309.73
PARKER & PARSLEY 88-C CONV., L.P. 234.36 32.56 266.92
PARKER & PARSLEY 88-C, L.P. 234.36 30.68 265.04
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. 282.67 63.21 345.88
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. 291.12 35.32 326.44
PARKER & PARSLEY 89-A CONV., L.P. 281.55 36.53 318.08
PARKER & PARSLEY 89-A, L.P. 281.55 37.29 318.84
PARKER & PARSLEY 89-B CONV., L.P. 242.33 34.15 276.48
PARKER & PARSLEY 89-B, L.P. 241.90 34.29 276.19
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. 231.26 28.68 259.94
PARKER & PARSLEY 90-A CONV., L.P. 205.94 28.32 234.26
PARKER & PARSLEY 90-A, L.P. 205.95 28.92 234.87
PARKER & PARSLEY 90-B CONV., L.P. 231.19 27.15 258.34
PARKER & PARSLEY 90-B, L.P. 231.34 27.34 258.68
PARKER & PARSLEY 90-C CONV., L.P. 211.02 27.86 238.88
PARKER & PARSLEY 90-C, L.P. 211.02 27.15 238.17
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. 267.23 31.80 299.03
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEV., L.P. 250.03 24.12 274.15
PARKER & PARSLEY 91-A, L.P. 346.03 37.71 383.74
PARKER & PARSLEY 91-B, L.P. 382.48 40.51 422.99
A-4
98
TABLE 4
OWNERSHIP PERCENTAGE AND MERGER VALUE ATTRIBUTABLE TO
NONMANAGING GENERAL PARTNERS OTHER THAN PIONEER USA
AS OF MARCH 31, 2001
NONMANAGING GENERAL NONMANAGING
PARTNERS(a) GENERAL PARTNERS' MERGER
------------------------------------- VALUE AS A PERCENTAGE OF
OWNERSHIP AGGREGATE MERGER AGGREGATE MERGER VALUE
PERCENTAGE(b) VALUE(c) FOR THE PARTNERSHIP(d)
--------------- ---------------- ------------------------
PARKER & PARSLEY 81-I, LTD. 2.00% $ 16,195 1.87%
PARKER & PARSLEY 81-II, LTD. 1.00% 5,948 0.94%
PARKER & PARSLEY 82-I, LTD. 1.13% 13,776 1.08%
PARKER & PARSLEY 82-II, LTD. 0.84% 12,591 0.80%
PARKER & PARSLEY 82-III, LTD. 0.94% 9,856 0.91%
PARKER & PARSLEY 83-A, LTD. 1.05% 36,351 1.02%
PARKER & PARSLEY 83-B, LTD. 1.05% 46,876 1.01%
PARKER & PARSLEY 84-A, LTD. 1.13% 54,433 1.09%
---------------
(a) Represents four unaffiliated individuals' partnership interests as limited
partners of each nonmanaging general partner. Excludes Pioneer USA's
partnership interests as general partner of each nonmanaging general
partner.
(b) Percentage owned is based upon ownership within the partnership as set
forth in the revenue sharing provisions of the partnership agreement for
the partnership.
(c) See "Method of Determining Merger Value for Each Partnership and Amount of
Pioneer Common Stock and Cash Offered."
(d) Represents the dollar amount in the nonmanaging general partners' aggregate
merger value column divided by the aggregate merger value for the
partnership as set forth in Table 2.
A-5
99
TABLE 5
OWNERSHIP PERCENTAGE AND MERGER VALUE
ATTRIBUTABLE TO PIONEER USA IN ITS CAPACITIES AS
GENERAL PARTNER, NONMANAGING GENERAL PARTNER AND LIMITED PARTNER
AS OF MARCH 31, 2001
PIONEER USA'S
PIONEER USA(a) MERGER VALUE AS A
------------------------------------- PERCENTAGE OF
OWNERSHIP AGGREGATE MERGER AGGREGATE MERGER VALUE
PERCENTAGE(b) VALUE(c) FOR THE PARTNERSHIP(d)
--------------- ---------------- ----------------------
PARKER & PARSLEY 81-I, LTD. 27.38% $ 224,965 25.99%
PARKER & PARSLEY 81-II, LTD. 24.41% 145,382 23.08%
PARKER & PARSLEY 82-I, LTD. 31.92% 394,878 31.06%
PARKER & PARSLEY 82-II, LTD. 26.92% 404,903 25.67%
PARKER & PARSLEY 82-III, LTD. 28.54% 302,259 27.76%
PARKER & PARSLEY 83-A, LTD. 26.55% 922,900 25.85%
PARKER & PARSLEY 83-B, LTD. 26.76% 1,201,169 25.93%
PARKER & PARSLEY 84-A, LTD. 25.49% 1,236,369 24.85%
PARKER & PARSLEY 85-A, LTD. 2.93% 40,356 2.93%
PARKER & PARSLEY 85-B, LTD. 1.72% 19,800 1.72%
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. 3.38% 47,205 3.38%
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. 2.69% 24,312 2.69%
PARKER & PARSLEY 86-A, LTD. 1.34% 23,089 1.34%
PARKER & PARSLEY 86-B, LTD. 1.74% 65,880 1.74%
PARKER & PARSLEY 86-C, LTD. 1.31% 41,460 1.31%
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. 1.00% 12,414 1.00%
PARKER & PARSLEY 87-A CONV., LTD. 1.90% 13,894 1.90%
PARKER & PARSLEY 87-A, LTD. 1.60% 87,422 1.60%
PARKER & PARSLEY 87-B CONV., LTD. 1.20% 11,819 1.20%
PARKER & PARSLEY 87-B, LTD. 1.22% 49,125 1.22%
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. 1.35% 35,767 1.35%
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. 2.59% 58,764 2.59%
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. 1.00% 27,958 1.00%
PARKER & PARSLEY 88-A CONV., L.P. 2.31% 21,067 2.31%
PARKER & PARSLEY 88-A, L.P. 2.32% 72,602 2.32%
PARKER & PARSLEY 88-B CONV., L.P. 1.54% 17,558 1.54%
PARKER & PARSLEY 88-B, L.P. 2.04% 57,127 2.04%
PARKER & PARSLEY 88-C CONV., L.P. 1.29% 11,866 1.29%
PARKER & PARSLEY 88-C, L.P. 1.20% 7,833 1.20%
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. 1.69% 33,093 1.69%
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. 1.00% 32,842 1.00%
PARKER & PARSLEY 89-A CONV., L.P. 1.00% 8,987 1.00%
PARKER & PARSLEY 89-A, L.P. 2.25% 60,264 2.25%
PARKER & PARSLEY 89-B CONV., L.P. 1.31% 23,144 1.31%
PARKER & PARSLEY 89-B, L.P. 2.03% 39,272 2.03%
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. 1.56% 28,935 1.56%
PARKER & PARSLEY 90-A CONV., L.P. 1.59% 8,862 1.59%
PARKER & PARSLEY 90-A, L.P. 3.14% 50,684 3.14%
PARKER & PARSLEY 90-B CONV., L.P. 1.67% 51,712 1.67%
PARKER & PARSLEY 90-B, L.P. 1.25% 105,775 1.25%
PARKER & PARSLEY 90-C CONV., L.P. 1.39% 25,338 1.39%
PARKER & PARSLEY 90-C, L.P. 1.22% 35,557 1.22%
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. 1.54% 51,077 1.54%
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEV., L.P. 1.00% 14,400 1.00%
PARKER & PARSLEY 91-A, L.P. 1.38% 62,309 1.38%
PARKER & PARSLEY 91-B, L.P. 1.09% 52,293 1.09%
----------
(a) Represents Pioneer USA's partnership interests in each partnership as: (1)
the sole or managing general partner of the partnership; (2) a limited
partner of the partnership; and (3) the sole general partner of each
nonmanaging general partner. Pioneer USA will not receive any Pioneer
common stock or cash payment for its partnership interests in any
participating partnership. However, as a result of the merger of each
participating partnership, Pioneer USA will own 100% of the properties of
the partnership including properties attributable to its partnership
interests in the partnership.
(b) Percentage owned is based upon ownership within the partnership as set
forth in the revenue sharing provisions of the partnership agreement for
the partnership.
(c) See "Method of Determining Merger Value for Each Partnership and Amount of
Pioneer Common Stock and Cash Offered."
(d) Represents the dollar amount in Pioneer USA's aggregate merger value column
divided by the aggregate merger value for the partnership as set forth in
Table 2.
A-6
100
TABLE 6
VOTING PERCENTAGE AND INITIAL INVESTMENT OWNED BY PIONEER USA
IN ITS CAPACITY AS A LIMITED PARTNER
AS OF MARCH 31, 2001
INITIAL INVESTMENT
PIONEER USA OWNED BY
VOTING PIONEER USA(d)
PERCENTAGE(a)(b) (IN THOUSANDS)
--------------- ------------------
PARKER & PARSLEY 81-I, LTD. 5.84% $ 433
PARKER & PARSLEY 81-II, LTD. 0.55% 35
PARKER & PARSLEY 82-I, LTD. 10.73% 1,267
PARKER & PARSLEY 82-II, LTD. 3.69% 452
PARKER & PARSLEY 82-III, LTD. 5.97% 411
PARKER & PARSLEY 83-A, LTD. 3.47% 676
PARKER & PARSLEY 83-B, LTD. 3.75% 877
PARKER & PARSLEY 84-A, LTD. 2.16% 419
PARKER & PARSLEY 85-A, LTD.(c) 0.00% 187
PARKER & PARSLEY 85-B, LTD.(c) 0.00% 58
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD.(c) 0.00% 120
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD.(c) 0.00% 80
PARKER & PARSLEY 86-A, LTD. 0.35% 35
PARKER & PARSLEY 86-B, LTD. 0.74% 128
PARKER & PARSLEY 86-C, LTD. 0.31% 60
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD.(c) 0.00% --
PARKER & PARSLEY 87-A CONV., LTD. 0.91% 35
PARKER & PARSLEY 87-A, LTD. 0.61% 175
PARKER & PARSLEY 87-B CONV., LTD. 0.20% 10
PARKER & PARSLEY 87-B, LTD. 0.22% 45
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. 0.35% 43
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. 1.61% 98
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. 0.00% --
PARKER & PARSLEY 88-A CONV., L.P. 1.32% 50
PARKER & PARSLEY 88-A, L.P. 1.34% 173
PARKER & PARSLEY 88-B CONV., L.P. 0.55% 20
PARKER & PARSLEY 88-B, L.P. 1.05% 94
PARKER & PARSLEY 88-C CONV., L.P. 0.29% 10
PARKER & PARSLEY 88-C, L.P. 0.21% 5
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. 0.70% 39
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. 0.00% --
PARKER & PARSLEY 89-A CONV., L.P. 0.00% --
PARKER & PARSLEY 89-A, L.P. 1.26% 105
PARKER & PARSLEY 89-B CONV., L.P. 0.32% 20
PARKER & PARSLEY 89-B, L.P. 1.04% 72
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. 0.57% 40
PARKER & PARSLEY 90-A CONV., L.P. 0.59% 14
PARKER & PARSLEY 90-A, L.P. 2.16% 147
PARKER & PARSLEY 90-B CONV., L.P. 0.67% 80
PARKER & PARSLEY 90-B, L.P. 0.26% 83
PARKER & PARSLEY 90-C CONV., L.P. 0.40% 30
PARKER & PARSLEY 90-C, L.P. 0.22% 27
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. 0.55% 60
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEV., L.P. 0.00% --
PARKER & PARSLEY 91-A, L.P.(c) 0.00% 45
PARKER & PARSLEY 91-B, L.P.(c) 0.00% 10
----------
(a) Represents Pioneer USA's partnership interests in each partnership as a
limited partner of the partnership. Pioneer USA will not receive any
Pioneer common stock or cash payment for its partnership interests in any
participating partnership. However, as a result of the merger of each
participating partnership, Pioneer USA will own 100% of the properties of
the partnership including properties attributable to its partnership
interests in the partnership.
(b) Represents percentage of limited partners' vote that Pioneer USA is
entitled to vote. The voting percentage is calculated by dividing (1)
Pioneer USA's ownership percentage of the partnership interests held as a
limited partner, by (2) the percentage of partnership interests held by all
limited partners in the partnership. For example, if the limited partners
of a partnership represent 99% of the partnership and Pioneer USA owns 5%
of the partnership interests as a limited partner in that partnership,
Pioneer USA's voting percentage is 5.05%.
(c) Pioneer USA is not entitled to vote partnership interests it holds as
limited partner in this partnership.
(d) Represents Pioneer USA's share of the initial investment by limited
partners as shown on Table 1.
A-7
101
TABLE 7
HISTORICAL QUARTERLY PARTNERSHIP DISTRIBUTIONS TO THE LIMITED PARTNERS
PER $1,000 INVESTMENT
FROM INCEPTION THROUGH MARCH 31, 2001
QUARTERLY DISTRIBUTIONS
TO LIMITED PARTNERS
PER $1,000 INVESTMENT(a)
------------------------------------------------------------------------
INCEPTION QUARTER QUARTER QUARTER QUARTER
TO ENDED ENDED ENDED ENDED
12/31/98 3/31/99 6/30/99 9/30/99 12/31/99
------------ ------------ ------------ ------------ ------------
PARKER & PARSLEY 81-I, LTD. $ 616.71 $ 0.69 $ -- $ 3.26 $ 2.42
PARKER & PARSLEY 81-II, LTD. 808.37 -- 0.35 1.26 2.71
PARKER & PARSLEY 82-I, LTD. 946.73 0.62 0.53 2.03 1.09
PARKER & PARSLEY 82-II, LTD. 1,099.24 0.83 -- 3.34 3.48
PARKER & PARSLEY 82-III, LTD. 924.16 -- 1.69 2.92 5.07
PARKER & PARSLEY 83-A, LTD. 1,264.54 -- -- 4.11 5.20
PARKER & PARSLEY 83-B, LTD. 1,458.60 0.96 1.79 4.89 6.30
PARKER & PARSLEY 84-A, LTD. 1,384.63 0.80 2.78 4.69 6.81
PARKER & PARSLEY 85-A, LTD. 678.73 0.83 1.49 4.98 9.55
PARKER & PARSLEY 85-B, LTD. 876.32 -- 3.17 4.12 7.19
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. 997.86 3.16 5.23 8.79 12.34
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. 872.24 1.66 -- 4.33 6.68
PARKER & PARSLEY 86-A, LTD. 1,279.93 0.79 2.23 6.38 5.82
PARKER & PARSLEY 86-B, LTD. 1,469.69 1.53 5.01 5.85 8.40
PARKER & PARSLEY 86-C, LTD. 1,401.81 0.82 2.38 1.77 7.30
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. 1,525.50 1.23 1.22 5.88 5.44
PARKER & PARSLEY 87-A CONV., LTD. 1,228.63 1.83 2.20 6.07 7.90
PARKER & PARSLEY 87-A, LTD. 1,228.70 1.83 2.20 6.07 7.90
PARKER & PARSLEY 87-B CONV., LTD. 1,154.18 1.85 2.29 5.50 8.64
PARKER & PARSLEY 87-B, LTD. 1,154.25 1.85 2.29 5.50 8.64
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. 889.65 1.49 0.89 6.21 9.75
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. 956.04 3.97 1.02 8.98 13.99
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. 1,457.32 2.20 4.09 8.56 9.55
PARKER & PARSLEY 88-A CONV., L.P. 991.51 3.16 3.06 7.97 11.11
PARKER & PARSLEY 88-A, L.P. 991.61 3.16 3.06 7.97 11.11
PARKER & PARSLEY 88-B CONV., L.P. 966.33 3.44 2.88 8.95 13.65
PARKER & PARSLEY 88-B, L.P. 966.37 3.44 2.88 8.95 13.65
PARKER & PARSLEY 88-C CONV., L.P. 913.42 3.92 2.34 4.27 11.12
PARKER & PARSLEY 88-C, L.P. 913.01 3.92 2.34 4.27 11.12
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. 1,075.69 6.51 4.02 7.58 11.34
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. 1,031.07 3.57 6.66 8.39 12.47
PARKER & PARSLEY 89-A CONV., L.P. 911.13 2.66 2.77 9.16 13.97
PARKER & PARSLEY 89-A, L.P. 911.19 2.66 2.77 9.16 13.97
PARKER & PARSLEY 89-B CONV., L.P. 787.19 3.26 1.22 8.31 11.43
PARKER & PARSLEY 89-B, L.P. 787.20 3.26 1.22 8.31 11.43
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. 689.19 1.02 1.85 6.67 4.97
PARKER & PARSLEY 90-A CONV., L.P. 784.83 3.18 1.68 8.12 9.46
PARKER & PARSLEY 90-A, L.P. 784.89 3.18 1.68 8.12 9.46
PARKER & PARSLEY 90-B CONV., L.P. 600.45 2.10 1.80 7.47 11.46
PARKER & PARSLEY 90-B, L.P. 600.53 2.10 1.80 7.47 11.46
PARKER & PARSLEY 90-C CONV., L.P. 537.51 0.95 -- 6.26 10.83
PARKER & PARSLEY 90-C, L.P. 537.52 0.95 -- 6.26 10.83
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. 673.63 2.14 3.11 5.62 12.23
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEV., L.P. 632.08 3.71 3.09 6.40 13.59
PARKER & PARSLEY 91-A, L.P. 663.47 3.99 6.33 11.37 15.54
PARKER & PARSLEY 91-B, L.P. 526.98 3.95 7.05 13.55 18.24
QUARTERLY DISTRIBUTIONS
TO LIMITED PARTNERS
PER $1,000 INVESTMENT(a)
---------------------------------------------------------------------
QUARTER QUARTER QUARTER QUARTER QUARTER INCEPTION
ENDED ENDED ENDED ENDED ENDED TO
3/31/00 6/30/00 9/30/00 12/31/00 3/31/01 3/31/01
--------- --------- --------- --------- --------- ---------
PARKER & PARSLEY 81-I, LTD. $ 4.24 $ 5.53 $ 4.53 $ 5.41 $ 642.79
PARKER & PARSLEY 81-II, LTD. 2.01 2.99 5.00 5.97 828.66
PARKER & PARSLEY 82-I, LTD. 3.93 4.77 6.70 4.06 970.46
PARKER & PARSLEY 82-II, LTD. 4.98 6.07 4.58 6.41 1,128.93
PARKER & PARSLEY 82-III, LTD. 7.49 7.80 9.38 8.84 967.35
PARKER & PARSLEY 83-A, LTD. 7.22 7.30 9.04 10.25 1,307.66
PARKER & PARSLEY 83-B, LTD. 8.70 9.68 11.28 10.66 1,512.86
PARKER & PARSLEY 84-A, LTD. 8.28 11.17 12.41 13.00 1,444.57
PARKER & PARSLEY 85-A, LTD. 7.09 11.26 9.94 10.41 734.28
PARKER & PARSLEY 85-B, LTD. 7.95 9.04 9.26 12.47 929.52
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. 15.51 20.44 16.65 16.32 1,096.30
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. 9.18 11.68 12.92 12.98 931.67
PARKER & PARSLEY 86-A, LTD. 8.66 11.38 12.54 13.08 1,340.81
PARKER & PARSLEY 86-B, LTD. 10.40 13.08 14.24 15.95 1,544.15
PARKER & PARSLEY 86-C, LTD. 8.35 9.67 12.04 12.45 1,456.59
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. 14.07 9.36 17.03 15.11 1,594.84
PARKER & PARSLEY 87-A CONV., LTD. 11.58 15.18 13.96 12.79 1,300.14
PARKER & PARSLEY 87-A, LTD. 11.58 15.18 13.96 12.79 1,300.21
PARKER & PARSLEY 87-B CONV., LTD. 10.07 12.58 13.53 12.84 1,221.48
PARKER & PARSLEY 87-B, LTD. 10.07 12.58 13.53 12.84 1,221.55
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. 10.92 13.50 12.12 14.11 958.64
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. 18.53 24.65 26.75 26.21 1,080.14
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. 12.55 13.19 14.14 16.03 1,537.63
PARKER & PARSLEY 88-A CONV., L.P. 12.48 15.67 17.33 16.95 1,079.24
PARKER & PARSLEY 88-A, L.P. 12.48 15.67 17.33 16.95 1,079.34
PARKER & PARSLEY 88-B CONV., L.P. 18.22 20.69 22.63 25.37 1,082.16
PARKER & PARSLEY 88-B, L.P. 18.22 20.69 22.63 25.37 1,082.20
PARKER & PARSLEY 88-C CONV., L.P. 16.38 18.34 19.83 21.01 1,010.63
PARKER & PARSLEY 88-C, L.P. 16.38 18.34 19.83 21.01 1,010.22
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. 21.95 19.09 18.82 21.76 1,186.76
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. 15.99 19.23 23.09 21.51 1,141.98
PARKER & PARSLEY 89-A CONV., L.P. 17.96 18.39 20.40 23.38 1,019.82
PARKER & PARSLEY 89-A, L.P. 17.96 18.39 20.40 23.38 1,019.88
PARKER & PARSLEY 89-B CONV., L.P. 14.28 18.94 20.23 20.99 885.85
PARKER & PARSLEY 89-B, L.P. 14.28 18.94 20.23 20.99 885.86
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. 13.32 15.00 16.66 20.33 769.01
PARKER & PARSLEY 90-A CONV., L.P. 12.70 14.52 17.43 19.18 871.10
PARKER & PARSLEY 90-A, L.P. 12.70 14.52 17.43 19.18 871.16
PARKER & PARSLEY 90-B CONV., L.P. 14.98 15.20 19.51 19.68 692.65
PARKER & PARSLEY 90-B, L.P. 14.98 15.20 19.51 19.68 692.73
PARKER & PARSLEY 90-C CONV., L.P. 13.62 14.90 19.01 17.84 620.92
PARKER & PARSLEY 90-C, L.P. 13.62 14.90 19.01 17.84 620.93
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. 15.05 18.11 20.29 25.10 775.28
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEV., L.P. 16.68 13.98 14.00 13.98 717.51
PARKER & PARSLEY 91-A, L.P. 20.76 23.19 26.03 30.05 800.73
PARKER & PARSLEY 91-B, L.P. 21.87 26.88 33.92 35.07 687.51
----------
(a) Past cash distributions to limited partners are not necessarily indicative
of future cash distributions. Limited partners should not assume that any
nonparticipating partnership will continue to make cash distributions at
levels similar to those shown. See "The Merger of Each Partnership -
Distribution of Pioneer Common Stock and Cash Payment."
A-8
102
TABLE 8
ANNUAL REPURCHASE PRICES AND AGGREGATE ANNUAL REPURCHASE PAYMENTS
2001 2000 1999
------------------------- ------------------------- -------------------------
REPURCHASE AGGREGATE REPURCHASE AGGREGATE REPURCHASE AGGREGATE
PRICE ANNUAL PRICE ANNUAL PRICE ANNUAL
PER $1,000 REPURCHASE PER $1,000 REPURCHASE PER $1,000 REPURCHASE
INVESTMENT PAYMENTS INVESTMENT PAYMENTS INVESTMENT PAYMENTS
---------- ---------- ---------- ---------- ---------- ----------
PARKER & PARSLEY 82-I, LTD. $ 137.97 (a) $ 71.89 $ 4,745 $ 7.52 $ 94
PARKER & PARSLEY 82-II, LTD. 133.72 (a) 102.38 1,024 26.17 131
PARKER & PARSLEY 82-III, LTD. 150.59 (a) 109.73 1,097 12.17 284
PARKER & PARSLEY 83-A, LTD. 196.67 (a) 137.59 9,494 27.05 541
PARKER & PARSLEY 83-B, LTD. 210.15 (a) 153.89 3,078 43.46 --
PARKER & PARSLEY 84-A, LTD. 267.03 (a) 175.78 7,031 45.72 1,143
---------- ----------
$ 26,469 $ 2,193
========== ==========
----------
(a) Payments will not be made until the second quarter of 2001.
A-9
103
TABLE 9
PARTICIPATION IN COSTS AND REVENUES
OF EACH PARTNERSHIP
CAPITAL COSTS REVENUES AND EXPENSES
------------------------------------ ------------------------------------
NONMANAGING NONMANAGING
GENERAL GENERAL LIMITED GENERAL GENERAL LIMITED
PARTNER(a) PARTNERS(a) PARTNERS(a) PARTNER(a) PARTNERS(a) PARTNERS(a)
---------- ----------- ----------- ---------- ----------- -----------
PARKER & PARSLEY 81-I, LTD. 8% 2% 90% 20% 5% 75%
PARKER & PARSLEY 81-II, LTD. 8% 2% 90% 20% 5% 75%
PARKER & PARSLEY 82-I, LTD. 8% 2% 90% 20% 5% 75%
PARKER & PARSLEY 82-II, LTD. 8% 2% 90% 20% 5% 75%
PARKER & PARSLEY 82-III, LTD. 8% 2% 90% 20% 5% 75%
PARKER & PARSLEY 83-A, LTD.(b) 8% 2% 90% 20% 5% 75%
PARKER & PARSLEY 83-B, LTD.(b) 8% 2% 90% 20% 5% 75%
PARKER & PARSLEY 84-A, LTD.(b) 8% 2% 90% 20% 5% 75%
PARKER & PARSLEY 85-A, LTD. 1% -- 99% 1% -- 99%
PARKER & PARSLEY 85-B, LTD. 1% -- 99% 1% -- 99%
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. 1% -- 99% 1% -- 99%
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. 1% -- 99% 1% -- 99%
PARKER & PARSLEY 86-A, LTD. 1% -- 99% 1% -- 99%
PARKER & PARSLEY 86-B, LTD. 1% -- 99% 1% -- 99%
PARKER & PARSLEY 86-C, LTD. 1% -- 99% 1% -- 99%
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. 1% -- 99% 1% -- 99%
PARKER & PARSLEY 87-A CONV., LTD. 1% -- 99% 1% -- 99%
PARKER & PARSLEY 87-A, LTD. 1% -- 99% 1% -- 99%
PARKER & PARSLEY 87-B CONV., LTD. 1% -- 99% 1% -- 99%
PARKER & PARSLEY 87-B, LTD. 1% -- 99% 1% -- 99%
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. 1% -- 99% 1% -- 99%
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. 1% -- 99% 1% -- 99%
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. 1% -- 99% 1% -- 99%
PARKER & PARSLEY 88-A CONV., L.P. 1% -- 99% 1% -- 99%
PARKER & PARSLEY 88-A, L.P. 1% -- 99% 1% -- 99%
PARKER & PARSLEY 88-B CONV., L.P. 1% -- 99% 1% -- 99%
PARKER & PARSLEY 88-B, L.P. 1% -- 99% 1% -- 99%
PARKER & PARSLEY 88-C CONV., L.P. 1% -- 99% 1% -- 99%
PARKER & PARSLEY 88-C, L.P. 1% -- 99% 1% -- 99%
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. 1% -- 99% 1% -- 99%
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. 1% -- 99% 1% -- 99%
PARKER & PARSLEY 89-A CONV., L.P. 1% -- 99% 1% -- 99%
PARKER & PARSLEY 89-A, L.P. 1% -- 99% 1% -- 99%
PARKER & PARSLEY 89-B CONV., L.P. 1% -- 99% 1% -- 99%
PARKER & PARSLEY 89-B, L.P. 1% -- 99% 1% -- 99%
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. 1% -- 99% 1% -- 99%
PARKER & PARSLEY 90-A CONV., L.P. 1% -- 99% 1% -- 99%
PARKER & PARSLEY 90-A, L.P. 1% -- 99% 1% -- 99%
PARKER & PARSLEY 90-B CONV., L.P. 1% -- 99% 1% -- 99%
PARKER & PARSLEY 90-B, L.P. 1% -- 99% 1% -- 99%
PARKER & PARSLEY 90-C CONV., L.P. 1% -- 99% 1% -- 99%
PARKER & PARSLEY 90-C, L.P. 1% -- 99% 1% -- 99%
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. 1% -- 99% 1% -- 99%
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEV., L.P. 1% -- 99% 1% -- 99%
PARKER & PARSLEY 91-A, L.P. 1% -- 99% 1% -- 99%
PARKER & PARSLEY 91-B, L.P. 1% -- 99% 1% -- 99%
--------------
(a) These percentages represent the sharing ownerships as set forth in the
prospectus for each partnership. Includes Pioneer USA's partnership
interests in each partnership as: (1) the sole or managing general partner
of the partnership; (2) a limited partner of the partnership; and (3) the
sole general partner of each nonmanaging general partner. Pioneer USA will
not receive any Pioneer common stock or cash payment for its partnership
interests in any participating partnership.
(b) Incremental direct costs 100% to limited partners.
A-10
104
TABLE 10
AVERAGE OIL, NATURAL GAS LIQUIDS AND GAS SALES PRICES AND PRODUCTION COSTS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 AND THE YEARS ENDED
DECEMBER 31, 2000, 1999 AND 1998
AVERAGE SALES PRICE
--------------------------------------------------------------
OIL (PER BBL)
--------------------------------------------------------------
FOR THE THREE MONTHS FOR THE YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
----------------------- ------------------------------------
2001 2000 2000 1999 1998
----------------------- ------------------------------------
PARKER & PARSLEY 81-I, LTD. $ 27.16 $ 29.26 $ 16.94 $ 13.33
PARKER & PARSLEY 81-II, LTD. 27.34 29.26 16.67 13.16
PARKER & PARSLEY 82-I, LTD. 27.23 29.39 16.61 13.32
PARKER & PARSLEY 82-II, LTD. 27.27 29.47 17.08 13.14
PARKER & PARSLEY 82-III, LTD. 27.64 29.67 17.13 13.31
PARKER & PARSLEY 83-A, LTD. 27.44 29.54 16.96 13.34
PARKER & PARSLEY 83-B, LTD. 27.66 29.69 17.18 13.30
PARKER & PARSLEY 84-A, LTD. 27.61 29.55 17.36 13.30
PARKER & PARSLEY 85-A, LTD. 27.40 29.38 17.11 13.27
PARKER & PARSLEY 85-B, LTD. 28.65 30.02 18.07 13.30
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. 27.36 30.19 16.91 13.20
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. 27.34 29.59 17.27 13.44
PARKER & PARSLEY 86-A, LTD. 27.46 28.87 17.00 13.32
PARKER & PARSLEY 86-B, LTD. 27.60 29.45 17.18 13.08
PARKER & PARSLEY 86-C, LTD. 27.56 29.43 17.18 13.26
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. 27.55 29.45 17.34 13.34
PARKER & PARSLEY 87-A CONV., LTD. 27.18 29.46 17.06 13.22
PARKER & PARSLEY 87-A, LTD. 27.18 29.46 17.06 13.22
PARKER & PARSLEY 87-B CONV., LTD. 27.69 29.31 16.71 13.17
PARKER & PARSLEY 87-B, LTD. 27.69 29.31 16.71 13.17
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. 27.47 29.34 16.80 13.04
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. 27.54 29.36 17.44 13.05
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. 27.10 29.56 16.82 13.05
PARKER & PARSLEY 88-A CONV., L.P. 27.90 29.28 16.91 13.59
PARKER & PARSLEY 88-A, L.P. 27.90 29.28 16.91 13.59
PARKER & PARSLEY 88-B CONV., L.P. 26.41 29.29 17.17 13.24
PARKER & PARSLEY 88-B, L.P. 26.41 29.29 17.17 13.24
PARKER & PARSLEY 88-C CONV., L.P. 26.37 29.33 17.24 13.30
PARKER & PARSLEY 88-C, L.P. 26.37 29.33 17.24 13.30
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. 27.98 29.44 16.82 13.14
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. 27.22 29.45 17.01 13.31
PARKER & PARSLEY 89-A CONV., L.P. 27.48 29.59 17.11 13.23
PARKER & PARSLEY 89-A, L.P. 27.48 29.59 17.11 13.23
PARKER & PARSLEY 89-B CONV., L.P. 27.13 29.21 16.96 13.26
PARKER & PARSLEY 89-B, L.P. 27.13 29.21 16.96 13.26
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. 26.78 29.00 17.06 13.28
PARKER & PARSLEY 90-A CONV., L.P. 27.38 29.32 17.06 13.20
PARKER & PARSLEY 90-A, L.P. 27.38 29.32 17.06 13.20
PARKER & PARSLEY 90-B CONV., L.P. 27.70 29.23 17.23 13.12
PARKER & PARSLEY 90-B, L.P. 27.70 29.23 17.23 13.12
PARKER & PARSLEY 90-C CONV., L.P. 27.16 29.34 17.13 13.24
PARKER & PARSLEY 90-C, L.P. 27.16 29.34 17.13 13.24
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. 27.27 29.35 17.30 13.19
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEV., L.P. 26.83 29.17 17.04 13.06
PARKER & PARSLEY 91-A, L.P. 27.88 29.90 17.57 13.15
PARKER & PARSLEY 91-B, L.P. 28.53 30.09 17.90 13.33
AVERAGE SALES PRICE
--------------------------------------------------------------
NGL (PER BBL)
--------------------------------------------------------------
FOR THE THREE MONTHS FOR THE YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
----------------------- ------------------------------------
2001 2000 2000 1999 1998
----------------------- ------------------------------------
PARKER & PARSLEY 81-I, LTD. $ 14.58 $ 14.60 $ 9.22 $ 6.40
PARKER & PARSLEY 81-II, LTD. 17.54 15.59 8.70 6.73
PARKER & PARSLEY 82-I, LTD. 12.67 14.44 8.96 7.20
PARKER & PARSLEY 82-II, LTD. 13.18 15.01 9.80 6.93
PARKER & PARSLEY 82-III, LTD. 12.20 13.86 9.13 6.42
PARKER & PARSLEY 83-A, LTD. 14.18 15.58 9.42 6.49
PARKER & PARSLEY 83-B, LTD. 13.48 15.47 10.00 6.79
PARKER & PARSLEY 84-A, LTD. 12.70 14.00 9.03 6.08
PARKER & PARSLEY 85-A, LTD. 12.16 14.20 9.71 6.51
PARKER & PARSLEY 85-B, LTD. 14.41 15.96 10.10 6.95
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. 13.27 15.22 9.95 6.49
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. 13.50 15.52 10.49 6.99
PARKER & PARSLEY 86-A, LTD. 13.90 14.94 9.63 6.53
PARKER & PARSLEY 86-B, LTD. 13.37 15.00 9.39 6.80
PARKER & PARSLEY 86-C, LTD. 13.64 15.06 9.27 6.46
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. 13.33 15.01 9.27 6.69
PARKER & PARSLEY 87-A CONV., LTD. 15.12 16.01 9.81 6.76
PARKER & PARSLEY 87-A, LTD. 15.12 16.01 9.81 6.76
PARKER & PARSLEY 87-B CONV., LTD. 15.18 16.90 9.73 6.82
PARKER & PARSLEY 87-B, LTD. 15.18 16.90 9.73 6.82
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. 11.93 12.12 7.32 5.46
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. 14.93 16.68 10.32 6.58
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. 14.77 16.17 9.41 6.55
PARKER & PARSLEY 88-A CONV., L.P. 13.93 15.30 9.30 6.57
PARKER & PARSLEY 88-A, L.P. 13.93 15.30 9.30 6.57
PARKER & PARSLEY 88-B CONV., L.P. 14.34 16.02 10.03 6.91
PARKER & PARSLEY 88-B, L.P. 14.34 16.02 10.03 6.91
PARKER & PARSLEY 88-C CONV., L.P. 14.26 15.83 10.42 6.94
PARKER & PARSLEY 88-C, L.P. 14.26 15.83 10.42 6.94
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. 13.03 14.28 9.18 6.31
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. 14.02 15.61 9.32 6.79
PARKER & PARSLEY 89-A CONV., L.P. 13.84 15.42 9.54 6.95
PARKER & PARSLEY 89-A, L.P. 13.84 15.42 9.54 6.95
PARKER & PARSLEY 89-B CONV., L.P. 14.82 15.56 9.57 6.94
PARKER & PARSLEY 89-B, L.P. 14.82 15.56 9.57 6.94
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. 11.59 14.86 8.69 6.57
PARKER & PARSLEY 90-A CONV., L.P. 13.78 15.62 9.58 7.02
PARKER & PARSLEY 90-A, L.P. 13.78 15.62 9.58 7.02
PARKER & PARSLEY 90-B CONV., L.P. 13.89 15.45 9.49 6.60
PARKER & PARSLEY 90-B, L.P. 13.89 15.45 9.49 6.60
PARKER & PARSLEY 90-C CONV., L.P. 12.95 14.91 9.31 6.80
PARKER & PARSLEY 90-C, L.P. 12.95 14.91 9.31 6.80
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. 14.06 15.82 9.46 6.77
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEV., L.P. 14.49 15.56 9.70 6.89
PARKER & PARSLEY 91-A, L.P. 13.65 14.94 9.34 6.44
PARKER & PARSLEY 91-B, L.P. 15.13 16.50 10.15 6.79
AVERAGE SALES PRICE
--------------------------------------------------------------
GAS (PER MCF)
--------------------------------------------------------------
FOR THE THREE MONTHS FOR THE YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
----------------------- ------------------------------------
2001 2000 2000 1999 1998
----------------------- ------------------------------------
PARKER & PARSLEY 81-I, LTD. $ 1.83 $ 3.22 $ 1.78 $ 1.78
PARKER & PARSLEY 81-II, LTD. 1.26 3.07 1.82 1.80
PARKER & PARSLEY 82-I, LTD. 2.33 3.29 1.95 1.82
PARKER & PARSLEY 82-II, LTD. 1.90 2.98 1.79 1.64
PARKER & PARSLEY 82-III, LTD. 1.60 2.54 1.65 1.53
PARKER & PARSLEY 83-A, LTD. 1.76 3.02 1.78 1.60
PARKER & PARSLEY 83-B, LTD. 1.76 2.83 1.66 1.54
PARKER & PARSLEY 84-A, LTD. 1.54 2.49 1.47 1.33
PARKER & PARSLEY 85-A, LTD. 1.71 2.66 1.70 1.56
PARKER & PARSLEY 85-B, LTD. 1.84 2.92 1.72 1.58
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. 1.58 2.65 1.54 1.41
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. 1.70 2.77 1.67 1.56
PARKER & PARSLEY 86-A, LTD. 1.63 2.56 1.57 1.46
PARKER & PARSLEY 86-B, LTD. 1.76 2.82 1.71 1.58
PARKER & PARSLEY 86-C, LTD. 1.62 2.78 1.58 1.49
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. 1.81 2.90 1.73 1.61
PARKER & PARSLEY 87-A CONV., LTD. 1.75 2.86 1.68 1.54
PARKER & PARSLEY 87-A, LTD. 1.75 2.86 1.68 1.54
PARKER & PARSLEY 87-B CONV., LTD. 1.75 2.98 1.64 1.49
PARKER & PARSLEY 87-B, LTD. 1.75 2.98 1.64 1.49
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. 1.84 2.56 1.46 1.23
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. 1.78 2.88 1.62 1.46
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. 1.86 2.99 1.71 1.59
PARKER & PARSLEY 88-A CONV., L.P. 1.73 2.99 1.69 1.56
PARKER & PARSLEY 88-A, L.P. 1.73 2.99 1.69 1.56
PARKER & PARSLEY 88-B CONV., L.P. 1.73 2.87 1.70 1.56
PARKER & PARSLEY 88-B, L.P. 1.73 2.87 1.70 1.56
PARKER & PARSLEY 88-C CONV., L.P. 1.70 2.82 1.70 1.55
PARKER & PARSLEY 88-C, L.P. 1.70 2.82 1.70 1.55
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. 1.53 2.55 1.48 1.41
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. 1.75 2.82 1.69 1.55
PARKER & PARSLEY 89-A CONV., L.P. 1.91 3.07 1.81 1.74
PARKER & PARSLEY 89-A, L.P. 1.91 3.07 1.81 1.74
PARKER & PARSLEY 89-B CONV., L.P. 1.79 2.90 1.72 1.60
PARKER & PARSLEY 89-B, L.P. 1.79 2.90 1.72 1.60
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. 1.56 2.73 1.57 1.46
PARKER & PARSLEY 90-A CONV., L.P. 1.82 2.94 1.76 1.64
PARKER & PARSLEY 90-A, L.P. 1.82 2.94 1.76 1.64
PARKER & PARSLEY 90-B CONV., L.P. 1.68 2.84 1.62 1.50
PARKER & PARSLEY 90-B, L.P. 1.68 2.84 1.62 1.50
PARKER & PARSLEY 90-C CONV., L.P. 1.71 2.89 1.70 1.55
PARKER & PARSLEY 90-C, L.P. 1.71 2.89 1.70 1.55
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. 1.77 2.90 1.72 1.57
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEV., L.P. 1.68 2.91 1.65 1.60
PARKER & PARSLEY 91-A, L.P. 1.81 3.06 1.70 1.56
PARKER & PARSLEY 91-B, L.P. 1.73 2.93 1.61 1.47
AVERAGE PRODUCTION COSTS (LIFTING)
--------------------------------------------------------------
COST PER EQUIVALENT BBL(a)
--------------------------------------------------------------
FOR THE THREE MONTHS FOR THE YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
----------------------- ------------------------------------
2001 2000 2000 1999 1998
----------------------- ------------------------------------
PARKER & PARSLEY 81-I, LTD. $ 8.77 $ 9.52 $ 8.39 $ 8.74
PARKER & PARSLEY 81-II, LTD. 16.26 11.46 8.57 8.80
PARKER & PARSLEY 82-I, LTD. 10.27 11.91 9.80 9.88
PARKER & PARSLEY 82-II, LTD. 9.34 10.25 8.09 7.88
PARKER & PARSLEY 82-III, LTD. 7.80 9.20 8.06 9.00
PARKER & PARSLEY 83-A, LTD. 10.68 10.52 8.64 8.76
PARKER & PARSLEY 83-B, LTD. 8.42 9.12 7.60 8.27
PARKER & PARSLEY 84-A, LTD. 7.95 8.64 7.70 7.66
PARKER & PARSLEY 85-A, LTD. 9.78 9.66 7.02 8.70
PARKER & PARSLEY 85-B, LTD. 9.21 10.19 7.70 8.48
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. 7.02 7.78 6.40 6.96
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. 8.91 9.43 8.01 7.82
PARKER & PARSLEY 86-A, LTD. 8.67 8.86 7.83 9.36
PARKER & PARSLEY 86-B, LTD. 8.77 8.87 7.89 7.64
PARKER & PARSLEY 86-C, LTD. 10.72 10.31 8.66 7.67
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. 10.78 10.84 9.08 7.67
PARKER & PARSLEY 87-A CONV., LTD. 8.31 9.11 7.19 7.78
PARKER & PARSLEY 87-A, LTD. 8.31 9.11 7.19 7.78
PARKER & PARSLEY 87-B CONV., LTD. 7.45 8.63 7.44 6.65
PARKER & PARSLEY 87-B, LTD. 7.45 8.63 7.44 6.65
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. 10.34 12.48 8.97 9.26
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. 8.79 8.42 8.30 7.84
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. 9.30 9.13 6.77 6.81
PARKER & PARSLEY 88-A CONV., L.P. 10.22 8.85 5.98 7.06
PARKER & PARSLEY 88-A, L.P. 10.22 8.85 5.98 7.06
PARKER & PARSLEY 88-B CONV., L.P. 6.52 7.84 7.04 7.51
PARKER & PARSLEY 88-B, L.P. 6.52 7.84 7.04 7.51
PARKER & PARSLEY 88-C CONV., L.P. 7.37 8.10 7.43 7.84
PARKER & PARSLEY 88-C, L.P. 7.37 8.10 7.43 7.84
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. 9.70 9.69 6.31 5.87
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. 8.20 7.57 6.04 6.60
PARKER & PARSLEY 89-A CONV., L.P. 7.97 8.23 6.75 6.92
PARKER & PARSLEY 89-A, L.P. 7.97 8.23 6.75 6.92
PARKER & PARSLEY 89-B CONV., L.P. 8.45 8.59 7.58 7.30
PARKER & PARSLEY 89-B, L.P. 8.45 8.59 7.58 7.30
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. 8.91 8.99 8.69 6.80
PARKER & PARSLEY 90-A CONV., L.P. 7.92 9.43 7.38 6.93
PARKER & PARSLEY 90-A, L.P. 7.92 9.43 7.38 6.93
PARKER & PARSLEY 90-B CONV., L.P. 8.57 8.68 7.28 7.31
PARKER & PARSLEY 90-B, L.P. 8.57 8.68 7.28 7.31
PARKER & PARSLEY 90-C CONV., L.P. 9.49 8.83 7.93 8.22
PARKER & PARSLEY 90-C, L.P. 9.49 8.83 7.93 8.22
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. 7.39 8.22 7.01 8.24
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEV., L.P. 9.35 8.97 7.41 7.44
PARKER & PARSLEY 91-A, L.P. 7.38 7.38 6.31 6.04
PARKER & PARSLEY 91-B, L.P. 7.18 6.88 5.72 5.96
----------
(a) Gas production is converted to oil equivalents at the rate of six mcf per
barrel, representing the relative energy content of natural gas and oil.
A-11
105
TABLE 11
PROVED RESERVES ATTRIBUTABLE TO PIONEER USA,
NONMANAGING GENERAL PARTNERS AND LIMITED PARTNERS
AS OF DECEMBER 31, 2000
TOTAL PROVED RESERVES
----------------------------------------------------------
NONMANAGING
PIONEER USA(a) GENERAL PARTNERS(b)
-------------------------- --------------------------
OIL & OIL &
NGL GAS NGL GAS
(Bbls) (Mcf) (Bbls) (Mcf)
---------- ---------- ---------- ----------
PARKER & PARSLEY 81-I, LTD. 57,816 116,841 4,224 8,535
PARKER & PARSLEY 81-II, LTD. 49,524 72,494 2,029 2,970
PARKER & PARSLEY 82-I, LTD. 114,245 257,041 4,026 9,058
PARKER & PARSLEY 82-II, LTD. 109,901 167,908 3,444 5,262
PARKER & PARSLEY 82-III, LTD. 88,780 85,126 2,916 2,796
PARKER & PARSLEY 83-A, LTD. 275,918 409,246 10,912 16,185
PARKER & PARSLEY 83-B, LTD. 340,686 554,365 13,365 21,748
PARKER & PARSLEY 84-A, LTD. 344,084 570,471 15,185 25,176
PARKER & PARSLEY 85-A, LTD. 11,187 15,154 -- --
PARKER & PARSLEY 85-B, LTD. 5,233 7,901 -- --
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. 11,095 12,053 -- --
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. 6,238 10,351 -- --
PARKER & PARSLEY 86-A, LTD. 6,075 11,653 -- --
PARKER & PARSLEY 86-B, LTD. 16,246 21,064 -- --
PARKER & PARSLEY 86-C, LTD. 11,745 16,465 -- --
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. 3,174 4,960 -- --
PARKER & PARSLEY 87-A CONV., LTD. 3,451 5,510 -- --
PARKER & PARSLEY 87-A, LTD. 21,378 34,166 -- --
PARKER & PARSLEY 87-B CONV., LTD. 2,988 4,431 -- --
PARKER & PARSLEY 87-B, LTD. 12,411 18,405 -- --
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. 9,632 9,615 -- --
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. 13,937 22,316 -- --
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. 7,631 9,691 -- --
PARKER & PARSLEY 88-A CONV., L.P. 5,253 7,315 -- --
PARKER & PARSLEY 88-A, L.P. 18,059 25,149 -- --
PARKER & PARSLEY 88-B CONV., L.P. 4,220 5,515 -- --
PARKER & PARSLEY 88-B, L.P. 13,722 17,933 -- --
PARKER & PARSLEY 88-C CONV., L.P. 2,870 4,039 -- --
PARKER & PARSLEY 88-C, L.P. 1,908 2,685 -- --
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. 7,216 9,530 -- --
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. 7,708 9,375 -- --
PARKER & PARSLEY 89-A CONV., L.P. 2,027 2,852 -- --
PARKER & PARSLEY 89-A, L.P. 13,556 19,075 -- --
PARKER & PARSLEY 89-B CONV., L.P. 5,782 7,927 -- --
PARKER & PARSLEY 89-B, L.P. 9,810 13,454 -- --
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. 7,311 7,715 -- --
PARKER & PARSLEY 90-A CONV., L.P. 2,145 2,701 -- --
PARKER & PARSLEY 90-A, L.P. 12,362 15,527 -- --
PARKER & PARSLEY 90-B CONV., L.P. 12,549 16,252 -- --
PARKER & PARSLEY 90-B, L.P. 25,709 33,227 -- --
PARKER & PARSLEY 90-C CONV., L.P. 6,507 6,522 -- --
PARKER & PARSLEY 90-C, L.P. 9,158 9,179 -- --
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. 12,668 12,480 -- --
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEV., L.P. 4,177 3,814 -- --
PARKER & PARSLEY 91-A, L.P. 13,541 19,696 -- --
PARKER & PARSLEY 91-B, L.P. 11,335 13,334 -- --
---------- ---------- ---------- ----------
TOTAL(D) 1,732,968 2,702,523 56,101 91,730
========== ========== ========== ==========
TOTAL PROVED RESERVES
----------------------------------------------------------
LIMITED PARTNERS(c) TOTAL(d)
-------------------------- --------------------------
OIL & OIL &
NGL GAS NGL GAS
(Bbls) (Mcf) (Bbls) (Mcf)
---------- ---------- ---------- ----------
PARKER & PARSLEY 81-I, LTD. 149,140 301,399 211,180 426,775
PARKER & PARSLEY 81-II, LTD. 151,342 221,535 202,895 296,999
PARKER & PARSLEY 82-I, LTD. 239,586 539,046 357,857 805,145
PARKER & PARSLEY 82-II, LTD. 294,856 450,483 408,201 623,653
PARKER & PARSLEY 82-III, LTD. 219,396 210,367 311,092 298,289
PARKER & PARSLEY 83-A, LTD. 752,434 1,116,022 1,039,264 1,541,453
PARKER & PARSLEY 83-B, LTD. 918,850 1,495,154 1,272,901 2,071,267
PARKER & PARSLEY 84-A, LTD. 990,507 1,642,204 1,349,776 2,237,851
PARKER & PARSLEY 85-A, LTD. 371,156 502,769 382,343 517,923
PARKER & PARSLEY 85-B, LTD. 299,222 451,758 304,455 459,659
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. 317,553 344,957 328,648 357,010
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. 225,761 374,615 231,999 384,966
PARKER & PARSLEY 86-A, LTD. 446,620 856,663 452,695 868,316
PARKER & PARSLEY 86-B, LTD. 919,385 1,192,033 935,631 1,213,097
PARKER & PARSLEY 86-C, LTD. 886,520 1,242,812 898,265 1,259,277
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. 314,198 491,002 317,372 495,962
PARKER & PARSLEY 87-A CONV., LTD. 178,340 284,684 181,791 290,194
PARKER & PARSLEY 87-A, LTD. 1,313,604 2,099,440 1,334,982 2,133,606
PARKER & PARSLEY 87-B CONV., LTD. 245,753 364,425 248,741 368,856
PARKER & PARSLEY 87-B, LTD. 1,003,438 1,487,986 1,015,849 1,506,391
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. 704,591 703,402 714,223 713,017
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. 523,830 838,757 537,767 861,073
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. 755,457 959,391 763,088 969,082
PARKER & PARSLEY 88-A CONV., L.P. 222,619 310,018 227,872 317,333
PARKER & PARSLEY 88-A, L.P. 758,976 1,056,963 777,035 1,082,112
PARKER & PARSLEY 88-B CONV., L.P. 269,028 351,572 273,248 357,087
PARKER & PARSLEY 88-B, L.P. 659,140 861,434 672,862 879,367
PARKER & PARSLEY 88-C CONV., L.P. 219,589 308,985 222,459 313,024
PARKER & PARSLEY 88-C, L.P. 156,634 220,398 158,542 223,083
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. 420,265 555,001 427,481 564,531
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. 763,081 928,143 770,789 937,518
PARKER & PARSLEY 89-A CONV., L.P. 200,631 282,306 202,658 285,158
PARKER & PARSLEY 89-A, L.P. 588,978 828,781 602,534 847,856
PARKER & PARSLEY 89-B CONV., L.P. 434,277 595,395 440,059 603,322
PARKER & PARSLEY 89-B, L.P. 474,439 650,677 484,249 664,131
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. 461,062 486,555 468,373 494,270
PARKER & PARSLEY 90-A CONV., L.P. 132,990 167,459 135,135 170,160
PARKER & PARSLEY 90-A, L.P. 381,738 479,494 394,100 495,021
PARKER & PARSLEY 90-B CONV., L.P. 740,794 959,455 753,343 975,707
PARKER & PARSLEY 90-B, L.P. 2,023,300 2,615,035 2,049,009 2,648,262
PARKER & PARSLEY 90-C CONV., L.P. 460,152 461,213 466,659 467,735
PARKER & PARSLEY 90-C, L.P. 741,036 742,738 750,194 751,917
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. 809,113 797,112 821,781 809,592
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEV., L.P. 413,544 377,597 417,721 381,411
PARKER & PARSLEY 91-A, L.P. 965,302 1,404,059 978,843 1,423,755
PARKER & PARSLEY 91-B, L.P. 1,030,441 1,212,237 1,041,776 1,225,571
---------- ---------- ---------- ----------
TOTAL(D) 25,548,668 34,823,531 27,337,737 37,617,784
========== ========== ========== ==========
----------
(a) Represents Pioneer USA's partnership interests in each partnership as: (1)
the sole or managing general partner of the partnership; (2) a limited
partner of the partnership; and (3) the sole general partner of each
nonmanaging general partner. Pioneer USA will not receive any Pioneer
common stock or cash payment for its partnership interests in any
participating partnership. However, as a result of the merger of each
participating partnership, Pioneer USA will acquire 100% of the properties
of the partnership including properties attributable to its partnership
interests in the partnerships.
(b) Represents four unaffiliated individuals' partnership interests as limited
partners of each nonmanaging general partner. Excludes Pioneer USA's
partnership interests as general partner of each nonmanaging general
partner.
(c) Represents the partnership interests of unaffiliated limited partners of
each partnership. Excludes Pioneer USA's partnership interests as a limited
partner of any partnership.
(d) Corresponds to amounts in the reserve report prepared by Williamson
Petroleum Consultants, Inc. as of December 31, 2000.
A-12
106
TABLE 12
PROVED RESERVES ATTRIBUTABLE TO PIONEER USA,
NONMANAGING GENERAL PARTNERS AND LIMITED PARTNERS
AS OF MARCH 31, 2001
TOTAL PROVED RESERVES
----------------------------------------------------------
NONMANAGING
PIONEER USA(a) GENERAL PARTNERS(b)
-------------------------- --------------------------
OIL & OIL &
NGL GAS NGL GAS
(Bbls) (Mcf) (Bbls) (Mcf)
---------- ---------- ---------- ----------
PARKER & PARSLEY 81-I, LTD. 44,015 89,859 3,183 6,506
PARKER & PARSLEY 81-II, LTD. 34,163 51,620 1,399 2,115
PARKER & PARSLEY 82-I, LTD. 82,220 182,248 2,887 6,397
PARKER & PARSLEY 82-II, LTD. 83,829 124,152 2,621 3,875
PARKER & PARSLEY 82-III, LTD. 70,421 67,391 2,308 2,201
PARKER & PARSLEY 83-A, LTD. 214,832 320,743 8,496 12,685
PARKER & PARSLEY 83-B, LTD. 275,618 448,098 10,813 17,579
PARKER & PARSLEY 84-A, LTD. 285,567 482,485 12,603 21,293
PARKER & PARSLEY 85-A, LTD. 8,498 11,656 -- --
PARKER & PARSLEY 85-B, LTD. 3,895 5,745 -- --
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. 9,600 10,166 -- --
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. 5,008 8,464 -- --
PARKER & PARSLEY 86-A, LTD. 4,687 8,889 -- --
PARKER & PARSLEY 86-B, LTD. 13,080 17,075 -- --
PARKER & PARSLEY 86-C, LTD. 8,652 11,999 -- --
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. 2,479 3,864 -- --
PARKER & PARSLEY 87-A CONV., LTD. 2,683 4,348 -- --
PARKER & PARSLEY 87-A, LTD. 16,718 27,103 -- --
PARKER & PARSLEY 87-B CONV., LTD. 2,359 3,531 -- --
PARKER & PARSLEY 87-B, LTD. 9,798 14,667 -- --
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. 7,415 7,413 -- --
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. 11,686 18,860 -- --
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. 6,337 8,010 -- --
PARKER & PARSLEY 88-A CONV., L.P. 4,229 5,872 -- --
PARKER & PARSLEY 88-A, L.P. 14,541 20,192 -- --
PARKER & PARSLEY 88-B CONV., L.P. 3,480 4,558 -- --
PARKER & PARSLEY 88-B, L.P. 11,314 14,819 -- --
PARKER & PARSLEY 88-C CONV., L.P. 2,345 3,297 -- --
PARKER & PARSLEY 88-C, L.P. 1,559 2,192 -- --
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. 6,055 7,923 -- --
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. 6,543 7,829 -- --
PARKER & PARSLEY 89-A CONV., L.P. 1,698 2,414 -- --
PARKER & PARSLEY 89-A, L.P. 11,359 16,152 -- --
PARKER & PARSLEY 89-B CONV., L.P. 4,604 6,368 -- --
PARKER & PARSLEY 89-B, L.P. 7,808 10,804 -- --
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. 5,909 6,237 -- --
PARKER & PARSLEY 90-A CONV., L.P. 1,744 2,199 -- --
PARKER & PARSLEY 90-A, L.P. 9,949 12,544 -- --
PARKER & PARSLEY 90-B CONV., L.P. 10,224 13,186 -- --
PARKER & PARSLEY 90-B, L.P. 20,923 26,947 -- --
PARKER & PARSLEY 90-C CONV., L.P. 5,218 5,187 -- --
PARKER & PARSLEY 90-C, L.P. 7,344 7,301 -- --
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. 10,449 10,006 -- --
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEV., L.P. 3,482 3,172 -- --
PARKER & PARSLEY 91-A, L.P. 11,647 16,716 -- --
PARKER & PARSLEY 91-B, L.P. 9,825 11,641 -- --
---------- ---------- ---------- ----------
TOTAL 1,375,809 2,145,942 44,310 72,651
========== ========== ========== ==========
TOTAL PROVED RESERVES
----------------------------------------------------------
LIMITED PARTNERS(c) TOTAL
-------------------------- --------------------------
OIL & OIL &
NGL GAS NGL GAS
(Bbls) (Mcf) (Bbls) (Mcf)
---------- ---------- ---------- ----------
PARKER & PARSLEY 81-I, LTD. 119,464 242,599 166,662 338,964
PARKER & PARSLEY 81-II, LTD. 106,202 158,535 141,764 212,270
PARKER & PARSLEY 82-I, LTD. 174,292 386,652 259,399 575,297
PARKER & PARSLEY 82-II, LTD. 229,733 344,629 316,183 472,656
PARKER & PARSLEY 82-III, LTD. 176,244 171,833 248,973 241,425
PARKER & PARSLEY 83-A, LTD. 585,852 874,674 809,180 1,208,102
PARKER & PARSLEY 83-B, LTD. 743,358 1,208,548 1,029,789 1,674,225
PARKER & PARSLEY 84-A, LTD. 822,057 1,388,920 1,120,227 1,892,698
PARKER & PARSLEY 85-A, LTD. 281,965 386,713 290,463 398,369
PARKER & PARSLEY 85-B, LTD. 222,731 328,479 226,626 334,224
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. 274,765 290,970 284,365 301,136
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. 181,256 306,332 186,264 314,796
PARKER & PARSLEY 86-A, LTD. 344,581 653,460 349,268 662,349
PARKER & PARSLEY 86-B, LTD. 740,201 966,261 753,281 983,336
PARKER & PARSLEY 86-C, LTD. 653,081 905,703 661,733 917,702
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. 245,444 382,576 247,923 386,440
PARKER & PARSLEY 87-A CONV., LTD. 138,639 224,665 141,322 229,013
PARKER & PARSLEY 87-A, LTD. 1,027,295 1,665,437 1,044,013 1,692,540
PARKER & PARSLEY 87-B CONV., LTD. 193,991 290,404 196,350 293,935
PARKER & PARSLEY 87-B, LTD. 792,129 1,185,806 801,927 1,200,473
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. 542,443 542,313 549,858 549,726
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. 439,208 708,847 450,894 727,707
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. 627,335 792,961 633,672 800,971
PARKER & PARSLEY 88-A CONV., L.P. 179,233 248,890 183,462 254,762
PARKER & PARSLEY 88-A, L.P. 611,107 848,608 625,648 868,800
PARKER & PARSLEY 88-B CONV., L.P. 221,815 290,537 225,295 295,095
PARKER & PARSLEY 88-B, L.P. 543,481 711,836 554,795 726,655
PARKER & PARSLEY 88-C CONV., L.P. 179,408 252,233 181,753 255,530
PARKER & PARSLEY 88-C, L.P. 127,978 179,932 129,537 182,124
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. 352,641 461,401 358,696 469,324
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. 647,747 775,098 654,290 782,927
PARKER & PARSLEY 89-A CONV., L.P. 168,085 239,019 169,783 241,433
PARKER & PARSLEY 89-A, L.P. 493,498 701,759 504,857 717,911
PARKER & PARSLEY 89-B CONV., L.P. 345,765 478,251 350,369 484,619
PARKER & PARSLEY 89-B, L.P. 377,628 522,545 385,436 533,349
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. 372,674 393,332 378,583 399,569
PARKER & PARSLEY 90-A CONV., L.P. 108,108 136,309 109,852 138,508
PARKER & PARSLEY 90-A, L.P. 307,219 387,363 317,168 399,907
PARKER & PARSLEY 90-B CONV., L.P. 603,559 778,404 613,783 791,590
PARKER & PARSLEY 90-B, L.P. 1,646,642 2,120,743 1,667,565 2,147,690
PARKER & PARSLEY 90-C CONV., L.P. 369,034 366,832 374,252 372,019
PARKER & PARSLEY 90-C, L.P. 594,276 590,739 601,620 598,040
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. 667,438 639,137 677,887 649,143
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEV., L.P. 344,669 314,060 348,151 317,232
PARKER & PARSLEY 91-A, L.P. 830,236 1,191,626 841,883 1,208,342
PARKER & PARSLEY 91-B, L.P. 893,203 1,058,325 903,028 1,069,966
---------- ---------- ---------- ----------
TOTAL 20,647,710 28,094,296 22,067,829 30,312,889
========== ========== ========== ==========
----------
(a) Represents Pioneer USA's partnership interests in each partnership as: (1)
the sole or managing general partner of the partnership; (2) a limited
partner of the partnership; and (3) the sole general partner of each
nonmanaging general partner. Pioneer USA will not receive any Pioneer
common stock or cash payment for its partnership interests in any
participating partnership. However, as a result of the merger of each
participating partnership, Pioneer USA will acquire 100% of the properties
of the partnership including properties attributable to its partnership
interests in the partnerships.
(b) Represents four unaffiliated individuals' partnership interests as limited
partners of each nonmanaging general partner. Excludes Pioneer USA's
partnership interests as general partner of each nonmanaging general
partner.
(c) Represents the partnership interests of unaffiliated limited partners of
each partnership. Excludes Pioneer USA's partnership interests as a limited
partner of any partnership.
A-13
107
TABLE 13
OIL, NATURAL GAS LIQUIDS AND GAS PRODUCTION
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 AND
THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
OIL & NGL (Bbls)
------------------------------------------------------------------------
FOR THE THREE MONTHS FOR THE YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
--------------------------- ------------------------------------------
2001 2000 2000 1999 1998
------------ ------------ ------------ ------------ ------------
PARKER & PARSLEY 81-I, LTD. 3,619 13,976 14,970 13,937
PARKER & PARSLEY 81-II, LTD. 2,737 13,921 13,232 16,033
PARKER & PARSLEY 82-I, LTD. 6,243 24,158 23,886 25,898
PARKER & PARSLEY 82-II, LTD. 6,483 24,922 27,554 27,854
PARKER & PARSLEY 82-III, LTD. 5,615 20,646 20,801 19,540
PARKER & PARSLEY 83-A, LTD. 16,424 66,679 69,238 67,612
PARKER & PARSLEY 83-B, LTD. 21,782 81,814 89,446 93,695
PARKER & PARSLEY 84-A, LTD. 21,791 85,485 85,868 88,702
PARKER & PARSLEY 85-A, LTD. 7,435 27,458 31,246 27,808
PARKER & PARSLEY 85-B, LTD. 4,993 20,809 21,410 24,803
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. 4,692 17,619 20,664 21,200
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. 3,625 15,698 14,598 15,439
PARKER & PARSLEY 86-A, LTD. 7,966 31,785 33,226 31,472
PARKER & PARSLEY 86-B, LTD. 15,880 62,337 63,132 70,399
PARKER & PARSLEY 86-C, LTD. 16,610 66,329 64,894 74,674
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. 5,424 20,938 20,843 22,245
PARKER & PARSLEY 87-A CONV., LTD. 3,368 13,096 13,578 14,371
PARKER & PARSLEY 87-A, LTD. 25,185 97,824 101,441 107,375
PARKER & PARSLEY 87-B CONV., LTD. 4,280 16,015 16,758 17,879
PARKER & PARSLEY 87-B, LTD. 17,478 65,401 68,433 73,036
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. 13,873 53,656 53,101 64,367
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. 10,018 33,115 35,770 40,796
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. 9,329 35,242 40,495 42,801
PARKER & PARSLEY 88-A CONV., L.P. 3,496 14,604 17,052 16,899
PARKER & PARSLEY 88-A, L.P. 11,946 49,808 58,141 57,635
PARKER & PARSLEY 88-B CONV., L.P. 4,667 18,572 16,986 17,610
PARKER & PARSLEY 88-B, L.P. 11,503 45,729 41,830 43,365
PARKER & PARSLEY 88-C CONV., L.P. 3,815 15,453 14,136 14,859
PARKER & PARSLEY 88-C, L.P. 2,729 11,023 10,071 10,596
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. 6,060 26,976 30,280 34,491
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. 10,892 46,284 48,802 48,933
PARKER & PARSLEY 89-A CONV., L.P. 3,150 13,092 14,166 14,102
PARKER & PARSLEY 89-A, L.P. 9,366 38,923 42,129 41,931
PARKER & PARSLEY 89-B CONV., L.P. 7,859 30,959 32,585 35,481
PARKER & PARSLEY 89-B, L.P. 8,656 34,089 35,879 39,063
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. 7,721 30,738 30,310 36,741
PARKER & PARSLEY 90-A CONV., L.P. 2,527 9,876 10,130 11,399
PARKER & PARSLEY 90-A, L.P. 7,290 28,519 29,248 32,915
PARKER & PARSLEY 90-B CONV., L.P. 12,969 53,388 53,864 58,543
PARKER & PARSLEY 90-B, L.P. 35,197 144,804 146,064 158,775
PARKER & PARSLEY 90-C CONV., L.P. 7,745 32,773 32,618 33,187
PARKER & PARSLEY 90-C, L.P. 12,449 52,686 52,433 53,358
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. 13,108 52,913 46,335 49,468
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEV., L.P. 5,652 22,593 20,688 20,835
PARKER & PARSLEY 91-A, L.P. 16,199 64,129 64,820 70,623
PARKER & PARSLEY 91-B, L.P. 17,038 69,550 65,056 66,527
------------ ------------ ------------ ------------
TOTAL 456,884 1,816,404 1,858,207 1,969,272
============ ============ ============ ============
GAS (Mcf)
------------------------------------------------------------------------
FOR THE THREE MONTHS FOR THE YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
--------------------------- ------------------------------------------
2001 2000 2000 1999 1998
------------ ------------ ------------ ------------ ------------
PARKER & PARSLEY 81-I, LTD. 6,102 25,901 28,708 24,638
PARKER & PARSLEY 81-II, LTD. 1,489 15,864 19,167 22,439
PARKER & PARSLEY 82-I, LTD. 12,235 45,981 48,380 48,971
PARKER & PARSLEY 82-II, LTD. 9,151 35,900 42,858 41,862
PARKER & PARSLEY 82-III, LTD. 6,304 21,480 23,061 17,680
PARKER & PARSLEY 83-A, LTD. 22,988 94,612 109,716 95,156
PARKER & PARSLEY 83-B, LTD. 35,379 132,106 157,842 147,495
PARKER & PARSLEY 84-A, LTD. 35,071 138,617 154,235 145,870
PARKER & PARSLEY 85-A, LTD. 11,812 41,549 55,226 43,021
PARKER & PARSLEY 85-B, LTD. 7,429 30,909 33,467 41,501
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. 5,061 20,905 23,218 22,343
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. 5,393 22,987 27,627 25,328
PARKER & PARSLEY 86-A, LTD. 14,461 56,549 62,354 49,805
PARKER & PARSLEY 86-B, LTD. 20,435 79,859 86,726 97,715
PARKER & PARSLEY 86-C, LTD. 21,750 95,610 105,081 129,149
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. 7,936 33,570 30,923 33,219
PARKER & PARSLEY 87-A CONV., LTD. 5,425 20,355 24,503 24,025
PARKER & PARSLEY 87-A, LTD. 40,626 152,075 183,099 179,494
PARKER & PARSLEY 87-B CONV., LTD. 6,437 23,682 24,436 25,477
PARKER & PARSLEY 87-B, LTD. 26,331 96,740 99,771 104,072
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. 9,135 45,872 53,145 56,240
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. 14,555 49,380 48,774 50,220
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. 11,546 48,307 52,874 58,036
PARKER & PARSLEY 88-A CONV., L.P. 4,685 21,399 27,417 25,367
PARKER & PARSLEY 88-A, L.P. 15,987 72,965 93,498 86,501
PARKER & PARSLEY 88-B CONV., L.P. 5,699 21,781 23,221 21,214
PARKER & PARSLEY 88-B, L.P. 14,019 53,620 57,190 52,254
PARKER & PARSLEY 88-C CONV., L.P. 4,769 19,618 21,119 19,764
PARKER & PARSLEY 88-C, L.P. 3,392 13,979 15,049 14,091
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. 9,789 37,939 44,467 51,099
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. 15,649 59,532 66,701 61,718
PARKER & PARSLEY 89-A CONV., L.P. 4,757 20,057 20,484 21,106
PARKER & PARSLEY 89-A, L.P. 14,142 59,638 60,905 62,751
PARKER & PARSLEY 89-B CONV., L.P. 11,218 42,179 46,681 52,345
PARKER & PARSLEY 89-B, L.P. 12,352 46,454 51,400 57,643
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. 6,473 30,037 32,985 44,624
PARKER & PARSLEY 90-A CONV., L.P. 3,430 13,365 14,989 16,309
PARKER & PARSLEY 90-A, L.P. 9,897 38,570 43,302 47,086
PARKER & PARSLEY 90-B CONV., L.P. 15,621 64,786 70,803 73,460
PARKER & PARSLEY 90-B, L.P. 42,382 175,696 192,016 199,215
PARKER & PARSLEY 90-C CONV., L.P. 6,434 30,423 29,399 30,348
PARKER & PARSLEY 90-C, L.P. 10,341 48,907 47,265 48,787
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. 12,754 49,484 47,331 54,218
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEV., L.P. 3,949 22,121 19,579 24,095
PARKER & PARSLEY 91-A, L.P. 22,979 94,315 100,615 108,617
PARKER & PARSLEY 91-B, L.P. 19,802 85,556 74,025 68,244
------------ ------------ ------------ ------------
TOTAL 607,571 2,451,231 2,695,632 2,724,612
============ ============ ============ ============
TOTAL (BOE)(a)
------------------------------------------------------------------------
FOR THE THREE MONTHS FOR THE YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
--------------------------- ------------------------------------------
2001 2000 2000 1999 1998
------------ ------------ ------------ ------------ ------------
PARKER & PARSLEY 81-I, LTD. 4,636 18,293 19,755 18,043
PARKER & PARSLEY 81-II, LTD. 2,985 16,565 16,427 19,773
PARKER & PARSLEY 82-I, LTD. 8,282 31,822 31,949 34,060
PARKER & PARSLEY 82-II, LTD. 8,008 30,905 34,697 34,831
PARKER & PARSLEY 82-III, LTD. 6,666 24,226 24,645 22,487
PARKER & PARSLEY 83-A, LTD. 20,255 82,448 87,524 83,471
PARKER & PARSLEY 83-B, LTD. 27,679 103,832 115,753 118,278
PARKER & PARSLEY 84-A, LTD. 27,636 108,588 111,574 113,014
PARKER & PARSLEY 85-A, LTD. 9,404 34,383 40,450 34,978
PARKER & PARSLEY 85-B, LTD. 6,231 25,961 26,988 31,720
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. 5,536 21,103 24,534 24,924
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. 4,524 19,529 19,203 19,660
PARKER & PARSLEY 86-A, LTD. 10,376 41,210 43,618 39,773
PARKER & PARSLEY 86-B, LTD. 19,286 75,647 77,586 86,685
PARKER & PARSLEY 86-C, LTD. 20,235 82,264 82,408 96,199
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. 6,747 26,533 25,997 27,782
PARKER & PARSLEY 87-A CONV., LTD. 4,272 16,489 17,662 18,375
PARKER & PARSLEY 87-A, LTD. 31,956 123,170 131,958 137,291
PARKER & PARSLEY 87-B CONV., LTD. 5,353 19,962 20,831 22,125
PARKER & PARSLEY 87-B, LTD. 21,867 81,524 85,062 90,381
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. 15,396 61,301 61,959 73,740
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. 12,444 41,345 43,899 49,166
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. 11,253 43,293 49,307 52,474
PARKER & PARSLEY 88-A CONV., L.P. 4,277 18,171 21,622 21,127
PARKER & PARSLEY 88-A, L.P. 14,611 61,969 73,724 72,052
PARKER & PARSLEY 88-B CONV., L.P. 5,617 22,202 20,856 21,146
PARKER & PARSLEY 88-B, L.P. 13,840 54,666 51,362 52,074
PARKER & PARSLEY 88-C CONV., L.P. 4,610 18,723 17,656 18,153
PARKER & PARSLEY 88-C, L.P. 3,294 13,353 12,579 12,945
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. 7,692 33,299 37,691 43,008
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. 13,500 56,206 59,919 59,219
PARKER & PARSLEY 89-A CONV., L.P. 3,943 16,435 17,580 17,620
PARKER & PARSLEY 89-A, L.P. 11,723 48,863 52,280 52,390
PARKER & PARSLEY 89-B CONV., L.P. 9,729 37,989 40,365 44,205
PARKER & PARSLEY 89-B, L.P. 10,715 41,831 44,446 48,670
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. 8,800 35,744 35,808 44,178
PARKER & PARSLEY 90-A CONV., L.P. 3,099 12,104 12,628 14,117
PARKER & PARSLEY 90-A, L.P. 8,940 34,947 36,465 40,763
PARKER & PARSLEY 90-B CONV., L.P. 15,573 64,186 65,665 70,786
PARKER & PARSLEY 90-B, L.P. 42,261 174,087 178,067 191,978
PARKER & PARSLEY 90-C CONV., L.P. 8,817 37,844 37,518 38,245
PARKER & PARSLEY 90-C, L.P. 14,173 60,837 60,311 61,489
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. 15,234 61,160 54,224 58,504
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEV., L.P. 6,310 26,280 23,951 24,851
PARKER & PARSLEY 91-A, L.P. 20,029 79,848 81,589 88,726
PARKER & PARSLEY 91-B, L.P. 20,338 83,809 77,394 77,901
------------ ------------ ------------ ------------
TOTAL 558,152 2,224,946 2,307,486 2,423,377
============ ============ ============ ============
----------
(a) Gas production is converted to oil equivalents at the rate of six mcf per
barrel, representing the relative energy content of natural gas and oil.
A-14
108
TABLE 14
PRODUCTIVE WELLS AND DEVELOPED ACREAGE
AS OF DECEMBER 31, 2000
PRODUCTIVE OIL AND
GAS WELLS DEVELOPED ACRES
------------------------ ------------------------
GROSS(A) NET(B) GROSS(A) NET(B)
--------- --------- --------- ---------
PARKER & PARSLEY 81-I, LTD. 16 9.13 2,328 1,250
PARKER & PARSLEY 81-II, LTD. 12 8.40 1,563 1,050
PARKER & PARSLEY 82-I, LTD. 17 16.19 1,702 1,557
PARKER & PARSLEY 82-II, LTD. 16 15.38 1,882 1,489
PARKER & PARSLEY 82-III, LTD. 13 11.63 2,013 1,381
PARKER & PARSLEY 83-A, LTD. 42 36.59 5,154 3,602
PARKER & PARSLEY 83-B, LTD. 41 40.66 5,227 4,190
PARKER & PARSLEY 84-A, LTD. 38 37.55 4,929 4,019
PARKER & PARSLEY 85-A, LTD. 21 17.05 2,083 1,315
PARKER & PARSLEY 85-B, LTD. 17 13.05 2,536 1,215
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD. 11 7.78 1,204 658
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD. 12 9.23 1,282 738
PARKER & PARSLEY 86-A, LTD. 26 21.86 1,689 1,108
PARKER & PARSLEY 86-B, LTD. 43 35.65 2,709 1,694
PARKER & PARSLEY 86-C, LTD. 53 44.36 4,432 2,786
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD. 14 12.37 1,685 1,131
PARKER & PARSLEY 87-A CONV., LTD. 73 7.06 6,498 659
PARKER & PARSLEY 87-A, LTD. 73 52.76 6,498 4,926
PARKER & PARSLEY 87-B CONV., LTD. 49 8.31 4,465 796
PARKER & PARSLEY 87-B, LTD. 49 33.94 4,465 3,251
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. 85 40.35 10,576 3,615
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. 34 20.52 4,302 1,609
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD. 24 19.65 1,685 1,130
PARKER & PARSLEY 88-A CONV., L.P. 39 8.01 3,286 592
PARKER & PARSLEY 88-A, L.P. 39 25.98 3,286 1,628
PARKER & PARSLEY 88-B CONV., L.P. 41 7.65 2,766 956
PARKER & PARSLEY 88-B, L.P. 41 18.82 2,766 412
PARKER & PARSLEY 88-C CONV., L.P. 41 6.97 2,757 343
PARKER & PARSLEY 88-C, L.P. 41 4.97 2,757 244
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. 23 18.69 1,689 1,193
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P. 22 19.18 1,873 1,211
PARKER & PARSLEY 89-A CONV., L.P. 32 5.87 2,811 553
PARKER & PARSLEY 89-A, L.P. 32 17.45 2,811 1,645
PARKER & PARSLEY 89-B CONV., L.P. 33 13.72 2,992 1,150
PARKER & PARSLEY 89-B, L.P. 33 15.12 2,992 1,267
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P. 19 13.87 1,913 1,253
PARKER & PARSLEY 90-A CONV., L.P. 25 4.56 2,045 395
PARKER & PARSLEY 90-A, L.P. 25 13.17 2,045 1,141
PARKER & PARSLEY 90-B CONV., L.P. 103 23.18 9,729 2,086
PARKER & PARSLEY 90-B, L.P. 103 62.92 9,729 5,658
PARKER & PARSLEY 90-C CONV., L.P. 42 13.68 1,021 316
PARKER & PARSLEY 90-C, L.P. 42 21.99 1,021 509
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P. 27 20.65 2,333 1,556
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEV., L.P. 12 9.00 1,017 658
PARKER & PARSLEY 91-A, L.P. 47 24.71 4,389 1,891
PARKER & PARSLEY 91-B, L.P. 29 21.97 1,922 1,301
--------- --------- --------- ---------
TOTAL 1,670 911.60 150,857 73,127
========= ========= ========= =========
----------
(a) A "gross well" or "gross acre" is a well or an acre in which a working
interest is owned. The number of gross wells or acres represents the sum of
the wells or acres in which a working interest is owned.
(b) A "net well" or "net acre" is deemed to exist when the sum of the
fractional working interests in gross wells or acres equals one. The number
of net wells or acres is the sum of the fractional working interests in
gross wells or acres.
A-15
109
TABLE 15
RECENT TRADES OF PARTNERSHIP INTERESTS (A)
PER $1,000 INVESTMENT
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND THE YEARS ENDED
DECEMBER 31, 2000 AND 1999
PER $1,000 INVESTMENT
------------------------------------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 2001
------------------------------------------------------
SALES PRICE
------------------------ NUMBER NUMBER
HIGH LOW OF SALES SOLD
--------- --------- --------- ---------
PARKER & PARSLEY 82-I, LTD.
PARKER & PARSLEY 82-II, LTD.
PARKER & PARSLEY 83-A, LTD.
PARKER & PARSLEY 83-B, LTD.
PARKER & PARSLEY 84-A, LTD.
PARKER & PARSLEY 85-A, LTD.
PARKER & PARSLEY 85-B, LTD.
PARKER & PARSLEY 86-A, LTD.
PARKER & PARSLEY 86-B, LTD.
PARKER & PARSLEY 86-C, LTD.
PARKER & PARSLEY 87-A, LTD.
PARKER & PARSLEY 87-B, LTD.
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
PARKER & PARSLEY 88-A, L.P.
PARKER & PARSLEY 88-B, L.P.
PARKER & PARSLEY 88-C, L.P.
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
PARKER & PARSLEY 89-A, L.P.
PARKER & PARSLEY 89-B, L.P.
PARKER & PARSLEY 90-A, L.P.
PARKER & PARSLEY 90-B, L.P.
PARKER & PARSLEY 90-C, L.P.
PARKER & PARSLEY 91-A, L.P.
PARKER & PARSLEY 91-B, L.P.
PER $1,000 INVESTMENT
------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2000
------------------------------------------------------
SALES PRICE
------------------------ NUMBER NUMBER
HIGH LOW OF SALES SOLD
--------- --------- --------- ---------
PARKER & PARSLEY 82-I, LTD. $ 47.75 $ 37.50 5 61
PARKER & PARSLEY 82-II, LTD. 89.00 45.00 6 60
PARKER & PARSLEY 83-A, LTD. 112.50 94.00 6 60
PARKER & PARSLEY 83-B, LTD. 135.00 96.11 5 105
PARKER & PARSLEY 84-A, LTD. 165.00 101.11 8 175
PARKER & PARSLEY 85-A, LTD. -- -- -- --
PARKER & PARSLEY 85-B, LTD. 135.00 100.00 4 35
PARKER & PARSLEY 86-A, LTD. 160.00 65.00 4 45
PARKER & PARSLEY 86-B, LTD. 160.00 97.00 8 120
PARKER & PARSLEY 86-C, LTD. 135.00 95.45 4 40
PARKER & PARSLEY 87-A, LTD. 163.75 78.00 12 128
PARKER & PARSLEY 87-B, LTD. 179.25 105.66 14 255
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. 280.00 184.00 2 12
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. 310.00 146.00 3 47
PARKER & PARSLEY 88-A, L.P. 205.00 135.00 6 43
PARKER & PARSLEY 88-B, L.P. 188.12 128.00 3 230
PARKER & PARSLEY 88-C, L.P. 175.00 138.20 4 17
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. -- -- -- --
PARKER & PARSLEY 89-A, L.P. 221.00 140.00 7 100
PARKER & PARSLEY 89-B, L.P. 215.00 215.00 1 5
PARKER & PARSLEY 90-A, L.P. 230.00 126.11 3 35
PARKER & PARSLEY 90-B, L.P. 211.12 100.00 19 275
PARKER & PARSLEY 90-C, L.P. 210.00 112.30 12 251
PARKER & PARSLEY 91-A, L.P. 259.00 212.00 2 22
PARKER & PARSLEY 91-B, L.P. 235.11 235.11 1 10
PER $1,000 INVESTMENT
------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 1999
------------------------------------------------------
SALES PRICE
------------------------ NUMBER NUMBER
HIGH LOW OF SALES SOLD
--------- --------- --------- ---------
PARKER & PARSLEY 82-I, LTD. $ 15.00 $ 4.17 2 24
PARKER & PARSLEY 82-II, LTD. 30.83 10.50 3 41
PARKER & PARSLEY 83-A, LTD. 54.00 36.75 10 151
PARKER & PARSLEY 83-B, LTD. 63.11 43.00 2 35
PARKER & PARSLEY 84-A, LTD. 72.00 44.00 8 104
PARKER & PARSLEY 85-A, LTD. 61.00 10.00 5 50
PARKER & PARSLEY 85-B, LTD. 75.00 75.00 2 30
PARKER & PARSLEY 86-A, LTD. 55.00 10.00 2 40
PARKER & PARSLEY 86-B, LTD. 111.00 62.34 9 108
PARKER & PARSLEY 86-C, LTD. 80.00 45.00 5 32
PARKER & PARSLEY 87-A, LTD. 112.00 65.00 10 155
PARKER & PARSLEY 87-B, LTD. 101.67 10.00 12 205
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD. 175.00 112.00 4 79
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD. 170.00 128.00 3 30
PARKER & PARSLEY 88-A, L.P. 105.11 57.00 3 25
PARKER & PARSLEY 88-B, L.P. 111.00 62.00 4 50
PARKER & PARSLEY 88-C, L.P. 56.00 56.00 1 25
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P. 225.00 225.00 1 4
PARKER & PARSLEY 89-A, L.P. 138.00 86.00 5 70
PARKER & PARSLEY 89-B, L.P. 146.11 105.00 5 85
PARKER & PARSLEY 90-A, L.P. 92.00 84.33 2 25
PARKER & PARSLEY 90-B, L.P. 175.00 90.00 12 115
PARKER & PARSLEY 90-C, L.P. 136.33 60.51 8 125
PARKER & PARSLEY 91-A, L.P. 121.00 88.00 2 13
PARKER & PARSLEY 91-B, L.P. 135.00 135.00 1 10
---------------
(a) This table contains historical information about recent trades of
partnership interests on a per $1,000 investment as determined from "The
Partnership Spectrum." The price information represents the prices reported
to have been paid to the sellers net of commissions paid by buyers. This
information should not be relied upon as any indication of the price at
which the partnership interests may trade. There may have been other
secondary sale transactions in the partnership interests, although no
information regarding any such transactions is available to Pioneer USA.
Because the information regarding sale transactions in the partnership
interests in this table is provided without verification by Pioneer USA and
because the information provided does not reflect sufficient activity to
cause the prices shown to be representative of the market values of the
partnership interests, the information should not be relied upon as
indicative of the ability of limited partners to sell their partnership
interests in secondary sale transactions or as to the prices at which the
partnership interests may be sold.
A-16
110
APPENDIX B
TO
PROXY STATEMENT/PROSPECTUS
SUMMARY RESERVE REPORT OF
WILLIAMSON PETROLEUM CONSULTANTS, INC.
FOR THE PARTNERSHIPS
April 10, 2001
Pioneer Natural Resources USA, Inc.
5205 North O'Connor Boulevard, Suite 1400
Irving, Texas 75039
Attention Board of Directors
Gentlemen:
Subject: Letter Report Including 46 Reports Prepared
by Williamson Petroleum Consultants, Inc.
for Pioneer Natural Resources USA, Inc.
to the Interests of Limited Partners
or the Converted Limited Partners
in Various Parker & Parsley Partnerships
Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 2000
for Disclosure to the
Securities and Exchange Commission
Williamson Project 0.8839
In accordance with your request, Williamson Petroleum Consultants, Inc.
(Williamson) has prepared this summary letter for inclusion in the proxy
statement to be distributed to the limited partners of the referenced
partnerships by Pioneer Natural Resources USA, Inc. (Pioneer USA). This letter
includes 46 Williamson reports prepared for Pioneer USA to the interests of the
limited partners or the converted limited partners in various Parker & Parsley
partnerships managed by Pioneer USA effective December 31, 2000 for disclosure
to the Securities and Exchange Commission (SEC). A listing of the 46 Williamson
reports is included as Exhibit I.
I. ESTIMATED RESERVES AND ESTIMATED FUTURE NET REVENUES
The total Williamson estimated net proved reserves that are attributable to the
evaluated interests of the 46 partnership reports are shown in Exhibit II and
were based on economic parameters and operating condition considered applicable
as of December 31, 2000 and may be used in disclosure to the SEC.
The present values of the estimated future net revenues from proved reserves
were calculated using a discount rate of 10.00 percent per annum and were
computed in accordance with the financial reporting requirements of the SEC and
are presented in Exhibit II.
111
Pioneer Natural Resources USA, Inc.
Board of Directors
April 10, 2001
Page 2
At the request of Pioneer USA, Williamson used the Landmark graphics and
reserves and economics evaluation software, Aries, to prepare this summary
report. In evaluations of these properties prior to December 31, 1991,
Williamson utilized its proprietary software programs. No comparative tests have
been performed to determine the difference in evaluation results of either
reserves or revenue quantities that may occur solely as a result of the
differences in the programs nor has Williamson performed tests to determine the
accuracy of Aries. However, in accordance with the request made by Pioneer USA
and the general acceptance of Aries by the oil and gas industry, Williamson has
used Aries to prepare this report.
II. DEFINITIONS OF SEC RESERVES(1)
The estimated reserves presented in this summary letter are net proved reserves,
including proved developed producing, proved developed nonproducing, and proved
undeveloped reserves, and were computed in accordance with the financial
reporting requirements of the SEC. In preparing these evaluations, no attempt
has been made to quantify the element of uncertainty associated with any
category. Reserves were assigned to each category as warranted. The definitions
of oil and gas reserves pursuant to the requirements of the Securities Exchange
Act are:
Proved Reserves(2)
Proved reserves are the estimated quantities of crude oil, natural gas, and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under the economic criteria employed and existing operating conditions, i.e.,
prices and costs as of the date the estimate is made. Prices and costs include
consideration of changes provided only by contractual arrangements but not on
escalations based upon an estimate of future conditions.
----------
(1) For evaluations prepared for disclosure to the Securities and Exchange
Commission, see SEC Accounting Rules. Commerce Clearing House, Inc. October
1981, Paragraph 290, Regulation 210.4-10, p. 329.
(2) Any variations to these definitions will be clearly stated in the report.
B-2
112
Pioneer Natural Resources USA, Inc.
Board of Directors
April 10, 2001
Page 3
A. Reservoirs are considered proved if economic producibility is supported by
either actual production or conclusive formation test. The area of a
reservoir considered proved includes:
1. that portion delineated by drilling and defined by gas-oil and/or
oil-water contacts, if any; and
2. the immediately adjoining portions not yet drilled, but which can be
reasonably judged as economically productive on the basis of available
geological and engineering data. In the absence of information on
fluid contacts, the lowest known structural occurrence of hydrocarbons
controls the lower proved limit of the reservoir.
B. Reserves which can be produced economically through application of improved
recovery techniques (such as fluid injection) are included in the "proved"
classification when successful testing by a pilot project, or the operation
of an installed program in the reservoir, provides support for the
engineering analysis on which the project or program was based.
C. Estimates of proved reserves do not include the following:
1. oil that may become available from known reservoirs but is classified
separately as "indicated additional reserves";
2. crude oil, natural gas, and natural gas liquids, the recovery of which
is subject to reasonable doubt because of uncertainty as to geology,
reservoir characteristics, or economic factors;
3. crude oil, natural gas, and natural gas liquids, that may occur in
undrilled prospects; and
4. crude oil, natural gas, and natural gas liquids, that may be recovered
from oil shales, coal(3), gilsonite, and other such sources.
----------
(3) According to Staff Accounting Bulletin 85, excluding certain coalbed methane
gas.
B-3
113
Pioneer Natural Resources USA, Inc.
Board of Directors
April 10, 2001
Page 4
Proved Developed Reserves(4)
Proved developed reserves are reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods. Additional
oil and gas expected to be obtained through the application of fluid injection
or other improved recovery techniques for supplementing the natural forces and
mechanisms of primary recovery should be included as "proved developed reserves"
only after testing by a pilot project or after the operation of an installed
program has confirmed through production response that increased recovery will
be achieved.
Proved Undeveloped Reserves
Proved undeveloped reserves are reserves that are expected to be recovered from
new wells on undrilled acreage, or from existing wells where a relatively major
expenditure is required for recompletion. Reserves on undrilled acreage shall be
limited to those drilling units offsetting productive units that are reasonably
certain of production when drilled. Proved reserves for other undrilled units
can be claimed only where it can be demonstrated with certainty that there is
continuity of production from the existing productive formation. Under no
circumstances should estimates for proved undeveloped reserves be attributable
to any acreage for which an application of fluid injection or other improved
recovery technique is contemplated, unless such techniques have been proved
effective by actual tests in the area and in the same reservoir.
----------
(4) Williamson Petroleum Consultants, Inc. separates proved developed reserves
into proved developed producing and proved developed nonproducing reserves.
This is to identify proved developed producing reserves as those to be
recovered from actively producing wells; proved developed nonproducing
reserves as those to be recovered from wells or intervals within wells,
which are completed but shut in waiting on equipment or pipeline
connections, or wells where a relatively minor expenditure is required for
recompletion to another zone.
B-4
114
Pioneer Natural Resources USA, Inc.
Board of Directors
April 10, 2001
Page 5
III. DISCUSSION OF SEC RESERVES
The properties evaluated in this report are located in the states of Oklahoma
and Texas with the majority of the value in the Spraberry (Trend Area) field,
Texas.
The individual projections of lease reserves and economics prepared to produce
this summary report include data that describe the production forecasts and
associated evaluation parameters such as interests, taxes, product prices,
operating costs, investments, salvage values, abandonment costs, and net profit
interests.
Net income to the evaluated interests is the future net revenue after
consideration of royalty revenue payable to others, taxes, operating expenses,
investments, salvage values, abandonment costs, and net profit interests, as
applicable. The future net revenue is before federal income tax and excludes
consideration of any encumbrances against the properties if such exist.
The future net revenue values presented in this report were based on projections
of oil and gas production. It was assumed there would be no significant delay
between the date of oil and gas production and the receipt of the associated
revenue for this production. No opinion is expressed by Williamson in this
report as to a fair market value of the evaluated properties.
Unless specifically identified and documented by Pioneer USA as having
curtailment problems, gas production trends have been assumed to be a function
of well productivity and not of market conditions. The effect of "take or pay"
clauses in gas contracts was not considered.
Oil and natural gas liquids (NGL) reserves are expressed in thousands of United
States (U.S.) barrels (MBBL) of 42 U.S. gallons. Gas volumes are expressed in
millions of cubic feet (MMCF) at 60 degrees Fahrenheit and at the legal pressure
base that prevails in the state which the reserves are located. No adjustment of
the individual gas volumes to a common pressure base has been made.
This report includes only those costs and revenues which are considered by
Pioneer USA to be directly attributable to individual leases and areas. There
could exist other revenues, overhead costs, or other costs associated with
Pioneer USA or the Limited Partners/Converted Limited Partners which are not
included in this report. Such additional costs and revenues are outside the
scope of this report. This report is not a financial statement for Pioneer USA
or the Limited Partners/Converted Limited Partners and should not be used as the
sole basis for any transaction concerning Pioneer USA, the Limited
Partners/Converted Limited Partners, or the evaluated properties.
B-5
115
Pioneer Natural Resources USA, Inc.
Board of Directors
April 10, 2001
Page 6
The reserves projections in this report are based on the use of the available
data and accepted industry engineering methods. Future changes in any
operational or economic parameters or production characteristics of the
evaluated properties could increase or decrease their reserves. Unforeseen
changes in market demand or allowables set by various regulatory agencies could
also cause actual production rates to vary from those projected. Williamson
reserves the right to alter any of the reserves projections and the associated
economics included in this evaluation in any future evaluations based on
additional data that may be acquired.
All data utilized in the preparation of this report with respect to interests,
reversionary status, oil and gas prices, gas categories, gas contract terms,
operating expenses, investments, salvage values, abandonment costs, net profit
interests, well information, and current operating conditions, as applicable,
were provided by Pioneer USA. Production data provided by Pioneer USA were
utilized. The production data was generally through October 2000. All data have
been reviewed for reasonableness and, unless obvious errors were detected, have
been accepted as correct. It should be emphasized that revisions to the
projections of reserves and economics included in this report may be required if
the provided data are revised for any reason. No inspection of the properties
was made as this was not considered within the scope of this evaluation. No
investigation was made of any environmental liabilities that might apply to the
evaluated properties, and no costs are included for any possible related
expenses.
Since sufficient production history and other data were available, the estimates
of reserves contained in this report were determined by extrapolation of
historical production trends and in accordance with the Definitions of SEC
Reserves included in this summary letter report.
Prices for oil sold as of December 31, 2000 were provided by Pioneer USA to be
used at the effective date. These prices include adjustments for API gravity,
transportation, and any bonus paid. These adjustments were made by Pioneer USA.
After the effective date, prices were held constant for the life of the
properties. No attempt has been made to account for oil price fluctuations which
have occurred in the market subsequent to the effective date of this report.
Prices for gas sold as of December 31, 2000 were provided by Pioneer USA to be
used at the effective date. These prices include adjustments for British thermal
unit content, shrinkage due to NGL removal, transportation and handling charges,
and any other known differences between sales and produced volumes. These
adjustments were made by Pioneer USA. After the effective date, prices were held
constant for the life of the properties unless Pioneer USA indicated
B-6
116
Pioneer Natural Resources USA, Inc.
Board of Directors
April 10, 2001
Page 7
that changes were provided for by contract. All gas prices were applied to
projected wellhead volumes.
Prices for NGL sold as of December 31, 2000 were provided by Pioneer USA to be
used at the effective date. NGL reserves were projected as a separate stream
using a constant ratio (barrels of NGL/thousand cubic feet of gas) based on
historical yields. After the effective date, prices were held constant for the
life of the properties. No attempt has been made to account for price
fluctuations which have occurred in the market subsequent to the effective date
of this report.
It should be emphasized that with the current economic uncertainties,
fluctuation in market conditions could significantly change the economics of the
properties included in this report.
Operating expenses were provided by Pioneer USA and represented, when possible,
the latest available 12-month average of all recurring expenses which are
billable to the working interest owners. These expenses included, but were not
limited to, all direct operating expenses, field overhead costs, and any ad
valorem taxes not deducted separately. Expenses for workovers, well
stimulations, and other maintenance were not included in the operating expenses
unless such work was expected on a recurring basis. Judgments for the exclusion
of the nonrecurring expenses were made by Pioneer USA. Operating costs were held
constant for the life of the properties.
State production and county ad valorem taxes have been deducted at the published
rates as provided by Pioneer USA. A 7.5 percent severance tax exemption was
applied until September 2001 for qualifying wells.
IV. CONSENT AND DECLARATION OF INDEPENDENT STATUS
We understand that our estimates are to be included in a Schedule 13e-3 under
the Securities Exchange Act of 1934 to be filed by you with the SEC and in the
proxy statement included as an exhibit to such Schedule 13e-3. We understand
further that the estimates may be used by you to establish merger values for the
Partnerships. With this understanding in mind, we have consistently applied the
generally accepted petroleum engineering and evaluation principles in estimating
the proved oil and gas reserves and in computing the future net revenues derived
from such reserves for each property attributable to the interests held by the
Partnerships.
Based on information supplied by Pioneer USA, neither capital costs nor salvage
values were included in the projections of reserves and economics in this
report. Williamson is an independent consulting firm and does not own any
interests in the oil and gas properties covered by this report. No employee,
officer, or director of Williamson is an employee, officer, or director of
Pioneer USA or any of the
B-7
117
Pioneer Natural Resources USA, Inc.
Board of Directors
April 10, 2001
Page 8
subject partnerships. Neither the employment of nor the compensation received by
Williamson is contingent upon the values assigned to the properties covered by
this report.
Yours very truly,
/s/ Williamson Petroleum Consultants, Inc.
WILLIAMSON PETROLEUM CONSULTANTS, INC.
JDS/chk
Enclosures
B-8
118
EXHIBIT I
LETTER REPORT INCLUDING 46 REPORTS PREPARED
BY WILLIAMSON PETROLEUM CONSULTANTS, INC.
FOR PIONEER NATURAL RESOURCES USA, INC.
TO THE INTERESTS OF LIMITED PARTNERS
OR THE CONVERTED LIMITED PARTNERS
IN VARIOUS PARKER & PARSLEY PARTNERSHIPS
MANAGED BY PIONEER NATURAL RESOURCES USA, INC.
EFFECTIVE DECEMBER 31, 2000
FOR DISCLOSURE TO THE
SECURITIES AND EXCHANGE COMMISSION
WILLIAMSON PROJECT 0.8839
LIST OF WILLIAMSON PETROLEUM CONSULTANTS, INC. REPORTS
EFFECTIVE DECEMBER 31, 2000
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 81-I, Ltd. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 2000 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 81-II, Ltd. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 2000 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 82-I, Ltd. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 2000 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 82-II, Ltd. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 2000 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 82-III, Ltd. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 2000 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 83-A, Ltd. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 2000 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 83-B, Ltd. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 2000 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 84-A, Ltd. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 2000 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 85-A, Ltd. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 2000 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 85-B, Ltd. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 2000 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 0.8839"
B-9
119
EXHIBIT I
LETTER REPORT INCLUDING 46 REPORTS PREPARED
BY WILLIAMSON PETROLEUM CONSULTANTS, INC.
FOR PIONEER NATURAL RESOURCES USA, INC.
TO THE INTERESTS OF LIMITED PARTNERS
OR THE CONVERTED LIMITED PARTNERS
IN VARIOUS PARKER & PARSLEY PARTNERSHIPS
MANAGED BY PIONEER NATURAL RESOURCES USA, INC.
EFFECTIVE DECEMBER 31, 2000
FOR DISCLOSURE TO THE
SECURITIES AND EXCHANGE COMMISSION
WILLIAMSON PROJECT 0.8839
LIST OF WILLIAMSON PETROLEUM CONSULTANTS, INC. REPORTS
EFFECTIVE DECEMBER 31, 2000
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley Private Investment 85-A, Ltd. Managed by Pioneer Natural
Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities
and Exchange Commission Summary Report Utilizing Aries Software Williamson
Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley Selected 85 Private Investment, Ltd. Managed by Pioneer Natural
Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities
and Exchange Commission Summary Report Utilizing Aries Software Williamson
Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 86-A, Ltd. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 2000 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 86-B, Ltd. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 2000 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 86-C, Ltd. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 2000 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley Private Investment 86, Ltd. Managed by Pioneer Natural
Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities
and Exchange Commission Summary Report Utilizing Aries Software Williamson
Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Converted Limited
Partners in Parker & Parsley 87-A Converted, Ltd. Managed by Pioneer Natural
Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities
and Exchange Commission Summary Report Utilizing Aries Software Williamson
Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 87-A, Ltd. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 2000 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Converted Limited
Partners in Parker & Parsley 87-B Converted, Ltd. Managed by Pioneer Natural
Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities
and Exchange Commission Summary Report Utilizing Aries Software Williamson
Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 87-B, Ltd. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 2000 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 0.8839"
B-10
120
EXHIBIT I
LETTER REPORT INCLUDING 46 REPORTS PREPARED
BY WILLIAMSON PETROLEUM CONSULTANTS, INC.
FOR PIONEER NATURAL RESOURCES USA, INC.
TO THE INTERESTS OF LIMITED PARTNERS
OR THE CONVERTED LIMITED PARTNERS
IN VARIOUS PARKER & PARSLEY PARTNERSHIPS
MANAGED BY PIONEER NATURAL RESOURCES USA, INC.
EFFECTIVE DECEMBER 31, 2000
FOR DISCLOSURE TO THE
SECURITIES AND EXCHANGE COMMISSION
WILLIAMSON PROJECT 0.8839
LIST OF WILLIAMSON PETROLEUM CONSULTANTS, INC. REPORTS
EFFECTIVE DECEMBER 31, 2000
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley Producing Properties 87-A, Ltd. Managed by Pioneer Natural
Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities
and Exchange Commission Summary Report Utilizing Aries Software Williamson
Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley Producing Properties 87-B, Ltd. Managed by Pioneer Natural
Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities
and Exchange Commission Summary Report Utilizing Aries Software Williamson
Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley Private Investment 87, Ltd. Managed by Pioneer Natural
Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities
and Exchange Commission Summary Report Utilizing Aries Software Williamson
Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Converted Limited
Partners in Parker & Parsley 88-A Converted, L.P. Managed by Pioneer Natural
Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities
and Exchange Commission Summary Report Utilizing Aries Software Williamson
Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 88-A, L.P. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 2000 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Converted Limited
Partners in Parker & Parsley 88-B Converted, L.P. Managed by Pioneer Natural
Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities
and Exchange Commission Summary Report Utilizing Aries Software Williamson
Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 88-B, L.P. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 2000 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Converted Limited
Partners in Parker & Parsley 88-C Converted, L.P. Managed by Pioneer Natural
Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities
and Exchange Commission Summary Report Utilizing Aries Software Williamson
Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 88-C, L.P. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 2000 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 0.8839"
B-11
121
EXHIBIT I
LETTER REPORT INCLUDING 46 REPORTS PREPARED
BY WILLIAMSON PETROLEUM CONSULTANTS, INC.
FOR PIONEER NATURAL RESOURCES USA, INC.
TO THE INTERESTS OF LIMITED PARTNERS
OR THE CONVERTED LIMITED PARTNERS
IN VARIOUS PARKER & PARSLEY PARTNERSHIPS
MANAGED BY PIONEER NATURAL RESOURCES USA, INC.
EFFECTIVE DECEMBER 31, 2000
FOR DISCLOSURE TO THE
SECURITIES AND EXCHANGE COMMISSION
WILLIAMSON PROJECT 0.8839
LIST OF WILLIAMSON PETROLEUM CONSULTANTS, INC. REPORTS
EFFECTIVE DECEMBER 31, 2000
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley Producing Properties 88-A, L.P. Managed by Pioneer Natural
Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities
and Exchange Commission Summary Report Utilizing Aries Software Williamson
Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley Private Investment 88, L.P. Managed by Pioneer Natural
Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities
and Exchange Commission Summary Report Utilizing Aries Software Williamson
Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Converted Limited
Partners in Parker & Parsley 89-A Converted, L.P. Managed by Pioneer Natural
Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities
and Exchange Commission Summary Report Utilizing Aries Software Williamson
Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 89-A, L.P. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 2000 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Converted Limited
Partners in Parker & Parsley 89-B Converted, L.P. Managed by Pioneer Natural
Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities
and Exchange Commission Summary Report Utilizing Aries Software Williamson
Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 89-B, L.P. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 2000 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley Private Investment 89, L.P. Managed by Pioneer Natural
Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities
and Exchange Commission Summary Report Utilizing Aries Software Williamson
Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Converted Limited
Partners in Parker & Parsley 90-A Converted, L.P. Managed by Pioneer Natural
Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities
and Exchange Commission Summary Report Utilizing Aries Software Williamson
Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 90-A, L.P. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 2000 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 0.8839"
B-12
122
EXHIBIT I
LETTER REPORT INCLUDING 46 REPORTS PREPARED
BY WILLIAMSON PETROLEUM CONSULTANTS, INC.
FOR PIONEER NATURAL RESOURCES USA, INC.
TO THE INTERESTS OF LIMITED PARTNERS
OR THE CONVERTED LIMITED PARTNERS
IN VARIOUS PARKER & PARSLEY PARTNERSHIPS
MANAGED BY PIONEER NATURAL RESOURCES USA, INC.
EFFECTIVE DECEMBER 31, 2000
FOR DISCLOSURE TO THE
SECURITIES AND EXCHANGE COMMISSION
WILLIAMSON PROJECT 0.8839
LIST OF WILLIAMSON PETROLEUM CONSULTANTS, INC. REPORTS
EFFECTIVE DECEMBER 31, 2000
"Evaluation of Oil and Gas Reserves to the Interests of the Converted Limited
Partners in Parker & Parsley 90-B Converted, L.P. Managed by Pioneer Natural
Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities
and Exchange Commission Summary Report Utilizing Aries Software Williamson
Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 90-B, L.P. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 2000 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Converted Limited
Partners in Parker & Parsley 90-C Converted, L.P. Managed by Pioneer Natural
Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities
and Exchange Commission Summary Report Utilizing Aries Software Williamson
Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 90-C, L.P. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 2000 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley Private Investment 90, L.P. Managed by Pioneer Natural
Resources USA, Inc. Effective December 31, 2000 for Disclosure to the Securities
and Exchange Commission Summary Report Utilizing Aries Software Williamson
Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 90 Spraberry Private Development, L.P. Managed by Pioneer
Natural Resources USA, Inc. Effective December 31, 2000 for Disclosure to the
Securities and Exchange Commission Summary Report Utilizing Aries Software
Williamson Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 91-A, L.P. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 2000 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 0.8839"
"Evaluation of Oil and Gas Reserves to the Interests of the Limited Partners in
Parker & Parsley 91-B, L.P. Managed by Pioneer Natural Resources USA, Inc.
Effective December 31, 2000 for Disclosure to the Securities and Exchange
Commission Summary Report Utilizing Aries Software Williamson Project 0.8839"
B-13
123
EXHIBIT II
LETTER REPORT INCLUDING 46 REPORTS PREPARED
BY WILLIAMSON PETROLEUM CONSULTANTS, INC.
FOR PIONEER NATURAL RESOURCES USA, INC.
TO THE INTERESTS OF LIMITED PARTNERS
OR THE CONVERTED LIMITED PARTNERS
IN VARIOUS PARKER & PARSLEY PARTNERSHIPS
MANAGED BY PIONEER NATURAL RESOURCES USA, INC.
EFFECTIVE DECEMBER 31, 2000
FOR DISCLOSURE TO THE
SECURITIES AND EXCHANGE COMMISSION
WILLIAMSON PROJECT 0.8839
NET RESERVES AND FUTURE NET REVENUE
FROM REPORTS PREPARED BY WILLIAMSON PETROLEUM CONSULTANTS, INC.
EFFECTIVE DECEMBER 31, 2000
TOTAL PROVED DEVELOPED PRODUCING
------------------------------------------------------------------------------
FUTURE NET REVENUE, M$
-----------------------------
NET RESERVES TO
THE EVALUATED INTERESTS DISCOUNTED
--------------------------------------------- PER
OIL/CONDENSATE LIQUID GAS ANNUM AT
PIONEER FUNDS (MBBL) (MBBL) (MMCF) UNDISCOUNTED 10.00 PERCENT
-------------- ------------ ------------ ------------ -------------
Parker & Parsley 81-I, Ltd 99.997 58.388 320.081 2,810.911 1,436.523
Parker & Parsley 81-II, Ltd. 84.731 67.440 222.749 1,977.257 1,062.283
Parker & Parsley 82-I, Ltd. 194.780 73.613 603.859 4,656.049 2,419.619
Parker & Parsley 82-II, Ltd. 211.725 94.426 467.740 4,879.008 2,416.761
Parker & Parsley 82-III, Ltd. 164.851 68.468 223.717 2,916.207 1,539.389
Parker & Parsley 83-A, Ltd. 497.915 281.533 1,156.089 11,168.739 5,649.205
Parker & Parsley 83-B, Ltd. 608.901 345.775 1,553.450 14,112.492 7,165.928
Parker & Parsley 84-A, Ltd. 608.956 403.376 1,678.388 15,623.823 7,676.646
Parker & Parsley 85-A, Ltd. 243.615 134.904 512.744 5,195.717 2,783.387
Parker & Parsley 85-B, Ltd. 201.444 99.966 455.062 4,490.151 2,308.454
Parker & Parsley Private
Investment 85-A, Ltd. 228.363 96.999 353.440 5,194.664 2,383.495
Parker & Parsley Selected
85 Private Investment, Ltd. 130.193 99.486 381.116 3,650.520 1,810.634
Parker & Parsley 86-A, Ltd. 250.327 197.841 859.633 7,179.394 3,574.162
Parker & Parsley 86-B, Ltd. 618.084 308.191 1,200.966 14,120.080 7,029.228
Parker & Parsley 86-C, Ltd. 563.752 325.531 1,246.684 11,898.910 6,501.998
Parker & Parsley Private
Investment 86, Ltd. 208.138 106.060 491.002 4,920.619 2,468.192
Parker & Parsley 87-A Conv., Ltd. 113.696 66.277 287.292 2,873.802 1,450.827
Parker & Parsley 87-A, Ltd. 834.588 487.044 2,112.270 21,154.029 10,747.196
Parker & Parsley 87-B Conv., Ltd. 157.541 88.713 365.167 3,907.545 1,832.825
Parker & Parsley 87-B, Ltd. 643.391 362.299 1,491.327 15,958.265 7,485.189
Parker & Parsley Producing
Properties 87-A, Ltd. 553.134 153.947 705.887 9,228.521 4,636.341
Parker & Parsley Producing
Properties 87-B, Ltd. 348.562 183.827 852.462 9,400.038 4,368.675
Parker & Parsley Private
Investment 87, Ltd. 525.646 229.811 959.391 12,336.452 5,141.312
Parker & Parsley 88-A Conv., L.P. 144.189 81.404 314.160 3,480.240 1,705.478
Parker & Parsley 88-A, L.P. 491.675 277.590 1,071.291 11,868.418 5,816.075
Parker & Parsley 88-B Conv., L.P. 185.600 84.916 353.516 4,354.398 2,077.136
Parker & Parsley 88-B, L.P. 457.018 209.116 870.573 10,723.127 5,115.146
Parker & Parsley 88-C Conv., L.P. 145.815 74.419 309.894 3,561.005 1,706.767
B-14
124
EXHIBIT II
LETTER REPORT INCLUDING 46 REPORTS PREPARED
BY WILLIAMSON PETROLEUM CONSULTANTS, INC.
FOR PIONEER NATURAL RESOURCES USA, INC.
TO THE INTERESTS OF LIMITED PARTNERS
OR THE CONVERTED LIMITED PARTNERS
IN VARIOUS PARKER & PARSLEY PARTNERSHIPS
MANAGED BY PIONEER NATURAL RESOURCES USA, INC.
EFFECTIVE DECEMBER 31, 2000
FOR DISCLOSURE TO THE
SECURITIES AND EXCHANGE COMMISSION
WILLIAMSON PROJECT 0.8839
NET RESERVES AND FUTURE NET REVENUE
FROM REPORTS PREPARED BY WILLIAMSON PETROLEUM CONSULTANTS, INC.
EFFECTIVE DECEMBER 31, 2000
TOTAL PROVED DEVELOPED PRODUCING
------------------------------------------------------------------------------
FUTURE NET REVENUE, M$
-----------------------------
NET RESERVES TO
THE EVALUATED INTERESTS DISCOUNTED
--------------------------------------------- PER
OIL/CONDENSATE LIQUID GAS ANNUM AT
PIONEER FUNDS (MBBL) (MBBL) (MMCF) UNDISCOUNTED 10.00 PERCENT
-------------- ------------ ------------ ------------ -------------
Parker & Parsley 88-C, L.P. 103.921 53.036 220.852 2,537.908 1,216.403
Parker & Parsley Producing
Properties 88-A, L.P. 273.838 149.368 558.886 6,727.211 3,225.257
Parker & Parsley Private
Investment 88, L.P. 509.333 253.748 928.143 12,668.293 5,826.092
Parker & Parker 89-A Conv., L.P. 136.107 64.524 282.306 3,433.908 1,667.718
Parker & Parsley 89-A, L.P. 404.668 191.841 839.377 10,210.849 4,959.027
Parker & Parsley 89-B Conv., L.P. 276.640 159.018 597.289 6,717.103 3,379.724
Parker & Parsley 89-B, L.P. 304.369 175.038 657.490 7,386.746 3,718.741
Parker & Parsley Private
Investment 89, L.P. 324.948 138.741 489.327 6,929.194 3,302.639
Parker & Parsley 90-A Conv., L.P. 86.964 46.820 168.458 2,004.818 1,042.228
Parker & Parsley 90-A, L.P. 253.836 136.323 490.071 5,806.774 3,011.223
Parker & Parsley 90-B Conv., L.P. 503.298 242.511 965.950 11,527.923 5,694.202
Parker & Parsley 90-B, L.P. 1,370.202 658.317 2,621.779 31,316.135 15,461.210
Parker & Parsley 90-C Conv., L.P. 323.794 138.198 463.058 6,302.167 3,212.933
Parker & Parsley 90-C, L.P. 520.528 222.164 744.398 10,131.499 5,165.181
Parker & Parsley Private
Investment 90, L.P. 584.599 228.964 801.496 12,370.155 5,691.401
Parker & Parsley 90
Spraberry Private Development, L.P. 313.028 100.516 377.597 5,906.691 2,549.362
Parker & Parsley 91-A, L.P. 662.796 306.258 1,409.517 17,786.756 8,134.929
Parker & Parsley 91-B, L.P. 719.664 311.695 1,213.315 17,109.740 8,280.085
------------ ------------ ------------ ------------ ------------
Total All Partnerships 17,189.160 8,638.440 35,249.259 400,514.251 195,847.226
B-15
125
APPENDIX C
TO
PROXY STATEMENT/PROSPECTUS
FORM OF
FAIRNESS OPINION OF ROBERT A. STANGER & CO., INC.
(SUBJECT TO CHANGE)
, 2001
Board of Directors of
Pioneer Natural Resources USA, Inc.,
As the Sole or Managing General Partner of
The Partnerships Identified on Exhibit I
1400 Williams Square West
5205 North O'Connor Boulevard
Irving, Texas 75039
Gentlemen:
Pioneer Natural Resources USA, Inc. ("Pioneer USA"), the sole or
managing general partner of the partnerships identified in Exhibit I attached
hereto ("the Partnerships"), has advised us that the Partnerships are
contemplating a transaction (the "Transaction") pursuant to an agreement (the
"Merger Agreement") in which the Partnerships will merge with and into Pioneer
USA and the interests of the limited partners (the "Limited Partners") in each
Partnership will be converted into the right to receive cash and shares of
common stock (the "Pioneer Shares") of Pioneer Natural Resources Company
("Pioneer") equal to the estimated value of such Partnership's oil and gas
reserves (the "Reserve Value") and net working capital (the "Working Capital
Balance") as of March 31, 2001 (collectively, the Reserve Value and the Working
Capital Balance are referred to herein as the "Merger Value"). We have been
advised that the Merger Value will be allocated and paid to holders of limited
partnership interests (the "Limited Partner Interests") of each Partnership in
accordance with the provisions of the Partnership agreement of each Partnership
relating to a liquidation of the Partnership.
We have been further advised that the Reserve Value has been
established by Pioneer USA and its parent company, Pioneer, based upon the
present value of estimated future net revenues (after certain expenses and
charges) from each Partnership's proved oil and gas reserves as of March 31,
2001 utilizing prices for 2001, 2002, 2003, 2004 and thereafter of $26.17,
$24.36, $22.83, $22.31 and $21.97 per barrel of oil and $5.18, $4.61, $4.16,
$4.09 and $4.12 per thousand cubic feet of gas, and a discount rate of 13.5%. We
have been further advised that the Reserve Value is based upon the reserve
report of Williamson Petroleum Consultants, Inc. ("Williamson"), an independent
petroleum engineering firm, as of December 31, 2000, which Pioneer and Pioneer
USA have adjusted since that date through March 31, 2001 based upon a production
curve consistent with the production curve used by Williamson and to which
Pioneer and Pioneer USA have applied the prices previously stated (the "Reserve
Analysis").
We have been advised that the Limited Partners in each Partnership will
have the opportunity to approve or reject the participation by their Partnership
in the Transaction pursuant
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to a proxy statement/prospectus (the "Proxy Statement/Prospectus") and a Limited
Partners meeting which will be prepared and held, respectively, in connection
with the Transaction, and further that Limited Partners in each Partnership, in
exchange for Limited Partner Interests, will receive the allocated Merger Value,
25% in cash and 75% in Pioneer Shares, respectively. We have been advised that
the value to be ascribed to each share of Pioneer, which is listed on the New
York Stock Exchange ("NYSE"), shall be equal to the average closing price for
such shares on the NYSE for the ten trading day period ending three business
days prior to the meeting of the Limited Partners contemplated herein.
You have requested that Robert A. Stanger & Co., Inc. ("Stanger")
provide an opinion as to the fairness from a financial point of view to the
unaffiliated Limited Partners of each Partnership and the unaffiliated limited
partners of the non-managing general partner of each applicable Partnership of
the Merger Value ascribed to each Partnership and the allocation thereof to: (i)
the Limited Partners of each Partnership, as a group; (ii) the general partners
of each Partnership as a group; (iii) Pioneer USA, as the managing or sole
general partner of each partnership; (iv) the unaffiliated Limited Partners of
each Partnership, as a group; and (v) the unaffiliated limited partners of the
non-managing general partner of each applicable Partnership as a group.
Stanger, founded in 1978, has provided research, investment banking and
consulting services to clients located throughout the United States, including
major New York Stock Exchange member firms and insurance companies and over
seventy companies engaged in the management and operations of partnerships. The
investment banking activities of Stanger include financial advisory services,
asset and securities valuations, industry and company research and analysis,
litigation support and expert witness services, and due diligence investigations
in connection with both publicly registered and privately placed securities
transactions.
Stanger, as part of its investment banking business, is regularly
engaged in the valuation of securities in connection with mergers, acquisitions,
and reorganizations and for estate, tax, corporate and other purposes. In
particular, Stanger's valuation practice principally involves partnerships,
partnership securities and assets typically owned through partnerships
including, but not limited to, oil and gas reserves, real estate, mortgages
secured by real estate, cable television systems, and equipment leasing assets.
In arriving at the opinion set forth below, we have:
o Reviewed the Preliminary Proxy Statement/Prospectus;
o Reviewed a draft of the Merger Agreement which Pioneer USA has
indicated to be in substantially the form which will be
executed in connection with the Transaction;
o Reviewed the financial statements and forms 10K and 10Q, as
applicable, of the Partnerships for the years ended December
31, 1998, 1999 and 2000, and [the three months ended March 31,
2001];
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127
o Reviewed the Reserve Analysis of each Partnership prepared by
Pioneer USA and Pioneer as of March 31, 2001;
o Reviewed the Reserve Report for each Partnership prepared by
Williamson Petroleum Consultants, Inc. as of December 31,
2000;
o Reviewed the calculations prepared by Pioneer USA and Pioneer
of the Merger Value per $1,000 original investment in each
Partnership;
o Reviewed Pioneer USA's analysis of other alternatives to the
Transaction including going concern value, liquidation value,
royalty trust and production payment;
o Reviewed estimates prepared by Pioneer USA and Pioneer of the
going-concern value and liquidation value per $1,000 original
investment in each Partnership;
o Interviewed key management personnel of Pioneer USA regarding
the oil and gas reserves, the financial condition of each
Partnership and the terms of the Transaction;
o Reviewed the financial statements of Pioneer for the years
ended December 31, 1999 and 2000 and the [three months ended
March 31, 2001];
o Reviewed pro forma financial data for Pioneer assuming the
completion of the transaction;
o Reviewed recent secondary market trading activity for
interests in the Partnerships, as available;
o Reviewed recent trading activity in Pioneer Shares; and
o Conducted such other studies, analyses, inquiries and
investigations as we deemed appropriate.
In rendering this opinion, we have relied, without independent
verification, on the accuracy and completeness in all material respects of all
financial and other information that was furnished or otherwise communicated to
us by Pioneer USA, Pioneer and the Partnerships. We have been advised by Pioneer
USA and Pioneer that the oil and gas properties owned by the Partnerships are
subject to operating agreements (the "Operating Agreements") with Pioneer USA
and that: (i) such Operating Agreements provide for the payment of overhead
charges and that such charges are reasonable compared to amounts charged for
similar services by third-party operators; and (ii) except for cause, such
Operating Agreements do not provide for the termination of Pioneer USA as
operator, and (iii) such Operating Agreements do not provide for the revision of
overhead charges, except as escalated under the terms of such Operating
Agreements. Furthermore, we have been advised by Pioneer USA and Pioneer that if
each Partnership's reserves were offered for sale to a third party, a condition
of such sale would be that the oil and gas reserves would continue to be subject
to the Operating Agreements with Pioneer USA which provide for the payment of
overhead charges, and that it would be
C-3
128
appropriate to assume, when estimating the value of such reserves, that such
charges would continue. We have also been advised that the Reserve Value and
Working Capital Balance of each Partnership has been properly allocated between
Pioneer USA, the other general partners, if any, and Limited Partners of each
Partnership in accordance with the Partnership Agreement with respect to a
liquidation of such Partnership.
We have not performed an independent appraisal of the oil and gas
reserves or other assets and liabilities of the Partnerships. We have not
conducted any engineering studies and have relied on estimates of Pioneer USA
and Pioneer with respect to oil and gas reserve volumes, prices, operating
costs, and overhead charges.
We have relied on the assurance of Pioneer USA, Pioneer and the
Partnerships that: (i) the Reserve Analysis provided to us was in the judgment
of Pioneer USA and the Partnerships reasonably prepared on bases consistent with
actual historical experience and reflect their best currently available
estimates and good faith judgments; (ii) any estimates of costs to remediate
environmental conditions included in the Reserve Analysis are based on detailed
analyses and reflect the best currently available estimates and good faith
judgments; (iii) any historical financial data, balance sheet data, transaction
cost estimates, Merger Value analyses, going-concern value analyses and
liquidation value analyses are accurate and complete in all material respects;
(iv) all allocations included within the calculations of Merger Values,
going-concern values and liquidation values have been made in accordance with
the Partnership Agreement for each Partnership; (v) no material changes have
occurred in the information reviewed or in the value of the oil and gas reserves
or Working Capital Balances of each Partnership between the date the information
was provided to us and the date of this letter; (vi) the relative ownership
interest of the Limited Partners, unaffiliated Limited Partners, general
partners, unaffiliated limited partners of the non-managing general partner of
each applicable Partnership and Pioneer USA, as manager or sole general partner,
is accurately included in accordance with the Partnership Agreements on the
analyses provided to us by Pioneer USA; (vii) neither Pioneer or any of its
affiliates has during the thirty days prior to the date hereof commenced or
continued a share repurchase program or similar transaction which could affect
the Pioneer Share price to be used in the Transaction; and (viii) Pioneer USA,
Pioneer and the Partnerships are not aware of any information or facts regarding
the Partnerships, the oil and gas properties, the Reserve Analysis or the
Working Capital Balances of each Partnership that would cause the information
supplied to us to be incomplete or misleading in any material respect.
We have not been requested to, and therefore did not: (i) make any
recommendation to Pioneer USA, the Partnerships or the Limited Partners with
respect to whether to approve or reject the Transaction; (ii) determine or
negotiate the amount or form of the Merger Value to be paid for Limited Partner
Interests in the Transaction; (iii) offer the assets of the Partnerships for
sale to any third party; (iv) express any opinion as to: (a) the impact of the
Transaction with respect to Pioneer USA or the Limited Partners of any
Partnerships that do not participate in the Transaction; (b) the tax
consequences of the Transaction for Pioneer USA, other general partners or the
Limited Partners of any Partnership; (c) Pioneer USA's or Pioneer's ability to
finance their obligations pursuant to the Merger Agreement or the impact of a
failure to obtain financing on the financial performance of Pioneer USA, Pioneer
or the Partnerships; (d) Pioneer USA's decision to estimate the Reserve Value of
the oil and gas reserves of each Partnership based upon the continued operation
of the properties by Pioneer USA and the payment of overhead charges in
accordance with existing Operating Agreements or the impact, if any, on the
estimated values
C-4
129
of the Partnerships' oil and gas reserves if Pioneer USA and Pioneer determined
to offer or operate the assets subject to revised Operating Agreements; (e)
whether or not alternative methods of determining the Merger Value would have
also provided fair results or results substantially similar to the methodology
used; (f) alternatives to the Transaction, including the offering of such assets
for sale to third-party buyers; (g) the trading price of Pioneer Shares
immediately following the closing of the Transaction and the distribution of
Pioneer Shares in connection therewith; (h) the fairness of the termination of
the repurchase obligations of Pioneer USA with respect to those partnerships
wherein Pioneer USA is obligated to offer to repurchase limited partnership
interests annually based upon a formula which, in certain circumstances
including the repurchase offers based upon December 31, 2000 oil and gas prices,
result in repurchase offer prices above the market value for the reserves of
such Partnerships; or (i) any other terms of the Transaction.
This letter does not purport to be a complete description of the
analyses performed or the matters considered in rendering this opinion. The
analyses and the summary set forth herein must be considered as a whole, and
selecting portions of such summary or analyses without considering all factors
and analyses would create an incomplete view of the process underlying this
opinion. In rendering this opinion, judgment was applied to a variety of complex
analyses and assumptions. The assumptions made and the judgments applied in
rendering the opinion are not readily susceptible to partial analysis or summary
description. The fact that any specific analysis is referred to herein is not
meant to indicate that such analysis was given greater weight than any other
analyses.
Our opinion is based on business, economic, oil and gas market, and
other conditions as of the date of our analysis and addresses the Merger Value
in the context of information available as of the date of our analysis. Events
occurring after that date could affect the value of the assets of the
Partnerships or the assumptions used in preparing this opinion.
Based upon and subject to the foregoing, it is our opinion that, as of
the date of this letter and subject to the assumptions, limitations and
qualifications contained herein, the Merger Value ascribed to each Partnership
in connection with the Transaction and the allocation thereof to: (i) the
Limited Partners of each Partnership, as a group; (ii) the general partners of
each Partnership, as a group; (iii) Pioneer USA, as the managing or sole general
partner of each Partnership; (iv) the unaffiliated Limited Partners of each
Partnership, as a group; and (v) the unaffiliated limited partners of the
non-managing general partner of each applicable Partnership, as a group; is fair
to the unaffiliated Limited Partners of each Partnership and the unaffiliated
limited partners of the non-managing general partner of each applicable
Partnership, from a financial point of view.
Yours truly,
Robert A. Stanger & Co., Inc.
Shrewsbury, New Jersey
, 2001
C-5
130
EXHIBIT I
PARTNERSHIPS
Parker & Parsley 81-I, Ltd.
Parker & Parsley 81-II, Ltd.
Parker & Parsley 82-I, Ltd.
Parker & Parsley 82-II, Ltd.
Parker & Parsley 82-III, Ltd.
Parker & Parsley 83-A, Ltd.
Parker & Parsley 83-B, Ltd.
Parker & Parsley 84-A, Ltd.
Parker & Parsley 85-A, Ltd.
Parker & Parsley 85-B, Ltd.
Parker & Parsley Private Investment 85-A, Ltd.
Parker & Parsley Selected 85 Private Investment, Ltd.
Parker & Parsley 86-A, Ltd.
Parker & Parsley 86-B, Ltd.
Parker & Parsley 86-C, Ltd.
Parker & Parsley Private Investment 86, Ltd.
Parker & Parsley 87-A Conv., Ltd.
Parker & Parsley 87-A, Ltd.
Parker & Parsley 87-B Conv., Ltd.
Parker & Parsley 87-B, Ltd.
Parker & Parsley Producing Properties 87-A, Ltd.
Parker & Parsley Producing Properties 87-B, Ltd.
Parker & Parsley Private Investment 87, Ltd.
Parker & Parsley 88-A Conv., Ltd.
Parker & Parsley 88-A, L.P.
Parker & Parsley 88-B Conv., L.P.
Parker & Parsley 88-B, L.P.
Parker & Parsley 88-C Conv., L.P.
Parker & Parsley 88-C, L.P.
Parker & Parsley Producing Properties 88-A, L.P.
Parker & Parsley Private Investment 88, L.P.
Parker & Parsley 89-A Conv., L.P.
Parker & Parsley 89-A, L.P.
Parker & Parsley 89-B Conv., L.P.
Parker & Parsley 89-B, L.P.
Parker & Parsley Private Investment 89, L.P.
Parker & Parsley 90-A Conv., L.P.
Parker & Parsley 90-A, L.P.
Parker & Parsley 90-B Conv., L.P.
Parker & Parsley 90-B, L.P.
Parker & Parsley 90-C Conv., L.P.
Parker & Parsley 90-C, L.P.
Parker & Parsley Private Investment 90, L.P.
Parker & Parsley 90 Spraberry Private Development, L.P.
Parker & Parsley 91-A, L.P.
Parker & Parsley 91-B, L.P.
C-6
131
APPENDIX D
TO
PROXY STATEMENT/PROSPECTUS
THE MERGER PROPOSALS
The merger proposals for each partnership, except as otherwise indicated,
are set forth below. For each partnership, the merger proposals include the
approval of:
o the merger agreement for that partnership, pursuant to which:
-- the partnership will be merged with and into Pioneer USA, on the
terms and subject to the conditions set forth in the merger
agreement as described in the proxy statement/prospectus; and
-- each partner, whether limited or general, but other than Pioneer
USA, will receive Pioneer common stock and cash in an amount
based on the merger value of that partnership in exchange for
that partner's partnership interests;
o the merger amendment for that partnership authorizing:
-- the merger of the partnership with and into Pioneer USA, with
Pioneer USA being the surviving entity; and
-- the elimination of any restrictions on the merger otherwise
contained in the partnership's partnership agreement; and
o the opinion of special legal counsel for the limited partners and the
selection of that counsel.
For each partnership, approval of the merger proposals requires the
affirmative vote of limited partners who own or have the power to vote a
majority, or 66?% for Parker & Parsley 91-A, L.P. and Parker & Parsley 91-B,
L.P., of the limited partnership interests in that partnership. The effect of an
abstention or a failure to vote is the same as a vote against the merger
proposals. See "The Special Meetings -- Record Date; Voting Rights and Proxies."
Subject to the terms and conditions of the merger of each partnership as
described in the proxy statement/prospectus under "The Merger Agreement," if the
merger proposals are approved by a partnership, that participating partnership
will merge with and into Pioneer USA, with Pioneer USA being the surviving
entity. From and after the closing of the merger of each participating
partnership, the partnership interests of the partners in that partnership will
represent the right to receive an amount of Pioneer common stock and cash as
described in the proxy statement/prospectus.
Generally, the partnership agreement of each partnership requires that
special legal counsel for the limited partners, acceptable to the partnership,
deliver a legal opinion, acceptable to the partnership, that (1) neither the
grant nor the exercise of the right to approve the merger of the partnership by
its limited partners will adversely affect the federal income tax classification
of the partnership or any of its limited partners and (2) neither the grant nor
exercise of such right will result in the loss of any limited partner's limited
liability. of Dallas, Texas has delivered that opinion, subject to the approval
of the limited partners of that opinion and the selection of special legal
counsel for the limited partners. See "The Merger of Each Partnership -- Legal
Opinion for Limited Partners."
APPROVAL OF MERGER FOR EACH PARTNERSHIP FORMED IN TEXAS:
RESOLVED: That, subject to receipt of a favorable opinion of special legal
counsel for the limited partners as described in the proxy statement/prospectus,
the partnership be merged with and into Pioneer USA, with Pioneer USA being the
surviving entity, and that an amount of Pioneer common stock and cash be paid to
each partner, other than Pioneer USA, in accordance with the terms set forth in
the merger agreement included as Appendix E to the proxy statement/prospectus
and subject to the conditions set forth therein.
D-1
132
RESOLVED: That, subject to receipt of a favorable opinion of special legal
counsel for the limited partners as described in the proxy statement/prospectus,
the following new article shall be added to the partnership agreement of the
partnership:
ARTICLE
Notwithstanding any provisions of this Agreement to the contrary,
it is hereby agreed as follows:
1. Definitions. For the purposes of this Article, "Proxy
Statement/Prospectus" means the proxy statement/prospectus dated ,
2001 of Pioneer Natural Resources Company, a Delaware corporation
("Pioneer"), and Pioneer Natural Resources USA, Inc., a Delaware
corporation ("Pioneer USA"), contained in the Registration Statement
on Form S-4 of Pioneer filed with the Securities and Exchange
Commission.
2. Elimination of Restrictions to Transaction. Notwithstanding
anything in this Agreement to the contrary, upon the consent of
limited partners holding a majority of the outstanding limited
partnership interests in the partnership, which consent may or may not
be the same consent to the adoption of an amendment to this Agreement,
no provision of this Agreement shall prohibit, limit or prevent:
(a) the merger or consolidation of the partnership,
including the merger described in the Proxy Statement/Prospectus,
with any other domestic limited partnership or other entity, as
those terms are defined in the Texas Revised Limited Partnership
Act, and
(b) the consummation of the merger of the partnership as
described in the Proxy Statement/Prospectus.
In addition, no consent of the partnership, Pioneer USA or any partner
or other procedure, including the delivery of opinions of counsel,
shall be required in order to enable the partnership, Pioneer USA or
any partner to effect the merger.
3. Mergers. For purposes of this Agreement, each merger described
in the Proxy Statement/Prospectus shall be treated as if the
partnership has:
(a) disposed of all of its assets and liabilities to Pioneer
USA in exchange for an amount in cash representing the merger
value of the partnership, and
(b) liquidated in the manner provided in the liquidation
provisions of this Agreement.
Accordingly, upon the partnership's deemed liquidation resulting from
the merger, Pioneer USA will pay an amount of Pioneer common stock and
cash to the partners, other than itself, in accordance with the
liquidation provisions of this Agreement. For purposes of Texas law,
the merger shall be a merger subject to the provisions of Section 2.11
of the Texas Revised Limited Partnership Act.
4. Authority of Pioneer USA as General Partner. By obtaining the
approval of the limited partners described in Section 2 of this
Article, the partnership hereby extends the power of attorney granted
to Pioneer USA pursuant to this Agreement to permit Pioneer USA to
execute the merger agreement described in the Proxy
Statement/Prospectus and the merger amendment contemplated by this
Article on behalf of the limited partners. Pioneer USA shall be
authorized, at such time in its full discretion as it deems
appropriate, to execute, acknowledge, verify, deliver, file and
record, for and in the name and on behalf of the partnership, Pioneer
USA and the limited partners, any and all documents, agreements,
certificates and instruments, and shall do and perform any and all
acts required by applicable law or which Pioneer USA deems necessary
or advisable in order to give effect to this Article and the
transactions contemplated herein, including, but not limited to, the
merger.
D-2
133
5. This Article Controlling. The provisions of this Article shall
control over all other provisions of this Agreement.
Except as herein expressly amended, all other terms and provisions of
this Agreement shall remain in full force and effect.
APPROVAL OF MERGER FOR EACH PARTNERSHIP FORMED IN DELAWARE:
RESOLVED: That, subject to receipt of a favorable opinion of special legal
counsel for the limited partners as described in the proxy statement/prospectus,
the partnership be merged with and into Pioneer USA, with Pioneer USA being the
surviving entity, and that an amount in cash be paid to each partner, other than
Pioneer USA, in accordance with the terms set forth in the merger agreement
included as Appendix E to the proxy statement/prospectus and subject to the
conditions set forth therein.
RESOLVED: That, subject to receipt of a favorable opinion of special legal
counsel for the limited partners as described in the proxy statement/prospectus,
the following new article shall be added to the partnership agreement of the
partnership:
ARTICLE
Notwithstanding any provisions of this Agreement to the contrary,
it is hereby agreed as follows:
1. Definitions. For the purposes of this Article, "Proxy
Statement/Prospectus" means the proxy statement/prospectus dated ,
2001 of Pioneer Natural Resources Company, a Delaware corporation
("Pioneer"), and Pioneer Natural Resources USA, Inc., a Delaware
corporation ("Pioneer USA"), contained in the Registration Statement
on Form S-4 of Pioneer filed with the Securities and Exchange
Commission.
2. Elimination of Restrictions to Transaction. Notwithstanding
anything in this Agreement to the contrary, upon the consent of
limited partners holding a majority of the outstanding limited
partnership interests in the partnership, which consent may or may not
be the same consent to the adoption of an amendment to this Agreement,
no provision of this Agreement shall prohibit, limit or prevent:
(a) the merger or consolidation of the partnership,
including the merger described in the Proxy Statement/Prospectus,
with any other domestic limited partnership or other business
entity, as those terms are defined in the Delaware Revised
Uniform Limited Partnership Act, and
(b) the consummation of the merger of the partnership as
described in the Proxy Statement/Prospectus.
In addition, no consent of the partnership, Pioneer USA or any partner
or other procedure, including the delivery of opinions of counsel,
shall be required in order to enable the partnership, Pioneer USA or
any partner to effect the merger.
3. Mergers. For purposes of this Agreement, each merger described
in the Proxy Statement/Prospectus shall be treated as if the
partnership has:
(a) disposed of all of its assets and liabilities to Pioneer
USA in exchange for an amount in cash representing the merger
value of the partnership, and
(b) liquidated in the manner provided in the liquidation
provisions of this Agreement.
D-3
134
Accordingly, upon the partnership's deemed liquidation resulting from
the merger, Pioneer USA will pay an amount of Pioneer common stock and
cash to the partners, other than itself, in accordance with the
liquidation provisions of this Agreement. For purposes of Delaware
law, the merger shall be a merger subject to the provisions of Section
17.11 of the Delaware Revised Uniform Limited Partnership Act.
4. Authority of Pioneer USA as General Partner. By obtaining the
approval of the limited partners described in Section 2 of this
Article, the partnership hereby extends the power of attorney granted
to Pioneer USA pursuant to this Agreement to permit Pioneer USA to
execute the merger agreement described in the Proxy
Statement/Prospectus and the merger amendment contemplated by this
Article on behalf of the limited partners. Pioneer USA shall be
authorized, at such time in its full discretion as it deems
appropriate, to execute, acknowledge, verify, deliver, file and
record, for and in the name and on behalf of the partnership, Pioneer
USA and the limited partners, any and all documents, agreements,
certificates and instruments, and shall do and perform any and all
acts required by applicable law or which Pioneer USA deems necessary
or advisable in order to give effect to this Article and the
transactions contemplated herein, including, but not limited to, the
merger.
5. This Article Controlling. The provisions of this Article shall
control over all other provisions of this Agreement.
Except as herein expressly amended, all other terms and provisions of
this Agreement shall remain in full force and effect.
APPROVAL OF COUNSEL TO LIMITED PARTNERS FOR EACH PARTNERSHIP:
RESOLVED: That the selection of _____________ of Dallas, Texas as special
legal counsel for the limited partners of the partnership for the purpose of
rendering the legal opinion described in the proxy statement/prospectus under
"The Merger of Each Partnership -- Legal Opinion for Limited Partners" be and
hereby is approved by Pioneer USA, on behalf of the partnership, and the limited
partners of such partnership.
RESOLVED: That the legal opinion delivered pursuant to the partnership
agreement of the partnership as described in the proxy statement/prospectus
under "The Merger of Each Partnership -- Legal Opinion for Limited Partners," in
form and substance as set forth in Exhibit A to these merger proposals, be and
hereby is approved as in form and substance satisfactory to the limited partners
of such partnership in their reasonable judgment.
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EXHIBIT A
TO APPENDIX D
TO
PROXY STATEMENT/PROSPECTUS
OPINION OF
Pioneer Natural Resources USA, Inc.,
As Sole or Managing General Partner of
46 Limited Partnerships Named in the
Proxy Statement/Prospectus dated , 2001
1400 Williams Square West
5205 North O'Connor Blvd.
Irving, Texas 75039
We are of the opinion that (1) neither the grant nor the exercise of the
right to approve the merger of each partnership with and into Pioneer Natural
Resources USA, Inc. by the partnership's limited partners will adversely affect
the federal income tax classification of the partnership or any of its limited
partners and (2) neither the grant nor exercise of such right will result in the
loss of any limited partner's limited liability.
We hereby consent to the references to our firm and this opinion contained
in the proxy statement/prospectus forming a part of the registration statement
on Form S-4 originally filed with the Securities and Exchange Commission by
Pioneer Natural Resources Company, a Delaware corporation, on April 17, 2001 in
connection with the merger of each of the limited partnerships with and into
Pioneer Natural Resources USA, Inc., a Delaware corporation.
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136
APPENDIX E
TO
PROXY STATEMENT/PROSPECTUS
FORM OF
AGREEMENT AND PLAN OF MERGER
(DRILLING AND INCOME FUNDS)
THIS AGREEMENT AND PLAN OF MERGER dated as of , 2001 (this "Merger
Agreement"), is entered into by and among Pioneer Natural Resources Company, a
Delaware corporation ("Pioneer"), Pioneer Natural Resources USA, Inc., a
Delaware corporation and wholly-owned subsidiary of Pioneer ("Pioneer USA"), and
each of the limited partnerships referred to below (each, a "Partnership" and
collectively, the "Partnerships").
RECITALS
A. Pioneer USA is the sole or managing general partner of each of the
following Partnerships:
STATE OF
PARTNERSHIP NAME FORMATION
--------------------------------------------------------------- -----------------
Parker & Parsley 81-I, Ltd. Texas
Parker & Parsley 81-II, Ltd. Texas
Parker & Parsley 82-I, Ltd. Texas
Parker & Parsley 82-II, Ltd. Texas
Parker & Parsley 82-III, Ltd. Texas
Parker & Parsley 83-A, Ltd. Texas
Parker & Parsley 83-B, Ltd. Texas
Parker & Parsley 84-A, Ltd. Texas
Parker & Parsley 85-A, Ltd. Texas
Parker & Parsley 85-B, Ltd. Texas
Parker & Parsley Private Investment 85-A, Ltd. Texas
Parker & Parsley Selected 85 Private Investment, Ltd. Texas
Parker & Parsley 86-A, Ltd. Texas
Parker & Parsley 86-B, Ltd. Texas
Parker & Parsley 86-C, Ltd. Texas
Parker & Parsley Private Investment 86, Ltd. Texas
Parker & Parsley 87-A Conv., Ltd. Texas
Parker & Parsley 87-A , Ltd. Texas
Parker & Parsley 87-B Conv., Ltd. Texas
Parker & Parsley 87-B, Ltd. Texas
Parker & Parsley Producing Properties 87-A, Ltd. Texas
Parker & Parsley Producing Properties 87-B, Ltd. Texas
Parker & Parsley Private Investment 87, Ltd. Texas
Parker & Parsley 88-A Conv., L.P. Delaware
Parker & Parsley 88-A, L.P. Delaware
Parker & Parsley 88-B Conv., L.P. Delaware
Parker & Parsley 88-B, L.P. Delaware
Parker & Parsley 88-C Conv., L.P. Delaware
Parker & Parsley 88-C, L.P. Delaware
Parker & Parsley Producing Properties 88-A, L.P. Delaware
Parker & Parsley Private Investment 88, L.P. Delaware
Parker & Parsley 89-A Conv., L.P. Delaware
Parker & Parsley 89-A, L.P. Delaware
Parker & Parsley 89-B Conv., L.P. Delaware
Parker & Parsley 89-B, L.P. Delaware
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STATE OF
PARTNERSHIP NAME FORMATION
--------------------------------------------------------------- -----------------
Parker & Parsley Private Investment 89, L.P. Delaware
Parker & Parsley 90-A Conv., L.P. Delaware
Parker & Parsley 90-A, L.P. Delaware
Parker & Parsley 90-B Conv., L.P. Delaware
Parker & Parsley 90-B, L.P. Delaware
Parker & Parsley 90-C Conv., L.P. Delaware
Parker & Parsley 90-C, L.P. Delaware
Parker & Parsley Private Investment 90, L.P. Delaware
Parker & Parsley 90 Spraberry Private Development, L.P. Delaware
Parker & Parsley 91-A, L.P. Delaware
Parker & Parsley 91-B, L.P. Delaware
B. Each of Parker & Parsley Employees 81-I, Ltd., a Texas limited
partnership, Parker & Parsley Employees 81-II, Ltd., a Texas limited
partnership, Parker & Parsley Employees 82-I, Ltd., a Texas limited partnership,
Parker & Parsley Employees 82-II, Ltd., a Texas limited partnership, Parker &
Parsley Employees 82-III, Ltd., a Texas limited partnership, Parker & Parsley
Employees 83-A, Ltd., a Texas limited partnership, Parker & Parsley Employees
83-B, Ltd., a Texas limited partnership, and Parker & Parsley Employees 84-A,
Ltd., a Texas limited partnership (individually, the "Nonmanaging General
Partner" and collectively, the "Nonmanaging General Partners"), is the
nonmanaging general partner of Parker & Parsley 81-I, Ltd., Parker & Parsley
81-II, Ltd., Parker & Parsley 82-I, Ltd., Parker & Parsley 82-II, Ltd., Parker &
Parsley 82-III, Ltd., Parker & Parsley 83-A, Ltd. Parker & Parsley 83-B, Ltd.
and Parker & Parsley 84-A, Ltd., respectively.
C. Pioneer USA is the sole general partner of each of the Nonmanaging
General Partners and in such capacity has authority (i) to cause the Nonmanaging
General Partner to perform its obligations under the partnership agreement of
the respective Partnership; and (ii) to exercise on behalf of the Nonmanaging
General Partner all of the rights and elections granted to such Nonmanaging
General Partner by the respective Partnership.
D. The board of directors of each of Pioneer and Pioneer USA has
determined that it is in the best interests of Pioneer and Pioneer USA (in its
individual capacity, as the sole or managing general partner of each Partnership
and as the sole general partner of each Nonmanaging General Partner) to merge
each Partnership with and into Pioneer USA and each such board of directors has
approved the merger of each Partnership referred to below, upon the terms and
subject to the conditions contained herein.
E. Pioneer USA intends to solicit the vote of the limited partners of
each Partnership holding at least a majority (or with respect to Parker &
Parsley 91-A, L.P. and Parker & Parsley 91-B, L.P. (each, a "Super-Majority
Partnership"), at least 66?%) of the outstanding limited partnership interests
of the Partnership to approve the merger of the Partnership. Subject to certain
limitations, upon consummation of the merger of each Partnership, the partners,
other than Pioneer USA, will have the right to receive a number of shares of
common stock, par value $0.01 per share, of Pioneer (the "Pioneer Common Stock")
and an amount of cash.
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties hereto agree as follows:
ARTICLE 1
THE MERGER OF EACH PARTNERSHIP
1.1 Merger of Each Partnership. At the Effective Time (as defined in
Section 1.4), each Partnership shall be merged with and into Pioneer USA, the
separate existence of the Partnership shall cease, and Pioneer USA, as the
surviving corporation, shall continue to exist by virtue of and shall be
governed by the laws of the State of Delaware.
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1.2 Merger Value for Each Partnership; Pioneer Common Stock and Cash
Offered.
(a) At the Effective Time, by virtue of the merger of each
Partnership and without any action on the part of Pioneer USA or the other
partners of the Partnership, each partnership interest outstanding immediately
prior thereto shall be converted into the right to receive a portion of the
amount of Pioneer Common Stock and cash allocated to the Partnership, which
portion shall be determined in accordance with the merger value assigned to the
Partnership pursuant to the procedures set forth herein and in the Proxy
Statement/Prospectus (as defined in Section 4.3) and the procedures set forth in
the Partnership's partnership agreement for allocating liquidation distributions
as though the assets of the Partnership were sold for the merger value of the
Partnership. The merger value for each Partnership is equal to the sum of the
present value of estimated future net revenues from the Partnership's oil and
gas reserves and its net working capital, in each case as of March 31, 2001 and
determined as described in the Proxy Statement/Prospectus. The merger value for
each Partnership will not be adjusted as of the Closing Date. The number of
shares of Pioneer Common Stock to be issued for each partnership interest of
each Partnership will be based on (i) 75% of the Partnership's merger value
divided by (ii) the average closing price of the Pioneer Common Stock, as
reported by the New York Stock Exchange, for the ten trading days ending three
business days before the date of the special meeting for the Partnership. The
remaining portion will be paid in cash. For purposes of illustration in the
Proxy Statement/Prospectus, Pioneer and Pioneer USA calculated the aggregate
number of shares of Pioneer Common Stock to be offered based on $18.00 per share
of Pioneer Common Stock. Pioneer and Pioneer USA shall update the aggregate
number of shares of Pioneer Common Stock to be issued based on the average
closing price as described in clause (ii) above before the date of the special
meeting for each Partnership. The merger value assigned to each Partnership and
the amount of Pioneer Common Stock and cash offered with respect to each $1,000
investment by the limited partners in the Partnership pursuant to the merger of
the Partnership are set forth in the table entitled "Summary Table - Merger
Value and Amount of Initial Limited Partner Investment Repaid" in the Proxy
Statement/Prospectus.
(b) All partnership interests of each Partnership, when
converted into the right to receive Pioneer Common Stock and cash, shall no
longer be outstanding and shall automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate representing any such
partnership interests shall cease to have any rights with respect thereto,
except the right to receive the amount of Pioneer Common Stock and cash to be
delivered in consideration therefor.
(c) The partnership interests, whether general or limited, in
each Partnership held directly or indirectly by Pioneer USA shall be cancelled
without any consideration being received therefor; provided, however, that as a
result of the merger of each Partnership, Pioneer USA will own 100% of the
properties of the Partnership, including properties attributable to its
partnership interests in the Partnership.
(d) No fractional shares of Pioneer Common Stock will be
issued. Each fractional share of Pioneer Common Stock to be issued to a partner
of a Partnership will be rounded up to the nearest whole share. The cash payment
to that partner will be reduced by the value of the fractional share required to
complete a whole share multiplied by the price per share of Pioneer common stock
used to determine the number of shares to be issued.
(e) All cash payments shall be rounded to the nearest cent,
with .5 cent being rounded to one cent.
(f) When any person has partnership interests in more than one
Partnership that merges with Pioneer USA, Pioneer USA and Pioneer may, at their
sole discretion, aggregate the number of shares of Pioneer Common Stock or the
cash payments, or both, to that person before making the rounding and other
adjustments provided in the preceding clauses (d) and (e).
1.3 Closing. The closing of the merger of each Partnership (the
"Closing") shall take place at the offices of Vinson & Elkins L.L.P., 3700
Trammell Crow Center, 2001 Ross Avenue, Dallas, Texas 75201, as soon as
practicable after the fulfillment of the conditions referred to in Article 4, or
at such other time and place as the parties shall agree (the date of such
Closing being the "Closing Date").
1.4 Effective Time of Merger of Each Partnership. Upon satisfaction of
the conditions set forth in Article 4 hereof and as soon as practicable after
the Closing, this Merger Agreement, or a certificate of merger setting forth the
information required by, and otherwise in compliance with, Section 263 of the
General Corporation Law of the
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State of Delaware (the "DGCL") and, if applicable, Section 17-211 of the Revised
Uniform Limited Partnership Act of the State of Delaware (the "DRULPA") with
respect to the merger of each Partnership, shall be delivered for filing with
the Secretary of State of the State of Delaware. At such time, if applicable, a
certificate of merger with respect to the merger of each Partnership setting
forth the information required by, and otherwise in compliance with, Section
2.11 the Revised Limited Partnership Act of the State of Texas (the "TRLPA")
shall be delivered for filing with the Secretary of State of the State of Texas.
The merger of each Partnership shall become effective upon the later of (a) the
day and at the time the Secretary of State of the State of Delaware files this
Merger Agreement or such certificate of merger in compliance with Section 263 of
the DGCL and, if applicable, Section 17-211 of the DRULPA, and (b) if
applicable, the day and at the time the Secretary of State of the State of Texas
files such certificate of merger in compliance with Section 2.11 of the TRLPA
(the time of such effectiveness is herein called the "Effective Time").
Notwithstanding the foregoing, by action of its board of directors, either
Pioneer or Pioneer USA, in its individual capacity or as the sole general
partner of each Partnership, may terminate this Merger Agreement at any time
prior to the earlier of (a) the filing of this Merger Agreement or the
certificate of merger with respect to the merger of the Partnership in
compliance with Section 263 of the DGCL and, if applicable, Section 17-211 of
the DRULPA with the Secretary of State of the State of Delaware and (b) if
applicable, the filing of the certificate of merger with respect to the merger
of the Partnership in compliance with Section 2.11 of the TRLPA with Secretary
of State of the State of Texas.
1.5 Effect of Merger of Each Partnership. At the Effective Time of the
merger of each Partnership, Pioneer USA, without further action, as provided by
the laws of the State of Delaware and the State of Texas, as the case may be,
shall succeed to and possess all the rights, privileges, powers, and franchises,
of a public as well as of a private nature, of the Partnership; and all
property, real, personal and mixed, and all debts due on whatsoever account,
including subscriptions to shares, and all other choses in action, and all and
every other interest, of or belonging to or due to the Partnership shall be
deemed to be vested in Pioneer USA without further act or deed; and the title to
any real estate, or any interest therein, vested in Pioneer USA or the
Partnership shall not revert or be in any way impaired by reason of the merger
of the Partnership. Such transfer to and vesting in Pioneer USA shall be deemed
to occur by operation of law, and no consent or approval of any other person
shall be required in connection with any such transfer or vesting unless such
consent or approval is specifically required in the event of merger or
consolidation by law or express provision in any contract, agreement, decree,
order, or other instrument to which Pioneer USA or the Partnership is a party or
by which either of them is bound. At and after the Effective Time, Pioneer USA
shall be responsible and liable for all debts, liabilities, and duties of each
Partnership, including franchise taxes, if any, which may be enforced against
Pioneer USA to the same extent as if said debts, liabilities, and duties had
been incurred or contracted by it. Neither the rights of creditors nor any liens
upon the property of any Partnership or Pioneer USA shall be impaired by the
merger of any Partnership.
1.6 Certificate of Incorporation and Bylaws. The certificate of
incorporation of Pioneer USA before the merger of each Partnership shall be and
remain the certificate of incorporation of Pioneer USA after the Effective Time,
until the same shall thereafter be altered, amended, or repealed in accordance
with law and Pioneer USA's certificate of incorporation. The bylaws of Pioneer
USA as in effect at the Effective Time shall be and remain the bylaws of Pioneer
USA, as the surviving corporation, until the same shall thereafter be altered,
amended, or repealed in accordance with law, Pioneer USA's certificate of
incorporation or such bylaws.
1.7 Pioneer USA Common Stock. At the Effective Time, each outstanding
share of common stock of Pioneer USA shall remain outstanding and shall continue
to represent one share of common stock of Pioneer USA.
1.8 Officers and Directors. At the Effective Time, each of the persons
who was serving as an officer of Pioneer USA immediately prior to the Effective
Time shall continue to be an officer of Pioneer USA and shall continue to serve
in such capacity at the pleasure of the board of directors of Pioneer USA or, if
earlier, until their respective death or resignation. At the Effective Time,
each of the persons who was serving as a director of Pioneer USA immediately
prior to the Effective Time shall continue to be a director of Pioneer USA, and
each shall serve in such capacity until the next annual meeting of stockholders
of Pioneer USA and until his or her successor is elected and qualified or, if
earlier, until his death, resignation, or removal from office.
1.9 Exchange of Partnership Interests for Pioneer Common Stock and
Cash.
(a) Pioneer USA shall mail certificates representing shares of
Pioneer Common Stock and checks to the partners of record, other than Pioneer
USA, of each Partnership promptly following the Closing Date in
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payment of the merger consideration. Limited partners and Nonmanaging General
Partners of each Partnership will not be required to surrender partnership
interest certificates to receive the Pioneer Common Stock and the cash payment.
(b) After the Closing Date, there shall not be any further
registration of transfers on the transfer books of any Partnership of the
partnership interests that were issued and outstanding immediately before the
Closing Date and were converted into the right to receive Pioneer Common Stock
and cash. If, after the Closing Date, certificates representing partnership
interests of a Partnership are presented, they shall be exchanged for Pioneer
Common Stock and cash, all as provided in this Article.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of Each Partnership. Each
Partnership hereby represents and warrants to Pioneer and Pioneer USA as
follows:
(a) Formation; Qualification. The Partnership is a limited
partnership duly formed under the DRULPA or TRLPA, as applicable, and is validly
existing and in good standing under the laws of the State of Delaware or the
State of Texas, as applicable. The Partnership has all requisite partnership
power and authority to own, operate or lease its properties and to carry on its
business as now being conducted. The Partnership is duly qualified to do
business as a foreign limited partnership and is in good standing in each
jurisdiction where the character of its properties owned, operated or leased, or
the nature of its activities, makes such qualifications necessary.
(b) Capitalization. All of the outstanding partnership
interests of the Partnership are free of all liens, encumbrances, defects and
preemptive rights and are fully paid. Except as described in the Proxy
Statement/Prospectus, there are no outstanding subscriptions, options or other
arrangements or commitments obligating the Partnership to issue any additional
partnership interests.
(c) No Conflicts. Assuming this Merger Agreement is approved
by the requisite vote of the limited partners of the Partnership (with respect
to Parker & Parsley 85-A, Ltd., Parker & Parsley 85-B, Ltd., Parker & Parsley
Private Investment 85-A, Ltd., Parker & Parsley Selected 85 Private Investment,
Ltd., Parker & Parsley Private Investment 86, Ltd., Parker & Parsley 91-A, L.P.
and Parker & Parsley 91-B, L.P. (each, a "Special Vote Partnership"), excluding
Pioneer USA and its affiliates), consummation of the transactions contemplated
hereby and compliance with the terms and provisions of this Merger Agreement
will not conflict with, result in a breach of, require notice under or
constitute a default under (i) its certificate of limited partnership or
partnership agreement, (ii) any material judgment, order, injunction, decree or
ruling of any court or governmental authority or (iii) any material agreement,
indenture or instrument to which the Partnership is a party.
(d) Authority, Authorization and Enforceability. The
Partnership has all requisite power and authority to enter into and perform the
provisions of this Merger Agreement. The execution and delivery of this Merger
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary partnership action on the part of the
Partnership other than the approval of its limited partners (with respect to
each Special Vote Partnership, excluding Pioneer USA and its affiliates).
Subject to such approval, this Merger Agreement has been duly executed and
delivered by the Partnership and constitutes a valid and binding obligation of
the Partnership enforceable in accordance with its terms.
(e) SEC Reports; Financial Statements.
(i) With respect to each of Reporting Partnership (as
defined below), the Partnership's (A) Annual Report on Form 10-K for
the year ended December 31, 2000, (B) Quarterly Report on Form 10-Q for
the quarter ended March 31, 2001, and (C) all other reports or
registration statements filed with the Securities and Exchange
Commission (the "SEC") since December 31, 2000 (collectively, the
"Partnership's SEC Reports") (1) were prepared in accordance with the
applicable requirements of the Securities Act of 1933 (the "Securities
Act") and the Securities Exchange Act of 1934 (the "Exchange Act"), and
(2) as of their respective dates, did not contain any untrue statement
of a material fact or omit to
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state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances
under which they are made, not misleading.
(ii) Each of the financial statements of the
Partnership for the year ended December 31, 2000 and for the three
months ended March 31, 2001 contained in the Partnership's supplement
to the Proxy Statement/Prospectus and, with respect to each Reporting
Partnership, in the Partnership's SEC Reports has been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as may be
indicated in the notes thereto) and each fairly presents the financial
position of the Partnership as of the respective dates thereof and the
results of operations and cash flows of the Partnership for the periods
indicated, except that the unaudited interim financial statements are
subject to normal and recurring year-end adjustments that are not
expected to be material in amount.
(iii) For purposes hereof, the term "Reporting
Partnership" means: Parker & Parsley 82-I, Ltd., Parker & Parsley
82-II, Ltd., Parker & Parsley 83-A, Ltd., Parker & Parsley 83-B, Ltd.,
Parker & Parsley 84-A, Ltd., Parker & Parsley 85-A, Ltd., Parker &
Parsley 85-B, Ltd., Parker & Parsley 86-A, Ltd., Parker & Parsley 86-B,
Ltd., Parker & Parsley 86-C, Ltd., Parker & Parsley 87-A, Ltd., Parker
& Parsley 87-B, Ltd., Parker & Parsley Producing Properties 87-A, Ltd.,
Parker & Parsley Producing Properties 87-B, Ltd., Parker & Parsley
88-A, L.P., Parker & Parsley 88-B, L.P., Parker & Parsley Producing
Properties 88-A, L.P., Parker & Parsley 89-A, L.P., Parker & Parsley
90-A L.P., Parker & Parsley 90-B Conv., L.P., Parker & Parsley 90-B,
L.P., Parker & Parsley 90-C Conv., L.P., Parker & Parsley 90-C, L.P.,
Parker & Parsley 91-A, L.P. and Parker & Parsley 91-B, L.P.
(f) No Material Adverse Change. Since March 31, 2001, the
Partnership has conducted its operations in the ordinary and usual course of
business and has paid all of its obligations as they have become due; and the
business of the Partnership has not undergone any material adverse change since
such date.
(g) Accuracy of Information. None of the information supplied
or to be supplied by the Partnership for inclusion in the Proxy
Statement/Prospectus, as amended or supplemented, will, at the time of the
mailing of the Proxy Statement/Prospectus, the time of the special meeting of
the limited partners of the Partnership (each, a "Special Meeting") or the
Closing Date, be false or misleading with respect to any material fact, contain
any untrue statement of material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
2.2 Representations and Warranties of Pioneer USA. Pioneer USA hereby
represents and warrants to Pioneer and each Partnership as follows:
(a) Organization; Qualification. Pioneer USA is a corporation
duly formed under the DGCL and is validly existing and in good standing under
the laws of the State of Delaware. Pioneer USA has all requisite corporate power
and authority to own, operate or lease its properties and to carry on its
business as now being conducted. Pioneer USA is duly qualified to do business as
a foreign corporation and is in good standing in each jurisdiction where the
character of its properties owned, operated or leased, or the nature of its
activities, makes such qualifications necessary.
(b) No Conflicts. Consummation of the transactions
contemplated hereby and compliance with the terms and provisions of this Merger
Agreement will not conflict with, result in a breach of, require notice under or
constitute a default under (i) its certificate of incorporation or bylaws, (ii)
any material judgment, order, injunction, decree or ruling of any court or
governmental authority or (iii) any material agreement, indenture or instrument
to which Pioneer USA is a party.
(c) Authority, Authorization and Enforceability. Pioneer USA
has all requisite corporate power and authority to execute and deliver this
Merger Agreement and to perform the provisions of this Merger Agreement. The
execution and delivery of this Merger Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Pioneer USA. This Merger Agreement has been duly
executed and delivered by Pioneer USA and constitutes a valid and binding
obligation of Pioneer USA enforceable in accordance with its terms.
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(d) No Material Adverse Change. Since March 31, 2001, Pioneer
USA has conducted its operations in the ordinary and usual course of business
and has paid all of its obligations as they have become due; and the business of
Pioneer USA has not undergone any material adverse change since such date.
(e) Accuracy of Information. None of the information supplied
or to be supplied by Pioneer USA for inclusion in the Proxy
Statement/Prospectus, as amended or supplemented, will, at the time of the
mailing of the Proxy Statement/Prospectus, the time of the Special Meeting of
each Partnership or the Closing Date, be false or misleading with respect to any
material fact, contain any untrue statement of material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading.
(f) Capacity as General Partner. Pioneer USA is the sole or
managing general partner of each Partnership and is the sole general partner of
each Nonmanaging General Partner.
2.3 Representations and Warranties of Pioneer. Pioneer hereby
represents and warrants to Pioneer USA and each Partnership as follows:
(a) Organization; Qualification. Pioneer is a corporation duly
formed under the DGCL and is validly existing and in good standing under the
laws of the State of Delaware. Pioneer has all requisite corporate power and
authority to own, operate or lease its properties and to carry on its business
as now being conducted. Pioneer is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
its properties owned, operated or leased, or the nature of its activities, makes
such qualifications necessary.
(b) No Conflicts. Consummation of the transactions
contemplated hereby and compliance with the terms and provisions of this Merger
Agreement will not conflict with, result in a breach of, require notice under or
constitute a default under (i) its certificate of incorporation or bylaws, (ii)
any material judgment, order, injunction, decree or ruling of any court or
governmental authority or (iii) any material agreement, indenture or instrument
to which Pioneer is a party.
(c) Authority, Authorization and Enforceability. Pioneer has
all requisite corporate power and authority to execute and deliver this Merger
Agreement and to perform the provisions of this Merger Agreement. The execution
and delivery of this Merger Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Pioneer. This Merger Agreement has been duly executed and
delivered by Pioneer and constitutes a valid and binding obligation of Pioneer
enforceable in accordance with its terms. When issued in accordance with this
Merger Agreement, the shares of Pioneer Common Stock will be validly issued,
fully paid and nonassessable and not subject to preemptive rights.
(d) SEC Reports; Financial Statements.
(i) Pioneer's (A) Annual Report on Form 10-K for the
year ended December 31, 2000, (B) Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001, and (C) all other reports or registration
statements filed with the SEC since December 31, 2000 (collectively,
"Pioneer's SEC Reports") (1) were prepared in accordance with the
applicable requirements of the Securities Act and the Exchange Act, and
(2) as of their respective dates, did not contain any untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not
misleading.
(ii) Each of the financial statements of Pioneer for
the year ended December 31, 2000 and for the three months ended March
31, 2001 contained in Pioneer's SEC Reports has been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods involved (except as may be
indicated in the notes thereto) and each fairly presents the financial
position of Pioneer as of the respective dates thereof and the results
of operations and cash flows of Pioneer for the periods indicated,
except that the unaudited interim financial statements are subject to
normal and recurring year-end adjustments that are not expected to be
material in amount.
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(e) No Material Adverse Change. Since March 31, 2001, Pioneer
has conducted its operations in the ordinary and usual course of business and
has paid all of its obligations as they have become due; and the business of
Pioneer has not undergone any material adverse change since such date.
(f) Accuracy of Information. None of the information supplied
or to be supplied by Pioneer for inclusion in the Proxy Statement/Prospectus, as
amended or supplemented, will, at the time of the mailing of the Proxy
Statement/Prospectus, the time of the Special Meeting of each Partnership or the
Closing Date, be false or misleading with respect to any material fact, contain
any untrue statement of material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
ARTICLE 3
CONDITIONS PRECEDENT TO THE MERGER OF EACH PARTNERSHIP
3.1 Conditions to Each Party's Obligations to Effect the Merger of Each
Partnership. The respective obligations of each party to effect the merger of
each Partnership shall be subject to the fulfillment (or waiver in whole or in
part by the intended beneficiary thereof in its sole discretion) at or prior to
the Closing Date of the following conditions:
(a) This Merger Agreement, an amendment to the partnership
agreement of each Partnership to permit the merger of such Partnership (the
"Merger Amendment"), the selection of special counsel for the limited partners
and that counsel's legal opinion referred to in Section 3.1(c) shall have been
approved by the limited partners (with respect to each Special Vote Partnership,
excluding Pioneer USA and its affiliates) holding at least a majority (or, with
respect to each Super-Majority Partnership, at least 66?%) of the outstanding
limited partnership interests voting in person or by proxy at the Special
Meetings at which a quorum is present, with respect to each merger.
(b) Pioneer USA shall have received from Robert A. Stanger &
Co., Inc. a written opinion for inclusion in the Proxy Statement/Prospectus
satisfactory in form and substance to Pioneer USA and substantially to the
effect that, as of the date of that opinion, the merger value for each
Partnership and the allocation of the merger value of the Partnership (1) to the
limited partners of the Partnership as a group, (2) to the general partners of
the Partnership as a group, (3) to Pioneer USA as the managing or sole general
partner of the Partnership, (4) to the unaffiliated limited partners of the
Partnership as a group and (5) to the unaffiliated limited partners of the
Nonmanaging General Partner, if any, of the Partnership as a group, is fair to
the unaffiliated limited partners of the Partnership and the unaffiliated
limited partners of the Nonmanaging General Partner, if any, of the Partnership,
from a financial point of view. Such opinion shall not have been withdrawn prior
to the Closing Date, unless a replacement opinion or opinions of an investment
banking firm or firms satisfactory to Pioneer USA to a similar effect has been
received by Pioneer USA and has not been withdrawn.
(c) The receipt, on or prior to the Closing Date, by Pioneer
USA of the opinion of special legal counsel for the limited partners pursuant to
the partnership agreement of each Partnership.
(d) No provision of any applicable law or regulation and no
judgment, injunction, order or decree shall prohibit the consummation of the
merger of any Partnership and the transactions related thereto.
(e) No suit, action or proceeding shall have been filed or
otherwise be pending against Pioneer, Pioneer USA or any officer, director or
affiliate of Pioneer or Pioneer USA challenging the legality or any aspect of
the merger of any Partnership or the transactions related thereto.
(f) The shares of Pioneer Common Stock issuable upon the
merger of each Partnership pursuant to this Merger Agreement shall have been
authorized for listing on the New York Stock Exchange and the Toronto Stock
Exchange upon official notice of issuance.
(g) The parties to the merger of each Partnership having made
all filings and registrations with, and notifications to, all third parties,
including, without limitation, lenders and all appropriate regulatory
authorities, required for consummation of the transactions contemplated by this
Merger Agreement (other than the filing and recordation of appropriate merger
documents required by the DGCL, the DRULPA and the TRLPA, as applicable),
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and all approvals and authorizations and consents of all third parties,
including, without limitation, lenders and all regulatory authorities, required
for consummation of the transactions contemplated by this Merger Agreement shall
have been received and shall be in full force and effect, except for such
filings, registrations, notifications, approvals, authorizations and consents,
the failure of which to make or obtain would not have a material adverse effect
on the business or financial condition of Pioneer, Pioneer USA or any
Partnership.
(h) The absence of any opinion of counsel that the exercise by
the limited partners of any Partnership of the right to approve the merger of
such Partnership is not permitted under applicable state law.
3.2 Conditions to Obligations of Pioneer to Effect the Merger of Each
Partnership. The obligations of Pioneer to effect the merger of each Partnership
shall be subject to the fulfillment (or waiver in whole or in part by the
intended beneficiary thereof in its sole discretion), at or prior to the Closing
Date, of the following additional conditions:
(a) Pioneer USA and each Partnership shall have performed in
all material respects their respective agreements contained in this Merger
Agreement required to be performed at or prior to the Closing Date.
(b) The representations and warranties of Pioneer USA and each
Partnership contained in this Merger Agreement shall be true and correct in all
material respects at and as of the Closing Date as if made at and as of such
time unless they relate to another specified time.
3.3 Conditions to Obligations of Pioneer USA and Each Partnership to
Effect the Merger of Such Partnership. The obligations of Pioneer USA and each
Partnership to effect the merger of such Partnership shall be subject to the
fulfillment (or waiver in whole or in part by the intended beneficiary thereof
in its sole discretion) at or prior to the Closing Date of the following
additional conditions:
(a) Pioneer shall have performed in all material respects its
agreements contained in this Merger Agreement required to be performed at or
prior to the Closing Date.
(b) The representations and warranties of Pioneer contained in
this Merger Agreement shall be true and correct in all material respects at and
as of the Closing Date as if made at and as of such time unless they relate to
another specific time.
ARTICLE 4
ADDITIONAL AGREEMENTS
4.1 Conduct of Business Pending the Merger of Each Partnership. Each
Partnership covenants and agrees that, between the date of this Merger Agreement
and the Closing Date, unless the other parties shall otherwise agree in writing
or as otherwise contemplated in this Merger Agreement, it shall conduct its
businesses only in the ordinary course of business and in a manner consistent
with past practice, and it shall not take any action except for actions
consistent with such practice. Each Partnership shall use its reasonable best
efforts to preserve intact its business organization, to keep available the
services of its present officers, employees and consultants, and to preserve its
relationships with customers, suppliers and other persons with which it has
significant business dealings.
4.2 Special Meetings; Proxies. As soon as reasonably practicable after
the execution of this Merger Agreement, Pioneer USA will take all action
necessary to duly call, give notice of, convene and hold the Special Meetings to
consider and vote upon approval of this Merger Agreement, the Merger Amendment,
the selection of special legal counsel for the limited partners, that counsel's
legal opinion referred to in Section 3.1(c) and the transactions contemplated
hereby and thereby. Pioneer USA will use its reasonable best efforts to solicit
from the limited partners proxies in favor of this Merger Agreement, the Merger
Amendment, the selection of special legal counsel for the limited partners, that
counsel's legal opinion referred to in Section 3.1(c) and the transactions
contemplated hereby and thereby, and to take all other action necessary or
advisable to secure any vote or consent of the limited partners of each
Partnership required by the partnership agreement of the Partnership or this
Merger Agreement or applicable law to effect the merger of the Partnership.
4.3 Proxy Statement/Prospectus. Pioneer and Pioneer USA shall file with
the SEC under the Exchange Act a preliminary proxy statement/prospectus for each
Special Meeting (the definitive form of such proxy
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145
statement/prospectus is referred to as the "Proxy Statement/Prospectus").
Pioneer and Pioneer USA shall use all reasonable commercial efforts to have the
Proxy Statement/Prospectus cleared with the SEC as promptly as practicable.
Pioneer and Pioneer USA shall cause the Proxy Statement/Prospectus to be mailed
to the limited partners of each Partnership as soon as practicable in accordance
with applicable federal and state law.
4.4 Authorization for Shares and Stock Exchange Listing. Prior to the
Effective Time, Pioneer and Pioneer USA shall have taken all action necessary to
permit Pioneer to issue the number of shares of Pioneer Common Stock required to
be issued pursuant to this Merger Agreement. Each of Pioneer and Pioneer USA
shall use its commercially reasonable efforts to cause the shares of Pioneer
Common Stock to be issued in the merger of each Partnership to be approved for
listing on the New York Stock Exchange and the Toronto Stock Exchange, subject
to official notice of issuance, prior to the Closing Date.
4.5 Additional Agreements. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all reasonable commercial
efforts to obtain in a timely manner all necessary waivers, consents and
approvals and to effect all necessary registrations and filings, and to use all
reasonable commercial efforts to take, or cause to be taken, all other actions
and to do, or cause to be done, all other things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective as
promptly as practicable the transactions contemplated by this Merger Agreement.
ARTICLE 5
TERMINATION
5.1 Termination. This Merger Agreement may be terminated and the merger
of any Partnership contemplated hereby may be abandoned, in whole or in part, at
any time prior to the Effective Time, whether before or after approval of the
merger of the Partnership by its limited partners (with respect to each Special
Vote Partnership, excluding Pioneer USA and its affiliates):
(a) By mutual written consent of the parties;
(b) By any party, if:
(i) there shall be any applicable law, rule or
regulation that makes consummation of the merger of any Partnership
illegal or otherwise prohibited or if any judgment, injunction, order
or decree enjoining any party from consummating the merger of any
Partnership is entered and such judgment, injunction, order or decree
shall have become final and non-appealable;
(ii) at the Special Meeting of each Partnership or at
any adjournment or postponement thereof, the approval of the limited
partners of the Partnership referred to in Section 3.1(a) shall not
have been obtained by reason of the failure to obtain the requisite
vote; or
(iii) there shall be any pending suit, action or
proceeding filed against Pioneer, Pioneer USA, any Partnership or any
officer, director or affiliate of Pioneer or Pioneer USA challenging
the legality or any aspect of the merger of any Partnership or the
transactions related thereto;
(c) By Pioneer, if either Pioneer USA or any Partnership shall
have failed to perform its agreements and covenants contained herein, which
failure has a material adverse effect on Pioneer USA or such Partnership, as the
case may be, or materially and adversely affects the transactions contemplated
by this Merger Agreement;
(d) By Pioneer USA or any Partnership with respect to the
Partnership's merger, if Pioneer shall have failed to perform its agreements and
covenants contained herein, which failure has a material adverse effect on
Pioneer USA or such Partnership, as the case may be, or materially and adversely
affects the transactions contemplated by this Merger Agreement;
(e) By Pioneer or Pioneer USA, pursuant to Section 1.4 hereof;
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146
(f) By Pioneer USA, if Pioneer USA, after considering the
written advice of outside legal counsel, determines in good faith that
termination of this Merger Agreement is required for Pioneer USA's board of
directors to comply with its fiduciary duties to its sole stockholder or to any
Partnership imposed by applicable law; or
(g) By Pioneer, if there shall have occurred any event,
circumstance, condition, development or occurrence causing, resulting in or
having, or reasonably expected to cause, result in or have, a material adverse
effect (i) on any Partnership's business, operations, properties (taken as a
whole), condition (financial or otherwise), results of operations, assets (taken
as a whole), liabilities, cash flows or prospects, (ii) on market prices for oil
and gas prevailing generally in the oil and gas industry since the date of
determination of the oil and gas commodity prices used in the determination of
the merger value for each Partnership, (iii) on the price of Pioneer Common
Stock or (iv) on the oil and gas industry generally.
5.2 Effect of Termination. In the event of termination of this Merger
Agreement by a party as provided in Section 5.1, written notice thereof shall
promptly be given to the other parties and this Merger Agreement shall forthwith
terminate without further action by any of the parties hereto. If this Merger
Agreement is terminated as so provided, there shall be no liabilities or
obligations hereunder on the part of any party hereto except as provided in
Section 6.13 and except that nothing herein shall relieve any party hereto from
liability for any breach of this Merger Agreement.
ARTICLE 6
MISCELLANEOUS
6.1 Headings. The headings contained in this Merger Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Merger Agreement.
6.2 Amendment. This Merger Agreement may be supplemented, amended or
modified by an instrument in writing signed by Pioneer and Pioneer USA (on
behalf of itself and as (a) the sole or managing general partner of each
Partnership, (b) the sole general partner of each Nonmanaging General Partner
and (c) attorney-in-fact for the limited partners of each Partnership) at any
time prior to the Closing Date; provided, however, that after approval by the
limited partners of each Partnership (with respect to each Special Vote
Partnership, excluding Pioneer USA and its affiliates) of this Merger Agreement,
the Merger Amendment, the selection of special legal counsel for the limited
partners and that counsel's legal opinion referred to in Section 3.1(c), no
amendment may be made which would adversely change the type or amount of, or the
method for determining, the consideration to be received upon consummation of
the merger of each Partnership or which would in any other way materially and
adversely affect the rights of such limited partners (other than a termination
of this Merger Agreement or abandonment of the merger of any Partnership).
6.3 Waiver. At any time prior to the Closing Date, the parties hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, and (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall not operate as
an extension or waiver of, or estoppel with respect to, any subsequent failure
of compliance or other failure. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid against such party if set forth in
an instrument in writing signed by such party.
6.4 Expiration of Representations and Warranties. All representations
and warranties made pursuant to this Merger Agreement shall expire with, and be
terminated and extinguished by, the merger of each Partnership on the Closing
Date.
6.5 Notices. All notices and other communications to be given or made
hereunder by any party shall be delivered by first class mail, or by personal
delivery, postage or fees prepaid, (a) to Pioneer at 1400 Williams Square West,
5205 North O'Connor Boulevard, Irving, Texas 75039, Attn: Scott D. Sheffield,
with a copy to Vinson & Elkins L.L.P., 3700 Trammell Crow Center, 2001 Ross
Avenue, Dallas, Texas 75201, Attn: Robert L. Kimball, and (b) to the other
parties at Pioneer Natural Resources USA, Inc., 1400 Williams Square West, 5205
North O'Connor Boulevard, Irving, Texas 75039, Attn: Mark L. Withrow, with a
copy to Sayles, Lidji & Werbner, 4400 Renaissance Tower, 1201 Elm Street,
Dallas, Texas 75270, Attn: Brian M. Lidji.
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6.6 Counterparts. This Merger Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
6.7 Severability. If any term or other provision of this Merger
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Merger Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner materially adverse to any party.
6.8 Entire Agreement. This Merger Agreement, including the documents
and instruments referred to herein, constitutes the entire agreement and
supersedes all other prior agreements and undertakings, both written and oral,
between the parties, or any of them, with respect to the subject matter hereof.
6.9 Remedies. Except as otherwise expressly provided herein, this
Merger Agreement is not intended to confer upon any other person any rights or
remedies hereunder.
6.10 Assignment. This Merger Agreement shall not be assigned by
operation of law or otherwise without the consent of all parties hereto.
6.11 No Implied Waiver. Except as expressly provided in this Merger
Agreement, no course of dealing among the parties hereto and no delay by any of
them in exercising any right, power or remedy conferred herein or now or
hereafter existing at law or in equity, by statute or otherwise, shall operate
as a waiver of, or otherwise prejudice, any such right, power or remedy.
6.12 Governing Law. Except to the extent that TRLPA is mandatorily
applicable, this Merger Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware (regardless of the laws that
might otherwise govern under applicable principles of conflicts of law) as to
all matters.
6.13 Expenses. Except as otherwise provided herein, Pioneer shall pay
all costs and expenses incurred in connection with this Merger Agreement and the
transactions contemplated hereby, whether or not the merger of each Partnership
is completed.
6.14 Liquidation. Each Partnership, Pioneer and Pioneer USA intend and
agree that the merger of each Partnership shall be treated as a liquidation of
the Partnership into Pioneer USA pursuant to Section 332 of the Internal Revenue
Code of 1986, as amended, and shall make all declarations and filings necessary
to accomplish such intent and liquidation.
[Signature pages follow.]
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IN WITNESS WHEREOF, each of the parties hereto has executed this Merger
Agreement as of the date first written above.
PIONEER NATURAL RESOURCES COMPANY
By:
----------------------------------
Name:
-------------------------------
Title:
-------------------------------
PIONEER NATURAL RESOURCES USA, INC.
By:
----------------------------------
Mark L. Withrow
Executive Vice President, General
Counsel and Secretary
PARTNERSHIPS:
Parker & Parsley 81-I, Ltd.
Parker & Parsley 81-II, Ltd.
Parker & Parsley 82-I, Ltd.
Parker & Parsley 82-II, Ltd.
Parker & Parsley 82-III, Ltd.
Parker & Parsley 83-A, Ltd.
Parker & Parsley 83-B, Ltd.
Parker & Parsley 84-A, Ltd.
Parker & Parsley 85-A, Ltd.
Parker & Parsley 85-B, Ltd.
Parker & Parsley Private Investment 85-A, Ltd.
Parker & Parsley Selected 85 Private Investment,
Ltd.
Parker & Parsley 86-A, Ltd.
Parker & Parsley 86-B, Ltd.
Parker & Parsley 86-C, Ltd.
Parker & Parsley Private Investment 86, Ltd.
Parker & Parsley 87-A Conv., Ltd.
Parker & Parsley 87-A , Ltd.
Parker & Parsley 87-B Conv., Ltd.
Parker & Parsley 87-B, Ltd.
Parker & Parsley Producing Properties 87-A, Ltd.
Parker & Parsley Producing Properties 87-B, Ltd.
Parker & Parsley Private Investment 87, Ltd.
Parker & Parsley 88-A Conv., L.P.
Parker & Parsley 88-A, L.P.
Parker & Parsley 88-B Conv., L.P.
Parker & Parsley 88-B, L.P.
Parker & Parsley 88-C Conv., L.P.
Parker & Parsley 88-C, L.P.
Parker & Parsley Producing Properties 88-A, L.P.
Parker & Parsley Private Investment 88, L.P.
Parker & Parsley 89-A Conv., L.P.
Parker & Parsley 89-A, L.P.
Parker & Parsley 89-B Conv., L.P.
Parker & Parsley 89-B, L.P.
Parker & Parsley Private Investment 89, L.P.
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149
Parker & Parsley 90-A Conv., L.P.
Parker & Parsley 90-A, L.P.
Parker & Parsley 90-B Conv., L.P.
Parker & Parsley 90-B, L.P.
Parker & Parsley 90-C Conv., L.P.
Parker & Parsley 90-C, L.P.
Parker & Parsley Private Investment 90, L.P.
Parker & Parsley 90 Spraberry Private
Development, L.P.
Parker & Parsley 91-A, L.P.
Parker & Parsley 91-B, L.P.
By: Pioneer Natural Resources USA, Inc., as the
sole or managing general partner of each
Partnership
By:
--------------------------------------------
Mark L. Withrow
Executive Vice President, General Counsel
and Secretary
By: Pioneer Natural Resources USA, Inc., as the
sole general partner of each Nonmanaging
General Partner
By:
--------------------------------------------
Mark L. Withrow
Executive Vice President, General Counsel and
Secretary
By: Pioneer Natural Resources USA, Inc., as
attorney-in-fact for the limited partners
of each Partnership
By:
--------------------------------------------
Mark L. Withrow
Executive Vice President, General Counsel and
Secretary
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150
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 81-I, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
81-I, Ltd. and supplements the proxy statement/prospectus dated , 2001, of
Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by
which Pioneer USA is soliciting proxies to be voted at a special meeting of
limited partners of the partnership. The purpose of the special meeting is for
you to vote upon the merger of the partnership with and into Pioneer USA that,
if completed, will result in your receiving common stock of Pioneer Natural
Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 81-I, Ltd.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the three months ended March 31, 2001
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
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151
PARKER & PARSLEY 81-I, LTD.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 7,410
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 4,763
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 625
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 89.51
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 4.28 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 20.30
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 79.71
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 87.13
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 320
(b), (c)
-----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
(1) neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners; and (2)
neither the grant nor exercise of such right will result in the loss of any
limited partner's limited liability. In addition, the counsel designated to
render the opinion must be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
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152
PARKER & PARSLEY 81-I, LTD.
(A Texas Limited Partnership)
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT
December 31, 2000 and 1999
153
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 81-I, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheets of Parker & Parsley 81-I, Ltd. as of December
31, 2000 and 1999, and the related statements of operations, partners' capital
and cash flows for each of the three years in the period ended December 31,
2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 81-I, Ltd. as
of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
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154
PARKER & PARSLEY 81-I, LTD.
(A Texas Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
---------------- ----------------
ASSETS
Current assets:
Cash $ 38,546 $ 38,716
Accounts receivable - oil and gas sales 63,269 34,340
------------ ------------
Total current assets 101,815 73,056
------------ ------------
Oil and gas properties - at cost, based on the
successful efforts accounting method 5,245,144 5,240,632
Accumulated depletion (5,142,190) (5,133,431)
------------ ------------
Net oil and gas properties 102,954 107,201
------------ ------------
$ 204,769 $ 180,257
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable - affiliate $ 8,817 $ 10,041
Partners' capital:
General partners 45,564 38,221
Limited partners (1,482 interests) 150,388 131,995
------------ ------------
195,952 170,216
------------ ------------
$ 204,769 $ 180,257
============= =============
The accompanying notes are an integral part of these financial statements.
3
155
PARKER & PARSLEY 81-I, LTD.
(A Texas Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Revenues:
Oil and gas $ 416,230 $ 260,652 $ 199,789
Interest 3,071 1,858 2,462
Gain on disposition of assets -- -- 67
--------- --------- ---------
419,301 262,510 202,318
--------- --------- ---------
Costs and expenses:
Oil and gas production 174,233 165,810 157,631
General and administrative 15,697 13,087 8,892
Impairment of oil and gas properties -- -- 50,343
Depletion 8,759 11,881 116,799
--------- --------- ---------
198,689 190,778 333,665
--------- --------- ---------
Net income (loss) $ 220,612 $ 71,732 $(131,347)
========= ========= =========
Allocation of net income (loss):
General partners $ 56,242 $ 19,205 $ (7,775)
========= ========= =========
Limited partners $ 164,370 $ 52,527 $(123,572)
========= ========= =========
Net income (loss) per limited partnership interest $ 110.91 $ 35.44 $ (83.38)
========= ========= =========
The accompanying notes are an integral part of these financial statements.
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156
PARKER & PARSLEY 81-I, LTD.
(A Texas Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
General Limited
partners partners Total
-------------- -------------- ---------------
Partners' capital at January 1, 1998 $ 52,826 $ 295,972 $ 348,798
Distributions (10,054) (45,727) (55,781)
Net loss (7,775) (123,572) (131,347)
------------ ------------ -----------
Partners' capital at December 31, 1998 34,997 126,673 161,670
Distributions (15,981) (47,205) (63,186)
Net income 19,205 52,527 71,732
------------ ------------ -----------
Partners' capital at December 31, 1999 38,221 131,995 170,216
Distributions (48,899) (145,977) (194,876)
Net income 56,242 164,370 220,612
------------ ------------ -----------
Partners' capital at December 31, 2000 $ 45,564 $ 150,388 $ 195,952
============= ============= ============
The accompanying notes are an integral part of these financial statements.
5
157
PARKER & PARSLEY 81-I, LTD.
(A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
-------------- -------------- --------------
Cash flows from operating activities:
Net income (loss) $ 220,612 $ 71,732 $ (131,347)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties - - 50,343
Depletion 8,759 11,881 116,799
Gain on disposition of assets - - (67)
Changes in assets and liabilities:
Accounts receivable (28,929) (11,525) 12,794
Accounts payable (1,224) 2,906 (3,523)
----------- ---------- ------------
Net cash provided by operating activities 199,218 74,994 44,999
----------- ----------- ------------
Cash flows from investing activities:
Additions to oil and gas properties (4,512) (3,421) (2,481)
Proceeds from asset dispositions - - 14,234
----------- ----------- ------------
Net cash provided by (used in) investing activities (4,512) (3,421) 11,753
----------- ----------- ------------
Cash flows used in financing activities:
Cash distributions to partners (194,876) (63,186) (55,781)
----------- ----------- ------------
Net increase (decrease) in cash (170) 8,387 971
Cash at beginning of year 38,716 30,329 29,358
----------- ----------- ------------
Cash at end of year $ 38,546 $ 38,716 $ 30,329
============ ============ =============
The accompanying notes are an integral part of these financial statements.
6
158
PARKER & PARSLEY 81-I, LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 81-I, Ltd. (the "Partnership") is a limited partnership
organized in 1981 under the laws of the State of Texas. The Partnership's
general partners are Pioneer Natural Resources USA, Inc. ("Pioneer USA") and P&P
Employees 81-I, Ltd. ("EMPL"). The Partnership's managing general partner is
Pioneer USA.
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -
Preparation of the accompanying 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 periods. Actual results could differ from those estimates.
7
159
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated in part to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non-partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved
8
160
in the industry. As a result, the Partnership recognized a non-cash impairment
provision of $50,343 related to its proved oil and gas properties during 1998.
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $308,345 less than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
-------------- -------------- --------------
Net income (loss) per statements of operations $ 220,612 $ 71,732 $ (131,347)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes 6,157 9,884 114,643
Impairment of oil and gas properties for
financial reporting purposes - - 50,343
Other, net (447) (62) 81
----------- ------------ -----------
Net income per Federal income tax returns $ 226,322 $ 81,554 $ 33,720
============ ============ ============
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
-------------- -------------- --------------
Property acquisition costs $ 4,512 $ 3,421 $ 2,481
============= ============ =============
Capitalized oil and gas properties consist of the following:
2000 1999
---------------- ----------------
Proved properties:
Property acquisition costs $ 156,084 $ 156,084
Completed wells and equipment 5,089,060 5,084,548
------------- -------------
5,245,144 5,240,632
Accumulated depletion (5,142,190) (5,133,431)
------------- -------------
Net oil and gas properties $ 102,954 $ 107,201
============== ==============
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
9
161
2000 1999 1998
-------------- -------------- --------------
Payment of lease operating and supervision
charges in accordance with standard industry
operating agreements $ 78,719 $ 73,881 $ 76,809
Reimbursement of general and administrative
expenses $ 12,487 $ 7,820 $ 6,250
Pioneer USA, EMPL and the Partnership are parties to the Partnership
agreement. EMPL is a limited partnership in which Pioneer USA owns 60% and the
remaining portion is owned by former affiliates.
The costs and revenues of the Partnership are allocated as follows:
General Limited
partners partners
-------- --------
Revenues:
Proceeds from property dispositions prior to cost
recovery 10% 90%
All other Partnership revenues 25% 75%
Costs and expenses:
Lease acquisition costs, drilling and completion
costs and all other costs 10% 90%
Operating costs, direct costs and general and
administrative expenses 25% 75%
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
10
162
Oil and NGLs Gas
(bbls) (mcf)
-------- --------
Net proved reserves at January 1, 1998 131,090 275,544
Revisions (70,930) (119,307)
Production (13,937) (24,638)
-------- --------
Net proved reserves at December 31, 1998 46,223 131,599
Revisions 160,567 219,656
Production (14,970) (28,708)
-------- --------
Net proved reserves at December 31, 1999 191,820 322,547
Revisions 33,336 130,129
Production (13,976) (25,901)
-------- --------
Net proved reserves at December 31, 2000 211,180 426,775
======== ========
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.30 per barrel of NGLs and $7.65 per mcf of gas,
discounted at 10% was approximately $1,915,000 and undiscounted was $3,748,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
11
163
For the years ended December 31,
---------------------------------------------------
2000 1999 1998
---------------- ---------------- ----------------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 7,853 $ 4,776 $ 583
Future production costs (4,105) (3,078) (433)
------------- ------------ -------------
3,748 1,698 150
10% annual discount factor (1,833) (734) (64)
------------- ------------ -------------
Standardized measure of discounted future net cash flows $ 1,915 $ 964 $ 86
============== ============= ==============
For the years ended December 31,
---------------------------------------------------
2000 1999 1998
---------------- ---------------- ----------------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (242) $ (95) $ (42)
Net changes in prices and production costs 888 180 (301)
Revisions of previous quantity estimates 415 788 (112)
Accretion of discount 96 8 52
Changes in production rates, timing and other (206) (3) (33)
------------- ------------ ------------
Change in present value of future net revenues 951 878 (436)
------------- ------------ ------------
Balance, beginning of year 964 86 522
------------- ------------ ------------
Balance, end of year $ 1,915 $ 964 $ 86
============== ============= =============
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's
oil and gas sales (a major customer is defined as a customer whose sales exceed
10% of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 54% 51% -
Genesis Crude Oil, L.P. - - 59%
Western Gas Resources, Inc. - 6% 18%
Exxon Corporation 8% 7% 11%
At December 31, 2000, the amount receivable from Plains Marketing, L.P.
was $19,892 which is included in the caption "Accounts receivable - oil and gas
sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
12
164
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the limited partnership agreement:
General partners - The general partners of the Partnership are Pioneer
USA and EMPL. Pioneer USA, the managing general partner, has the power
and authority to manage, control and administer all Partnership affairs.
As managing general partner and operator of the Partnership's
properties, all production expenses are incurred by Pioneer USA and
billed to the Partnership. The majority of the Partnership's oil and gas
revenues are received directly by the Partnership, however, a portion of
the oil and gas revenue is initially received by Pioneer USA prior to
being paid to the Partnership.
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of
$7,410,000. The general partners are required to contribute amounts
equal to 10% of Partnership expenditures for lease acquisition, drilling
and completion and 25% of direct, general and administrative and
operating expenses.
13
165
PARKER & PARSLEY 81-I, LTD.
(A TEXAS LIMITED PARTNERSHIP)
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACCORDINGLY, NO ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS
AND RESULTS WILL NOT BE MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS
DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 60% to $416,230 for 2000 as
compared to $260,652 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decrease in production. In 2000, 8,793
barrels of oil, 5,183 barrels of natural gas liquids ("NGLs") and 25,901 mcf of
gas were sold, or 18,293 barrel of oil equivalents ("BOEs"). In 1999, 9,249
barrels of oil, 5,721 barrels of NGLs and 28,708 mcf of gas were sold, or 19,755
BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.32, or 73%, from
$16.94 in 1999 to $29.26 in 2000. The average price received per barrel of NGLs
increased $5.38, or 58%, from $9.22 in 1999 to $14.60 in 2000. The average price
received per mcf of increased 81% from $1.78 in 1999 to $3.22 in 2000. The
market price for oil and gas has been extremely volatile in the past decade, and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
Total costs and expenses increased in 2000 to $198,689 as compared to $190,778
in 1999, an increase of $7,911, or 4%. The increase was primarily due to an
increase in production costs and general and administrative expenses ("G&A"),
offset by a decline in depletion.
Production costs were $174,233 in 2000 and $165,810 in 1999, resulting in an
$8,423 increase, or 5%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices, offset by less well maintenance
costs.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
20% from $13,087 in 1999 to $15,697 in 2000, primarily due to a higher
percentage of the managing general partner's G&A being allocated (limited to 3%
of oil and gas revenues) as a result of increased oil and gas revenues. The
Partnership paid the managing general partner $12,487 in 2000 and $7,820 in 1999
for G&A incurred on behalf of the Partnership. The remaining G&A was paid
directly by the Partnership. The managing general partner determines the
allocated expenses based upon the level of activity of the Partnership relative
to the non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
Depletion was $8,759 in 2000 as compared to $11,881 in 1999, representing a
decrease of $3,122, or 26%. This decrease was primarily due to a 20,821 barrels
of oil increase in proved reserves during 2000 as a result of the higher
commodity prices.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 30% to $260,652 from
$199,789 in 1998. The increase in revenues resulted from higher average prices
received and an increase in production. In 1999, 9,249 barrels of oil, 5,721
barrels of NGLs and 28,708 mcf of gas were sold, or 19,755 BOEs. In 1998, 9,634
barrels of oil, 4,303 barrels of NGLs and 24,638 mcf of gas were sold, or 18,043
BOEs.
166
The average price received per barrel of oil increased $3.61, or 27%, from
$13.33 in 1998 to $16.94 in 1999. The average price received per barrel of NGLs
increased $2.82, or 44%, from $6.40 in 1998 to $9.22 in 1999. The average price
received per mcf of gas remained unchanged at $1.78 in 1998 and 1999.
Total costs and expenses decreased in 1999 to $190,778 as compared to $333,665
in 1998, a decrease of $142,887, or 43%. The decrease was primarily due to
declines in depletion and the impairment of oil and gas properties, offset by an
increase in production costs and G&A.
Production costs were $165,810 in 1999 and $157,631 in 1998, resulting in an
$8,179 increase, or 5%. The increase was due to additional well maintenance
costs incurred to stimulate well production and an increase in production taxes
due to increased oil and gas revenues, offset by a decline in ad valorem taxes.
During this period, G&A increased 47% from $8,892 in 1998 to $13,087 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $7,820 in
1999 and $6,250 in 1998 for G&A incurred on behalf of the Partnership.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $50,343 related to its oil and gas properties during 1998.
Depletion was $11,881 in 1999 compared to $116,799 in 1998, representing a
decrease of $104,918, or 90%. This decrease was the result of a combination of
factors that included an increase in proved reserves of 104,672 barrels of oil
during 1999 as a result of the higher commodity prices, a reduction in the
Partnership's net depletable basis from charges taken in accordance with SFAS
121 during the fourth quarter of 1998 and a decline in oil production of 385
barrels for the period ended December 31, 1999 compared to the same period in
1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $124,224 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $156,791, offset by increases in production costs paid
of $8,423, G&A expenses paid of $2,610 and working capital of $21,534. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $187,015 to oil and gas receipts,
offset by $30,224 resulting from the decline in production during 2000. The
increase in production costs was primarily due to increased production taxes
associated with higher oil and gas prices, offset by lower well maintenance
costs. The increase in G&A was primarily due to higher percentage of the
managing general partner's G&A being allocated (limited to 3% of oil and gas
revenues) as a result of increased oil and gas revenues.
167
Net Cash Provided by (Used in) Investing Activities
The Partnership's principal investing activities during 2000 and 1999 included
expenditures related to upgrades of equipment on various oil and gas properties.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $194,876, of which $48,899 was
distributed to the general partners and $145,977 to the limited partners. In
1999, cash distributions to the partners were $63,186, of which $15,981 was
distributed to the general partners and $47,205 to the limited partners.
168
PARKER & PARSLEY 81-I, LTD.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 94,181 $ 416,230 $ 260,652 $ 199,789 $ 279,957 $ 396,128
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ -- $ -- $ 50,343 $ 255,709 $ --
======== ========== ========== ========== ========== ========== ==========
Gain on litigation
settlement, net $ $ -- $ -- $ -- $ -- $ -- $ 30,621
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 49,539 $ 220,612 $ 71,732 $ (131,347) $ (241,864) $ 203,620
======== ========== ========== ========== ========== ========== ==========
Allocation of net
income (loss):
Managing general
partner $ $ 12,628 $ 56,242 $ 19,205 $ (7,775) $ (11,941) $ 54,950
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 36,911 $ 164,370 $ 52,527 $ (123,572) $ (229,923) $ 148,670
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 24.91 $ 110.91 $ 35.44 $ (83.38) $ (155.14) $ 100.32
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 21.18 $ 98.50 $ 31.85 $ 30.85 $ 68.90 $ 107.95(a)
======== ========== ========== ========== ========== ========== ==========
At year end:
Total assets $ $ 187,763 $ 204,769 $ 180,257 $ 168,805 $ 359,456 $ 734,832
======== ========== ========== ========== ========== ========== ==========
----------
(a) Including litigation settlement per limited partnership interest of $20.66
in 1996.
169
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 81-II LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
81-II Ltd. and supplements the proxy statement/prospectus dated , 2001, of
Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by
which Pioneer USA is soliciting proxies to be voted at a special meeting of
limited partners of the partnership. The purpose of the special meeting is for
you to vote upon the merger of the partnership with and into Pioneer USA that,
if completed, will result in your receiving common stock of Pioneer Natural
Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 81-II Ltd.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the three months ended March 31, 2001
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
170
PARKER & PARSLEY 81-II LTD.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 6,440
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 5,337
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 479
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 74.71
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 4.65 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 84.93
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 66.25
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 72.80
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 290
(b), (c)
-----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
(1) neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
status or classification of the partnership or any of its limited partners; and
(2) neither the grant nor exercise of such right will result in the loss of any
limited partner's limited liability. In addition, the counsel designated to
render the opinion must be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
171
PARKER & PARSLEY 81-II, LTD.
(A Texas Limited Partnership)
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT
December 31, 2000 and 1999
172
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 81-II, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheets of Parker & Parsley 81-II, Ltd. as of
December 31, 2000 and 1999, and the related statements of operations, partners'
capital and cash flows for each of the three years in the period ended December
31, 2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 81-II, Ltd. as
of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
2
173
PARKER & PARSLEY 81-II, LTD.
(A Texas Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
---------- ---------
ASSETS
------
Current assets:
Cash $ 29,376 $ 30,160
Accounts receivable - oil and gas sales 64,821 27,908
---------- ---------
Total current assets 94,197 58,068
---------- ---------
Oil and gas properties - at cost, based on the
successful efforts accounting method 5,345,296 5,338,113
Accumulated depletion (4,821,914) (4,776,074)
---------- ---------
Net oil and gas properties 523,382 562,039
---------- ---------
$617,579 $ 620,107
========== =========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 9,253 $ 10,581
Partners' capital:
General partners 61,405 58,558
Limited partners (1,153 interests) 546,921 550,968
---------- ---------
608,326 609,526
---------- ---------
$ 617,579 $ 620,107
========== =========
The accompanying notes are an integral part of these financial statements.
3
174
PARKER & PARSLEY 81-II, LTD.
(A Texas Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
-------- -------- --------
Revenues:
Oil and gas $ 387,180 $ 204,717 $ 209,110
Interest 2,775 1,395 1,725
Gain on disposition of assets - 240 -
-------- -------- --------
389,955 206,352 210,835
-------- -------- --------
Costs and expenses:
Oil and gas production 189,764 140,847 173,960
General and administrative 13,791 9,864 7,867
Impairment of oil and gas properties - - 30,131
Depletion 45,840 49,409 95,466
-------- -------- --------
249,395 200,120 307,424
-------- -------- --------
Net income (loss) $ 140,560 $ 6,232 $ (96,589)
======== ======== ========
Allocation of net income (loss):
General partners $ 41,791 $ 8,423 $ (5,308)
======== ======== ========
Limited partners $ 98,769 $ (2,191) $ (91,281)
======== ======== ========
Net income (loss) per limited
partnership interest $ 85.66 $ (1.90) $ (79.17)
======== ======== ========
The accompanying notes are an integral part of these financial statements.
4
175
PARKER & PARSLEY 81-II, LTD.
(A Texas Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
General Limited
partners partners Total
--------- --------- ---------
Partners' capital at January 1, 1998 $ 76,354 $706,525 $782,879
Distributions (11,831) (34,220) (46,051)
Net loss (5,308) (91,281) (96,589)
--------- --------- ---------
Partners' capital at December 31, 1998 59,215 581,024 640,239
Distributions (9,080) (27,865) (36,945)
Net income (loss) 8,423 (2,191) 6,232
--------- --------- ---------
Partners' capital at December 31, 1999 58,558 550,968 609,526
Distributions (38,944) (102,816) (141,760)
Net income 41,791 98,769 140,560
--------- --------- ---------
Partners' capital at December 31, 2000 $ 61,405 $546,921 $608,326
========= ========= =========
The accompanying notes are an integral part of these financial statements.
5
176
PARKER & PARSLEY 81-II, LTD.
(A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $140,560 $ 6,232 $(96,589)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties - - 30,131
Depletion 45,840 49,409 95,466
Gain on disposition of assets - (240) -
Changes in assets and liabilities:
Accounts receivable (36,913) (3,325) 15,443
Accounts payable (1,328) 3,022 (3,482)
--------- --------- ---------
Net cash provided by operating activities 148,159 55,098 40,969
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties (7,183) (4,254) (8,322)
Proceeds from asset dispositions - 690 -
--------- --------- ---------
Net cash used in investing activities (7,183) (3,564) (8,322)
--------- --------- ---------
Cash flows used in financing activities:
Cash distributions to partners (141,760) (36,945) (46,051)
--------- --------- ---------
Net increase (decrease) in cash (784) 14,589 (13,404)
Cash at beginning of year 30,160 15,571 28,975
--------- --------- ---------
Cash at end of year $ 29,376 $30,160 $ 15,571
========= ========= =========
The accompanying notes are an integral part of these financial statements.
6
177
PARKER & PARSLEY 81-II, LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 81-II (the "Partnership") is a limited partnership
organized in 1981 under the laws of the State of Texas. The Partnership's
general partners are Pioneer Natural Resources USA, Inc. ("Pioneer USA") and P&P
Employees 81-II, Ltd. ("EMPL"). The Partnership's managing general partner is
Pioneer USA.
The Partnership engages in oil and gas development and production in Texas
and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements - Preparation
of the accompanying 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 periods.
Actual results could differ from those estimates.
7
178
Net income (loss) per limited partnership interest - The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative expenses
are allocated in part to the Partnership by the managing general partner.
Allocated expenses are determined by the managing general partner based upon the
level of activity of the Partnership relative to the non-partnership activities
of the managing general partner. The method of allocation has been consistent
over the past several years with certain modifications incorporated to reflect
changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. The Partnership has estimated the expected future cash flows of its
oil and gas properties as of December 31, 2000, 1999 and 1998, based on proved
reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved
8
179
in the industry. As a result, the Partnership recognized a non-cash impairment
provision of $30,131 related to its proved oil and gas properties during 1998.
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $172,373 greater than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
--------- -------- ---------
Net income (loss) per statements of operations $ 140,560 $ 6,232 $ (96,589)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes 41,011 44,867 91,653
Impairment of oil and gas properties for
financial reporting purposes - - 30,131
Other, net (482) (178) 454
--------- -------- ---------
Net income per Federal income tax returns $181,089 $ 50,921 $ 25,649
========= ======== =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
--------- -------- ---------
Development costs $ 7,183 $ 4,254 $ 8,322
========= ======== =========
Capitalized oil and gas properties consist of the following:
2000 1999
---------- ----------
Proved properties:
Property acquisition costs $ 210,548 $ 210,548
Completed wells and equipment 5,134,748 5,127,565
---------- ----------
5,345,296 5,338,113
Accumulated depletion (4,821,914) (4,776,074)
Net oil and gas properties $ 523,382 $ 562,039
========== ==========
9
180
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
-------- -------- --------
Payment of lease operating and supervision
charges in accordance with standard industry
operating agreements $ 75,129 $ 61,684 $ 82,817
Reimbursement of general and administrative
expenses $ 11,615 $ 6,142 $ 6,273
Pioneer USA, EMPL and the Partnership are parties to the Partnership
agreement. EMPL is a limited partnership in which Pioneer USA owns 80% and the
remaining portion is owned by former affiliates.
The costs and revenues of the Partnership are allocated as follows:
General Limited
partners partners
-------- --------
Revenues:
Proceeds from property dispositions prior to cost
recovery 10% 90%
All other Partnership revenues 25% 75%
Costs and expenses:
Lease acquisition costs, drilling and completion
costs and all other costs 10% 90%
Operating costs, direct costs and general and
administrative expenses 25% 75%
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
10
181
Oil and NGLs Gas
(bbls) (mcf)
------------ ------------
Net proved reserves at January 1, 1998 203,263 321,961
Revisions (93,478) (131,045)
Production (16,033) (22,439)
--------- ----------
Net proved reserves at December 31, 1998 93,752 168,477
Revisions 118,281 224,790
Production (13,232) (19,167)
--------- ----------
Net proved reserves at December 31, 1999 198,801 374,100
Revisions 18,015 (61,237)
Production (13,921) (15,864)
--------- ----------
Net proved reserves at December 31, 2000 202,895 296,999
========= ==========
As of December 31, 2000, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 2000 prices of $26.64 per
barrel of oil, $14.08 per barrel of NGLs and $7.91 per mcf of gas, discounted at
10% was approximately $1,416,000 and undiscounted was $2,636,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
11
182
For the years ended December 31,
--------------------------------
2000 1999 1998
--------- ---------- ---------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 6,624 $ 4,915 $ 1,020
Future production costs (3,988) (3,116) (849)
-------- --------- --------
2,636 1,799 171
10% annual discount factor (1,220) (799) (47)
-------- --------- --------
Standardized measure of discounted future
net cash flows $ 1,416 $ 1,000 $ 124
======== ========= ========
For the years ended December 31,
--------------------------------
2000 1999 1998
--------- ---------- ---------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (197) $ (64) $ (35)
Net changes in prices and production costs 530 471 (544)
Revisions of previous quantity estimates 45 781 (94)
Accretion of discount 100 12 76
Changes in production rates, timing and
other (62) (324) (40)
-------- --------- --------
Change in present value of future net
revenues 416 876 (637)
-------- --------- --------
Balance, beginning of year 1,000 124 761
------ ------- ------
Balance, end of year $ 1,416 $ 1,000 $ 124
======= ======== =======
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 56% 48% -
LG&E Natural Marketing, Inc. 13% 17% 19%
NGTS LLC 11% 14% -
Western Gas Processing 2% 4% 13%
Genesis Crude Oil, L.P. 4% 1% 43%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P.,
LG&E Natural Marketing, Inc. and NGTS LLC were $26,794, $10,707 and $4,029,
respectively, which are included in the caption "Accounts receivable - oil and
gas sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would not
have an adverse effect on the ability of the Partnership to sell its oil, NGLs
and gas production.
12
183
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of the
limited partnership agreement:
General partners - The general partners of the Partnership are Pioneer USA
and EMPL. Pioneer USA, the managing general partner, has the power and
authority to manage, control and administer all Partnership affairs. As
managing general partner and operator of the Partnership's properties, all
production expenses are incurred by Pioneer USA and billed to the
Partnership. The majority of the Partnership's oil and gas revenues are
received directly by the Partnership, however, a portion of the oil and gas
revenue is initially received by Pioneer USA prior to being paid to the
Partnership.
Limited partner liability - The maximum amount of liability of any limited
partner is the total contributions of such partner plus his share of any
undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of $5,765,000.
During 1983, the Partnership received a total of $675,000 from its limited
partnership in response to an assessment by the managing general partner.
The general partners are required to contribute amounts equal to 10% of
Partnership expenditures for lease acquisition, drilling and completion and
25% of direct, general and administrative and operating expenses.
13
184
PARKER & PARSLEY 81-II, LTD.
(A TEXAS LIMITED PARTNERSHIP)
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACCORDINGLY, NO ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS
AND RESULTS WILL NOT BE MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS
DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 89% to $387,180 for 2000 as
compared to $204,717 in 1999. The increase in revenues resulted from higher
average prices received and a slight increase in production. In 2000, 8,885
barrels of oil, 5,036 barrels of natural gas liquids ("NGLs") and 15,864 mcf of
gas were sold, or 16,565 barrel of oil equivalents ("BOEs"). In 1999, 6,860
barrels of oil, 6,372 barrels of NGLs and 19,167 mcf of gas were sold, or 16,427
BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.59, or 76%, from
$16.67 in 1999 to $29.26 in 2000. The average price received per barrel of NGLs
increased $6.89, or 79%, from $8.70 in 1999 to $15.59 in 2000. The average price
received per mcf of gas increased 69% from $1.82 in 1999 to $3.07 in 2000. The
market price for oil and gas has been extremely volatile in the past decade, and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
Gain on disposition of assets of $240 was recognized during 1999 from equipment
credits received on one fully depleted well.
Total costs and expenses increased in 2000 to $249,395 as compared to $200,120
in 1999, an increase of $49,275, or 25%. The increase was primarily due to
increases in production costs and general and administrative expenses ("G&A"),
offset by a decline in depletion.
Production costs were $189,764 in 2000 and $140,847 in 1999, resulting in a
$48,917 increase, or 35%. The increase was primarily due to additional well
maintenance costs incurred to stimulate well production and higher production
taxes associated with higher oil and gas prices.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
40% from $9,864 in 1999 to $13,791 in 2000, primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 3% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $11,615 in 2000 and $6,142 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
Depletion was $45,840 in 2000 as compared to $49,409 in 1999, representing a
decrease of $3,569, or 7%. This decrease was primarily due to an 18,828 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
prices, offset by an increase in oil production of 2,025 barrels for the period
ended December 31, 2000 compared to the same period in 1999.
185
1999 compared to 1998
The Partnership's 1999 oil and gas revenues decreased 2% to $204,717 from
$209,110 in 1998. The decrease in revenues resulted from a decline in
production, offset by higher average prices received. In 1999, 6,860 barrels of
oil, 6,372 barrels of NGLs and 19,167 mcf of gas were sold, or 16,427 BOEs. In
1998, 9,451 barrels of oil, 6,582 barrels of NGLs and 22,439 mcf of gas were
sold, or 19,773 BOEs.
The average price received per barrel of oil increased $3.51, or 27%, from
$13.16 in 1998 to $16.67 in 1999. The average price received per barrel of NGLs
increased $1.97, or 29%, from $6.73 in 1998 to $8.70 in 1999. The average price
received per mcf of gas increased slightly from $1.80 in 1998 to $1.82 in 1999.
Gain on disposition of assets of $240 was recognized during 1999 from equipment
credits received on one fully depleted well.
Total costs and expenses decreased in 1999 to $200,120 as compared to $307,424
in 1998, a decrease of $107,304, or 35%. The decrease was primarily due to
declines in depletion, production costs and the impairment of oil and gas
properties, offset by an increase in G&A.
Production costs were $140,847 in 1999 and $173,960 in 1998, resulting in a
$33,113 decrease, or 19%. The decrease was due to declines in well maintenance
costs, ad valorem taxes and production taxes.
During this period, G&A increased 25% from $7,867 in 1998 to $9,864 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $6,142 in
1999 and $6,273 in 1998 for G&A incurred on behalf of the Partnership.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $30,131 related to its oil and gas properties during 1998.
Depletion was $49,409 in 1999 compared to $95,466 in 1998, representing a
decrease of $46,057, or 48%. This decrease was the result of a combination of
factors that included an increase in proved reserves of 59,807 barrels of oil
during 1999 as a result of higher commodity prices, a decline in oil production
of 2,591 barrels for the period ended December 31, 1999 compared to the same
period in 1998 and a reduction in the Partnership's net depletable basis from
charges taken in accordance with SFAS 121 during the fourth quarter of 1998.
Petroleum Industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
186
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $93,061 during the year
ended December 31, 2000 from 1999. This increase was due to increases in oil and
gas sales receipts of $183,843, offset by increases in production costs paid of
$48,917, G&A expenses paid of $3,927 and working capital of $37,938. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $65,846 to oil and gas receipts and
$117,997 resulted from an increase in production during 2000. The increase in
production costs was primarily due to increased production taxes associated with
higher oil and gas prices and well maintenance costs incurred to stimulate well
production. The increase in G&A was primarily due to higher percentage of the
managing general partner's G&A being allocated (limited to 3% of oil and gas
revenues) as a result of increased oil and gas revenues.
Net Cash Used in Investing Activities
The Partnership's principal investing activities during 2000 and 1999 included
expenditures related to upgrades of equipment on various oil and gas properties.
Proceeds from asset dispositions of $690 were received during 1999 for the sale
of equipment on active properties.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $141,760, of which $38,944 was
distributed to the general partners and $102,816 to the limited partners. In
1999, cash distributions to the partners were $36,945, of which $9,080 was
distributed to the general partners and $27,865 to the limited partners.
187
PARKER & PARSLEY 81-II, LTD.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Oil and gas sales $ $ 70,001 $ 387,180 $ 204,717 $ 209,110 $ 311,922 $ 363,398
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ -- $ -- $ 30,131 $ 52,269 $ --
======== ========== ========== ========== ========== ========== ==========
Gain on litigation
settlement, net $ $ -- $ -- $ -- $ -- $ -- $ 3,289
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 7,922 $ 140,560 $ 6,232 $ (96,589) $ 9,511 $ 113,519
======== ========== ========== ========== ========== ========== ==========
Allocation of net
income (loss):
Managing general
partner $ $ 3,743 $ 41,791 $ 8,423 $ (5,308) $ 24,620 $ 37,637
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 4,179 $ 98,769 $ (2,191) $ (91,281) $ (15,109) $ 75,882
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 3.62 $ 85.66 $ (1.90) $ (79.17) $ (13.10) $ 65.81
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 11.23 $ 89.17 $ 24.17 $ 29.68 $ 93.49 $ 89.30(a)
======== ========== ========== ========== ========== ========== ==========
At year end:
Total assets $ $ 611,605 $ 617,579 $ 620,107 $ 647,798 $ 793,920 $ 928,791
======== ========== ========== ========== ========== ========== ==========
----------
(a) Including litigation settlement per limited partnership interest of $2.85
in 1996.
188
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 82-I, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
82-I, Ltd. and supplements the proxy statement/prospectus dated , 2001, of
Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by
which Pioneer USA is soliciting proxies to be voted at a special meeting of
limited partners of the partnership. The purpose of the special meeting is for
you to vote upon the merger of the partnership with and into Pioneer USA that,
if completed, will result in your receiving common stock of Pioneer Natural
Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 82-I, Ltd.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's quarterly report on Form 10-Q, including
management's discussion and analysis of financial condition and
results of operations, for the three months ended March 31, 2001
o The partnership's annual report on Form 10-K, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
189
PARKER & PARSLEY 82-I, LTD.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 11,805
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 11,456
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 863
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 81.87
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.75 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 23.71
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 72.47
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 79.73
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 265
(b), (c)
----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
(1) neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners; and (2)
neither the grant nor exercise of such right will result in the loss of any
limited partner's limited liability. In addition, the counsel designated to
render the opinion must be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
190
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 FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 2-75530A
PARKER & PARSLEY 82-I, LTD.
(Exact name of Registrant as specified in its charter)
TEXAS 75-1825545
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039
---------------------------------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code: (972) 444-9001
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($2,000 PER UNIT)
-----------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES / X / 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / X /
No market currently exists for the limited partnership interests of the
Registrant. Based on the original purchase price, the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$8,515,000.
As of March 8, 2001, the number of outstanding limited partnership
interests was 4,891.
The following documents are incorporated by reference into the indicated parts
of this Annual Report on Form 10-K: None
PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACCORDINGLY, NO
ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS AND RESULTS WILL NOT BE
MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD
LOOKING STATEMENTS. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS
THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE
ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
191
PART I
ITEM 1. BUSINESS
Parker & Parsley 82-I, Ltd. (the "Partnership") is a limited partnership
organized in 1982 under the laws of the State of Texas. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA")
and its co-general partner is P&P Employees 82-I, Ltd. ("EMPL"), a Texas limited
partnership whose general partner is Pioneer USA. Pioneer USA is a wholly-owned
subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8,
2001, the Partnership had 4,891 limited partnership interests outstanding.
The Partnership does not have any employees of its own. Pioneer USA employs 701
persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this Report is filed. Pioneer
USA supplies all management functions.
The Partnership engages in oil and gas development and production and is not
involved in any industry segment other than oil and gas. The Partnership's
production is geographically concentrated in West Texas.
The principal markets during 2000 for the oil produced by the Partnership were
refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. During 2000, Pioneer USA marketed the
Partnership's gas to a variety of purchasers. Of the Partnership's total oil and
gas revenues for 2000, approximately 68% and 13% were attributable to sales made
to Plains Marketing, L.P. and GPM Gas Corporation, respectively. Pioneer USA is
of the opinion that the loss of any one purchaser would not have an adverse
effect on its ability to sell its oil, natural gas liquids ("NGLs") and gas
production.
The Partnership's revenues, profitability, cash flow and future rate of growth
are highly dependent on the prevailing prices of oil and gas, which are affected
by numerous factors beyond the Partnership's control. Oil and gas prices
historically have been very volatile. A substantial or extended decline in the
prices of oil or gas could have a material adverse effect on the Partnership's
revenues, profitability and cash flow and could, under certain circumstances,
result in a reduction in the carrying value of the Partnership's oil and gas
properties.
Oil and gas production operations are subject to various types of regulations by
local, state and federal agencies. The Partnership's operations are also subject
to state conservation laws and regulations, including the establishment of
maximum rates of production from wells and the regulation of spacing, plugging
and abandonment of wells. Each state generally imposes a production or severance
tax with respect to production and sale of oil and gas within their respective
jurisdictions. Noncompliance with the laws and regulations may subject the
Partnership to penalties, damages or other liabilities and compliance may
increase the cost of the Partnership's operations.
2
192
The oil and gas business is also subject to environmental hazards such as oil
spills, gas leaks and ruptures and discharges of toxic substances or gases that
could expose the Partnership to substantial liability due to pollution and other
environmental damages. Although the Partnership believes that its business
operations do not impair environmental quality and that its costs of complying
with any applicable environmental regulations are not currently significant, the
Partnership cannot predict what, if any, effect these environmental regulations
may have on its current or future operations.
Numerous uncertainties exist in estimating quantities of proved reserves and
future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the Partnership
conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist of leasehold 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 and exploratory oil and gas
prospects located in Texas and New Mexico were acquired by the Partnership,
resulting in the Partnership's participation in the drilling of 34 oil and gas
wells. There were six dry holes from previous periods, two wells plugged and
abandoned and nine wells sold. At December 31, 2000, 17 wells were producing.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 2000, 1999 and 1998 and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been evaluated by Williamson Petroleum Consultants, Inc., an independent
petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer USA believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the partners during the fourth
quarter of 2000.
3
193
PART II
ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP
DISTRIBUTIONS
At March 8, 2001, the Partnership had 4,891 outstanding limited partnership
interests held of record by 600 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are not
required to meet the Partnership's obligations are distributed to the partners
at least quarterly in accordance with the limited partnership agreement. During
the years ended December 31, 2000 and 1999, distributions of $229,765 and
$50,502, respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
2000 1999 1998 1997 1996
------------ ------------ ------------ ------------ ----------
Operating results:
-----------------
Oil and gas sales $ 763,858 $ 441,997 $ 392,883 $ 608,207 $ 710,173
============ ============ ============ ============ ==========
Gain on litigation
settlement, net $ -- $ -- $ -- $ -- $ 43,618
============ ============ ============ ============ ==========
Impairment of oil and gas
properties $ -- $ -- $ 294,610 $ 165,201 $ 2,277
============ ============ ============ ============ ==========
Net income (loss) $ 337,729 $ 17,320 $ (563,993) $ (60,847) $ 312,582
============ ============ ============ ============ ==========
Allocation of net income
(loss):
General partners $ 88,128 $ 18,135 $ (49,472) $ 31,736 $ 92,811
============ ============ ============ ============ ==========
Limited partners $ 249,601 $ (815) $ (514,521) $ (92,583) $ 219,771
============ ============ ============ ============ ==========
Limited partners' net
income (loss) per limited
partnership interest $ 51.03 $ (.17) $ (105.20) $ (18.93) $ 44.93
============ ============ ============ ============ ==========
Limited partners' cash
distributions per limited
partnership interest $ 46.98 $ 10.33 $ 19.57 $ 47.31 $ 51.40(a)
============ ============ ============ ============ ==========
At year end:
-----------
Identifiable assets $ 454,904 $ 425,107 $ 474,528 $ 1,158,135 $1,526,765
============ ============ ============ ============ ==========
---------------
(a) Including litigation settlement per limited partnership interest of $6.96 in
1996.
4
194
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 73% to $763,858 for 2000 as
compared to $441,997 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decline in production. In 2000, 17,639
barrels of oil, 6,519 barrels of natural gas liquids ("NGLs") and 45,981 mcf of
gas were sold, or 31,822 barrel of oil equivalents ("BOEs"). In 1999, 17,472
barrels of oil, 6,414 barrels of NGLs and 48,380 mcf of gas were sold, or 31,949
BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.78, or 77%, from
$16.61 in 1999 to $29.39 in 2000. The average price received per barrel of NGLs
increased $5.48, or 61%, from $8.96 in 1999 to $14.44 in 2000. The average price
received per mcf of gas increased 69% from $1.95 in 1999 to $3.29 in 2000. The
market price for oil and gas has been extremely volatile in the past decade and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
Total costs and expenses increased in 2000 to $431,421 as compared to $427,526
in 1999, an increase of $3,895, or 1%. The increase was due to increases in
production costs and general and administrative expenses ("G&A"), offset by a
decline in depletion.
Production costs were $378,872 in 2000 and $313,158 in 1999, resulting in an
increase of $65,714, or 21%. The increase was primarily due to additional well
maintenance costs incurred to stimulate well production and higher production
taxes associated with higher oil and gas prices.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
39% from $18,932 in 1999 to $26,409 in 2000 primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 3% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $22,916 in 2000 and $13,260 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
Depletion was $26,140 in 2000 as compared to $95,436 in 1999, representing a
decrease of $69,296, or 73%. This decrease was primarily due to a 86,555 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
prices.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 13% to $441,997 from
$392,883 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 17,472 barrels of oil,
6,414 barrels of NGLs and 48,380 mcf of gas were sold, or 31,949 BOEs. In 1998,
19,150 barrels of oil, 6,748 barrels of NGLs and 48,971 mcf of gas were sold, or
34,060 BOEs.
5
195
The average price received per barrel of oil increased $3.29, or 25%, from
$13.32 in 1998 to $16.61 in 1999. The average price received per barrel of NGLs
increased $1.76, or 24%, from $7.20 in 1998 to $8.96 in 1999. The average price
received per mcf of gas increased 7% from $1.82 in 1998 to $1.95 in 1999.
A gain on disposition of assets of $199 was recognized during 1998 from post
closing adjustments received from the sale of eight oil and gas wells during
1997.
Total costs and expenses decreased in 1999 to $427,526 as compared to $961,319
in 1998, a decrease of $533,793, or 56%. The decrease was primarily due to
declines in the impairment of oil and gas properties, depletion and production
costs, offset by an increase in G&A expenses.
Production costs were $313,158 in 1999 and $336,406 in 1998, resulting in a
$23,248 decrease, or 7%. The decrease was due to declines in well maintenance
costs and ad valorem taxes.
During this period, G&A increased 30% from $14,542 in 1998 to $18,932 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $13,260 in
1999 and $11,786 in 1998 for G&A incurred on behalf of the Partnership.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $294,610 related to its oil and gas properties during 1998.
Depletion was $95,436 in 1999 compared to $315,761 in 1998, representing a
decrease of $220,325, or 70%. This decrease was the result of an increase in
proved reserves of 168,752 barrels of oil during 1999 as a result of higher
commodity prices and a reduction in the Partnership's net depletable basis from
charges taken in accordance with SFAS 121 during the fourth quarter of 1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact
6
196
on world oil prices, as have overall natural gas supply and demand fundamentals
on North American natural gas prices. Although the favorable commodity price
environment and stable field service cost environment is expected to continue
during 2001, there is no assurance that commodity prices will not return to a
less favorable level or that field service costs will not escalate in the
future, both of which could negatively impact the Partnership's future results
of operations and cash distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $227,133 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $324,304, offset by increases in production costs paid
of $65,714, G&A expenses paid of $7,477 and working capital of $23,980. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $325,772 to oil and gas receipts,
offset by $1,468 resulting from the decline in production during 2000. The
increase in production costs was primarily due to increased production taxes
associated with higher oil and gas prices and well maintenance costs incurred to
stimulate well production. The increase in G&A was primarily due to higher
percentage of the managing general partner's G&A being allocated (limited to 3%
of oil and gas revenues) as a result of increased oil and gas revenues.
Net Cash Provided by (Used in) Investing Activities
The Partnership's principle investing activities during 2000 and 1999 were
related to the upgrades of oil and gas equipment on various oil and gas
properties.
Proceeds from asset dispositions of $704 in 1999 were from equipment credits
received on active properties.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $308,330, of which $78,565 was
distributed to the general partners and $229,765 to the limited partners. In
1999, cash distributions to the partners were $67,767, of which $17,265 was
distributed to the general partners and $50,502 to the limited partners.
7
197
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements of Parker & Parsley 82-I, Ltd:
Independent Auditors' Report............................................ 9
Balance Sheets as of December 31, 2000 and 1999......................... 10
Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998................................................... 11
Statements of Partners' Capital for the Years Ended
December 31, 2000, 1999 and 1998...................................... 12
Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998................................................... 13
Notes to Financial Statements........................................... 14
8
198
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 82-I, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheets of Parker & Parsley 82-I, Ltd. as of December
31, 2000 and 1999, and the related statements of operations, partners' capital
and cash flows for each of the three years in the period ended December 31,
2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 82-I, Ltd. as
of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
9
199
PARKER & PARSLEY 82-I, LTD.
(A Texas Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
----------- -----------
ASSETS
------
Current assets:
Cash $ 57,728 $ 61,558
Accounts receivable - oil and gas sales 109,719 61,533
----------- -----------
Total current assets 167,447 123,091
----------- -----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 9,901,101 9,889,520
Accumulated depletion (9,613,644) (9,587,504)
----------- -----------
Net oil and gas properties 287,457 302,016
----------- -----------
$ 454,904 $ 425,107
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 13,712 $ 13,314
Partners' capital:
General partners 161,365 151,802
Limited partners (4,891 interests) 279,827 259,991
----------- -----------
441,192 411,793
----------- -----------
$ 454,904 $ 425,107
=========== ===========
The accompanying notes are an integral part of these financial statements.
10
200
PARKER & PARSLEY 82-I, LTD.
(A Texas Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Revenues:
Oil and gas $ 763,858 $ 441,997 $ 392,883
Interest 5,292 2,849 4,244
Gain on disposition of assets -- -- 199
--------- --------- ---------
769,150 444,846 397,326
--------- --------- ---------
Costs and expenses:
Oil and gas production 378,872 313,158 336,406
General and administrative 26,409 18,932 14,542
Impairment of oil and gas properties -- -- 294,610
Depletion 26,140 95,436 315,761
--------- --------- ---------
431,421 427,526 961,319
--------- --------- ---------
Net income (loss) $ 337,729 $ 17,320 $(563,993)
========= ========= =========
Allocation of net income (loss):
General partners $ 88,128 $ 18,135 $ (49,472)
========= ========= =========
Limited partners $ 249,601 $ (815) $(514,521)
========= ========= =========
Net income (loss) per limited partnership
interest $ 51.03 $ (.17) $ (105.20)
========= ========= =========
The accompanying notes are an integral part of these financial statements.
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PARKER & PARSLEY 82-I, LTD.
(A Texas Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
General Limited
partners partners Total
----------- ----------- -----------
Partners' capital at January 1, 1998 $ 221,119 $ 921,541 $ 1,142,660
Distributions (20,715) (95,712) (116,427)
Net loss (49,472) (514,521) (563,993)
----------- ----------- -----------
Partners' capital at December 31, 1998 150,932 311,308 462,240
Distributions (17,265) (50,502) (67,767)
Net income (loss) 18,135 (815) 17,320
----------- ----------- -----------
Partners' capital at December 31, 1999 151,802 259,991 411,793
Distributions (78,565) (229,765) (308,330)
Net income 88,128 249,601 337,729
----------- ----------- -----------
Partners' capital at December 31, 2000 $ 161,365 $ 279,827 $ 441,192
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
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PARKER & PARSLEY 82-I, LTD.
(A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ 337,729 $ 17,320 $(563,993)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties -- -- 294,610
Depletion 26,140 95,436 315,761
Gain on disposition of assets -- -- (199)
Changes in assets and liabilities:
Accounts receivable (48,186) (24,834) 26,999
Accounts payable 398 1,026 (3,187)
--------- --------- ---------
Net cash provided by operating activities 316,081 88,948 69,991
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties (11,581) (4,754) (6,820)
Proceeds from asset dispositions -- 704 14,397
--------- --------- ---------
Net cash provided by (used in)
investing activities (11,581) (4,050) 7,577
--------- --------- ---------
Cash flows used in financing activities:
Cash distributions to partners (308,330) (67,767) (116,427)
--------- --------- ---------
Net increase (decrease) in cash (3,830) 17,131 (38,859)
Cash at beginning of year 61,558 44,427 83,286
--------- --------- ---------
Cash at end of year $ 57,728 $ 61,558 $ 44,427
========= ========= =========
The accompanying notes are an integral part of these financial statements.
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PARKER & PARSLEY 82-I, LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 82-I, Ltd. (the "Partnership") is a limited partnership
organized in 1982 under the laws of the State of Texas. The Partnership's
general partners are Pioneer Natural Resources USA, Inc. ("Pioneer USA") and P&P
Employees 82-I, Ltd. ("EMPL"). The Partnership's managing general partner is
Pioneer USA.
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -
Preparation of the accompanying 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 periods. Actual results could differ from those estimates.
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204
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated in part to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non-partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized a non-cash impairment provision of $294,610 related to
its proved oil and gas properties during 1998.
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205
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $663,714 less than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
--------- --------- ---------
Net income (loss) per statements of operations $ 337,729 $ 17,320 $(563,993)
Depletion and depreciation provisions for
tax reporting purposes less than amounts for
financial reporting purposes 21,746 92,542 312,201
Impairment of oil and gas properties for financial
reporting purposes -- -- 294,610
Loss on disposition of assets -- -- (116)
Other, net (637) 77 786
--------- --------- ---------
Net income per Federal income tax
returns $ 358,838 $ 109,939 $ 43,488
========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
--------- --------- ------
Development costs $ 11,581 $ 4,754 $6,820
========= ========= ======
Capitalized oil and gas properties consist of the following:
2000 1999
----------- -----------
Proved properties:
Property acquisition costs $ 360,899 $ 360,899
Completed wells and equipment 9,540,202 9,528,621
----------- -----------
9,901,101 9,889,520
Accumulated depletion (9,613,644) (9,587,504)
----------- -----------
Net oil and gas properties $ 287,457 $ 302,016
=========== ===========
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related
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206
party transactions with the managing general partner during the years ended
December 31:
2000 1999 1998
-------- -------- --------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $162,023 $156,380 $150,391
Reimbursement of general and administrative
expenses $ 22,916 $ 13,260 $ 11,786
Pioneer USA, EMPL and the Partnership are parties to the Partnership
agreement. EMPL is a limited partnership in which Pioneer USA owns 77.5% and the
remaining portion is owned by former affiliates. In addition, Pioneer USA owned
634 limited partner interests at January 1, 2001.
The costs and revenues of the Partnership are allocated as follows:
General Limited
partners partners
-------- --------
Revenues:
Proceeds from property dispositions prior to cost
recovery 10% 90%
All other Partnership revenues 25% 75%
Costs and expenses:
Lease acquisition costs, drilling and completion costs 10% 90%
Operating costs, direct costs and general and
administrative expenses 25% 75%
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
Oil and NGLs Gas
(bbls) (mcf)
------------ --------
Net proved reserves at January 1, 1998 321,477 448,047
Revisions (230,755) (305,609)
Production (25,898) (48,971)
-------- --------
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Net proved reserves at December 31, 1998 64,824 93,467
Revisions 280,613 443,568
Production (23,886) (48,380)
-------- --------
Net proved reserves at December 31, 1999 321,551 488,655
Revisions 60,464 362,471
Production (24,158) (45,981)
-------- --------
Net proved reserves at December 31, 2000 357,857 805,145
======== ========
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.55
per barrel of oil, $13.69 per barrel of NGLs and $8.68 per mcf of gas,
discounted at 10% was approximately $3,226,000 and undiscounted was $6,208,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
------------------------------------
2000 1999 1998
-------- -------- --------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 15,230 $ 8,078 $ 701
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Future production costs (9,022) (5,386) (624)
-------- -------- --------
6,208 2,692 77
10% annual discount factor (2,982) (1,056) (11)
-------- -------- --------
Standardized measure of discounted future net cash flows $ 3,226 $ 1,636 $ 66
======== ======== ========
For the years ended December 31,
---------------------------------
2000 1999 1998
------- ------- -------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (385) $ (128) $ (56)
Net changes in prices and production costs 1,448 378 (898)
Revisions of previous quantity estimates 927 2,018 (164)
Accretion of discount 164 6 118
Changes in production rates, timing and other (564) (704) (113)
------- ------- -------
Change in present value of future net revenues 1,590 1,570 (1,113)
------- ------- -------
Balance, beginning of year 1,636 66 1,179
------- ------- -------
Balance, end of year $ 3,226 $ 1,636 $ 66
======= ======= =======
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's
oil and gas sales (a major customer is defined as a customer whose sales exceed
10% of total sales) during the years ended December 31:
2000 1999 1998
---- ---- ----
Plains Marketing, L.P. 68% 66% --
Genesis Crude Oil, L.P. -- -- 65%
GPM Gas Corporation 13% 14% 13%
Western Gas Resources, Inc. 1% 2% 10%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P.
and GPM Gas Corporation were $54,651 and $30,037, respectively, which are
included in the caption "Accounts receivable - oil and gas sales" in the
accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the limited partnership agreement:
General partners - The general partners of the Partnership are Pioneer
USA and EMPL.
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Pioneer USA, the managing general partner, has the power and authority
to manage, control and administer all Partnership affairs. As managing
general partner and operator of the Partnership's properties, all
production expenses are incurred by Pioneer USA and billed to the
Partnership. The majority of the Partnership's oil and gas revenues are
received directly by the Partnership, however, a portion of the oil and
gas revenue is initially received by Pioneer USA prior to being paid to
the Partnership.
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of
$9,782,000. During 1985, the Partnership received a total of $1,372,500
from its limited partners in response to an assessment by the managing
general partner. Additionally, $650,000 was contributed by the managing
general partner for limited partnership interests on unpaid assessments
of which $500,000 was paid in 1985 and $150,000 in 1986. The general
partners are required to contribute amounts equal to 10% of Partnership
expenditures for lease acquisition, drilling and completion and 25% of
direct, general and administrative and operating expenses.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and executive
officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the
next annual meeting of stockholders or until their successors are elected and
qualified.
Age at
December 31,
Name 2000 Position
---- ---- --------
Scott D. Sheffield 48 President
Timothy L. Dove 44 Executive Vice President, Chief
Financial Officer and Director
Dennis E. Fagerstone 51 Executive Vice President and Director
Mark L. Withrow 53 Executive Vice President, General
Counsel and Director
Danny Kellum 46 Executive Vice President - Domestic
Operations and Director
Rich Dealy 34 Vice President and Chief Accounting
Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of
Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as
President, Chief Executive Officer and a director of Pioneer and President of
Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of
Pioneer in August 1999. He served as a director of Pioneer USA from August 1997
until his resignation from the board in June 1999. Mr. Sheffield was the
President and a director of Parker & Parsley Petroleum Company ("Parker &
Parsley") from May 1990 until August 1997 and was the Chairman of the Board and
Chief Executive Officer of Parker & Parsley from October 1990 until August 1997.
He was the sole director of Parker & Parsley from May 1990 until October 1990.
Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a
predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as
Vice President - Engineering of PPDC from September 1981 until April 1985 when
he was elected President and a director. In March 1989, Mr. Sheffield was
elected Chairman of the Board and Chief Executive Officer of PPDC. Before
joining PPDC's predecessor, Mr. Sheffield was employed as a production and
reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from
Massachusetts
21
211
Institute of Technology in 1979 and received his M.B.A. in 1981 from the
University of Chicago. He became Executive Vice President - Business Development
of Pioneer and Pioneer USA in August 1997 and was also appointed a director of
Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial
Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined
Parker & Parsley in May 1994 as Vice President - International and was promoted
to Senior Vice President - Business Development in October 1996, in which
position he served until August 1997. Prior to joining Parker & Parsley, Mr.
Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy
Corp, in various capacities in international exploration and production,
marketing, refining and marketing and planning and development.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School
of Mines with a B.S. in Petroleum Engineering, became an Executive Vice
President of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. He served as Executive Vice President
and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until
August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior
Vice President and Chief Operating Officer of Mesa and from May 1991 to October
1996, he served as Vice President - Exploration and Production of Mesa. From
June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of
Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B.S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President - General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979, was elected Executive
Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000
and Director of Pioneer USA on February 1, 2000. From January 2000 until May
2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and
Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and
Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served
as Spraberry District Manager and as Vice President of the Spraberry and Permian
Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker &
Parsley as an operations engineer in 1981 after a brief career with Mobil Oil
Corporation.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University
with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He
became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
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ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is performed by Pioneer USA, the managing general partner. Under the
Partnership agreement, Pioneer USA pays 8% of the Partnership's acquisition,
drilling and completion costs and 20% of its operating and general and
administrative expenses. In return, Pioneer USA is allocated 20% of the
Partnership's revenues.
EMPL is a co-general partner of the Partnership. Under this arrangement, EMPL
pays 2% of the Partnership's acquisition, drilling and completion costs and 5%
of its operating and general and administrative expenses. In return, EMPL is
allocated 5% of the Partnership's revenues. EMPL does not receive any fees or
reimbursements from the Partnership.
The Partnership does not directly pay any salaries of the executive officers of
Pioneer USA, but does pay a portion of Pioneer USA's general and administrative
expenses of which these salaries are a part.
See Notes 6 and 9 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" for information regarding fees and
reimbursements paid to the managing general partner by the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more of
the outstanding limited partnership interests of the Partnership. Pioneer USA
and EMPL respectively own 80% and 20% of the general partners' interests in the
Partnership. Pioneer USA owned 634 limited partner interests at January 1, 2001.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general
partner of the Partnership, Pioneer USA, has the exclusive right and full
authority to manage, control and administer the Partnership's business. Under
the limited partnership agreement, limited partners holding a majority of the
outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner
Pursuant to the limited partnership agreement, the Partnership had the following
related party transactions with the managing general partner during the years
ended December 31:
2000 1999 1998
-------- -------- --------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $162,023 $156,380 $150,391
Reimbursement of general and administrative
expenses $ 22,916 $ 13,260 $ 11,786
Under the limited partnership agreement, the general partners, Pioneer USA and
EMPL, together pay 10% of the Partnership's acquisition, drilling and completion
costs and 25% of its operating and general and administrative expenses. In
return, they are allocated 25% of the Partnership's revenues. Twenty percent of
the general partners' share of costs and revenues is allocated to EMPL and the
remainder is allocated to Pioneer USA. Certain former affiliates of Pioneer USA
are limited partners of EMPL. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data"
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Partnership.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial statements
The following are filed as part of this Report:
Independent Auditors' Report
Balance sheets as of December 31, 2000 and 1999
Statements of operations for the years ended December 31, 2000,
1999 and 1998
Statements of partners' capital for the years ended December 31,
2000, 1999 and 1998
Statements of cash flows for the years ended December 31, 2000,
1999 and 1998
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this Report.
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215
S I G N A T U R E S
Pursuant to the requirements 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.
PARKER & PARSLEY 82-I, LTD.
Dated: March 23, 2001 By: Pioneer Natural Resources USA, Inc.
Managing General Partner
By: /s/ Scott D. Sheffield
---------------------------------
Scott D. Sheffield, President
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/ Scott D. Sheffield President of Pioneer USA March 23, 2001
-----------------------------
Scott D. Sheffield
/s/ Timothy L. Dove Executive Vice President, Chief March 23, 2001
----------------------------- Financial Officer and Director of
Timothy L. Dove Pioneer USA
/s/ Dennis E. Fagerstone Executive Vice President and March 23, 2001
----------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ Mark L. Withrow Executive Vice President, General March 23, 2001
----------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ Danny Kellum Executive Vice President - Domestic March 23, 2001
----------------------------- Operations and Director of Pioneer
Danny Kellum USA
/s/ Rich Dealy Vice President and Chief Accounting March 23, 2001
----------------------------- Officer of Pioneer USA
Rich Dealy
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PARKER & PARSLEY 82-I, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to
Item 14(c):
Exhibit No. Description Page
----------- ----------- ----
3.1 Agreement of Limited Partnership of Parker -
& Parsley 82-I, Ltd. incorporated by reference
to Exhibit 4(e) of Partnership's Registration
Statement on Form S-1 (Registration No.
2-75503A), as amended on February 4, 1982,
the effective date thereof (hereinafter called,
the Partnership's Registration Statement)
3.2 Amended and Restated Certificate of Limited -
Partnership of Parker & Parsley 82-I, Ltd.
incorporated by reference to Exhibit 3.2 of
the Partnership's Annual Report on Form 10-K
for the year ended December 31, 1983
4.1 Form of Subscription Agreement and Power -
of Attorney incorporated by reference to
Exhibit 4(b) of the Partnership's Registration
Statement
4.2 Specimen Certificate of Limited Partnership -
Interest incorporated by reference to Exhibit
4(d) of the Partnership's Registration Statement
27
217
PARKER & PARSLEY 82-I, LTD.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 172,087 $ 763,858 $ 441,997 $ 392,883 $ 608,207 $ 710,173
======== ========== ========== ========== ========== ========== ==========
Gain on litigation
settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 43,618
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and gas
properties $ $ -- $ -- $ -- $ 294,610 $ 165,201 $ 2,277
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 73,617 $ 337,729 $ 17,320 $ (563,993) $ (60,847) $ 312,582
======== ========== ========== ========== ========== ========== ==========
Allocation of net income
(loss):
General partners $ $ 19,763 $ 88,128 $ 18,135 $ (49,472) $ 31,736 $ 92,811
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 53,854 $ 249,601 $ (815) $ (514,521) $ (92,583) $ 219,771
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 11.01 $ 51.03 $ (.17) $ (105.20) $ (18.93) $ 44.93
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 9.49 $ 46.98 $ 10.33 $ 19.57 $ 47.31 $ 51.40(a)
======== ========== ========== ========== ========== ========== ==========
At year end:
Identifiable assets $ $ 438,633 $ 454,904 $ 425,107 $ 474,528 $1,158,135 $1,526,765
======== ========== ========== ========== ========== ========== ==========
----------
(a) Including litigation settlement per limited partnership interest of $6.96
in 1996.
218
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 82-II, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
82-II, Ltd. and supplements the proxy statement/prospectus dated , 2001, of
Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by
which Pioneer USA is soliciting proxies to be voted at a special meeting of
limited partners of the partnership. The purpose of the special meeting is for
you to vote upon the merger of the partnership with and into Pioneer USA that,
if completed, will result in your receiving common stock of Pioneer Natural
Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 82-II, Ltd.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's quarterly report on Form 10-Q, including
management's discussion and analysis of financial condition and
results of operations, for the three months ended March 31, 2001
o The partnership's annual report on Form 10-K, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
219
PARKER & PARSLEY 82-II, LTD.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 12,252
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 13,831
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 1,160
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 98.29
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 4.30 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 67.39
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 88.32
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 95.70
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 245
(b), (c)
-----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
(1) neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners; and (2)
neither the grant nor exercise of such right will result in the loss of any
limited partner's limited liability. In addition, the counsel designated to
render the opinion must be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
220
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 FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 2-75530B
PARKER & PARSLEY 82-II, LTD.
(Exact name of Registrant as specified in its charter)
TEXAS 75-1867115
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039
---------------------------------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code: (972) 444-9001
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($2,000 PER UNIT)
-----------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES / X / 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / X /
No market currently exists for the limited partnership interests of the
Registrant. Based on the original purchase price, the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$11,800,000.
As of March 8, 2001, the number of outstanding limited partnership
interests was 6,126.
The following documents are incorporated by reference into the indicated parts
of this Annual Report on Form 10-K: None
Parts I and II of this annual report on Form 10-K (the "Report") contain forward
looking statements that involve risks and uncertainties. Accordingly, no
assurances can be given that the actual events and results will not be
materially different than the anticipated results described in the forward
looking statements. See "Item 1. Business" for a description of various factors
that could materially affect the ability of the Partnership to achieve the
anticipated results described in the forward looking statements.
221
PART I
ITEM 1. BUSINESS
Parker & Parsley 82-II, Ltd. (the "Partnership") is a limited partnership
organized in 1982 under the laws of the State of Texas. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA")
and its co-general partner is P&P Employees 82-II, Ltd. ("EMPL"), a Texas
limited partnership whose general partner is Pioneer USA. Pioneer USA is a
wholly-owned subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of
March 8, 2001, the Partnership had 6,126 limited partnership interests
outstanding.
The Partnership does not have any employees of its own. Pioneer USA employs 701
persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this Report is filed. Pioneer
USA supplies all management functions.
The Partnership engages in oil and gas development and production and is not
involved in any industry segment other than oil and gas. The Partnership's
production is geographically concentrated in West Texas.
The principal markets during 2000 for the oil produced by the Partnership were
refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. During 2000, Pioneer USA marketed the
Partnership's gas to a variety of purchasers, none of which accounted for 10% or
more of the Partnership's oil and gas revenues. Of the Partnership's total oil
and gas revenues for 2000, approximately 70% was attributable to sales made to
Plains Marketing, L.P. Pioneer USA is of the opinion that the loss of any one
purchaser would not have an adverse effect on its ability to sell its oil,
natural gas liquids ("NGLs") and gas production.
The Partnership's revenues, profitability, cash flow and future rate of growth
are highly dependent on the prevailing prices of oil and gas, which are affected
by numerous factors beyond the Partnership's control. Oil and gas prices
historically have been very volatile. A substantial or extended decline in the
prices of oil or gas could have a material adverse effect on the Partnership's
revenues, profitability and cash flow and could, under certain circumstances,
result in a reduction in the carrying value of the Partnership's oil and gas
properties.
Oil and gas production operations are subject to various types of regulations by
local, state and federal agencies. The Partnership's operations are also subject
to state conservation laws and regulations, including the establishment of
maximum rates of production from wells and the regulation of spacing, plugging
and abandonment of wells. Each state generally imposes a production or severance
tax with respect to production and sale of oil and gas within their respective
jurisdictions. Noncompliance with the laws and regulations may subject the
Partnership to penalties, damages or other liabilities and compliance may
increase the cost of the Partnership's operations. The oil and gas business is
also subject to environmental hazards such as oil spills, gas leaks and
2
222
ruptures and discharges of toxic substances or gases that could expose the
Partnership to substantial liability due to pollution and other environmental
damages. Although the Partnership believes that its business operations do not
impair environmental quality and that its costs of complying with any applicable
environmental regulations are not currently significant, the Partnership cannot
predict what, if any, effect these environmental regulations may have on its
current or future operations.
Numerous uncertainties exist in estimating quantities of proved reserves and
future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the Partnership
conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist of leasehold 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 and exploratory oil and gas
prospects located in Texas and New Mexico were acquired by the Partnership,
resulting in the Partnership's participation in the drilling of 52 oil and gas
wells. At December 31, 2000, the Partnership had 16 producing oil and gas wells.
Two wells were plugged and abandoned, five wells were dry holes and 29 wells
have been sold.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 2000, 1999 and 1998, and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been evaluated by Williamson Petroleum Consultants, Inc., an independent
petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer USA believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the partners during the fourth
quarter of 2000.
3
223
PART II
ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP
DISTRIBUTIONS
At March 8, 2001, the Partnership had 6,126 outstanding limited partnership
interests held of record by 772 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the general partners, are not required
to meet the Partnership's obligations are distributed to the partners at least
quarterly in accordance with the limited partnership agreement. During the years
ended December 31, 2000 and 1999, distributions of $270,025 and $93,647,
respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
Operating results:
-----------------
Oil and gas sales $ 730,936 $ 477,533 $ 379,887 $ 598,339 $ 732,599
========== ========== ========== ========== ==========
Gain on litigation
settlement, net $ -- $ -- $ -- $ -- $ 45,027
========== ========== ========== ========== ==========
Impairment of oil and gas
properties $ -- $ -- $ 65,229 $ 310,732 $ --
========== ========== ========== ========== ==========
Net income (loss) $ 350,536 $ 120,353 $ (131,488) $ (93,386) $ 322,918
========== ========== ========== ========== ==========
Allocation of net income
(loss):
General partner $ 94,215 $ 38,680 $ 2,863 $ 30,221 $ 98,377
========== ========== ========== ========== ==========
Limited partners $ 256,321 $ 81,673 $ (134,351) $ (123,607) $ 224,541
========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ 41.84 $ 13.33 $ (21.93) $ (20.18) $ 36.65
========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ 44.08 $ 15.29 $ (46.67) $ 43.00 $ 49.38 (a)
========== ========== ========== ========== ==========
At year end:
-----------
Identifiable assets $ 960,300 $ 971,351 $ 971,390 $1,456,326 $1,893,741
========== ========== ========== ========== ==========
---------------
(a) Including litigation settlement per limited partnership interest of $6.02 in
1996.
4
224
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 53% to $730,936 for 2000 as
compared to $477,533 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decline in production. In 2000, 17,293
barrels of oil, 7,629 barrels of natural gas liquids ("NGLs") and 35,900 mcf of
gas were sold, or 30,905 barrel of oil equivalents ("BOEs"). In 1999, 17,967
barrels of oil, 9,587 barrels of NGLs and 42,858 mcf of gas were sold, or 34,697
BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.39, or 73%, from
$17.08 in 1999 to $29.47 in 2000. The average price received per barrel of NGLs
increased $5.21, or 53%, from $9.80 in 1999 to $15.01 in 2000. The average price
received per mcf of gas increased 66% from $1.79 in 1999 to $2.98 in 2000. The
market price for oil and gas has been extremely volatile in the past decade and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
Total costs and expenses increased in 2000 to $387,226 as compared to $361,025
in 1999, an increase of $26,201, or 7%. This increase was due to increases in
production costs and general and administrative expenses ("G&A"), offset by a
decline in depletion.
Production costs were $316,735 in 2000 and $280,719 in 1999, resulting in an
increase of $36,016, or 13%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices and additional well maintenance
costs incurred to stimulate well production.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
28%, from $19,626 in 1999 to $25,120 in 2000 primarily due to a higher
percentage of the managing general partner's G&A being allocated (limited to 3%
of oil and gas revenues) as a result of increased oil and gas revenues. The
Partnership paid the managing general partner $21,928 in 2000 and $14,326 in
1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid
directly by the Partnership. The managing general partner determines the
allocated expenses based upon the level of activity of the Partnership relative
to the non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
Depletion was $45,371 in 2000 as compared to $60,680 in 1999, a decrease of
$15,309, or 25%. This decrease was primarily due to a 21,082 barrels of oil
increase in proved reserves during 2000 as a result of higher commodity prices.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 26% to $477,533 from
$379,887 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 17,967 barrels of oil,
9,587 barrels of NGLs and 42,858 mcf of gas were sold, or 34,697 BOEs. In 1998,
19,042 barrels of oil, 8,812 barrels of NGLs and 41,862 mcf of gas were sold, or
5
225
34,831 BOEs.
The average price received per barrel of oil increased $3.94, or 30%, from
$13.14 in 1998 to $17.08 in 1999. The average price received per barrel of NGLs
increased $2.87, or 41%, from $6.93 in 1998 to $9.80 in 1999. The average price
received per mcf of gas increased 9% from $1.64 in 1998 to $1.79 in 1999.
A gain on disposition of assets of $1,281 was recognized during 1998 from post
closing adjustments received from the sale of six oil and gas wells and an
overriding royalty interest in one well during 1997.
Total costs and expenses decreased in 1999 to $361,025 as compared to $523,894
in 1998, a decrease of $162,869, or 31%. The decrease was primarily due to
declines in depletion and the impairment of oil and gas properties, offset by
increases in production costs and G&A expenses.
Production costs were $280,719 in 1999 and $274,382 in 1998, resulting in an
increase of $6,337, or 2%. The increase was primarily due to additional well
maintenance costs incurred to stimulate well production and an increase in
production taxes due to increased oil and gas revenues, offset by a decline in
ad valorem taxes.
During this period, G&A increased 45% from $13,493 in 1998 to $19,626 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $14,326 in
1999 and $11,397 in 1998 for G&A incurred on behalf of the Partnership.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $65,229 related to its oil and gas properties during 1998.
Depletion was $60,680 in 1999 compared to $170,790 in 1998, a decrease of
$110,110, or 64%. This decrease was the result of an increase in proved reserves
of 182,544 barrels of oil during 1999 as a result of higher commodity prices and
a reduction in the Partnership's net depletable basis in accordance with SFAS
121 during the fourth quarter of 1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization
6
226
of Petroleum Exporting Countries ("OPEC") and certain other crude oil exporting
nations announced reductions in their planned export volumes. Those
announcements, together with the enactment of the announced reductions in export
volumes, had a positive impact on world oil prices, as have overall natural gas
supply and demand fundamentals on North American natural gas prices. Although
the favorable commodity price environment and stable field service cost
environment is expected to continue during 2001, there is no assurance that
commodity prices will not return to a less favorable level or that field service
costs will not escalate in the future, both of which could negatively impact the
Partnership's future results of operations and cash distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $202,645 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $256,384, offset by increases in production costs paid
of $36,016, G&A expenses paid of $5,494 and working capital of $12,229. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $326,338 to oil and gas receipts,
offset by $69,954 resulting from the decline in production during 2000. The
increase in production costs was primarily due to increased production taxes
associated with higher oil and gas prices and well maintenance costs incurred to
stimulate well production. The increase in G&A was primarily due to higher
percentage of the managing general partner's G&A being allocated (limited to 3%
of oil and gas revenues) as a result of increased oil and gas revenues.
Net Cash Provided by (Used in) Investing Activities
The Partnership's principal investing activities during 2000 and 1999 included
expenditures related to equipment upgrades on several oil and gas properties.
Proceeds from asset dispositions of $422 in 1999 were from equipment credits
received on active properties. During 1998, proceeds from disposition of assets
of $153,683 were primarily from the sale of six oil and gas wells during 1997.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $361,123, of which $91,098 was
distributed to the general partners and $270,025 to the limited partners. In
1999, cash distributions to the partners were $124,365, of which $30,718 was
distributed to the general partners and $93,647 to the limited partners.
7
227
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements of Parker & Parsley 82-II, Ltd:
Independent Auditors' Report............................................ 9
Balance Sheets as of December 31, 2000 and 1999......................... 10
Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998................................................... 11
Statements of Partners' Capital for the Years Ended
December 31, 2000, 1999 and 1998...................................... 12
Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998................................................... 13
Notes to Financial Statements........................................... 14
8
228
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 82-II, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheets of Parker & Parsley 82-II, Ltd. as of
December 31, 2000 and 1999, and the related statements of operations, partners'
capital and cash flows for each of the three years in the period ended December
31, 2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 82-II, Ltd. as
of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
9
229
PARKER & PARSLEY 82-II, LTD.
(A Texas Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
----------- -----------
ASSETS
------
Current assets:
Cash $ 77,911 $ 91,672
Accounts receivable - oil and gas sales 107,778 68,374
----------- -----------
Total current assets 185,689 160,046
----------- -----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 8,305,901 8,297,224
Accumulated depletion (7,531,290) (7,485,919)
----------- -----------
Net oil and gas properties 774,611 811,305
----------- -----------
$ 960,300 $ 971,351
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 12,662 $ 13,126
Partners' capital:
General partners 121,968 118,851
Limited partners (6,126 interests) 825,670 839,374
----------- -----------
947,638 958,225
----------- -----------
$ 960,300 $ 971,351
=========== ===========
The accompanying notes are an integral part of these financial statements.
10
230
PARKER & PARSLEY 82-II, LTD.
(A Texas Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Revenues:
Oil and gas $ 730,936 $ 477,533 $ 379,887
Interest 6,826 3,845 11,238
Gain on disposition of assets -- -- 1,281
--------- --------- ---------
737,762 481,378 392,406
--------- --------- ---------
Costs and expenses:
Oil and gas production 316,735 280,719 274,382
General and administrative 25,120 19,626 13,493
Impairment of oil and gas properties -- -- 65,229
Depletion 45,371 60,680 170,790
--------- --------- ---------
387,226 361,025 523,894
--------- --------- ---------
Net income (loss) $ 350,536 $ 120,353 $(131,488)
========= ========= =========
Allocation of net income (loss):
General partners $ 94,215 $ 38,680 $ 2,863
========= ========= =========
Limited partners $ 256,321 $ 81,673 $(134,351)
========= ========= =========
Net income (loss) per limited
partnership interest $ 41.84 $ 13.33 $ (21.93)
========= ========= =========
The accompanying notes are an integral part of these financial statements.
11
231
PARKER & PARSLEY 82-II, LTD.
(A Texas Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
General Limited
partners partners Total
----------- ----------- -----------
Partners' capital at January 1, 1998 $ 167,998 $ 1,271,605 $ 1,439,603
Distributions (59,972) (285,906) (345,878)
Net income (loss) 2,863 (134,351) (131,488)
----------- ----------- -----------
Partners' capital at December 31, 1998 110,889 851,348 962,237
Distributions (30,718) (93,647) (124,365)
Net income 38,680 81,673 120,353
----------- ----------- -----------
Partners' capital at December 31, 1999 118,851 839,374 958,225
Distributions (91,098) (270,025) (361,123)
Net income 94,215 256,321 350,536
----------- ----------- -----------
Partners' capital at December 31, 2000 $ 121,968 $ 825,670 $ 947,638
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
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PARKER & PARSLEY 82-II, LTD.
(A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ 350,536 $ 120,353 $(131,488)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Impairment of oil and gas properties -- -- 65,229
Depletion 45,371 60,680 170,790
Gain on disposition of assets -- -- (1,281)
Changes in assets and liabilities:
Accounts receivable (39,404) (31,612) 23,310
Accounts payable (464) 3,973 (7,570)
--------- --------- ---------
Net cash provided by operating activities 356,039 153,394 118,990
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties (8,677) (2,053) (13,600)
Proceeds from asset dispositions -- 422 153,683
--------- --------- ---------
Net cash provided by (used in)
investing activities (8,677) (1,631) 140,083
--------- --------- ---------
Cash flows used in financing activities:
Cash distributions to partners (361,123) (124,365) (345,878)
--------- --------- ---------
Net increase (decrease) in cash (13,761) 27,398 (86,805)
Cash at beginning of year 91,672 64,274 151,079
--------- --------- ---------
Cash at end of year $ 77,911 $ 91,672 $ 64,274
========= ========= =========
The accompanying notes are an integral part of these financial statements.
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PARKER & PARSLEY 82-II, LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 82-II, Ltd. (the "Partnership") is a limited
partnership organized in 1982 under the laws of the State of Texas. The
Partnership's general partners are Pioneer Natural Resources USA, Inc. ("Pioneer
USA") and P&P Employees 82-II, Ltd. ("EMPL"). The Partnership's managing general
partner is Pioneer USA.
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -
Preparation of the accompanying 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 periods. Actual results could differ from those estimates.
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234
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated in part to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non-partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
15
235
Partnership recognized a non-cash impairment provision of $65,229 related to its
proved oil and gas properties during 1998.
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $425,788 less than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
--------- --------- ---------
Net income (loss) per statements of operations $ 350,536 $ 120,353 $(131,488)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes 39,685 55,288 163,319
Impairment of oil and gas properties for financial
reporting purposes -- -- 65,229
Other, net (932) 209 217
--------- --------- ---------
Net income per Federal income tax
returns $ 389,289 $ 175,850 $ 97,277
========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
--------- --------- -------
Development costs $ 8,677 $ 2,053 $13,600
========= ========= =======
Capitalized oil and gas properties consist of the following:
2000 1999
----------- -----------
Proved properties:
Property acquisition costs $ 415,980 $ 415,980
Completed wells and equipment 7,889,921 7,881,244
----------- -----------
8,305,901 8,297,224
Accumulated depletion (7,531,290) (7,485,919)
----------- -----------
Net oil and gas properties $ 774,611 $ 811,305
=========== ===========
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236
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
-------- -------- --------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $143,855 $139,170 $133,844
Reimbursement of general and administrative
expenses $ 21,928 $ 14,326 $ 11,397
Pioneer USA, EMPL and the Partnership are parties to the Partnership
agreement. EMPL is a limited partnership in which Pioneer USA owns 83% and the
remaining portion is owned by former affiliates. In addition, Pioneer USA owned
226 limited partner interests at January 1, 2001.
The costs and revenues of the Partnership are allocated as follows:
General Limited
partners partners
-------- --------
Revenues:
Proceeds from property dispositions prior to cost
recovery 10% 90%
All other Partnership revenues 25% 75%
Costs and expenses:
Lease acquisition costs, drilling and completion costs 10% 90%
Operating costs, direct costs and general and
administrative expenses 25% 75%
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
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237
Oil and NGLs Gas
(bbls) (mcf)
------------ --------
Net proved reserves at January 1, 1998 376,355 512,848
Revisions (163,438) (164,998)
Production (27,854) (41,862)
-------- --------
Net proved reserves at December 31, 1998 185,063 305,988
Revisions 288,622 425,997
Production (27,554) (42,858)
-------- --------
Net proved reserves at December 31, 1999 446,131 689,127
Revisions (13,008) (29,574)
Production (24,922) (35,900)
-------- --------
Net proved reserves at December 31, 2000 408,201 623,653
======== ========
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.58
per barrel of oil, $13.60 per barrel of NGLs and $8.05 per mcf of gas,
discounted at 10% was approximately $3,222,000 and undiscounted was $6,505,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
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238
For the years ended December 31,
----------------------------------
2000 1999 1998
-------- -------- --------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 14,233 $ 11,083 $ 2,024
Future production costs (7,728) (6,439) (1,464)
-------- -------- --------
6,505 4,644 560
10% annual discount factor (3,283) (2,235) (228)
-------- -------- --------
Standardized measure of discounted future net cash flows $ 3,222 $ 2,409 $ 332
======== ======== ========
For the years ended December 31,
---------------------------------
2000 1999 1998
------- ------- -------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (414) $ (197) $ (106)
Net changes in prices and production costs 1,300 807 (871)
Revisions of previous quantity estimates (118) 1,768 (241)
Accretion of discount 240 33 147
Changes in production rates, timing and other (195) (334) (72)
------- ------- -------
Change in present value of future net revenues 813 2,077 (1,143)
------- ------- -------
Balance, beginning of year 2,409 332 1,475
------- ------- -------
Balance, end of year $ 3,222 $ 2,409 $ 332
======= ======= =======
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's
oil and gas sales (a major customer is defined as a customer whose sales exceed
10% of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 70% 65% -
Genesis Crude Oil, L.P. - - 66%
Western Gas Resources, Inc. 2% 5% 21%
At December 31, 2000, the amount receivable from Plains Marketing, L.P.
was $56,201 which is included in the caption "Accounts receivable - oil and gas
sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the limited partnership agreement:
General partners - The general partners of the Partnership are Pioneer
USA and EMPL. Pioneer USA, the managing general partner, has the power
and authority to manage, control
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239
and administer all Partnership affairs. As managing general partner and
operator of the Partnership's properties, all production expenses are
incurred by Pioneer USA and billed to the Partnership. The majority of
the Partnership's oil and gas revenues are received directly by the
Partnership, however, a portion of the oil and gas revenue is initially
received by Pioneer USA prior to being paid to the Partnership.
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of
$12,252,000. The general partners are required to contribute amounts
equal to 10% of Partnership expenditures for lease acquisition, drilling
and completion and 25% of direct, general and administrative and
operating expenses.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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240
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and executive
officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the
next annual meeting of stockholders or until their successors are elected and
qualified.
Age at
December 31,
Name 2000 Position
---- ---- --------
Scott D. Sheffield 48 President
Timothy L. Dove 44 Executive Vice President, Chief
Financial Officer and Director
Dennis E. Fagerstone 51 Executive Vice President and Director
Mark L. Withrow 53 Executive Vice President, General
Counsel and Director
Danny Kellum 46 Executive Vice President - Domestic
Operations and Director
Rich Dealy 34 Vice President and Chief Accounting
Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of
Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as
President, Chief Executive Officer and a director of Pioneer and President of
Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of
Pioneer in August 1999. He served as a director of Pioneer USA from August 1997
until his resignation from the board in June 1999. Mr. Sheffield was the
President and a director of Parker & Parsley Petroleum Company ("Parker &
Parsley") from May 1990 until August 1997 and was the Chairman of the Board and
Chief Executive Officer of Parker & Parsley from October 1990 until August 1997.
He was the sole director of Parker & Parsley from May 1990 until October 1990.
Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a
predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as
Vice President - Engineering of PPDC from September 1981 until April 1985 when
he was elected President and a director. In March 1989, Mr. Sheffield was
elected Chairman of the Board and Chief Executive Officer of PPDC. Before
joining PPDC's predecessor, Mr. Sheffield was employed as a production and
reservoir engineer for Amoco Production Company.
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241
Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from
Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981
from the University of Chicago. He became Executive Vice President - Business
Development of Pioneer and Pioneer USA in August 1997 and was also appointed a
director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief
Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr.
Dove joined Parker & Parsley in May 1994 as Vice President - International and
was promoted to Senior Vice President - Business Development in October 1996, in
which position he served until August 1997. Prior to joining Parker & Parsley,
Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus
Energy Corp, in various capacities in international exploration and production,
marketing, refining and marketing and planning and development.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School
of Mines with a B.S. in Petroleum Engineering, became an Executive Vice
President of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. He served as Executive Vice President
and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until
August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior
Vice President and Chief Operating Officer of Mesa and from May 1991 to October
1996, he served as Vice President - Exploration and Production of Mesa. From
June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of
Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President - General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979, was elected Executive
Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000
and Director of Pioneer USA on February 1, 2000. From January 2000 until May
2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and
Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and
Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served
as Spraberry District Manager and as Vice President of the Spraberry and Permian
Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker &
Parsley as an operations engineer in 1981 after a brief career with Mobil Oil
Corporation.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University
with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He
became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
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ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is performed by Pioneer USA, the managing general partner. Under the
Partnership agreement, Pioneer USA pays 8% of the Partnership's acquisition,
drilling and completion costs and 20% of its operating and general and
administrative expenses. In return, Pioneer USA is allocated 20% of the
Partnership's revenues.
EMPL is a co-general partner of the Partnership. Under this arrangement, EMPL
pays 2% of the Partnership's acquisition, drilling and completion costs and 5%
of its operating and general and administrative expenses. In return, EMPL is
allocated 5% of the Partnership's revenues. EMPL does not receive any fees or
reimbursements from the Partnership.
The Partnership does not directly pay any salaries of the executive officers of
Pioneer USA, but does pay a portion of Pioneer USA's general and administrative
expenses of which these salaries are a part.
See Notes 6 and 9 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" for information regarding fees and
reimbursements paid to the managing general partner by the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more of
the outstanding limited partnership interests of the Partnership. Pioneer USA
and EMPL respectively own 80% and 20% of the general partners' interests in the
Partnership. Pioneer USA owned 226 limited partner interests at January 1, 2001.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general
partner of the Partnership, Pioneer USA, has the exclusive right and full
authority to manage, control and administer the Partnership's business. Under
the limited partnership agreement, limited partners holding a majority of the
outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
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243
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner
Pursuant to the limited partnership agreement, the Partnership had the following
related party transactions with the general partners during the years ended
December 31:
2000 1999 1998
--------- --------- --------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 143,855 $ 139,170 $133,844
Reimbursement of general and administrative
expenses $ 21,928 $ 14,326 $ 11,397
Under the limited partnership agreement, the general partners, Pioneer USA and
EMPL, together pay 10% of the Partnership's acquisition, drilling and completion
costs and 25% of its operating and general and administrative expenses. In
return, they are allocated 25% of the Partnership's revenues. Twenty percent of
the general partner's share of costs and revenues is allocated to EMPL and the
remainder is allocated to Pioneer USA. Certain former affiliates of the managing
general partner are limited partners of EMPL. Also, see Notes 6 and 9 of Notes
to Financial Statements included in "Item 8. Financial Statements and
Supplementary Data", regarding the Partnership's participation with the managing
general partner in oil and gas activities of the Partnership.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial statements
The following are filed as part of this Report:
Independent Auditors' Report
Balance sheets as of December 31, 2000 and 1999
Statements of operations for the years ended December 31, 2000,
1999 and 1998
Statements of partners' capital for the years ended December 31,
2000, 1999 and 1998
Statements of cash flows for the years ended December 31, 2000,
1999 and 1998
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the
required information is in the financial statements or notes thereto,
or is not applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this Report.
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245
S I G N A T U R E S
Pursuant to the requirements 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.
PARKER & PARSLEY 82-II, LTD.
Dated: March 23, 2001 By: Pioneer Natural Resources USA, Inc.
Managing General Partner
By: /s/ Scott D. Sheffield
--------------------------------
Scott D. Sheffield, President
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/ Scott D. Sheffield President of Pioneer USA March 23, 2001
-------------------------------
Scott D. Sheffield
/s/ Timothy L. Dove Executive Vice President, Chief March 23, 2001
------------------------------- Financial Officer and Director of
Timothy L. Dove Pioneer USA
/s/ Dennis E. Fagerstone Executive Vice President and March 23, 2001
------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ Mark L. Withrow Executive Vice President, General March 23, 2001
------------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ Danny Kellum Executive Vice President - Domestic March 23, 2001
------------------------------- Operations and Director of Pioneer
Danny Kellum USA
/s/ Rich Dealy Vice President and Chief Accounting March 23, 2001
------------------------------- Officer of Pioneer USA
Rich Dealy
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PARKER & PARSLEY 82-II, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to
Item 14(c):
Exhibit No. Description Page
----------- ----------- ----
3.1 Agreement of Limited Partnership of -
Parker & Parsley 82-II, Ltd. incorporated
by reference to Exhibit 4(e) of Partnership's
Registration Statement on Form S-1
(Registration No. 2-75503B), as amended
on February 4, 1982, the effective date
thereof (hereinafter called, the Partnership's
Registration Statement)
3.2 Amended and Restated Certificate of -
Limited Partnership of Parker & Parsley
82-II, Ltd. incorporated by reference to
Exhibit 3.2 of the Partnership's Annual
Report on Form 10-K for the year ended
December 31, 1983
4.1 Form of Subscription Agreement and Power -
of Attorney incorporated by reference to
Exhibit 4(b) of the Partnership's Registration
Statement
4.2 Specimen Certificate of Limited Partnership -
Interest incorporated by reference to Exhibit
4(d) of the Partnership's Registration Statement
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247
PARKER & PARSLEY 82-II, LTD.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 165,410 $ 730,936 $ 477,533 $ 379,887 $ 598,339 $ 732,599
======== ========== ========== ========== ========== ========== ==========
Gain on litigation
settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 45,027
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and gas
properties $ $ -- $ -- $ -- $ 65,229 $ 310,732 $ --
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 74,521 $ 350,536 $ 120,353 $ (131,488) $ (93,386) $ 322,918
======== ========== ========== ========== ========== ========== ==========
Allocation of net income
(loss):
General partner $ $ 20,457 $ 94,215 $ 38,680 $ 2,863 $ 30,221 $ 98,377
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 54,064 $ 256,321 $ 81,673 $ (134,351) $ (123,607) $ 224,541
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 8.83 $ 41.84 $ 13.33 $ (21.93) $ (20.18) $ 36.65
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 9.95 $ 44.08 $ 15.29 $ (46.67) $ 43.00 $ 49.38(a)
======== ========== ========== ========== ========== ========== ==========
At year end:
Identifiable assets $ $ 966,117 $ 960,300 $ 971,351 $ 971,390 $1,456,326 $1,893,741
======== ========== ========== ========== ========== ========== ==========
----------
(a) Including litigation settlement per limited partnership interest of $6.02
in 1996.
248
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 82-III, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
82-III, Ltd. and supplements the proxy statement/prospectus dated , 2001, of
Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by
which Pioneer USA is soliciting proxies to be voted at a special meeting of
limited partners of the partnership. The purpose of the special meeting is for
you to vote upon the merger of the partnership with and into Pioneer USA that,
if completed, will result in your receiving common stock of Pioneer Natural
Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 82-III, Ltd.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the three months ended March 31, 2001
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
249
PARKER & PARSLEY 82-III, LTD.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 6,882
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 6,657
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 777
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 120.01
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.37 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 55.84
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 107.25
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 116.79
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 220
(b), (c)
-----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
(1) neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners; and (2)
neither the grant nor exercise of such right will result in the loss of any
limited partner's limited liability. In addition, the counsel designated to
render the opinion must be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
250
PARKER & PARSLEY 82-III, LTD.
(A Texas Limited Partnership)
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT
December 31, 2000 and 1999
251
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 82-III, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheets of Parker & Parsley 82-III, Ltd. as of
December 31, 2000 and 1999, and the related statements of operations, partners'
capital and cash flows for each of the three years in the period ended December
31, 2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 82-III, Ltd.
as of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
2
252
PARKER & PARSLEY 82-III, LTD.
(A Texas Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
------- -------
ASSETS
Current assets:
Cash $ 46,188 $ 53,335
Accounts receivable - oil and gas sales 69,903 47,611
------- -------
Total current assets 116,091 100,946
------- -------
Oil and gas properties - at cost, based on the
successful efforts accounting method 5,970,397 5,967,913
Accumulated depletion (5,634,468) (5,611,986)
Net oil and gas properties 335,929 355,927
------- -------
$ 452,020 $ 456,873
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable - affiliate $ 9,780 $ 11,302
Partners' capital:
General partners 57,956 54,214
Limited partners (3,441 interests) 384,284 391,357
------- -------
442,240 445,571
$ 452,020 $ 456,873
======== ========
The accompanying notes are an integral part of these financial statements.
3
253
PARKER & PARSLEY 82-III, LTD.
(A Texas Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
--------- -------- ---------
Revenues:
Oil and gas $ 562,399 $ 340,246 $ 253,873
Interest 4,310 2,124 3,120
Gain on disposition of assets - 1,922 634
------- ------ --------
566,709 344,292 257,627
------- ------ --------
Costs and expenses:
Oil and gas production 222,803 198,571 202,485
General and administrative 19,194 14,161 9,538
Impairment of oil and gas properties - - 277,671
Depletion 22,482 46,605 252,951
------- ------ --------
264,479 259,337 742,645
------- ------- --------
Net income (loss) $ 302,230 $ 84,955 $ (485,018)
======= ====== ========
Allocation of net income (loss):
General partners $ 78,705 $ 27,431 $ (41,756)
======= ====== ========
Limited partners $ 223,525 $ 57,524 $ (443,262)
======= ====== ========
Net income (loss) per limited
partnership interest $ 64.96 $ 16.72 $ (128.82)
======= ====== ========
The accompanying notes are an integral part of these financial statements.
4
254
PARKER & PARSLEY 82-III, LTD.
(A Texas Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
General Limited
partners partners Total
--------- ---------- ---------
Partners' capital at January 1, 1998 $ 106,887 $ 9 13,918 $ 1,020,805
Distributions (16,245) (70,235) (86,480)
Net loss (41,756) (443,262) (485,018)
-------- -------- ---------
Partners' capital at December 31, 1998 48,886 400,421 449,307
Distributions (22,103) (66,588) (88,691)
Net income 27,431 57,524 84,955
-------- -------- ---------
Partners' capital at December 31, 1999 54,214 391,357 445,571
Distributions (74,963) (230,598) (305,561)
Net income 78,705 223,525 302,230
-------- -------- ---------
Partners' capital at December 31, 2000 $ 57,956 $ 384,284 $ 442,240
======== ======== =========
The accompanying notes are an integral part of these financial statements.
5
255
PARKER & PARSLEY 82-III, LTD.
(A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
-------- -------- ---------
Cash flows from operating activities:
Net income (loss) $ 302,230 $ 84,955 $ (485,018)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Gain on disposition of assets - (1,922) (634)
Impairment of oil and gas properties - - 277,671
Depletion 22,482 46,605 252,951
Changes in assets and liabilities:
Accounts receivable (22,292) (24,579) 19,893
Accounts payable (1,522) 5,081 (6,865)
-------- -------- ---------
Net cash provided by operating activities 300,898 110,140 57,998
-------- -------- ---------
Cash flows from investing activities:
Additions to oil and gas properties (2,484) (1,281) (4,114)
Proceeds from disposition of assets - 2,415 23,382
-------- -------- ---------
Net cash provided by (used in)
investing activities (2,484) 1,134 19,268
-------- -------- ---------
Cash flows used in financing activities:
Cash distributions to partners (305,561) (88,691) (86,480)
-------- -------- ---------
Net increase (decrease) in cash (7,147) 22,583 (9,214)
Cash at beginning of year 53,335 30,752 39,966
-------- -------- ---------
Cash at end of year $ 46,188 $ 53,335 $ 30,752
======== ======== =========
The accompanying notes are an integral part of these financial statements.
6
256
PARKER & PARSLEY 82-III, LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 82-III, Ltd. (the "Partnership") is a Texas limited
partnership organized in 1982 under the laws of the State of Texas. The
Partnership's general partners are Pioneer Natural Resources USA, Inc.
("Pioneer USA") and P&P Employees 82-III, Ltd. ("EMPL"). The Partnership's
managing general partner is Pioneer USA.
The Partnership engages in oil and gas development and production in Texas
and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements - Preparation
of the accompanying 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 periods.
Actual results could differ from those estimates.
7
257
Net income (loss) per limited partnership interest - The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative expenses
are allocated in part to the Partnership by the managing general partner.
Allocated expenses are determined by the managing general partner based upon the
level of activity of the Partnership relative to the non-partnership activities
of the managing general partner. The method of allocation has been consistent
over the past several years with certain modifications incorporated to reflect
changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. The Partnership has estimated the expected future cash flows of its
oil and gas properties as of December 31, 2000, 1999 and 1998, based on proved
reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved
8
258
in the industry. As a result, the Partnership recognized a non-cash impairment
provision of $277,671 related to its proved oil and gas properties during 1998.
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $410,896 less than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
-------- ------- -------
Net income (loss) per statements of operations $ 302,230 $ 84,955 $ (485,018)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for financial
reporting purposes 18,732 42,255 245,110
Impairment of oil and gas properties for financial
reporting purposes - - 277,671
Other, net (570) (1,597) 787
-------- ------- --------
Net income per Federal income tax returns $ 320,392 $ 125,613 $ 38,550
======== ======= ========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
------- ------ -------
Development costs $ 2,484 $ 1,281 $ 4,114
======= ====== =======
Capitalized oil and gas properties consist of the following:
2000 1999
--------- ----------
Proved properties:
Property acquisition costs $ 348,798 $ 348,798
Completed wells and equipment 5,621,599 5,619,115
---------- -----------
5,970,397 5,967,913
Accumulated depletion (5,634,468) (5,611,986)
---------- -----------
Net oil and gas properties $ 335,929 $ 355,927
========== ===========
9
259
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
------- ------- --------
Payment of lease operating and supervision
charges in accordance with standard industry
operating agreements $105,725 $102,247 $ 97,602
Reimbursement of general and administrative
expenses $16,872 $10,207 $ 7,802
Pioneer USA, EMPL and the Partnership are parties to the Partnership
agreement. EMPL is a limited partnership in which Pioneer USA owns 81% and the
remaining portion is owned by former affiliates. Pioneer USA owned 205.34
limited partner interests at January 1, 2001.
The costs and revenues of the Partnership are allocated as follows:
General Limited
partners partners
-------- --------
Revenues:
Proceeds from property dispositions prior to cost
recovery 10% 90%
All other Partnership revenues 25% 75%
Costs and expenses:
Lease acquisition costs, drilling and completion costs 10% 90%
Operating costs, direct costs and general and
administrative expenses 25% 75%
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
10
260
Oil and NGLs Gas
(bbls) (mcf)
------------ ------------
Net proved reserves at January 1, 1998 290,644 256,851
Revisions (204,881)
Production (19,540) (17,680)
--------- --------
Net proved reserves at December 31, 1998 66,223 74,429
Revisions 243,433
312,763
Production (20,801) (23,061)
--------- ------
Net proved reserves at December 31, 1999 288,855 364,131
Revisions 42,883 (44,362)
Production (20,646) (21,480)
--------- ------
Net proved reserves at December 31, 2000 311,092 298,289
========= ========
As of December 31, 2000, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 2000 prices of $26.64 per
barrel of oil, $13.66 per barrel of NGLs and $7.61 per mcf of gas, discounted at
10% was approximately $2,053,000 and undiscounted was $3,888,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
11
261
For the years ended December 31,
--------------------------------
2000 1999 1998
------ ------- ------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 9,373 $ 7,135 $ 709
Future production costs (5,485) (4,540) (606)
------ ------- ------
3,888 2,595 103
10% annual discount factor (1,835) (1,113) (26)
------ ------- ------
Standardized measure of discounted
future net cash flows $ 2,053 $ 1,482 $ 77
====== ======= ======
For the years ended December 31,
--------------------------------
2000 1999 1998
------ ------- ------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs$ (340) $ (141) $ (51)
Net changes in prices and production costs 711 355 (718)
Revisions of previous quantity estimates 219 1,650 (182)
Accretion of discount 148 8 102
Changes in production rates, timing and other (167) (467) (96)
Change in present value of future
net revenues 571 1,405 (945)
Balance, beginning of year 1,482 77 1,022
------ ------- ------
Balance, end of year $ 2,053 $ 1,482 $ 77
======= ======== =======
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil and
gas sales (a major customer is defined as a customer whose sales exceed 10% of
total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 60% 56% -
TEPPCO Crude Oil LLC 14% 15% -
Genesis Crude Oil, L.P. - - 77%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P.
and TEPPCO Crude Oil LLC were $31,458 and $4,158, respectively, which are
included in the caption "Accounts receivable - oil and gas sales" in the
accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would not
have an adverse effect on the ability of the Partnership to sell its oil, NGLs
and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of the
limited partnership agreement:
General partners - The general partners of the Partnership are Pioneer USA
and EMPL. Pioneer USA, the managing general partner, has the power and
authority to manage, control and administer all Partnership affairs. As
managing general partner and operator of the Partnership's properties, all
production expenses are incurred by Pioneer USA and billed to the
Partnership. The majority of the Partnership's oil and gas revenues are
received directly
12
262
by the Partnership, however, a portion of the oil and gas
revenue is initially received by Pioneer USA prior to being paid to the
Partnership.
Limited partner liability - The maximum amount of liability of any limited
partner is the total contributions of such partner plus his share of any
undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of $6,882,000.
The general partners are required to contribute amounts equal to 10% of
Partnership expenditures for lease acquisition, drilling and completion and
25% of direct, general and administrative and operating expenses.
13
263
PARKER & PARSLEY 82-III, LTD.
(A TEXAS LIMITED PARTNERSHIP)
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACCORDINGLY, NO ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS
AND RESULTS WILL NOT BE MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS
DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 65% to $562,399 for 2000 as
compared to $340,246 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decline in production. In 2000, 14,019
barrels of oil, 6,627 barrels of natural gas liquids ("NGLs") and 21,480 mcf of
gas were sold, or 24,226 barrel of oil equivalents ("BOEs"). In 1999, 14,043
barrels of oil, 6,758 barrels of NGLs and 23,061 mcf of gas were sold, or 24,645
BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.54, or 73%, from
$17.13 in 1999 to $29.67 in 2000. The average price received per barrel of NGLs
increased $4.73, or 52%, from $9.13 in 1999 to $13.86 in 2000. The average price
received per mcf of gas increased 54% from $1.65 in 1999 to $2.54 in 2000. The
market price for oil and gas has been extremely volatile in the past decade, and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
A gain on disposition of assets of $1,922 was recognized during 1999 from
equipment credits received on one fully depleted well.
Total costs and expenses increased in 2000 to $264,479 as compared to $259,337
in 1999, an increase of $5,142, or 2%. The increase was primarily due to
increases in production costs and general and administrative expenses ("G&A"),
offset by a decline in depletion.
Production costs were $222,803 in 2000 and $198,571 in 1999, resulting in a
$24,232 increase, or 12%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices and additional well maintenance
costs incurred to stimulate well production.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
36% from $14,161 in 1999 to $19,194 in 2000, primarily due to a higher
percentage of the managing general partner's G&A being allocated (limited to 3%
of oil and gas revenues) as a result of increased oil and gas revenues. The
Partnership paid the managing general partner $16,872 in 2000 and $10,207 in
1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid
directly by the Partnership. The managing general partner determines the
allocated expenses based upon the level of activity of the Partnership relative
to the non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
Depletion was $22,482 in 2000 as compared to $46,605 in 1999, representing a
decrease of $24,123, or 52%. This decrease primarily due to a 36,746 barrels of
oil increase in proved reserves during 2000 as a result of higher commodity
prices.
264
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 34% to $340,246 from
$253,873 in 1998. The increase in revenues resulted from higher average prices
received and an increase in production. In 1999, 14,043 barrels of oil, 6,758
barrels of NGLs and 23,061 mcf of gas were sold, or 24,645 BOEs. In 1998, 14,727
barrels of oil, 4,813 barrels of NGLs and 17,680 mcf of gas were sold, or 22,487
BOEs.
The average price received per barrel of oil increased $3.82, or 29%, from
$13.31 in 1998 to $17.13 in 1999. The average price received per barrel of NGLs
increased $2.71, or 42%, from $6.42 in 1998 to $9.13 in 1999. The average price
received per mcf of gas increased 8% from $1.53 in 1998 to $1.65 in 1999.
A gain on disposition of assets of $1,922 and $634 was recognized during 1999
and 1998 from salvage value received on various asset dispositions.
Total costs and expenses decreased in 1999 to $259,337 as compared to $742,645
in 1998, a decrease of $483,308, or 65%. The decrease was primarily due to
declines in the impairment of oil and gas properties, depletion and production
costs, offset by an increase in G&A.
Production costs were $198,571 in 1999 and $202,485 in 1998, resulting in a
$3,914 decrease, or 2%. The decrease was due to declines in workover costs and
ad valorem taxes, offset by an increase in production taxes due to increase oil
and gas sales.
During this period, G&A increased 48% from $9,538 in 1998 to $14,161 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $10,207 in
1999 and $7,802 in 1998 for G&A incurred on behalf of the Partnership.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $277,671 related to its oil and gas properties during 1998.
Depletion was $46,605 in 1999 compared to $252,951 in 1998, representing a
decrease of $206,346, or 82%. This decrease was the result of an increase in
proved reserves of 164,606 barrels of oil during 2000 as a result of higher
commodity prices and a reduction in the Partnership's net depletable basis from
charges taken in accordance with SFAS 121 during the fourth quarter of 1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
265
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $190,758 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $224,339, offset by increases in production costs paid
of $24,233, G&A expenses paid of $5,032 and working capital of $4,316. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $230,886 to oil and gas receipts,
offset by $6,547 resulting from the decline in production during 2000. The
increase in production costs was primarily due to increased production taxes
associated with higher oil and gas prices and additional well maintenance costs
incurred to stimulate well production. The increase in G&A was primarily due to
higher percentage of the managing general partner's G&A being allocated (limited
to 3% of oil and gas revenues) as a result of increased oil and gas revenues.
Net Cash Provided by (Used in) Investing Activities
The Partnership's principal investing activities during 2000 and 1999 included
expenditures related to upgrades of equipment on various oil and gas properties.
Proceeds from disposition of assets of $2,415 were recognized during 1999 from
salvage value received on disposition of equipment primarily on one oil and gas
well.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $305,561, of which $74,963 was
distributed to the general partners and $230,598 to the limited partners. In
1999, cash distributions to the partners were $88,691, of which $22,103 was
distributed to the general partners and $66,588 to the limited partners.
266
PARKER & PARSLEY 82-III, LTD.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 136,330 $ 562,399 $ 340,246 $ 253,873 $ 456,184 $ 542,331
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ -- $ -- $ 277,671 $ 126,140 $ 5,776
======== ========== ========== ========== ========== ========== ==========
Gain on litigation
settlement, net $ $ -- $ -- $ -- $ -- $ -- $ 36,644
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 74,529 $ 302,230 $ 84,955 $ (485,018) $ (87,890) $ 197,417
======== ========== ========== ========== ========== ========== ==========
Allocation of net
income (loss):
Managing general
partner $ $ 19,595 $ 78,705 $ 27,431 $ (41,756) $ 14,576 $ 64,259
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 54,934 $ 223,525 $ 57,524 $ (443,262) $ (102,466) $ 133,158
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 15.96 $ 64.96 $ 16.72 $ (128.82) $ (29.78) $ 38.70
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 14.98 $ 67.01 $ 19.35 $ 20.41 $ 43.29 $ 49.15(a)
======== ========== ========== ========== ========== ========== ==========
At year end:
Total assets $ $ 463,688 $ 452,020 $ 456,873 $ 455,528 $1,033,891 $1,323,367
======== ========== ========== ========== ========== ========== ==========
---------
(a) Including litigation settlement per limited partnership interest of $10.65
in 1996.
267
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 83-A, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
83-A, Ltd. and supplements the proxy statement/prospectus dated , 2001, of
Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by
which Pioneer USA is soliciting proxies to be voted at a special meeting of
limited partners of the partnership. The purpose of the special meeting is for
you to vote upon the merger of the partnership with and into Pioneer USA that,
if completed, will result in your receiving common stock of Pioneer Natural
Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 83-A, Ltd.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's quarterly report on Form 10-Q, including
management's discussion and analysis of financial condition and
results of operations, for the three months ended March 31, 2001
o The partnership's annual report on Form 10-K, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
268
PARKER & PARSLEY 83-A, LTD.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 19,505
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 25,506
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 2,611
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 138.67
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.96 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 76.56
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 124.70
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 135.03
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 275
(b), (c)
----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
(1) neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners; and (2)
neither the grant nor exercise of such right will result in the loss of any
limited partner's limited liability. In addition, the counsel designated to
render the opinion must be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
269
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 FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 2-81398A
PARKER & PARSLEY 83-A, LTD.
(Exact name of Registrant as specified in its charter)
TEXAS 75-1891384
------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039
---------------------------------------------------------------- -----------
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001
Securities registered pursuant to Section 12(b) of
the Act: NONE Securities registered pursuant to
Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
-----------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES /X/ 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
No market currently exists for the limited partnership interests of the
Registrant. Based on the original purchase price, the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$18,829,000.
As of March 8, 2001, the number of outstanding limited partnership
interests was 19,505.
The following documents are incorporated by reference into the indicated parts
of this Annual Report on Form 10-K: None
PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACCORDINGLY, NO
ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS AND RESULTS WILL NOT BE
MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD
LOOKING STATEMENTS. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS
THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE
ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
270
PART I
ITEM 1. BUSINESS
Parker & Parsley 83-A, Ltd. (the "Partnership") is a limited partnership
organized in 1983 under the laws of the State of Texas. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA")
and its co-general partner is P&P Employees 83-A, Ltd. ("EMPL"), a Texas limited
partnership whose general partner is Pioneer USA. Pioneer USA is a wholly-owned
subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8,
2001, the Partnership had 19,505 limited partnership interests outstanding.
The Partnership does not have any employees of its own. Pioneer USA employs 701
persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this Report is filed. Pioneer
USA is responsible for all management functions.
The Partnership engages in oil and gas development and production and is not
involved in any industry segment other than oil and gas. The Partnership's
production is geographically concentrated in West Texas.
The principal markets during 2000 for the oil produced by the Partnership were
refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. During 2000, Pioneer USA marketed the
Partnership's gas to a variety of purchasers, none of which accounted for 10% or
more of the Partnership's oil and gas revenues. Of the Partnership's total oil
and gas revenues for 2000, approximately 53% was attributable to sales made to
Plains Marketing, L.P. Pioneer USA is of the opinion that the loss of any one
purchaser would not have an adverse effect on its ability to sell its oil,
natural gas liquids ("NGLs") and gas production.
The Partnership's revenues, profitability, cash flow and future rate of growth
are highly dependent on the prevailing prices of oil and gas, which are affected
by numerous factors beyond the Partnership's control. Oil and gas prices
historically have been very volatile. A substantial or extended decline in the
prices of oil or gas could have a material adverse effect on the Partnership's
revenues, profitability and cash flow and could, under certain circumstances,
result in a reduction in the carrying value of the Partnership's oil and gas
properties.
Oil and gas production operations are subject to various types of regulations by
local, state and federal agencies. The Partnership's operations are also subject
to state conservation laws and regulations, including the establishment of
maximum rates of production from wells and the regulation of spacing, plugging
and abandonment of wells. Each state generally imposes a production or severance
tax with respect to production and sale of oil and gas within their respective
jurisdictions. Noncompliance with the laws and regulations may subject the
Partnership to penalties, damages or other liabilities and compliance may
increase the cost of the Partnership's operations. The oil and gas business is
also subject to environmental hazards such as oil spills, gas leaks and ruptures
and discharges of toxic substances or gases that could expose the Partnership to
substantial liability due to pollution and other environmental damages. Although
the Partnership believes that
2
271
its business operations do not impair environmental quality and that its costs
of complying with any applicable environmental regulations are not currently
significant, the Partnership cannot predict what, if any, effect these
environmental regulations may have on its current or future operations.
Numerous uncertainties exist in estimating quantities of proved reserves and
future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the Partnership
conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist of leasehold 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 Spraberry Trend Area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 69
oil and gas wells. Two wells were dry holes from previous periods, 22 wells have
been sold and three wells have been plugged and abandoned due to unprofitable
operations. At December 31, 2000, 42 wells were producing.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 2000, 1999 and 1998, and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been evaluated by Williamson Petroleum Consultants, Inc., an independent
petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer USA believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the partners during the fourth
quarter of 2000.
3
272
PART II
ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP
DISTRIBUTIONS
At March 8, 2001, the Partnership had 19,505 outstanding limited partnership
interests held of record by 1,273 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are not
required to meet the Partnership's obligations are distributed to the partners
at least quarterly in accordance with the limited partnership agreement. During
the years ended December 31, 2000 and 1999, distributions of $659,311 and
$181,573, respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
2000 1999 1998 1997 1996
------------ ------------ ------------ ------------ ------------
Operating results:
------------------
Oil and gas sales $ 1,929,701 $ 1,176,562 $ 910,252 $ 1,402,306 $ 1,768,325
============ ============ ============ ============ ============
Impairment of oil and gas
properties $ -- $ -- $ 430,351 $ 1,194,023 $ --
============ ============ ============ ============ ============
Gain on litigation
settlement, net $ -- $ -- $ -- $ -- $ 852,211
============ ============ ============ ============ ============
Net income (loss) $ 929,165 $ 229,546 $ (784,583) $ (811,642) $ 1,483,261
============ ============ ============ ============ ============
Allocation of net income
(loss):
General partners $ 246,105 $ 82,467 $ (52,520) $ (1,662) $ 389,185
============ ============ ============ ============ ============
Limited partners $ 683,060 $ 147,079 $ (732,063) $ (809,980) $ 1,094,076
============ ============ ============ ============ ============
Limited partners' net
income (loss) per limited
partnership interest $ 35.02 $ 7.54 $ (37.53) $ (41.53) $ 56.09
============ ============ ============ ============ ============
Limited partners' cash
distributions per limited
partnership interest $ 33.80 $ 9.31 $ 20.73 $ 24.50 $ 72.73(a)
============ ============ ============ ============ ============
At year end:
------------
Identifiable assets $ 1,727,226 $ 1,684,906 $ 1,691,709 $ 3,015,116 $ 4,459,272
============ ============ ============ ============ ============
---------------
(a) Including litigation settlement per limited partnership interest of
$34.33 in 1996.
4
273
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 64% to $1,929,701 for 2000 as
compared to $1,176,562 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decline in production. In 2000, 43,334
barrels of oil, 23,345 barrels of natural gas liquids ("NGLs") and 94,612 mcf of
gas were sold, or 82,448 barrel of oil equivalents ("BOEs"). In 1999, 43,654
barrels of oil, 25,584 barrels of NGLs and 109,716 mcf of gas were sold, or
87,524 BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.58, or 74%, from
$16.96 in 1999 to $29.54 in 2000. The average price received per barrel of NGLs
increased $6.16, or 65%, from $9.42 in 1999 to $15.58 in 2000. The average price
received per mcf of gas increased 70% from $1.78 in 1999 to $3.02 in 2000. The
market price for oil and gas has been extremely volatile in the past decade and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
A gain on disposition of assets of $1,801 recognized during 1999 was related to
equipment credits received on one fully depleted well.
Total costs and expenses increased in 2000 to $1,014,313 as compared to $955,718
in 1999, an increase of $58,595, or 6%. The increase was primarily due to
increases in production costs and general and administrative expenses ("G&A"),
offset by a decline in depletion.
Production costs were $867,551 in 2000 and $756,020 in 1999, resulting in a
$111,531 increase, or 15%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices and additional workover and well
maintenance costs incurred to stimulate well production.
G&A's components are independent accounting and engineering fees, computer
services, postage and managing general partner personnel costs. During this
period, G&A increased 39% from $47,303 in 1999 to $65,724 in 2000 primarily due
to a higher percentage of the managing general partner's G&A being allocated
(limited to 3% of oil and gas revenues) as a result of increased oil and gas
revenues. The Partnership paid the managing general partner $57,891 in 2000 and
$35,297 in 1999 for G&A incurred on behalf of the Partnership. The remaining G&A
was paid directly by the Partnership. The managing general partner determines
the allocated expenses based upon the level of activity of the Partnership
relative to the non-partnership activities of the managing general partner. The
method of allocation has been consistent over the past several years with
certain modifications incorporated to reflect changes in Pioneer USA's overall
business activities.
5
274
Depletion was $81,038 in 2000 as compared to $152,395 in 1999. This represented
a decrease of $71,357, or 47%. The decrease was primarily due to a 129,265
barrels of oil increase in proved reserves during 2000 as a result of higher
commodity prices.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 29% to $1,176,562 from
$910,252 in 1998. The increase in revenues resulted from higher average prices
received and an increase in production from 1998 to 1999. In 1999, 43,654
barrels of oil, 25,584 barrels of NGLs and 109,716 mcf of gas were sold, or
87,524 BOEs. In 1998, 46,586 barrels of oil, 21,026 barrels of NGLs and 95,156
mcf of gas were sold, or 83,471 BOEs.
The average price received per barrel of oil increased $3.62, or 27%, from
$13.34 in 1998 to $16.96 in 1999. The average price received per barrel of NGLs
increased $2.93, or 45%, from $6.49 in 1998 to $9.42 in 1999. The average price
received per mcf of gas increased 11% from $1.60 in 1998 to $1.78 in 1999.
A gain on disposition of assets of $1,801 recognized during 1999 was related to
equipment credits received on one fully depleted well while the $3,702 gain
recognized during 1998 was from final closing adjustments from the sale during
1997 of 16 oil and gas wells.
Total costs and expenses decreased in 1999 to $955,718 as compared to $1,715,723
in 1998, a decrease of $760,005, or 44%. The decrease was primarily due to
declines in the impairment of oil and gas properties and depletion, offset by
increases in production costs and G&A expenses.
Production costs were $756,020 in 1999 and $731,005 in 1998, resulting in a
$25,015 increase, or 3%. The increase was attributable to additional well
maintenance costs incurred to stimulate well production and production taxes due
to increased oil and gas revenues, offset by a decline in ad valorem taxes.
During this period, G&A increased 43% from $33,000 in 1998 to $47,303 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $35,297 in
1999 and $27,308 in 1998 for G&A incurred on behalf of the Partnership.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $430,351 related to its oil and gas properties during 1998.
Depletion was $152,395 in 1999 compared to $521,367 in 1998. This represented a
decrease of $368,972, or 71%. The decrease was the result of an increase in
proved reserves of 416,430 barrels of oil during 1999 as a result of higher
commodity prices and a reduction in the Partnership's net depletable basis from
charges taken in accordance with SFAS 121 during the fourth quarter of 1998.
6
275
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $620,642 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $760,015, offset by increases in production costs paid
of $111,531, G&A expenses paid of $18,421 and working capital of $9,421. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $849,987 to oil and gas receipts,
offset by $89,973 resulting from the decline in production during 2000. The
increase in production costs was primarily due to increased production taxes
associated with higher oil and gas prices and additional workover and well
maintenance costs incurred to stimulate well production. The increase in G&A was
primarily due to higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues.
Net Cash Provided by (Used in) Investing Activities
The Partnership's investing activities during 2000 and 1999 included
expenditures related to equipment upgrades on various oil and gas properties.
Proceeds from asset dispositions in 1999 of $2,611 were from equipment credits
received on active wells.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $887,776, of which $228,465 was
distributed to the general partners and $659,311 to the limited partners. In
1999, cash distributions to the partners were $245,794, of which $64,221 was
distributed to the general partners and $181,573 to the limited partners.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements of Parker & Parsley 83-A, Ltd:
Independent Auditors' Report................................................................ 9
Balance Sheets as of December 31, 2000 and 1999............................................. 10
Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998....................................................................... 11
Statements of Partners' Capital for the Years Ended
December 31, 2000, 1999 and 1998.......................................................... 12
Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998....................................................................... 13
Notes to Financial Statements............................................................... 14
8
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INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 83-A, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheets of Parker & Parsley 83-A, Ltd. as of December
31, 2000 and 1999, and the related statements of operations, partners' capital
and cash flows for each of the three years in the period ended December 31,
2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 83-A, Ltd. as
of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
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278
PARKER & PARSLEY 83-A, LTD.
(A Texas Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
------------ ------------
ASSETS
------
Current assets:
Cash $ 169,055 $ 143,823
Accounts receivable - oil and gas sales 279,239 189,995
------------ ------------
Total current assets 448,294 333,818
------------ ------------
Oil and gas properties - at cost, based on the
successful efforts accounting method 16,901,194 16,892,307
Accumulated depletion (15,622,262) (15,541,219)
------------ ------------
Net oil and gas properties 1,278,932 1,351,088
------------ ------------
$ 1,727,226 $ 1,684,906
============ ============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 33,783 $ 32,852
Partners' capital:
General partners 200,131 182,491
Limited partners (19,505 interests) 1,493,312 1,469,563
------------ ------------
1,693,443 1,652,054
------------ ------------
$ 1,727,226 $ 1,684,906
============ ============
The accompanying notes are an integral part of these financial statements.
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PARKER & PARSLEY 83-A, LTD.
(A Texas Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
----------- ----------- -----------
Revenues:
Oil and gas $ 1,929,701 $ 1,176,562 $ 910,252
Interest 13,777 6,901 17,186
Gain on disposition of assets - 1,801 3,702
----------- ----------- -----------
1,943,478 1,185,264 931,140
----------- ----------- -----------
Costs and expenses:
Oil and gas production 867,551 756,020 731,005
General and administrative 65,724 47,303 33,000
Impairment of oil and gas properties - - 430,351
Depletion 81,038 152,395 521,367
----------- ----------- -----------
1,014,313 955,718 1,715,723
----------- ----------- -----------
Net income (loss) $ 929,165 $ 229,546 $ (784,583)
=========== =========== ===========
Allocation of net income (loss):
General partners $ 246,105 $ 82,467 $ (52,520)
=========== =========== ===========
Limited partners $ 683,060 $ 147,079 $ (732,063)
=========== =========== ===========
Net income (loss) per limited partnership interest $ 35.02 $ 7.54 $ (37.53)
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
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PARKER & PARSLEY 83-A, LTD.
(A Texas Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
General Limited
partners partners Total
----------- ----------- -----------
Partners' capital at January 1, 1998 $ 336,024 $ 2,640,444 $ 2,976,468
Distributions (119,259) (404,324) (523,583)
Net loss (52,520) (732,063) (784,583)
----------- ----------- -----------
Partners' capital at December 31, 1998 164,245 1,504,057 1,668,302
Distributions (64,221) (181,573) (245,794)
Net income 82,467 147,079 229,546
----------- ----------- -----------
Partners' capital at December 31, 1999 182,491 1,469,563 1,652,054
Distributions (228,465) (659,311) (887,776)
Net income 246,105 683,060 929,165
----------- ----------- -----------
Partners' capital at December 31, 2000 $ 200,131 $ 1,493,312 $ 1,693,443
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
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PARKER & PARSLEY 83-A, LTD.
(A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ 929,165 $ 229,546 $(784,583)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties - - 430,351
Depletion 81,038 152,395 521,367
Gain on disposition of assets - (1,801) (3,702)
Changes in assets and liabilities:
Accounts receivable (89,244) (88,337) 39,919
Accounts payable 931 9,445 (15,241)
--------- --------- ---------
Net cash provided by operating activities 921,890 301,248 188,111
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties (8,882) (8,942) (14,943)
Proceeds from asset dispositions - 2,611 271,839
--------- --------- ---------
Net cash provided by (used in) investing
activities (8,882) (6,331) 256,896
--------- --------- ---------
Cash flows used in financing activities:
Cash distributions to partners (887,776) (245,794) (523,583)
--------- --------- ---------
Net increase (decrease) in cash 25,232 49,123 (78,576)
Cash at beginning of year 143,823 94,700 173,276
--------- --------- ---------
Cash at end of year $ 169,055 $ 143,823 $ 94,700
========= ========= =========
The accompanying notes are an integral part of these financial statements.
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PARKER & PARSLEY 83-A, LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 83-A, Ltd. (the "Partnership") is a limited partnership
organized in 1983 under the laws of the State of Texas. The Partnership's
general partners are Pioneer Natural Resources USA, Inc. ("Pioneer USA") and P&P
Employees 83-A, Ltd. ("EMPL"). The Partnership's managing general partner is
Pioneer USA.
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the unit-of-
production method on a property-by-property basis based on proved oil (dominant
mineral) reserves as evaluated by independent petroleum consultants. The
carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -
Preparation of the accompanying 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 periods. Actual results could differ from those estimates.
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283
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated in part to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non-partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized a non-cash impairment provision of
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284
$430,351 related to its proved oil and gas properties during 1998.
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $1,081,971 less than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
--------- --------- ---------
Net income (loss) per statements of operations $ 929,165 $ 229,546 $(784,583)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes 72,648 144,177 510,610
Impairment of oil and gas properties for financial
reporting purposes - - 430,351
Other, net (2,243) (235) 891
--------- --------- ---------
Net income per Federal income tax
returns $ 999,570 $ 373,488 $ 157,269
========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
------- ------- -------
Development costs $ 8,882 $ 8,942 $14,943
======= ======= =======
Capitalized oil and gas properties consist of the following:
2000 1999
------------ ------------
Proved properties:
Property acquisition costs $ 1,000,072 $ 1,000,072
Completed wells and equipment 15,901,122 15,892,235
------------ ------------
16,901,194 16,892,307
Accumulated depletion (15,622,262) (15,541,219)
------------ ------------
Net oil and gas properties $ 1,278,932 $ 1,351,088
============ ============
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NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
--------- --------- ---------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 407,783 $ 397,884 $ 370,984
Reimbursement of general and administrative
expenses $ 57,891 $ 35,297 $ 27,308
Pioneer USA, EMPL and the Partnership are parties to the partnership
agreement. EMPL is a limited partnership in which Pioneer USA owns 79% and the
remaining portion is owned by former affiliates. In addition, Pioneer USA owned
676 limited partner interests at January 1, 2001.
The costs and revenues of the Partnership are allocated as follows:
General Limited
partners partners
-------- --------
Revenues:
Proceeds from property dispositions prior to cost
recovery 10% 90%
All other Partnership revenues 25% 75%
Costs and expenses:
Lease acquisition costs, drilling and completion costs 10% 90%
Operating costs, direct costs and general and
administrative expenses 25% 75%
Incremental direct expenses - 100%
Incremental direct expenses are direct expenses which would not be
incurred except for the requirements of the securities regulatory authorities.
Such expenses totaled $7,833, $12,006 and $5,692 in 2000, 1999 and 1998,
respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
Oil and NGLs Gas
(bbls) (mcf)
------------ ----------
Net proved reserves at January 1, 1998 765,491 1,179,867
Revisions (361,806) (528,746)
Production (67,612) (95,156)
---------- ----------
Net proved reserves at December 31, 1998 336,073 555,965
Revisions 714,690 1,245,944
Production (69,238) (109,716)
---------- ----------
Net proved reserves at December 31, 1999 981,525 1,692,193
Revisions 124,418 (56,128)
Production (66,679) (94,612)
---------- ----------
Net proved reserves at December 31, 2000 1,039,264 1,541,453
========== ==========
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.61
per barrel
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286
of oil, $13.13 per barrel of NGLs and $7.87 per mcf of gas, discounted at 10%
was approximately $7,532,000 and undiscounted was $14,892,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
-------------------------------------------
2000 1999 1998
--------- --------- ---------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 34,721 $ 24,100 $ 3,651
Future production costs (19,829) (14,511) (2,932)
--------- --------- ---------
14,892 9,589 719
10% annual discount factor (7,360) (4,422) (207)
--------- --------- ---------
Standardized measure of discounted future net cash flows $ 7,532 $ 5,167 $ 512
========= ========= =========
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For the years ended December 31,
-----------------------------------------
2000 1999 1998
-------- -------- --------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (1,062) $ (421) $ (179)
Net changes in prices and production costs 2,717 1,751 (1,843)
Revisions of previous quantity estimates 713 4,985 (450)
Accretion of discount 517 51 285
Changes in production rates, timing and other (520) (1,711) (151)
-------- -------- --------
Change in present value of future net revenues 2,365 4,655 (2,338)
-------- -------- --------
Balance, beginning of year 5,167 512 2,850
-------- -------- --------
Balance, end of year $ 7,532 $ 5,167 $ 512
======== ======== ========
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's
oil and gas sales (a major customer is defined as a customer whose sales exceed
10% of total sales) during the years ended December 31:
2000 1999 1998
------ ------ ------
Plains Marketing, L.P. 53% 52% -
Genesis Crude Oil, L.P. - - 64%
Western Gas Resources, Inc. 3% 5% 17%
At December 31, 2000, the amount receivable from Plains Marketing, L.P.
was $100,032 which is included in the caption "Accounts receivable - oil and gas
sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the limited partnership agreement:
General partners - The general partners of the Partnership are Pioneer
USA and EMPL. Pioneer USA, the managing general partner, has the power
and authority to manage, control and administer all Partnership affairs.
As managing general partner and operator of the Partnership's
properties, all production expenses are incurred by Pioneer USA and
billed to the Partnership. The majority of the Partnership's oil and gas
revenues are received directly by the Partnership, however, a portion of
the oil and gas revenue is initially received by Pioneer USA prior to
being paid to the Partnership.
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of
$19,505,000. The general partners are required to contribute amounts
equal to 10% of Partnership expenditures for lease acquisition, drilling
and
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288
completion and 25% of direct, general and administrative and operating
expenses.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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289
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and executive
officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the
next annual meeting of stockholders or until their successors are elected and
qualified.
Age at
December 31,
Name 2000 Position
---- ---- --------
Scott D. Sheffield 48 President
Timothy L. Dove 44 Executive Vice President, Chief
Financial Officer and Director
Dennis E. Fagerstone 51 Executive Vice President and Director
Mark L. Withrow 53 Executive Vice President, General
Counsel and Director
Danny Kellum 46 Executive Vice President - Domestic
Operations and Director
Rich Dealy 34 Vice President and Chief Accounting
Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of
Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as
President, Chief Executive Officer and a director of Pioneer and President of
Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of
Pioneer in August 1999. He served as a director of Pioneer USA from August 1997
until his resignation from the board in June 1999. Mr. Sheffield was the
President and a director of Parker & Parsley Petroleum Company ("Parker &
Parsley") from May 1990 until August 1997 and was the Chairman of the Board and
Chief Executive Officer of Parker & Parsley from October 1990 until August 1997.
He was the sole director of Parker & Parsley from May 1990 until October 1990.
Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a
predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as
Vice President - Engineering of PPDC from September 1981 until April 1985 when
he was elected President and a director. In March 1989, Mr. Sheffield was
elected Chairman of the Board and Chief Executive Officer of PPDC. Before
joining PPDC's predecessor, Mr. Sheffield was employed as a production and
reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from
Massachusetts
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290
Institute of Technology in 1979 and received his M.B.A. in 1981 from the
University of Chicago. He became Executive Vice President - Business Development
of Pioneer and Pioneer USA in August 1997 and was also appointed a director of
Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial
Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined
Parker & Parsley in May 1994 as Vice President - International and was promoted
to Senior Vice President - Business Development in October 1996, in which
position he served until August 1997. Prior to joining Parker & Parsley, Mr.
Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy
Corp, in various capacities in international exploration and production,
marketing, refining and marketing and planning and development.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School
of Mines with a B.S. in Petroleum Engineering, became an Executive Vice
President of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. He served as Executive Vice President
and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until
August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior
Vice President and Chief Operating Officer of Mesa and from May 1991 to October
1996, he served as Vice President - Exploration and Production of Mesa. From
June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of
Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President - General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979, was elected Executive
Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000
and Director of Pioneer USA on February 1, 2000. From January 2000 until May
2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and
Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and
Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served
as Spraberry District Manager and as Vice President of the Spraberry and Permian
Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker &
Parsley as an operations engineer in 1981 after a brief career with Mobil Oil
Corporation.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University
with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He
became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
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291
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is performed by Pioneer USA, the managing general partner. Under the
partnership agreement, Pioneer USA pays 8% of the Partnership's acquisition,
drilling and completion costs and 20% of its operating and general and
administrative expenses. In return, Pioneer USA is allocated 20% of the
Partnership's revenues.
EMPL is a co-general partner of the Partnership. Under this arrangement, EMPL
pays 2% of the Partnership's acquisition, drilling and completion costs and 5%
of its operating and general and administrative expenses. In return, EMPL is
allocated 5% of the Partnership's revenues. EMPL does not receive any fees or
reimbursements from the Partnership.
The Partnership does not directly pay any salaries of the executive officers of
Pioneer USA, but does pay a portion of Pioneer USA's general and administrative
expenses of which these salaries are a part.
See Notes 6 and 9 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" for information regarding fees and
reimbursements paid to the managing general partner by the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more of
the outstanding limited partnership interests of the Partnership. Pioneer USA
and EMPL respectively own 80% and 20% of the general partners' interests in the
Partnership. Pioneer USA owned 676 limited partner interests at January 1, 2001.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general
partner of the Partnership, Pioneer USA, has the exclusive right and full
authority to manage, control and administer the Partnership's business. Under
the limited partnership agreement, limited partners holding a majority of the
outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
23
292
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner
Pursuant to the limited partnership agreement, the Partnership had the following
related party transactions with the managing general partner during the years
ended December 31:
2000 1999 1998
-------- -------- --------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $407,783 $397,884 $370,984
Reimbursement of general and administrative
expenses $ 57,891 $ 35,297 $ 27,308
Under the limited partnership agreement, the general partners, Pioneer USA and
EMPL, together pay 10% of the Partnership's acquisition, drilling and completion
costs and 25% of its operating and general and administrative expenses. In
return, they are allocated 25% of the Partnership's revenues. Twenty percent of
the general partners' share of costs and revenues is allocated to EMPL and the
remainder is allocated to Pioneer USA. Certain former affiliates of Pioneer USA
are limited partners of EMPL. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Partnership.
24
293
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial statements
The following are filed as part of this Report:
Independent Auditors' Report
Balance sheets as of December 31, 2000 and 1999
Statements of operations for the years ended December 31, 2000,
1999 and 1998
Statements of partners' capital for the years ended December 31,
2000, 1999 and 1998
Statements of cash flows for the years ended December 31, 2000,
1999 and 1998
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the
required information is in the financial statements or notes thereto,
or is not applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this Report.
25
294
S I G N A T U R E S
Pursuant to the requirements 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.
PARKER & PARSLEY 83-A, LTD.
Dated: March 23, 2001 By: Pioneer Natural Resources USA, Inc.
Managing General Partner
By: /s/ Scott D. Sheffield
----------------------------------
Scott D. Sheffield, President
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/ Scott D. Sheffield President of Pioneer USA March 23, 2001
--------------------------------------
Scott D. Sheffield
/s/ Timothy L. Dove Executive Vice President, Chief March 23, 2001
-------------------------------------- Financial Officer and Director of
Timothy L. Dove Pioneer USA
/s/ Dennis E. Fagerstone Executive Vice President and March 23, 2001
-------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ Mark L. Withrow Executive Vice President, General March 23, 2001
-------------------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ Danny Kellum Executive Vice President - Domestic March 23, 2001
-------------------------------------- Operations and Director of Pioneer
Danny Kellum USA
/s/ Rich Dealy Vice President and Chief Accounting March 23, 2001
-------------------------------------- Officer of Pioneer USA
Rich Dealy
26
295
PARKER & PARSLEY 83-A, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to
Item 14(c):
Exhibit No. Description Page
----------- ----------- ----
3.1 Agreement of Limited Partnership of -
Parker & Parsley 83-A, Ltd. incorporated
by reference to Exhibit 4(e) of Partnership's
Registration Statement on Form S-1
(Registration No. 2-81398A), as amended
on April 26, 1983, the effective date thereof
(hereinafter called, the Partnership's
Registration Statement)
3.2 Amended and Restated Certificate of -
Limited Partnership of Parker & Parsley 83-A,
Ltd. incorporated by reference to Exhibit 3.2
of the Partnership's Annual Report on Form
10-K for the period from July 1, 1983 (date
of organization) through December 31, 1983
4.1 Form of Subscription Agreement and -
Power of Attorney incorporated by reference
to Exhibit 4(b) of the Partnership's Registration
Statement
4.2 Specimen Certificate of Limited Partnership -
Interest incorporated by reference to Exhibit
4(d) of the Partnership's Registration Statement
27
296
PARKER & PARSLEY 83-A, LTD.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 417,066 $1,929,701 $1,176,562 $ 910,252 $1,402,306 $1,768,325
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and gas
properties $ $ -- $ -- $ -- $ 430,351 $1,194,023 $ --
======== ========== ========== ========== ========== ========== ==========
Gain on litigation
settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 852,211
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 168,694 $ 929,165 $ 229,546 $ (784,583) $ (811,642) $1,483,261
======== ========== ========== ========== ========== ========== ==========
Allocation of net income
(loss):
General partners $ $ 45,512 $ 246,105 $ 82,467 $ (52,520) $ (1,662) $ 389,185
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 123,182 $ 683,060 $ 147,079 $ (732,063) $ (809,980) $1,094,076
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 6.32 $ 35.02 $ 7.54 $ (37.53) $ (41.53) $ 56.09
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 7.22 $ 33.80 $ 9.31 $ 20.73 $ 24.50 $ 72.73(a)
======== ========== ========== ========== ========== ========== ==========
At year end:
Identifiable assets $ $1,669,419 $1,727,226 $1,684,906 $1,691,709 $3,015,116 $4,459,272
======== ========== ========== ========== ========== ========== ==========
----------
(a) Including litigation settlement per limited partnership interest of $34.33
in 1996.
297
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 83-B, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
83-B, Ltd. and supplements the proxy statement/prospectus dated , 2001, of
Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by
which Pioneer USA is soliciting proxies to be voted at a special meeting of
limited partners of the partnership. The purpose of the special meeting is for
you to vote upon the merger of the partnership with and into Pioneer USA that,
if completed, will result in your receiving common stock of Pioneer Natural
Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 83-B, Ltd.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's quarterly report on Form 10-Q, including
management's discussion and analysis of financial condition and
results of operations, for the three months ended March 31, 2001
o The partnership's annual report on Form 10-K, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
298
PARKER & PARSLEY 83-B, LTD.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 23,370
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 35,356
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 3,384
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 150.46
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.59 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 83.30
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 135.81
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 146.54
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 225
(b), (c)
-----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
(1) neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners; and (2)
neither the grant nor exercise of such right will result in the loss of any
limited partner's limited liability. In addition, the counsel designated to
render the opinion must be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
299
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 FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 2-81398B
PARKER & PARSLEY 83-B, LTD.
(Exact name of Registrant as specified in its charter)
TEXAS 75-1907245
--------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039
---------------------------------------------------------------- -----------
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001
Securities registered pursuant to Section 12(b) of
the Act: NONE Securities registered pursuant to
Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
-----------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES /X/ 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
No market currently exists for the limited partnership interests of the
Registrant. Based on the original purchase price, the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$22,493,000.
As of March 8, 2001, the number of outstanding limited partnership
interests was 23,370.
The following documents are incorporated by reference into the indicated parts
of this Annual Report on Form 10-K: None
PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACCORDINGLY, NO
ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS AND RESULTS WILL NOT BE
MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD
LOOKING STATEMENTS. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS
THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE
ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
300
PART I
ITEM 1. BUSINESS
Parker & Parsley 83-B, Ltd. (the "Partnership") is a limited partnership
organized in 1983 under the laws of the State of Texas. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA")
and its co-general partner is P&P Employees 83-B, Ltd. ("EMPL"), a Texas limited
partnership whose general partner is Pioneer USA. Pioneer USA is a wholly-owned
subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8,
2001, the Partnership had 23,370 limited partnership interests outstanding.
The Partnership does not have any employees of its own. Pioneer USA employs 701
persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this Report is filed. Pioneer
USA is responsible for all management functions.
The Partnership engages in oil and gas development and production and is not
involved in any industry segment other than oil and gas. The Partnership's
production is geographically concentrated in West Texas.
The principal markets during 2000 for the oil produced by the Partnership were
refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. During 2000, Pioneer USA marketed the
Partnership's gas to a variety of purchasers, none of which accounted for 10% or
more of the Partnership's oil and gas revenues. Of the Partnership's total oil
and gas revenues for 2000, approximately 46%, 13% and 10% were attributable to
sales made to Plains Marketing, L.P., TEPPCO Crude Oil LLC and Phillips
Petroleum Company, respectively. Pioneer USA is of the opinion that the loss of
any one purchaser would not have an adverse effect on its ability to sell its
oil, natural gas liquids ("NGLs") and gas production.
The Partnership's revenues, profitability, cash flow and future rate of growth
are highly dependent on the prevailing prices of oil and gas, which are affected
by numerous factors beyond the Partnership's control. Oil and gas prices
historically have been very volatile. A substantial or extended decline in the
prices of oil or gas could have a material adverse effect on the Partnership's
revenues, profitability and cash flow and could, under certain circumstances,
result in a reduction in the carrying value of the Partnership's oil and gas
properties.
Oil and gas production operations are subject to various types of regulations by
local, state and federal agencies. The Partnership's operations are also subject
to state conservation laws and regulations, including the establishment of
maximum rates of production from wells and the regulation of spacing, plugging
and abandonment of wells. Each state generally imposes a production or severance
tax with respect to production and sale of oil and gas within their respective
jurisdictions. Noncompliance with the laws and regulations may subject the
Partnership to penalties, damages or other liabilities and compliance may
increase the cost of the Partnership's operations. The oil and gas business is
also subject to environmental hazards such as oil spills, gas leaks and ruptures
and discharges of toxic substances or gases that could expose the Partnership to
substantial liability due to pollution and other environmental damages. Although
the Partnership believes that
2
301
its business operations do not impair environmental quality and that its costs
of complying with any applicable environmental regulations are not currently
significant, the Partnership cannot predict what, if any, effect these
environmental regulations may have on its current or future operations.
Numerous uncertainties exist in estimating quantities of proved reserves and
future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the Partnership
conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist of leasehold 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 Texas were acquired by the Partnership, resulting in the
Partnership's participation in the drilling of 59 productive oil and gas wells.
At December 31, 2000, the Partnership had 41 producing wells. Thirteen wells
have been plugged and abandoned due to unprofitable operations and five wells
were sold.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 2000, 1999 and 1998, and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been evaluated by Williamson Petroleum Consultants, Inc., an independent
petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer USA believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the partners during the fourth
quarter of 2000.
3
302
PART II
ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP
DISTRIBUTIONS
At March 8, 2001, the Partnership had 23,370 outstanding limited partnership
interests held of record by 1,379 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are not
required to meet the Partnership's obligations are distributed to the partners
at least quarterly in accordance with the limited partnership agreement. During
the years ended December 31, 2000 and 1999, distributions of $942,688 and
$325,903, respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
2000 1999 1998 1997 1996
------------ ------------ ------------ ------------ ------------
Operating results:
------------------
Oil and gas sales $ 2,376,791 $ 1,548,013 $ 1,267,241 $ 1,924,748 $ 2,291,605
============ ============ ============ ============ ============
Gain on litigation
settlement, net $ - $ - $ - $ - $ 1,392,304
============ ============ ============ ============ ============
Impairment of oil and
gas properties $ 84,697 $ 152,505 $ 362,325 $ 1,171,409 $ -
============ ============ ============ ============ ============
Net income (loss) $ 1,174,971 $ 292,874 $ (871,809) $ (754,107) $ 2,309,638
============ ============ ============ ============ ============
Allocation of net
income (loss):
General partners $ 325,015 $ 125,187 $ (46,980) $ 56,351 $ 578,911
============ ============ ============ ============ ============
Limited partners $ 849,956 $ 167,687 $ (824,829) $ (810,458) $ 1,730,727
============ ============ ============ ============ ============
Limited partners' net
income (loss) per
limited partnership
interest $ 36.37 $ 7.18 $ (35.29) $ (34.68) $ 74.06
============ ============ ============ ============ ============
Limited partners' cash
distributions per
limited partnership
interest $ 40.34 $ 13.95 $ 11.49 $ 32.48 $ 80.43(a)
============ ============ ============ ============ ============
At year end:
------------
Identifiable assets $ 2,303,070 $ 2,391,541 $ 2,529,136 $ 3,774,504 $ 5,537,639
============ ============ ============ ============ ============
---------------
(a) Including litigation settlement per limited partnership interest of
$46.83 in 1996.
4
303
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 54% to $2,376,791 for 2000 as
compared to $1,548,013 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decline in production. In 2000, 51,895
barrels of oil, 29,919 barrels of natural gas liquids ("NGLs") and 132,106 mcf
of gas were sold, or 103,832 barrel of oil equivalents ("BOEs"). In 1999, 54,446
barrels of oil, 35,000 barrels of NGLs and 157,842 mcf of gas were sold, or
115,753 BOEs. Due to the decline characteristics of the Partnership's oil and
gas properties, management expects a certain amount of decline in production in
the future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.51, or 73%, from
$17.18 in 1999 to $29.69 in 2000. The average price received per barrel of NGLs
increased $5.47, or 55%, from $10.00 in 1999 to $15.47 in 2000. The average
price received per mcf of gas increased 70% from $1.66 in 1999 to $2.83 in 2000.
The market price for oil and gas has been extremely volatile in the past decade
and management expects a certain amount of volatility to continue in the
foreseeable future. The Partnership may therefore sell its future oil and gas
production at average prices lower or higher than that received in 2000.
A gain on disposition of assets of $7,482 during 2000 was due to salvage income
received on one well plugged and abandoned during the current year. A gain of
$3,375 during 1999 was recognized from equipment credits received on one fully
depleted well.
Total costs and expenses decreased in 2000 to $1,230,645 as compared to
$1,270,634 in 1999, a decrease of $39,989, or 3%. The decrease was primarily due
to declines in depletion and the impairment of oil and gas properties, offset by
increases in production costs and general and administrative expenses ("G&A").
Production costs were $947,439 in 2000 and $879,335 in 1999, resulting in a
$68,104 increase, or 8%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices.
G&A's components are independent accounting and engineering fees, and managing
general partner personnel and operating costs. During this period, G&A increased
35% from $58,993 in 1999 to $79,646 in 2000 primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 3% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $71,304 in 2000 and $46,440 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized
non-cash charges of $84,697 and $152,505 related to its oil and gas properties
during 2000 and 1999, respectively.
5
304
Depletion was $106,841 in 2000 as compared to $179,801 in 1999, representing a
decrease of $72,960, or 41%. This decrease was primarily due to a 115,324
barrels of oil increase in proved reserves during 2000 as a result of higher
commodity prices and a reduction in the Partnership's net depletable basis from
charges taken in accordance with SFAS 121 during the fourth quarter of 1999.
Abandoned property costs of $12,022 during 2000 was related to the plugging and
abandonment of one well during the current year.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 22% to $1,548,013 from
$1,267,241 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 54,446 barrels of oil,
35,000 barrels of NGLs and 157,842 mcf of gas were sold, or 115,753 BOEs. In
1998, 62,162 barrels of oil, 31,533 barrels of NGLs and 147,495 mcf of gas were
sold, or 118,278 BOEs.
The average price received per barrel of oil increased $3.88, or 29%, from
$13.30 in 1998 to $17.18 in 1999. The average price received per barrel of NGLs
increased $3.21, or 47%, from $6.79 in 1998 to $10.00 in 1999. The average price
received per mcf of gas increased 8% from $1.54 in 1998 to $1.66 in 1999.
A gain on disposition of assets of $3,375 during 1999 was recognized from
equipment credits received on one fully depleted well. During 1998, a gain on
disposition of assets of $157 was recognized from post closing adjustments
received from the sale of two oil and gas wells and an overriding royalty
interest on one well during 1997.
Total costs and expenses decreased in 1999 to $1,270,634 as compared to
$2,152,425 in 1998, a decrease of $881,791, or 41%. The decrease was primarily
due to declines in depletion, the impairment of oil and gas properties and
production costs, offset by an increase in G&A.
Production costs were $879,335 in 1999 and $978,080 in 1998, resulting in a
$98,745 decrease, or 10%. The decrease was due to declines in well maintenance
costs and ad valorem taxes, offset by an increase in production taxes due to an
increase in oil and gas revenues.
During this period, G&A increased 36% from $43,488 in 1998 to $58,993 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $46,440 in
1999 and $38,017 in 1998 for G&A incurred on behalf of the Partnership.
The Partnership recognized non-cash SFAS 121 charges of $152,505 and $362,325
related to its oil and gas properties during 1999 and 1998, respectively.
Depletion was $179,801 in 1999 compared to $768,532 in 1998. This represented a
decrease of $588,731, or 77%. This decrease was the result of a combination of
factors that included an increase in proved reserves of 430,250 barrels of oil
during 1999 as a result of higher commodity prices, a reduction in the
Partnership's net depletable basis from charges taken in accordance with
6
305
SFAS 121 during the fourth quarter of 1998 and a decline in oil production of
7,716 barrels for the period ended December 31, 1999 compared to the same period
in 1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $733,136 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $838,001, offset by increases in production costs paid
of $68,104, G&A expenses paid of $20,653, $12,022 in abandoned property costs
paid and working capital of $4,086. The increase in oil and gas receipts
resulted from the increase in commodity prices during 2000 which contributed an
additional $1,065,062 to oil and gas receipts, offset by $227,061 resulting from
the decline in production during 2000. The increase in production costs was
primarily due to increased production taxes associated with higher oil and gas
prices. The increase in G&A was primarily due to higher percentage of the
managing general partner's G&A being allocated (limited to 3% of oil and gas
revenues) as a result of increased oil and gas revenues.
Net Cash Used in Investing Activities
The Partnership's investing activities during 2000 and 1999 were for
expenditures related to oil and gas equipment upgrades on active properties.
Proceeds from asset dispositions of $7,482 recognized during 2000 were related
to salvage income received on one well plugged and abandoned during the current
year. Proceeds of $3,845 recognized during 1999 were primarily from equipment
credits received on one fully depleted well.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $1,260,369, of which $317,681
was distributed to the general partners and $942,688 to the limited partners. In
1999, cash distributions to the partners were $438,977, of which $113,074 was
distributed to the general partners and $325,903 to the limited partners.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements of Parker & Parsley 83-B, Ltd:
Independent Auditors' Report................................................................... 10
Balance Sheets as of December 31, 2000 and 1999................................................ 11
Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998.......................................................................... 12
Statements of Partners' Capital for the Years Ended
December 31, 2000, 1999 and 1998............................................................. 13
Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998.......................................................................... 14
Notes to Financial Statements.................................................................. 15
8
307
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 83-B, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheets of Parker & Parsley 83-B, Ltd. as of December
31, 2000 and 1999, and the related statements of operations, partners' capital
and cash flows for each of the three years in the period ended December 31,
2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 83-B, Ltd. as
of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
9
308
PARKER & PARSLEY 83-B, LTD.
(A Texas Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
------------ ------------
ASSETS
------
Current assets:
Cash $ 224,865 $ 244,091
Accounts receivable - oil and gas sales 369,349 263,774
------------ ------------
Total current assets 594,214 507,865
------------ ------------
Oil and gas properties - at cost, based on the
successful efforts accounting method 18,957,070 19,500,569
Accumulated depletion (17,248,214) (17,616,893)
------------ ------------
Net oil and gas properties 1,708,856 1,883,676
------------ ------------
$ 2,303,070 $ 2,391,541
============ ============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 39,862 $ 42,935
Partners' capital:
General partners 316,574 309,240
Limited partners (23,370 interests) 1,946,634 2,039,366
------------ ------------
2,263,208 2,348,606
------------ ------------
$ 2,303,070 $ 2,391,541
============ ============
The accompanying notes are an integral part of these financial statements.
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309
PARKER & PARSLEY 83-B, LTD.
(A Texas Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
----------- ----------- -----------
Revenues:
Oil and gas $ 2,376,791 $ 1,548,013 $ 1,267,241
Interest 21,343 12,120 13,218
Gain on disposition of assets 7,482 3,375 157
----------- ----------- -----------
2,405,616 1,563,508 1,280,616
----------- ----------- -----------
Costs and expenses:
Oil and gas production 947,439 879,335 978,080
General and administrative 79,646 58,993 43,488
Impairment of oil and gas properties 84,697 152,505 362,325
Depletion 106,841 179,801 768,532
Abandoned property 12,022 - -
----------- ----------- -----------
1,230,645 1,270,634 2,152,425
----------- ----------- -----------
Net income (loss) $ 1,174,971 $ 292,874 $ (871,809)
=========== =========== ===========
Allocation of net income (loss):
General partners $ 325,015 $ 125,187 $ (46,980)
=========== =========== ===========
Limited partners $ 849,956 $ 167,687 $ (824,829)
=========== =========== ===========
Net income (loss) per limited partnership interest $ 36.37 $ 7.18 $ (35.29)
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
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310
PARKER & PARSLEY 83-B, LTD.
(A Texas Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
General Limited
partners partners Total
----------- ----------- -----------
Partners' capital at January 1, 1998 $ 435,525 $ 3,290,919 $ 3,726,444
Distributions (91,418) (268,508) (359,926)
Net loss (46,980) (824,829) (871,809)
----------- ----------- -----------
Partners' capital at December 31, 1998 297,127 2,197,582 2,494,709
Distributions (113,074) (325,903) (438,977)
Net income 125,187 167,687 292,874
----------- ----------- -----------
Partners' capital at December 31, 1999 309,240 2,039,366 2,348,606
Distributions (317,681) (942,688) (1,260,369)
Net income 325,015 849,956 1,174,971
----------- ----------- -----------
Partners' capital at December 31, 2000 $ 316,574 $ 1,946,634 $ 2,263,208
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
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311
PARKER & PARSLEY 83-B, LTD.
(A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
----------- ----------- -----------
Cash flows from operating activities:
Net income (loss) $ 1,174,971 $ 292,874 $ (871,809)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Impairment of oil and gas properties 84,697 152,505 362,325
Depletion 106,841 179,801 768,532
Gain on disposition of assets (7,482) (3,375) (157)
Changes in assets and liabilities:
Accounts receivable (105,575) (113,070) 72,320
Accounts payable (3,073) 8,508 (13,633)
----------- ----------- -----------
Net cash provided by operating activities 1,250,379 517,243 317,578
----------- ----------- -----------
Cash flows from investing activities:
Additions to oil and gas properties (16,718) (11,719) (27,705)
Proceeds from disposition of assets 7,482 3,845 10,974
----------- ----------- -----------
Net cash used in investing activities (9,236) (7,874) (16,731)
----------- ----------- -----------
Cash flows used in financing activities:
Cash distributions to partners (1,260,369) (438,977) (359,926)
----------- ----------- -----------
Net increase (decrease) in cash (19,226) 70,392 (59,079)
Cash at beginning of year 244,091 173,699 232,778
----------- ----------- -----------
Cash at end of year $ 224,865 $ 244,091 $ 173,699
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
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PARKER & PARSLEY 83-B, LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 83-B, Ltd. (the "Partnership") is a limited partnership
organized in 1983 under the laws of the State of Texas. The Partnership's
general partners are Pioneer Natural Resources USA, Inc. ("Pioneer USA") and P&P
Employees 83-B, Ltd. ("EMPL"). The Partnership's managing general partner is
Pioneer USA.
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the unit-of-
production method on a property-by-property basis based on proved oil (dominant
mineral) reserves as evaluated by independent petroleum consultants. The
carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -
Preparation of the accompanying 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 periods. Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income
(loss) per limited
14
313
partnership interest is calculated by using the number of outstanding limited
partnership interests.
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated in part to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non- partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized non-cash impairment provisions of $84,697, $152,505 and
$362,325 related to its proved oil and gas properties during 2000, 1999 and
1998,
15
314
respectively.
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $1,137,401 less than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
----------- ----------- -----------
Net income (loss) per statements of operations $ 1,174,971 $ 292,874 $ (871,809)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes 90,760 163,887 749,857
Impairment of oil and gas properties for financial
reporting purposes 84,697 152,505 362,325
Salvage income - - 422
Other, net (7,657) (1,145) 7,474
----------- ----------- -----------
Net income per Federal income tax
returns $ 1,342,771 $ 608,121 $ 248,269
=========== =========== ===========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
---------- ---------- ----------
Development costs $ 16,718 $ 11,719 $ 27,705
========== ========== ==========
Capitalized oil and gas properties consist of the following:
2000 1999
------------ ------------
Proved properties:
Property acquisition costs $ 911,105 $ 946,730
Completed wells and equipment 18,045,965 18,553,839
------------ ------------
18,957,070 19,500,569
Accumulated depletion (17,248,214) (17,616,893)
------------ ------------
Net oil and gas properties $ 1,708,856 $ 1,883,676
============ ============
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NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
--------- --------- ---------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 426,573 $ 424,831 $ 426,899
Reimbursement of general and administrative
expenses $ 71,304 $ 46,440 $ 38,017
Pioneer USA, EMPL and the Partnership are parties to the partnership
agreement. EMPL is a limited partnership in which Pioneer USA owns 79% and the
remaining portion is owned by former affiliates. In addition, Pioneer USA owned
877 limited partner interests at January 1, 2001.
The costs and revenues of the Partnership are allocated as follows:
General Limited
partners partners
-------- --------
Revenues:
Proceeds from property dispositions prior to cost
recovery 10% 90%
All other Partnership revenues 25% 75%
Costs and expenses:
Lease acquisition costs, drilling and completion costs 10% 90%
Operating costs, direct costs and general and
administrative expenses 25% 75%
Incremental direct expenses - 100%
Incremental direct expenses are direct expenses which would not be
incurred except for the requirements of the securities regulatory authorities
and totaled $8,342, $12,553 and $5,471 in 2000, 1999 and 1998, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
17
316
Oil and NGLs Gas
(bbls) (mcf)
------------ ----------
Net proved reserves at January 1, 1998 1,215,076 1,717,779
Revisions (498,218) (464,099)
Production (93,695) (147,495)
---------- ----------
Net proved reserves at December 31, 1998 623,163 1,106,185
Revisions 738,384 1,321,692
Production (89,446) (157,842)
---------- ----------
Net proved reserves at December 31, 1999 1,272,101 2,270,035
Revisions 82,614 (66,662)
Production (81,814) (132,106)
---------- ----------
Net proved reserves at December 31, 2000 1,272,901 2,071,267
========== ==========
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.32 per barrel of NGLs and $7.73 per mcf of gas,
discounted at 10% was approximately $9,555,000 and undiscounted was $18,817,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
18
317
For the years ended December 31,
-------------------------------------
2000 1999 1998
-------- -------- --------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 43,776 $ 31,312 $ 6,816
Future production costs (24,959) (18,234) (5,169)
-------- -------- --------
18,817 13,078 1,647
10% annual discount factor (9,262) (6,181) (544)
-------- -------- --------
Standardized measure of discounted future net cash flows $ 9,555 $ 6,897 $ 1,103
======== ======== ========
For the years ended December 31,
---------------------------------
2000 1999 1998
------- ------- -------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $(1,429) $ (669) $ (289)
Net changes in prices and production costs 3,342 3,109 (3,208)
Revisions of previous quantity estimates 439 5,091 (627)
Accretion of discount 690 110 489
Changes in production rates, timing and other (384) (1,847) (147)
------- ------- -------
Change in present value of future net revenues 2,658 5,794 (3,782)
------- ------- -------
Balance, beginning of year 6,897 1,103 4,885
------- ------- -------
Balance, end of year $ 9,555 $ 6,897 $ 1,103
======= ======= =======
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's
oil and gas sales (a major customer is defined as a customer whose sales exceed
10% of total sales) during the years ended December 31:
2000 1999 1998
------ ------ ------
Plains Marketing, L.P. 46% 42% -
TEPPCO Crude Oil LLC 13% 14% -
Phillips Petroleum Company 10% 3% 3%
Genesis Crude Oil, L.P. - - 60%
Western Gas Resources, Inc. 4% 8% 29%
At December 31, 2000, the amounts receivable from Plains Marketing,
L.P., TEPPCO Crude Oil LLC Inc. and Phillips Petroleum Company were $112,877,
$29,666 and $22,742, respectively, which are included in the caption "Accounts
receivable - oil and gas sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
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318
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the limited partnership agreement:
General partners - The general partners of the Partnership are Pioneer
USA and EMPL. Pioneer USA, the managing general partner, has the power
and authority to manage, control and administer all Partnership affairs.
As managing general partner and operator of the Partnership's
properties, all production expenses are incurred by Pioneer USA and
billed to the Partnership. The majority of the Partnership's oil and gas
revenues are received directly by the Partnership, however, a portion of
the oil and gas revenue is initially received by Pioneer USA prior to
being paid to the Partnership.
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of
$23,370,000. The general partners are required to contribute amounts
equal to 10% of Partnership expenditures for lease acquisition, drilling
and completion and 25% of direct, general and administrative and
operating expenses.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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319
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and executive
officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the
next annual meeting of stockholders or until their successors are elected and
qualified.
Age at
December 31,
Name 2000 Position
---- ---- --------
Scott D. Sheffield 48 President
Timothy L. Dove 45 Executive Vice President, Chief
Financial Officer and Director
Dennis E. Fagerstone 51 Executive Vice President and Director
Mark L. Withrow 53 Executive Vice President, General
Counsel and Director
Danny Kellum 46 Executive Vice President - Domestic
Operations and Director
Rich Dealy 34 Vice President and Chief Accounting
Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of
Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as
President, Chief Executive Officer and a director of Pioneer and President of
Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of
Pioneer in August 1999. He served as a director of Pioneer USA from August 1997
until his resignation from the board in June 1999. Mr. Sheffield was the
President and a director of Parker & Parsley Petroleum Company ("Parker &
Parsley") from May 1990 until August 1997 and was the Chairman of the Board and
Chief Executive Officer of Parker & Parsley from October 1990 until August 1997.
He was the sole director of Parker & Parsley from May 1990 until October 1990.
Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a
predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as
Vice President - Engineering of PPDC from September 1981 until April 1985 when
he was elected President and a director. In March 1989, Mr. Sheffield was
elected Chairman of the Board and Chief Executive Officer of PPDC. Before
joining PPDC's predecessor, Mr. Sheffield was employed as a production and
reservoir engineer for Amoco Production Company.
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320
Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from
Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981
from the University of Chicago. He became Executive Vice President - Business
Development of Pioneer and Pioneer USA in August 1997 and was also appointed a
director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief
Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr.
Dove joined Parker & Parsley in May 1994 as Vice President - International and
was promoted to Senior Vice President - Business Development in October 1996, in
which position he served until August 1997. Prior to joining Parker & Parsley,
Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus
Energy Corp, in various capacities in international exploration and production,
marketing, refining and marketing and planning and development.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School
of Mines with a B.S. in Petroleum Engineering, became an Executive Vice
President of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. He served as Executive Vice President
and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until
August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior
Vice President and Chief Operating Officer of Mesa and from May 1991 to October
1996, he served as Vice President - Exploration and Production of Mesa. From
June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of
Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President - General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979, was elected Executive
Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000
and Director of Pioneer USA on February 1, 2000. From January 2000 until May
2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and
Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and
Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served
as Spraberry District Manager and as Vice President of the Spraberry and Permian
Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker &
Parsley as an operations engineer in 1981 after a brief career with Mobil Oil
Corporation.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University
with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He
became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
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321
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is performed by Pioneer USA, the managing general partner. Under the
partnership agreement, Pioneer USA pays 8% of the Program's acquisition,
drilling and completion costs and 20% of its operating and general and
administrative expenses. In return, Pioneer USA is allocated 20% of the
Program's revenues.
EMPL is a co-general partner of the Partnership. Under this arrangement, EMPL
pays 2% of the Program's acquisition, drilling and completion costs and 5% of
its operating and general and administrative expenses. In return, EMPL is
allocated 5% of the Program's revenues. EMPL does not receive any fees or
reimbursements from the Partnership.
The Partnership does not directly pay any salaries of the executive officers of
Pioneer USA, but does pay a portion of Pioneer USA's general and administrative
expenses of which these salaries are a part.
See Notes 6 and 9 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" for information regarding fees and
reimbursements paid to the managing general partner by the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more of
the outstanding limited partnership interests of the Partnership. Pioneer USA
and EMPL respectively own 80% and 20% of the general partners' interests in the
Partnership. Pioneer USA owned 877 limited partner interests at January 1, 2001.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general
partner of the Partnership, Pioneer USA, has the exclusive right and full
authority to manage, control and administer the Partnership's business. Under
the limited partnership agreement, limited partners holding a majority of the
outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
23
322
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner
Pursuant to the limited partnership agreement, the Partnership had the following
related party transactions with the managing general partner during the years
ended December 31:
2000 1999 1998
--------- --------- ---------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 426,573 $ 424,831 $ 426,899
Reimbursement of general and administrative
expenses $ 71,304 $ 46,440 $ 38,017
Under the limited partnership agreement, the general partners, Pioneer USA and
EMPL, together pay 10% of the Partnership's acquisition, drilling and completion
costs and 25% of its operating and general and administrative expenses. In
return, they are allocated 25% of the Partnership's revenues. Twenty percent of
the general partners' share of costs and revenues is allocated to EMPL and the
remainder is allocated to Pioneer USA. Certain former affiliates of Pioneer USA
are limited partners of EMPL. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Partnership.
24
323
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial statements
The following are filed as part of this Report:
Independent Auditors' Report
Balance sheets as of December 31, 2000 and 1999
Statements of operations for the years ended December 31, 2000,
1999 and 1998
Statements of partners' capital for the years ended December 31,
2000, 1999 and 1998
Statements of cash flows for the years ended December 31, 2000,
1999 and 1998
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the
required information is in the financial statements or notes thereto,
or is not applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this Report.
25
324
S I G N A T U R E S
Pursuant to the requirements 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.
PARKER & PARSLEY 83-B, LTD.
Dated: March 29, 2001 By: Pioneer Natural Resources USA, Inc.
Managing General Partner
By: /s/ Scott D. Sheffield
----------------------------------
Scott D. Sheffield, President
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/ Scott D. Sheffield President of Pioneer USA March 29, 2001
--------------------------------------
Scott D. Sheffield
/s/ Timothy L. Dove Executive Vice President, Chief March 29, 2001
-------------------------------------- Financial Officer and Director of
Timothy L. Dove Pioneer USA
/s/ Dennis E. Fagerstone Executive Vice President and March 29, 2001
-------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ Mark L. Withrow Executive Vice President, General March 29, 2001
-------------------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ Danny Kellum Executive Vice President - Domestic March 29, 2001
-------------------------------------- Operations and Director of Pioneer
Danny Kellum USA
/s/ Rich Dealy Vice President and Chief Accounting March 29, 2001
-------------------------------------- Officer of Pioneer USA
Rich Dealy
26
325
PARKER & PARSLEY 83-B, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to
Item 14(c):
Exhibit No. Description Page
----------- ----------- ----
3.1 Agreement of Limited Partnership of Parker -
& Parsley 83-B, Ltd. incorporated by reference
to Exhibit 4(e) of Partnership's Registration
Statement on Form S-1 (Registration No.
2-81398B), as amended on April 26, 1983,
the effective date thereof (hereinafter called,
the Partnership's Registration Statement)
3.2 Amended and Restated Certificate of Limited -
Partnership of Parker & Parsley 83-B, Ltd.
incorporated by reference to Exhibit 3.2 of the
Partnership's Annual Report on Form 10-K for the
period from July 1, 1983 (date of organization)
through December 31, 1983
4.1 Form of Subscription Agreement and Power of -
Attorney incorporated by reference to Exhibit 4(b)
of the Partnership's Registration Statement
4.2 Specimen Certificate of Limited Partnership -
Interest incorporated by reference to Exhibit 4(d)
of the Partnership's Registration Statement
27
326
PARKER & PARSLEY 83-B, LTD.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 550,469 $2,376,791 $1,548,013 $1,267,241 $1,924,748 $2,291,605
======== ========== ========== ========== ========== ========== ==========
Gain on litigation
settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $1,392,304
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ 84,697 $ 152,505 $ 362,325 $1,171,409 $ --
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 278,602 $1,174,971 $ 292,874 $ (871,809) $ (754,107) $2,309,638
======== ========== ========== ========== ========== ========== ==========
Allocation of net
income (loss):
General partners $ $ 73,635 $ 325,015 $ 125,187 $ (46,980) $ 56,351 $ 578,911
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 204,967 $ 849,956 $ 167,687 $ (824,829) $ (810,458) $1,730,727
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per
limited partnership
interest $ $ 8.77 $ 36.37 $ 7.18 $ (35.29) $ (34.68) $ 74.06
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per
limited partnership
interest $ $ 8.70 $ 40.34 $ 13.95 $ 11.49 $ 32.48 $ 80.43(a)
======== ========== ========== ========== ========== ========== ==========
At year end:
Identifiable assets $ $2,405,679 $2,303,070 $2,391,541 $2,529,136 $3,774,504 $5,537,639
======== ========== ========== ========== ========== ========== ==========
----------
(a) Including litigation settlement per limited partnership interest of $46.83
in 1996.
327
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 84-A, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
84-A, Ltd. and supplements the proxy statement/prospectus dated , 2001, of
Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by
which Pioneer USA is soliciting proxies to be voted at a special meeting of
limited partners of the partnership. The purpose of the special meeting is for
you to vote upon the merger of the partnership with and into Pioneer USA that,
if completed, will result in your receiving common stock of Pioneer Natural
Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 84-A, Ltd.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's quarterly report on Form 10-Q, including
management's discussion and analysis of financial condition and
results of operations, for the three months ended March 31, 2001
o The partnership's annual report on Form 10-K, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
328
PARKER & PARSLEY 84-A LTD.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 19,435
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 28,076
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 3,684
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 193.75
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 4.23 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 106.99
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 175.25
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 188.58
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 270
(b), (c)
----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
(1) neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners; and (2)
neither the grant nor exercise of such right will result in the loss of any
limited partner's limited liability. In addition, the counsel designated to
render the opinion must be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
329
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 FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 2-90417
PARKER & PARSLEY 84-A, LTD.
(Exact name of Registrant as specified in its charter)
TEXAS 75-1974814
------------------------------------------ ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039
---------------------------------------------------------------- -------------
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES \ X \ 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. \ X \
No market currently exists for the limited partnership interests of the
Registrant. Based on the original purchase price, the aggregate market value of
limited partnership interests owned by non-s of the Registrant is $19,016,000.
As of March 8, 2001, the number of outstanding limited partnership
interests was 19,435.
The following documents are incorporated by reference into the indicated parts
of this Annual Report on Form 10-K: None
PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACCORDINGLY, NO
ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS AND RESULTS WILL NOT BE
MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD
LOOKING STATEMENTS. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS
THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE
ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
2
330
PART I
ITEM 1. BUSINESS
Parker & Parsley 84-A, Ltd. (the "Partnership") is a limited partnership
organized in 1984 under the laws of the State of Texas. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA")
and its co-general partner is P&P Employees 84-A, Ltd. ("EMPL"), a Texas limited
partnership whose general partner is Pioneer USA. Pioneer USA is a wholly-owned
subsidiary of Pioneer Natural Resources Company ("Pioneer"). As of March 8,
2001, the Partnership had 19,435 limited partnership interests outstanding.
The Partnership does not have any employees of its own. Pioneer USA employs 701
persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this Report is filed. Pioneer
USA supplies all management functions.
The Partnership engages in oil and gas development and production and is not
involved in any industry segment other than oil and gas. The Partnership's
production is geographically concentrated in West Texas.
The principal markets during 2000 for the oil produced by the Partnership were
refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. During 2000, Pioneer USA marketed the
Partnership's gas to a variety of purchasers. Of the Partnership's total oil and
gas revenues for 2000, approximately 35%, 17% and 10% were attributable to sales
made to Plains Marketing, L.P., TEPPCO Crude Oil LLC and NGTS LLC, respectively.
Pioneer USA is of the opinion that the loss of any one purchaser would not have
an adverse effect on its ability to sell its oil, natural gas liquids ("NGLs")
and gas production.
The Partnership's revenues, profitability, cash flow and future rate of growth
are highly dependent on the prevailing prices of oil and gas, which are affected
by numerous factors beyond the Partnership's control. Oil and gas prices
historically have been very volatile. A substantial or extended decline in the
prices of oil or gas could have a material adverse effect on the Partnership's
revenues, profitability and cash flow and could, under certain circumstances,
result in a reduction in the carrying value of the Partnership's oil and gas
properties.
Oil and gas production operations are subject to various types of regulations by
local, state and federal agencies. The Partnership's operations are also subject
to state conservation laws and regulations, including the establishment of
maximum rates of production from wells and the regulation of spacing, plugging
and abandonment of wells. Each state generally imposes a production or severance
tax with respect to production and sale of oil and gas within their respective
jurisdictions. Noncompliance with the laws and regulations may subject the
Partnership to penalties, damages or other liabilities and compliance may
increase the cost of the Partnership's operations. The oil and gas business is
also subject to environmental hazards such as oil spills, gas leaks and ruptures
and discharges of toxic substances or gases that could expose the Partnership to
substantial
2
331
liability due to pollution and other environmental damages. Although the
Partnership believes that its business operations do not impair environmental
quality and that its costs of complying with any applicable environmental
regulations are not currently significant, the Partnership cannot predict what,
if any, effect these environmental regulations may have on its current or future
operations.
Numerous uncertainties exist in estimating quantities of proved reserves and
future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the Partnership
conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist of leasehold 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 and exploratory oil and gas
prospects located primarily in the Spraberry Trend Area of West Texas were
acquired by the Partnership, resulting in the Partnership's participation in the
drilling of 42 oil and gas wells. At December 31, 2000, 38 wells were producing
and four wells had been plugged and abandoned due to unprofitable operations.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 2000, 1999 and 1998, and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been evaluated by Williamson Petroleum Consultants, Inc., an independent
petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer USA believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the partners during the fourth
quarter of 2000.
3
332
PART II
ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP
DISTRIBUTIONS
At March 8, 2001, the Partnership had 19,435 outstanding limited partnership
interests held of record by 1,268 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are not
required to meet the Partnership's obligations are distributed to the partners
at least quarterly in accordance with the limited partnership agreement. During
the years ended December 31, 2000 and 1999, distributions of $872,006 and
$293,145, respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
2000 1999 1998 1997 1996
----------- ---------- ---------- ---------- ----------
Operating results:
-----------------
Oil and gas sales $2,348,261 $1,419,376 $1,124,134 $1,668,018 $1,984,346
========= ========= ========= ========= =========
Impairment of oil and gas
properties $ - $ - $ 425,668 $ 370,361 $ -
========= ========= ========= ========= =========
Gain on litigation
settlement, net $ - $ - $ - $ - $1,055,353
========= ========= ========= ========= =========
Net income (loss) $1,240,674 $ 340,062 $ (923,346) $ 70,124 $1,782,138
========= ========= ========= ========= =========
Allocation of net income
(loss):
General partners $ 328,079 $ 113,550 $ (56,570) $ 121,907 $ 462,041
========= ========= ========= ========= =========
Limited partners $ 912,595 $ 226,512 $ (866,776) $ (51,783) $1,320,097
========= ========= ========= ========= =========
Limited partners' net income
(loss) per limited
partnership interest $ 46.96 $ 11.65 $ (44.60) $ (2.66) $ 67.92
========= ========= ========= ========= =========
Limited partners' cash
distributions per limited
partnership interest $ 44.87 $ 15.08 $ 12.82 $ 32.32 $ 73.68 (a)
========= ========== ========= ========= ========
At year end:
-----------
Identifiable assets $2,409,328 $2,343,035 $2,390,810 $3,657,643 $4,436,385
========= ========= ========= ========= =========
---------------
(a) Including litigation settlement per limited partnership interest of $42.48
in 1996.
4
333
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 65% to $2,348,261 for 2000 as
compared to $1,419,376 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decline in production. In 2000, 51,863
barrels of oil, 33,622 barrels of natural gas liquids ("NGLs") and 138,617 mcf
of gas were sold, or 108,588 barrel of oil equivalents ("BOEs"). In 1999, 50,064
barrels of oil, 35,804 barrels of NGLs and 154,235 mcf of gas were sold, or
111,574 BOEs. Due to the decline characteristics of the Partnership's oil and
gas properties, management expects a certain amount of decline in production in
the future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.19, or 70%, from
$17.36 in 1999 to $29.55 in 2000. The average price received per barrel of NGLs
increased $4.97, or 55%, from $9.03 in 1999 to $14.00 in 2000. The average price
received per mcf of gas increased 69% from $1.47 in 1999 to $2.49 in 2000. The
market price for oil and gas has been extremely volatile in the past decade and
management expects a certain amount of volatility in the foreseeable future. The
Partnership may therefore sell its future oil and gas production at average
prices lower or higher than that received in 2000.
Total costs and expenses increased in 2000 to $1,124,923 as compared to
$1,088,550 in 1999, an increase of $36,373, or 3%. The increase was primarily
due to increases in production costs and general and administrative expenses
("G&A"), offset by a decline in depletion.
Production costs were $937,743 in 2000 and $859,602 in 1999, resulting in an
increase of $78,141 or 9%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices and workover costs incurred to
stimulate well production, offset by lower well maintenance costs.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
45% from $53,481 in 1999 to $77,459 in 2000 primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 3% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $70,448 in 2000 and $42,581 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
5
334
Depletion was $109,721 in 2000 as compared to $175,467 in 1999, representing a
decrease of $65,746, or 37%. This decrease was primarily due to a 150,475
barrels of oil increase in proved reserves during 2000 as a result of higher
commodity prices.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 26% to $1,419,376 from
$1,124,134 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 50,064 barrels of oil,
35,804 barrels of NGLs and 154,235 mcf of gas were sold, or 111,574 BOEs. In
1998, 54,153 barrels of oil, 34,549 barrels of NGLs and 145,870 mcf of gas were
sold, or 113,014 BOEs.
The average price received per barrel of oil increased $4.06, or 31%, from
$13.30 in 1998 to $17.36 in 1999. The average price received per barrel of NGLs
increased $2.95, or 49%, from $6.08 in 1998 to $9.03 in 1999. The average price
received per mcf of gas increased 11% from $1.33 in 1998 to $1.47 in 1999.
A gain on disposition of assets of $2,100 was recognized during 1998 from the
sale of equipment on one fully depleted well.
Total costs and expenses decreased in 1999 to $1,088,550 as compared to
$2,059,738 in 1998, a decrease of $971,188, or 47%. The decrease was primarily
due to declines in depletion, the impairment of oil and gas properties and
production costs, offset by an increase in G&A expenses.
Production costs were $859,602 in 1999 and $865,247 in 1998, resulting in a
$5,645 decrease. The decrease was due to declines in workover costs and ad
valorem taxes, offset by increases in well maintenance costs incurred to
stimulate well production and in production taxes due to increased oil and gas
revenues.
During this period, G&A increased 39% from $38,385 in 1998 to $53,481 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $42,581 in
1999 and $33,724 in 1998 for G&A incurred on behalf of the Partnership.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $425,668 related to its oil and gas properties during 1998.
Depletion was $175,467 in 1999 compared to $730,438 in 1998. This represented a
decrease of $554,971, or 76%. This decrease was the result of an increase in
proved reserves of 445,239 barrels of oil during 1999 as a result of higher
commodity prices and a reduction in the Partnership's net depletable basis from
charges taken in accordance with SFAS 121 during the fourth quarter of 1998.
6
335
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $852,554 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $936,985 and a decline in working capital of $17,688,
offset by increases in production costs paid of $78,141 and G&A expenses paid of
$23,978. The increase in oil and gas receipts resulted from the increase in
commodity prices during 2000 which contributed an additional $953,265 to oil and
gas receipts, offset by $16,280 resulting from the decline in production during
2000. The increase in production costs was primarily due to increased production
taxes associated with higher oil and gas prices and workover costs incurred to
stimulate well production, offset by lower well maintenance costs. The increase
in G&A was primarily due to higher percentage of the managing general partner's
G&A being allocated (limited to 3% of oil and gas revenues) as a result of
increased oil and gas revenues.
Net Cash Used in Investing Activities
The Partnership's investing activities during 2000 and 1999 were related to
expenditures for equipment upgrades on various oil and gas properties.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $1,173,468, of which $301,462
was distributed to the general partners and $872,006 to the limited partners. In
1999, cash distributions to the partners were $392,295, of which $99,150 was
distributed to the general partners and $293,145 to the limited partners.
7
336
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
Financial Statements of Parker & Parsley 84-A, Ltd:
Independent Auditors' Report......................................................... 9
Balance Sheets as of December 31, 2000 and 1999...................................... 10
Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998................................................................ 11
Statements of Partners' Capital for the Years Ended
December 31, 2000, 1999 and 1998................................................... 12
Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998................................................................ 13
Notes to Financial Statements........................................................ 14
8
337
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 84-A, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheets of Parker & Parsley 84-A, Ltd. as of December
31, 2000 and 1999, and the related statements of operations, partners' capital
and cash flows for each of the three years in the period ended December 31,
2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 84-A, Ltd. as
of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
9
338
PARKER & PARSLEY 84-A, LTD.
(A Texas Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
------------- -------------
ASSETS
------
Current assets:
Cash $ 179,539 $ 117,140
Accounts receivable - oil and gas sales 360,844 261,763
------------ ------------
Total current assets 540,383 378,903
------------ ------------
Oil and gas properties - at cost, based on the
successful efforts accounting method 18,260,776 18,246,242
Accumulated depletion (16,391,831) (16,282,110)
------------ ------------
Net oil and gas properties 1,868,945 1,964,132
------------ ------------
$ 2,409,328 $ 2,343,035
============ ============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - $ 36,496 $ 37,409
Partners' capital:
General partners 293,504 266,887
Limited partners (19,435 interests) 2,079,328 2,038,739
------------ ------------
2,372,832 2,305,626
------------ ------------
$ 2,409,328 $ 2,343,035
============ ============
The accompanying notes are an integral part of these financial statements.
10
339
PARKER & PARSLEY 84-A, LTD.
(A Texas Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
----------- ----------- -----------
Revenues:
Oil and gas $ 2,348,261 $ 1,419,376 $ 1,124,134
Interest 17,336 9,236 10,158
Gain on disposition of assets -- -- 2,100
----------- ----------- -----------
2,365,597 1,428,612 1,136,392
----------- ----------- -----------
Costs and expenses:
Oil and gas production 937,743 859,602 865,247
General and administrative 77,459 53,481 38,385
Impairment of oil and gas properties -- -- 425,668
Depletion 109,721 175,467 730,438
----------- ----------- -----------
1,124,923 1,088,550 2,059,738
----------- ----------- -----------
Net income (loss) $ 1,240,674 $ 340,062 $ (923,346)
=========== =========== ===========
Allocation of net income (loss):
General partners $ 328,079 $ 113,550 $ (56,570)
=========== =========== ===========
Limited partners $ 912,595 $ 226,512 $ (866,776)
=========== =========== ===========
Net income (loss) per limited
partnership interest $ 46.96 $ 11.65 $ (44.60)
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
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340
PARKER & PARSLEY 84-A, LTD.
(A Texas Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
General Limited
partners partners Total
----------- ----------- -----------
Partners' capital at January 1, 1998 $ 395,245 $ 3,221,215 $ 3,616,460
Distributions (86,188) (249,067) (335,255)
Net loss (56,570) (866,776) (923,346)
----------- ----------- -----------
Partners' capital at December 31, 1998 252,487 2,105,372 2,357,859
Distributions (99,150) (293,145) (392,295)
Net income 113,550 226,512 340,062
----------- ----------- -----------
Partners' capital at December 31, 1999 266,887 2,038,739 2,305,626
Distributions (301,462) (872,006) (1,173,468)
Net income 328,079 912,595 1,240,674
----------- ----------- -----------
Partners' capital at December 31, 2000 $ 293,504 $ 2,079,328 $ 2,372,832
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
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341
PARKER & PARSLEY 84-A, LTD.
(A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
------------- ----------- -----------
Cash flows from operating activities:
Net income (loss) $ 1,240,674 $ 340,062 $ (923,346)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties -- -- 425,668
Depletion 109,721 175,467 730,438
Gain on disposition of assets -- -- (2,100)
Changes in assets and liabilities:
Accounts receivable (99,081) (122,140) 85,609
Accounts payable (913) 4,458 (8,232)
----------- ----------- -----------
Net cash provided by operating activities 1,250,401 397,847 308,037
----------- ----------- -----------
Cash flows from investing activities:
Additions to oil and gas properties (14,534) (12,628) (10,572)
Proceeds from asset dispositions -- 211 2,100
----------- ----------- -----------
Net cash used in investing activities (14,534) (12,417) (8,472)
----------- ----------- -----------
Cash flows used in financing activities:
Cash distributions to partners (1,173,468) (392,295) (335,255)
----------- ----------- -----------
Net increase (decrease) in cash 62,399 (6,865) (35,690)
Cash at beginning of year 117,140 124,005 159,695
----------- ----------- -----------
Cash at end of year $ 179,539 $ 117,140 $ 124,005
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
13
342
PARKER & PARSLEY 84-A, LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 84-A, Ltd. (the "Partnership") is a limited partnership
organized in 1984 under the laws of the State of Texas. The Partnership's
general partners are Pioneer Natural Resources USA, Inc. ("Pioneer USA") and P&P
Employees 84-A, Ltd. ("EMPL"). The Partnership's managing general partner is
Pioneer USA.
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -
Preparation of the accompanying 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 periods. Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in
the financial statements
14
343
as the income of the Partnership is included in the individual Federal income
tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated in part to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non-partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. The Partnership has estimated the expected future cash flows of its
oil and gas properties as of December 31, 2000, 1999 and 1998, based on proved
reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized a non-cash impairment provision of $425,668 related to
its proved oil and gas properties during 1998.
15
344
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $383,897 less than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
----------- ----------- -----------
Net income (loss) per statements of operations $ 1,240,674 $ 340,062 $ (923,346)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes 98,611 165,764 695,743
Impairment of oil and gas properties for financial
reporting purposes -- -- 425,668
Salvage income -- -- 2,967
Other, net (2,689) (4,938) 5,121
----------- ----------- -----------
Net income per Federal income tax
returns $ 1,336,596 $ 500,888 $ 206,153
=========== =========== ===========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
--------- ---------- ---------
Development costs $ 14,534 $ 12,628 $ 10,572
========= ========== =========
Capitalized oil and gas properties consist of the following:
2000 1999
------------ ------------
Proved properties:
Property acquisition costs $ 923,276 $ 923,276
Completed wells and equipment 17,337,500 17,322,966
------------ ------------
18,260,776 18,246,242
Accumulated depletion (16,391,831) (16,282,110)
------------ ------------
Net oil and gas properties $ 1,868,945 $ 1,964,132
============ ============
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345
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
--------- ---------- ---------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 410,572 $ 395,016 $ 382,325
Reimbursement of general and administrative
expenses $ 70,448 $ 42,581 $ 33,724
Pioneer USA, EMPL and the Partnership are parties to the Partnership
agreement. EMPL is a limited partnership in which Pioneer USA owns 77.5% and the
remaining portion is owned by former s. In addition, Pioneer USA owned 419
limited partner interests in the Partnership at January 1, 2001.
The costs and revenues of the Partnership are allocated as follows:
General Limited
partners partners
-------- --------
Revenues:
Proceeds from property dispositions prior to cost
recovery 10% 90%
All other Partnership revenues 25% 75%
Costs and expenses:
Lease acquisition costs, drilling and completion costs 10% 90%
Operating costs, direct costs and general and
administrative expenses 25% 75%
Incremental direct expenses - 100%
Incremental direct expenses are direct expenses which would not be
incurred except for the requirements of the securities regulatory authorities
and totaled $7,011, $10,900 and $4,661 in 2000, 1999 and 1998, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
17
346
Oil and NGLs Gas
(bbls) (mcf)
------------ ----------
Net proved reserves at January 1, 1998 1,053,041 1,516,688
Revisions (400,628) (306,319)
Production (88,702) (145,870)
---------- ----------
Net proved reserves at December 31, 1998 563,711 1,064,499
Revisions 789,038 1,498,169
Production (85,868) (154,235)
---------- ----------
Net proved reserves at December 31, 1999 1,266,881 2,408,433
Revisions 168,380 (31,965)
Production (85,485) (138,617)
---------- ----------
Net proved reserves at December 31, 2000 1,349,776 2,237,851
========== ==========
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.02 per barrel of NGLs and $7.45 per mcf of gas,
discounted at 10% was approximately $10,236,000 and undiscounted was
$20,832,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
18
347
For the years ended December 31,
--------------------------------
2000 1999 1998
-------- -------- --------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 45,297 $ 30,875 $ 6,111
Future production costs (24,465) (18,195) (4,514)
-------- -------- --------
20,832 12,680 1,597
10% annual discount factor (10,596) (6,020) (598)
-------- -------- --------
Standardized measure of discounted future net cash flows $ 10,236 $ 6,660 $ 999
======== ======== ========
For the years ended December 31,
--------------------------------
2000 1999 1998
-------- -------- --------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (1,411) $ (560) $ (259)
Net changes in prices and production costs 3,988 2,450 (2,438)
Revisions of previous quantity estimates 1,037 4,939 (555)
Accretion of discount 666 100 406
Changes in production rates, timing and other (704) (1,268) (211)
-------- -------- --------
Change in present value of future net revenues 3,576 5,661 (3,057)
-------- -------- --------
Balance, beginning of year 6,660 999 4,056
-------- -------- --------
Balance, end of year $ 10,236 $ 6,660 $ 999
======== ======== ========
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's
oil and gas sales (a major customer is defined as a customer whose sales exceed
10% of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 35% 33% -
TEPPCO Crude Oil LLC 17% 18% -
Genesis Crude Oil, L.P. - - 53%
NGTS LLC 10% 7% -
Western Gas Resources, Inc. 3% 7% 29%
At December 31, 2000, the amounts receivable from Plains Marketing,
L.P., TEPPCO Crude Oil LLC and NGTS LLC were $43,117, $76,863 and $693,
respectively, which are included in the caption "Accounts receivable - oil and
gas sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the limited partnership agreement:
General partners - The general partners of the Partnership are Pioneer
USA and EMPL. Pioneer USA, the managing general partner, has the power
and authority to manage, control and administer all Partnership affairs.
As managing general partner and operator of the Partnership's
properties, all production expenses are incurred by Pioneer USA and
billed to the Partnership. The majority of the Partnership's oil and gas
revenues are received directly by the Partnership, however, a portion of
the oil and gas revenue is initially received by Pioneer USA prior to
being paid to the Partnership.
19
348
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of
$19,435,000. The general partners are required to contribute amounts
equal to 10% of Partnership expenditures for lease acquisition, drilling
and completion and 25% of direct, general and administrative and
operating expenses.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
20
349
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and executive
officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the
next annual meeting of stockholders or until their successors are elected and
qualified.
Age at
December 31,
Name 2000 Position
---- ---- --------
Scott D. Sheffield 48 President
Timothy L. Dove 44 Executive Vice President, Chief
Financial Officer and Director
Dennis E. Fagerstone 51 Executive Vice President and Director
Mark L. Withrow 53 Executive Vice President, General
Counsel and Director
Danny Kellum 46 Executive Vice President - Domestic
Operations and Director
Rich Dealy 34 Vice President and Chief Accounting
Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of
Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as
President, Chief Executive Officer and a director of Pioneer and President of
Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of
Pioneer in August 1999. He served as a director of Pioneer USA from August 1997
until his resignation from the board in June 1999. Mr. Sheffield was the
President and a director of Parker & Parsley Petroleum Company ("Parker &
Parsley") from May 1990 until August 1997 and was the Chairman of the Board and
Chief Executive Officer of Parker & Parsley from October 1990 until August 1997.
He was the sole director of Parker & Parsley from May 1990 until October 1990.
Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a
predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as
Vice President - Engineering of PPDC from September 1981 until April 1985 when
he was elected President and a director. In March 1989, Mr. Sheffield was
elected Chairman of the Board and Chief Executive Officer of PPDC. Before
joining PPDC's predecessor, Mr. Sheffield was employed as a production and
reservoir engineer for Amoco Production Company.
21
350
Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from
Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981
from the University of Chicago. He became Executive Vice President - Business
Development of Pioneer and Pioneer USA in August 1997 and was also appointed a
director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief
Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr.
Dove joined Parker & Parsley in May 1994 as Vice President - International and
was promoted to Senior Vice President - Business Development in October 1996, in
which position he served until August 1997. Prior to joining Parker & Parsley,
Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus
Energy Corp, in various capacities in international exploration and production,
marketing, refining and marketing and planning and development.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School
of Mines with a B.S. in Petroleum Engineering, became an Executive Vice
President of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. He served as Executive Vice President
and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until
August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior
Vice President and Chief Operating Officer of Mesa and from May 1991 to October
1996, he served as Vice President - Exploration and Production of Mesa. From
June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of
Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President - General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979, was elected Executive
Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000
and Director of Pioneer USA on February 1, 2000. From January 2000 until May
2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and
Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and
Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served
as Spraberry District Manager and as Vice President of the Spraberry and Permian
Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker &
Parsley as an operations engineer in 1981 after a brief career with Mobil Oil
Corporation.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University
with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He
became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
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351
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is performed by Pioneer USA, the managing general partner. Under the
Partnership agreement, Pioneer USA pays 8% of the Partnership's acquisition,
drilling and completion costs and 20% of its operating and general and
administrative expenses. In return, Pioneer USA is allocated 20% of the
Partnership's revenues.
EMPL is a co-general partner of the Partnership. Under this arrangement, EMPL
pays 2% of the Partnership's acquisition, drilling and completion costs and 5%
of its operating and general and administrative expenses. In return, EMPL is
allocated 5% of the Partnership's revenues. EMPL does not receive any fees or
reimbursements from the Partnership.
The Partnership does not directly pay any salaries of the executive officers of
Pioneer USA, but does pay a portion of Pioneer USA's general and administrative
expenses of which these salaries are a part.
See Notes 6 and 9 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" for information regarding fees and
reimbursements paid to the managing general partner by the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more of
the outstanding limited partnership interests of the Partnership. Pioneer USA
and EMPL respectively own 80% and 20% of the general partners' interests in the
Partnership. Pioneer USA owned 419 limited partner interests at January 1, 2001.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general
partner of the Partnership, Pioneer USA, has the exclusive right and full
authority to manage, control and administer the Partnership's business. Under
the limited partnership agreement, limited partners holding a majority of the
outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
23
352
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner
Pursuant to the limited partnership agreement, the Partnership had the following
related party transactions with the managing general partner during the years
ended December 31:
2000 1999 1998
-------- -------- ---------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $410,572 $395,016 $382,325
Reimbursement of general and administrative
expenses $ 70,448 $ 42,581 $ 33,724
Under the limited partnership agreement, the general partners, Pioneer USA and
EMPL, together pay 10% of the Partnership's acquisition, drilling and completion
costs and 25% of its operating and general and administrative expenses. In
return, they are allocated 25% of the Partnership's revenues. Twenty percent of
the general partners' share of costs and revenues is allocated to EMPL and the
remainder is allocated to Pioneer USA. Certain former s of Pioneer USA are
limited partners of EMPL. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Partnership.
24
353
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial statements
The following are filed as part of this Report:
Independent Auditors' Report
Balance sheets as of December 31, 2000 and 1999
Statements of operations for the years ended December 31, 2000,
1999 and 1998
Statements of partners' capital for the years ended December 31,
2000, 1999 and 1998
Statements of cash flows for the years ended December 31, 2000,
1999 and 1998
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the
required information is in the financial statements or notes thereto,
or is not applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this Report.
25
354
S I G N A T U R E S
Pursuant to the requirements 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.
PARKER & PARSLEY 84-A, LTD.
Dated: March 23, 2001 By: Pioneer Natural Resources USA, Inc.
Managing General Partner
By: /s/ Scott D. Sheffield
-------------------------------
Scott D. Sheffield, President
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/ Scott D. Sheffield President of Pioneer USA March 23, 2001
-------------------------------
Scott D. Sheffield
/s/ Timothy L. Dove Executive Vice President, Chief March 23, 2001
------------------------------- Financial Officer and Director of
Timothy L. Dove Pioneer USA
/s/ Dennis E. Fagerstone Executive Vice President and March 23, 2001
------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ Mark L. Withrow Executive Vice President, General March 23, 2001
------------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ Danny Kellum Executive Vice President - Domestic March 23, 2001
------------------------------- Operations and Director of Pioneer
Danny Kellum USA
/s/ Rich Dealy Vice President and Chief Accounting March 23, 2001
------------------------------- Officer of Pioneer USA
Rich Dealy
355
PARKER & PARSLEY 84-A, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
Exhibit No. Description Page
----------- ----------- ----
3.1 Agreement of limited partnership of Parker -
& Parsley 84-A, Ltd. incorporated by reference
to Exhibit 4(e) of Partnership's Registration
Statement on Form S-1 (Registration No.
2-90417), as amended on May 24, 1984, the
effective date thereof (hereinafter called, the
Partnership's Registration Statement)
3.2 Amended and Restated Certificate of Limited -
Partnership of Parker & Parsley 84-A, Ltd.
incorporated by reference to Exhibit 3.2 of the
Partnership's Annual Report on Form 10-K for
the period from July 6, 1984 (date of organization)
through December 31, 1984
4.1 Form of Subscription Agreement and Power of -
Attorney incorporated by reference to Exhibit 4(b)
of the Partnership's Registration Statement
4.2 Specimen Certificate of Limited Partnership -
Interest incorporated by reference to Exhibit 4(d)
of the Partnership's Registration Statement
356
PARKER & PARSLEY 84-A, LTD.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 533,060 $2,348,261 $1,419,376 $1,124,134 $1,668,018 $1,984,346
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and gas
properties $ $ -- $ -- $ -- $ 425,668 $ 370,361 $ --
======== ========== ========== ========== ========== ========== ==========
Gain on litigation
settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $1,055,353
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 268,143 $1,240,674 $ 340,062 $ (923,346) $ 70,124 $1,782,138
======== ========== ========== ========== ========== ========== ==========
Allocation of net income
(loss):
General partners $ $ 72,174 $ 328,079 $ 113,550 $ (56,570) $ 121,907 $ 462,041
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 195,969 $ 912,595 $ 226,512 $ (866,776) $ (51,783) $1,320,097
======== ========== ========== ========== ========== ========== ==========
Limited partners' net income
(loss) per limited
partnership interest $ $ 10.08 $ 46.96 $ 11.65 $ (44.60) $ (2.66) $ 67.92
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 8.28 $ 44.87 $ 15.08 $ 12.82 $ 32.32 $ 73.68(a)
======== ========== ========== ========== ========== ========== ==========
At year end:
Identifiable assets $ $2,402,339 $2,409,328 $2,343,035 $2,390,810 $3,657,643 $4,436,385
======== ========== ========== ========== ========== ========== ==========
----------
(a) Including litigation settlement per limited partnership interest of $42.48
in 1996.
357
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 85-A, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
85-A, Ltd. and supplements the proxy statement/prospectus dated , 2001, of
Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by
which Pioneer USA is soliciting proxies to be voted at a special meeting of
limited partners of the partnership. The purpose of the special meeting is for
you to vote upon the merger of the partnership with and into Pioneer USA that,
if completed, will result in your receiving common stock of Pioneer Natural
Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 85-A, Ltd.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's quarterly report on Form 10-Q, including
management's discussion and analysis of financial condition and
results of operations, for the three months ended March 31, 2001
o The partnership's annual report on Form 10-K, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
358
PARKER & PARSLEY 85-A LTD.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 9,613
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 7,059
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 1,339
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 142.05
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.60 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 71.31
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 127.14
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 138.30
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 260
(b), (c)
----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
(1) neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners; and (2)
neither the grant nor exercise of such right will result in the loss of any
limited partner's limited liability. In addition, the counsel designated to
render the opinion must be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
359
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 FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 2-99079A
PARKER & PARSLEY 85-A, LTD.
(Exact name of Registrant as specified in its charter)
TEXAS 75-2064518
------------------------------ -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039
---------------------------------------------------------------- ---------
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES / X / 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / X /
No market currently exists for the limited partnership interests of the
Registrant. Based on the original purchase price, the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$9,426,000.
As of March 8, 2001, the number of outstanding limited partnership interests
was 9,613.
The following documents are incorporated by reference into the indicated parts
of this Annual Report on Form 10-K: None
PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACCORDINGLY, NO
ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS AND RESULTS WILL NOT BE
MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD
LOOKING STATEMENTS. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS
THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE
ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
360
PART I
ITEM 1. BUSINESS
Parker & Parsley 85-A, Ltd. (the "Partnership") is a limited partnership
organized in 1985 under the laws of the State of Texas. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company
("Pioneer"). As of March 8, 2001, the Partnership had 9,613 limited partnership
interests outstanding.
The Partnership does not have any employees of its own. Pioneer USA employs 701
persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this Report is filed. Pioneer
USA is responsible for all management functions.
The Partnership engages in oil and gas development and production and is not
involved in any industry segment other than oil and gas. The Partnership's
production is geographically concentrated in West Texas.
The principal markets during 2000 for the oil produced by the Partnership were
refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. During 2000, Pioneer USA marketed the
Partnership's gas to a variety of purchasers. Of the Partnership's total oil and
gas revenues for 2000, approximately 57% was attributable to sales made to
Plains Marketing, L.P. Pioneer USA is of the opinion that the loss of any one
purchaser would not have an adverse effect on its ability to sell its oil,
natural gas liquids ("NGLs") and gas production.
The Partnership's revenues, profitability, cash flow and future rate of growth
are highly dependent on the prevailing prices of oil and gas, which are affected
by numerous factors beyond the Partnership's control. Oil and gas prices
historically have been very volatile. A substantial or extended decline in the
prices of oil or gas could have a material adverse effect on the Partnership's
revenues, profitability and cash flow and could, under certain circumstances,
result in a reduction in the carrying value of the Partnership's oil and gas
properties.
Oil and gas production operations are subject to various types of regulations by
local, state and federal agencies. The Partnership's operations are also subject
to state conservation laws and regulations, including the establishment of
maximum rates of production from wells and the regulation of spacing, plugging
and abandonment of wells. Each state generally imposes a production or severance
tax with respect to production and sale of oil and gas within their respective
jurisdictions. Noncompliance with the laws and regulations may subject the
Partnership to penalties, damages or other liabilities and compliance may
increase the cost of the Partnership's operations.
The oil and gas business is also subject to environmental hazards such as oil
spills, gas leaks and ruptures and discharges of toxic substances or gases that
could expose the Partnership to substantial liability due to pollution and other
environmental damages. Although the Partnership believes that its business
operations do not impair environmental quality and that its costs of complying
with any
2
361
applicable environmental regulations are not currently significant, the
Partnership cannot predict what, if any, effect these environmental regulations
may have on its current or future operations.
Numerous uncertainties exist in estimating quantities of proved reserves and
future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the Partnership
conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist of leasehold 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 Spraberry Trend Area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 25
productive oil and gas wells. At December 31, 2000, 21 wells were producing with
four wells sold during 1996.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 2000, 1999 and 1998 and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been evaluated by Williamson Petroleum Consultants, Inc., an independent
petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer USA believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the partners during the fourth
quarter 2000.
3
362
PART II
ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP
DISTRIBUTIONS
At March 8, 2001, the Partnership had 9,613 outstanding limited partnership
interests held of record by 820 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are not
required to meet the Partnership's obligations are distributed to the partners
at least quarterly in accordance with the limited partnership agreement. During
the years ended December 31, 2000 and 1999, distributions of $372,121 and
$161,988 respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
2000 1999 1998 1 997 1996
---------- ---------- ---------- ----------- ------------
Operating results:
------------
Oil and gas sales $ 757,929 $ 526,325 $ 371,098 $ 548,786 $ 631,838
========== ========== ========== =========== ============
Impairment of oil and
gas properties $ -- $ -- $ 22,031 $ 270,187 $ --
========== ========== ========== =========== ============
Gain on litigation
settlement, net $ -- $ -- $ -- $ -- $ 32,694
========== ========== ========== =========== ============
Net income (loss) $ 379,203 $ 178,927 $ (274,769) $ (158,804) $ 221,854
========== ========== ========== =========== ============
Allocation of net income
(loss):
Managing general partner $ 3,792 $ 1,789 $ (2,747) $ (1,588) $ 2,219
========== ========== ========== =========== ============
Limited partners $ 375,411 $ 177,138 $ (272,022) $ (157,216) $ 219,635
========== ========== ========== =========== ============
Limited partners' net
income (loss) per limited
partnership interest $ 39.05 $ 18.43 $ (28.30) $ (16.35) $ 22.85
========== ========== ========== =========== ============
Limited partners' cash
distributions per limited
partnership interest $ 38.71 $ 16.85 $ 9.62 $ 25.26 $ 26.55 (a)
========== ========== ========== =========== ============
At year end:
------------
Identifiable assets $ 703,647 $ 702,600 $ 684,133 $ 1,059,494 $ 1,460,408
========== ========== ========== =========== ============
-----------------------
(a) Including litigation settlement per limited partnership interest of $3.37 in
1996.
4
363
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 44% to $757,929 for 2000 as
compared to $526,325 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decline in production from 1999 to 2000. In
2000, 16,975 barrels of oil, 10,483 barrels of natural gas liquids ("NGLs") and
41,549 mcf of gas were sold, or 34,383 barrel of oil equivalents ("BOEs"). In
1999, 17,451 barrels of oil, 13,795 barrels of NGLs and 55,226 mcf of gas were
sold, or 40,450 BOEs. Due to the decline characteristics of the Partnership's
oil and gas properties, management expects a certain amount of decline in
production in the future until the Partnership's economically recoverable
reserves are fully depleted.
The average price received per barrel of oil increased $12.27, or 72%, from
$17.11 in 1999 to $29.38 in 2000. The average price received per barrel of NGLs
increased $4.49, or 46%, from $9.71 in 1999 to $14.20 in 2000. The average price
received per mcf of gas increased 56% from $1.70 in 1999 to $2.66 in 2000. The
market price received for oil and gas has been extremely volatile in the past
decade and management expects a certain amount of volatility in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
Total costs and expenses increased in 2000 to $386,863 as compared to $350,830
in 1999, an increase of $36,033, or 10%. The increase was primarily due to
increases in production costs and general and administrative expenses ("G&A"),
offset by a decline in depletion.
Production costs were $331,978 in 2000 and $284,086 in 1999, resulting in an
increase of $47,892, or 17%. The increase was primarily due to additional well
maintenance costs incurred to stimulate well production and higher production
taxes associated with higher oil and gas prices.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
44% from $15,790 in 1999 to $22,738 in 2000 primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 3% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $19,018 in 2000 and $9,794 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
Depletion was $32,147 in 2000 as compared to $50,954 in 1999, representing a
decrease of $18,807, or 37%. This decrease was primarily due to a 17,541 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
prices.
1999 compared to 1998
5
364
The Partnership's 1999 oil and gas revenues increased 42% to $526,325 from
$371,098 in 1998. The increase in revenues resulted from higher average prices
received and an increase in production from 1998 to 1999. In 1999, 17,451
barrels of oil, 13,795 barrels of NGLs and 55,226 mcf of gas were sold, or
40,450 BOEs. In 1998, 18,178 barrels of oil, 9,630 barrels of NGLs and 43,021
mcf of gas were sold, or 34,978 BOEs.
The average price received per barrel of oil increased $3.84, or 29%, from
$13.27 in 1998 to $17.11 in 1999. The average price received per barrel of NGLs
increased $3.20, or 49%, from $6.51 in 1998 to $9.71 in 1999. The average price
received per mcf of gas increased 9% from $1.56 in 1998 to $1.70 in 1999.
Total costs and expenses decreased in 1999 to $350,830 as compared to $649,476
in 1998, a decrease of $298,646, or 46%. The decrease was primarily due to
declines in depletion, the impairment of oil and gas properties and production
costs, offset by an increase in G&A.
Production costs were $284,086 in 1999 and $304,333 in 1998, resulting in a
decrease of $20,247, or 7%. The decrease was the combination of declines in well
maintenance costs and ad valorem taxes, offset by an increase in production
taxes due to an increase in oil and gas revenues.
During this period, G&A increased 42% from $11,133 in 1998 to $15,790 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $9,794 in
1999 and $8,231 in 1998 for G&A incurred on behalf of the Partnership.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $22,031 related to its oil and gas properties during 1998.
Depletion was $50,954 in 1999 compared to $311,979 in 1998. This represented a
decrease of $261,025, or 84%. This decrease was primarily due to an increase in
proved reserves of 182,664 barrels of oil during 1999 as a result of higher
commodity prices and a reduction in the Partnership's net depletable basis from
charges taken in accordance with SFAS 121 during the fourth quarter of 1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas
6
365
prices. Although the favorable commodity price environment and stable field
service cost environment is expected to continue during 2001, there is no
assurance that commodity prices will not return to a less favorable level or
that field service costs will not escalate in the future, both of which could
negatively impact the Partnership's future results of operations and cash
distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $172,932 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $234,104, offset by increases in production costs paid
of $47,892, G&A expenses paid of $6,948 and working capital of $6,332. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $331,444 to oil and gas receipts,
offset by $97,340 resulting from the decline in production during 2000. The
increase in production costs was primarily due to increased production taxes
associated with higher oil and gas prices and well maintenance costs incurred to
stimulate well production. The increase in G&A was primarily due to higher
percentage of the managing general partner's G&A being allocated (limited to 3%
of oil and gas revenues) as a result of increased oil and gas revenues.
Net Cash Used in Investing Activities
The Partnership's investing activities during 2000 and 1999 were related to
expenditures for equipment upgrades on various oil and gas properties.
Proceeds from asset dispositions of $2,454 and $279 were recognized in 2000 and
1999, respectively. Proceeds during 2000 of $2,205 were from salvage income
received on one fully depleted well and $249 from equipment credits received on
an active property. Proceeds during 1999 of $279 were from equipment credits
received on active properties.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $375,880, of which $3,759 was
distributed to the managing general partner and $372,121 to the limited
partners. In 1999, cash distributions to the partners were $163,624, of which
$1,636 was distributed to the managing general partner and $161,988 to the
limited partners.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
Financial Statements of Parker & Parsley 85-A, Ltd:
Independent Auditors' Report......................................................... 9
Balance Sheets as of December 31, 2000 and 1999...................................... 10
Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998................................................................ 11
Statements of Partners' Capital for the Years Ended
December 31, 2000, 1999 and 1998................................................... 12
Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998................................................................ 13
Notes to Financial Statements........................................................ 14
8
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INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 85-A, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheets of Parker & Parsley 85-A, Ltd. as of December
31, 2000 and 1999, and the related statements of income, partners' capital and
cash flows for each of the three years in the period ended December 31, 2000.
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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 85-A, Ltd. as
of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
9
368
PARKER & PARSLEY 85-A, LTD.
(A Texas Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
----------- -----------
ASSETS
------
Current assets:
Cash $ 72,868 $ 73,810
Accounts receivable - oil and gas sales 103,810 72,517
----------- -----------
Total current assets 176,678 146,327
----------- -----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 7,398,954 7,396,111
Accumulated depletion (6,871,985) (6,839,838)
----------- -----------
Net oil and gas properties 526,969 556,273
----------- -----------
$ 703,647 $ 702,600
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable - affiliate $ 11,211 $ 13,487
Partners' capital:
Managing general partner 6,936 6,903
Limited partners (9,613 interests) 685,500 682,210
----------- -----------
692,436 689,113
$ 703,647 $ 702,600
=========== ===========
The accompanying notes are an integral part of these financial statements.
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369
PARKER & PARSLEY 85-A, LTD.
(A Texas Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Revenues:
Oil and gas $ 757,929 $ 526,325 $ 371,098
Interest 5,932 3,432 3,609
Gain on disposition of assets 2,205 - -
------- ------- -------
766,066 529,757 374,707
------- ------- -------
Costs and expenses:
Oil and gas production 331,978 284,086 304,333
General and administrative 22,738 15,790 11,133
Impairment of oil and gas properties - - 22,031
Depletion 32,147 50,954 311,979
------- ------- -------
386,863 350,830 649,476
------- ------- -------
Net income (loss) $ 379,203 $ 178,927 $(274,769)
======== ======== ========
Allocation of net income (loss):
Managing general partner $ 3,792 $ 1,789 $ (2,747)
======== ======== ========
Limited partners $ 375,411 $ 177,138 $(272,022)
======== ======== ========
Net income (loss) per limited partnership interest $ 39.05 $ 18.43 $ (28.30)
======== ======== ========
The accompanying notes are an integral part of these financial statements.
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370
PARKER & PARSLEY 85-A, LTD.
(A Texas Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
-------------- -------------- -------------
Partners' capital at January 1, 1998 $ 10,430 $1,031,517 $1,041,947
Distributions (933) (92,435) (93,368)
Net loss (2,747) (272,022) (274,769)
------- -------- --------
Partners' capital at December 31, 1998 6,750 667,060 673,810
Distributions (1,636) (161,988) (163,624)
Net income 1,789 177,138 178,927
------- -------- -------
Partners' capital at December 31, 1999 6,903 682,210 689,113
Distributions (3,759) (372,121) (375,880)
Net income 3,792 375,411 379,203
------- -------- -------
Partners' capital at December 31, 2000 $ 6,936 $ 685,500 $ 692,436
======== ========= ========
The accompanying notes are an integral part of these financial statements.
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PARKER & PARSLEY 85-A, LTD.
(A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ 379,203 $ 178,927 $(274,769)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Impairment of oil and gas properties -- -- 22,031
Depletion 32,147 50,954 311,979
Gain on disposition of assets (2,205) -- --
Changes in assets and liabilities:
Accounts receivable (31,293) (30,401) 24,699
Accounts payable (2,276) 3,164 (7,224)
--------- --------- ---------
Net cash provided by operating activities 375,576 202,644 76,716
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties (3,092) (6,987) (12,611)
Proceeds from asset dispositions 2,454 279 323
--------- --------- ---------
Net cash used in investing activities (638) (6,708) (12,288)
--------- --------- ---------
Cash flows used in financing activities:
Cash distributions to partners (375,880) (163,624) (93,368)
--------- --------- ---------
Net increase (decrease) in cash (942) 32,312 (28,940)
Cash at beginning of year 73,810 41,498 70,438
--------- --------- ---------
Cash at end of year $ 72,868 $ 73,810 $ 41,498
========= ========= =========
The accompanying notes are an integral part of these financial statements.
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PARKER & PARSLEY 85-A, LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 85-A, Ltd. (the "Partnership") is a limited partnership
organized in 1985 under the laws of the State of Texas. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -
Preparation of the accompanying 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 periods. Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
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373
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated, in part, to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non-partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized a non-cash impairment provision of $22,031 related to its
proved oil and gas properties during 1998.
NOTE 4. INCOME TAXES
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374
The financial statement basis of the Partnership's net assets and
liabilities was $500,887 less than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
--------- --------- ---------
Net income (loss) per statements of operations $ 379,203 $ 178,927 $(274,769)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes 26,488 45,239 307,564
Impairment of oil and gas properties for financial
reporting purposes - - 22,031
Other, net (713) (817) 1,515
------- ------- -------
Net income per Federal income tax
returns $ 404,978 $ 223,349 $ 56,341
======== ======== ========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
--------- --------- ----------
Development costs $ 3,092 $ 6,987 $ 12,611
======== ======== ========
Capitalized oil and gas properties consist of the following:
2000 1999
----------- -----------
Proved properties:
Property acquisition costs $ 488,509 $ 488,509
Completed wells and equipment 6,910,445 6,907,602
----------- -----------
7,398,954 7,396,111
Accumulated depletion (6,871,985) (6,839,838)
----------- -----------
Net oil and gas properties $ 526,969 $ 556,273
=========== ===========
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NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
--------- --------- ---------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 157,269 $ 148,638 $ 144,020
Reimbursement of general and administrative
expenses $ 19,018 $ 9,794 $ 8,231
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. In addition,
Pioneer USA and the Partnership are parties to the Program agreement.
The costs and revenues of the Program are allocated to Pioneer USA and
the Partnership as follows:
Pioneer USA (1) Partnership
---------------- -------------
Revenues:
Proceeds from disposition of depreciable properties 9.09091% 90.90909%
All other revenues 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion costs 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated
at the Partnership level and 187 limited partner interests owned by
Pioneer USA.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
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376
Oil and NGLs Gas
(bbls) (mcf)
------------ ----------
Net proved reserves at January 1, 1998 318,665 423,423
Revisions (154,837) (135,041)
Production (27,808) (43,021)
----------- ----------
Net proved reserves at December 31, 1998 136,020 245,361
Revisions 304,597 520,701
Production (31,246) (55,226)
----------- ----------
Net proved reserves at December 31, 1999 409,371 710,836
Revisions 430 (151,364)
Production (27,458) (41,549)
----------- ----------
Net proved reserves at December 31, 2000 382,343 517,923
=========== ==========
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.51 per barrel of NGLs and $7.67 per mcf of gas,
discounted at 10% was approximately $2,812,000 and undiscounted was $5,248,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
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377
For the years ended December 31,
--------------------------------
2000 1999 1998
-------- -------- --------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 12,368 $ 10,131 $ 1,487
Future production costs (7,120) (6,033) (1,155)
-------- -------- --------
5,248 4,098 332
10% annual discount factor (2,436) (1,879) (102)
-------- -------- --------
Standardized measure of discounted future net cash flows $ 2,812 $ 2,219 $ 230
======== ======== ========
For the years ended December 31,
------------------------------------
2000 1999 1998
-------- --------- --------
(in, thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (426) $ (242) $ (67)
Net changes in prices and production costs 1,007 705 (709)
Revisions of previous quantity estimates (150) 2,101 (195)
Accretion of discount 222 22 114
Changes in production rates, timing and other (60) (597) (52)
-------- --------- --------
Change in present value of future net revenues 593 1,989 (909)
-------- --------- --------
Balance, beginning of year 2,219 230 1,139
-------- --------- --------
Balance, end of year $ 2,812 $ 2,219 $ 230
========= ========== =========
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's
oil and gas sales (a major customer is defined as a customer whose sales exceed
10% of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 57% 49% -
NGTS LLC 9% 10% 3%
Genesis Crude Oil, L.P. - - 60%
Western Gas Resources, Inc. 3% 7% 19%
At December 31, 2000, the amount receivable from Plains Marketing, L.P.
was $36,131, which is included in the caption "Accounts receivable - oil and gas
sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the limited partnership agreement:
Managing general partner - The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Partnership affairs. As managing
general partner and operator of the Partnership's properties, all
production expenses are incurred by Pioneer USA and billed to the
Partnership. The majority of the Partnership's oil and gas revenues are
received directly by the Partnership, however, a portion of the oil and
gas revenue is initially received by Pioneer USA prior to being paid to
the Partnership. Under the limited partnership agreement, the managing
general partner pays 1% of the Partnership's acquisition, drilling and
completion costs and 1% of its operating and
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378
general and administrative expenses. In return, it is allocated 1% of
the Partnership's revenues.
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of
$9,613,000. Pioneer USA is required to contribute amounts equal to 1% of
initial Partnership capital less commission and offering expenses
allocated to the limited partners and to contribute amounts necessary to
pay costs and expenses allocated to it under the partnership agreement
to the extent its share of revenues does not cover such costs.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
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379
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and executive
officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the
next annual meeting of stockholders or until their successors are elected and
qualified.
Age at
December 31,
Name 2000 Position
---- ---- --------
Scott D. Sheffield 48 President
Timothy L. Dove 44 Executive Vice President, Chief
Financial Officer and Director
Dennis E. Fagerstone 51 Executive Vice President and Director
Mark L. Withrow 53 Executive Vice President, General
Counsel and Director
Danny Kellum 46 Executive Vice President - Domestic
Operations and Director
Rich Dealy 34 Vice President and Chief Accounting
Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of
Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as
President, Chief Executive Officer and a director of Pioneer and President of
Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of
Pioneer in August 1999. He served as a director of Pioneer USA from August 1997
until his resignation from the board in June 1999. Mr. Sheffield was the
President and a director of Parker & Parsley Petroleum Company ("Parker &
Parsley") from May 1990 until August 1997 and was the Chairman of the Board and
Chief Executive Officer of Parker & Parsley from October 1990 until August 1997.
He was the sole director of Parker & Parsley from May 1990 until October 1990.
Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a
predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as
Vice President - Engineering of PPDC from September 1981 until April 1985 when
he was elected President and a director. In March 1989, Mr. Sheffield was
elected Chairman of the Board and Chief Executive Officer of PPDC. Before
joining PPDC's predecessor, Mr. Sheffield was employed as a production and
reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from
Massachusetts
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380
Institute of Technology in 1979 and received his M.B.A. in 1981 from the
University of Chicago. He became Executive Vice President - Business Development
of Pioneer and Pioneer USA in August 1997 and was also appointed a director of
Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial
Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined
Parker & Parsley in May 1994 as Vice President - International and was promoted
to Senior Vice President - Business Development in October 1996, in which
position he served until August 1997. Prior to joining Parker & Parsley, Mr.
Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy
Corp, in various capacities in international exploration and production,
marketing, refining and marketing and planning and development.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School
of Mines with a B.S. in Petroleum Engineering, became an Executive Vice
President of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. He served as Executive Vice President
and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until
August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior
Vice President and Chief Operating Officer of Mesa and from May 1991 to October
1996, he served as Vice President - Exploration and Production of Mesa. From
June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of
Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President - General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979, was elected Executive
Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000
and Director of Pioneer USA on February 1, 2000. From January 2000 until May
2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and
Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and
Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served
as Spraberry District Manager and as Vice President of the Spraberry and Permian
Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker &
Parsley as an operations engineer in 1981 after a brief career with Mobil Oil
Corporation.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University
with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He
became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
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381
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is performed by Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA pays approximately 10% of the Program's acquisition,
drilling and completion costs and approximately 25% of its operating and general
and administrative expenses. In return, Pioneer USA is allocated approximately
25% of the Program's revenues.
The Partnership does not directly pay any salaries of the executive officers of
Pioneer USA, but does pay a portion of Pioneer USA's general and administrative
expenses of which these salaries are a part.
See Notes 6 and 9 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" for information regarding fees and
reimbursements paid to the managing general partner by the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more of
the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 187 limited partner interests at January 1, 2001.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general
partner of the Partnership, Pioneer USA, has the exclusive right and full
authority to manage, control and administer the Partnership's business. Under
the limited partnership agreement, limited partners holding a majority of the
outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
23
382
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner
Pursuant to the limited partnership agreement, the Partnership had the following
related party transactions with the managing general partner during the years
ended December 31:
2000 1999 1998
--------- ---------- ---------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 157,269 $ 148,638 $144,020
Reimbursement of general and administrative
expenses $ 19,018 $ 9,794 $ 8,231
Under the limited partnership agreement, the managing general partner pays 1% of
the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Partnership.
24
383
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial statements
The following are filed as part of this Report:
Independent Auditors' Report
Balance sheets as of December 31, 2000 and 1999
Statements of operations for the years ended December 31, 2000,
1999 and 1998
Statements of partners' capital for the years ended December 31,
2000, 1999 and 1998
Statements of cash flows for the years ended December 31, 2000,
1999 and 1998
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the
required information is in the financial statements or notes thereto,
or is not applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this Report.
25
384
S I G N A T U R E S
Pursuant to the requirements 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.
PARKER & PARSLEY 85-A, LTD.
Dated: March 27, 2001 By: Pioneer Natural Resources USA, Inc.
Managing General Partner
By: /s/ Scott D. Sheffield
--------------------------------
Scott D. Sheffield, President
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/ Scott D. Sheffield President of Pioneer USA March 27, 2001
-------------------------------
Scott D. Sheffield
/s/ Timothy L. Dove Executive Vice President, Chief March 27, 2001
------------------------------- Financial Officer and Director of
Timothy L. Dove Pioneer USA
/s/ Dennis E. Fagerstone Executive Vice President and March 27, 2001
------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ Mark L. Withrow Executive Vice President, General March 27, 2001
------------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ Danny Kellum Executive Vice President - Domestic March 27, 2001
------------------------------- Operations and Director of Pioneer
Danny Kellum USA
/s/ Rich Dealy Vice President and Chief Accounting March 27, 2001
------------------------------- Officer of Pioneer USA
Rich Dealy
26
385
PARKER & PARSLEY 85-A, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to
Item 14(c):
Exhibit No. Description Page
---------- ----------- ----
3(a) Amended and Restated Certificate of -
Limited Partnership of Parker & Parsley
85-A, Ltd. incorporated by reference to
Exhibit A of the Partnership's Registration
Statement on Form S-1 (Registration No.
2-99079) (hereinafter called the Partnership's
Registration Statement)
4(b) Agreement of Limited Partnership of -
Parker & Parsley 85-A, Ltd. incorporated
by reference to an Exhibit of the Partnership's
Registration Statement
4(c) Form of Subscription Agreement and Power -
of Attorney incorporated by reference to
an Exhibit of the Partnership's Registration
Statement
4(d) Specimen Certificate of Limited Partnership -
Interest incorporated by reference to an
Exhibit of the Partnership's Registration
Statement
27
386
PARKER & PARSLEY 85-A, LTD.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 178,428 $ 757,929 $ 526,325 $ 371,098 $ 548,786 $ 631,838
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ -- $ -- $ 22,031 $ 270,187 $ --
======== ========== ========== ========== ========== ========== ==========
Gain on litigation
settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 32,694
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 73,567 $ 379,203 $ 178,927 $ (274,769) $ (158,804) $ 221,854
======== ========== ========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general
partner $ $ 736 $ 3,792 $ 1,789 $ (2,747) $ (1,588) $ 2,219
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 72,831 $ 375,411 $ 177,138 $ (272,022) $ (157,216) $ 219,635
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 7.58 $ 39.05 $ 18.43 $ (28.30) $ (16.35) $ 22.85
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 7.09 $ 38.71 $ 16.85 $ 9.62 $ 25.26 $ 26.55(a)
======== ========== ========== ========== ========== ========== ==========
At year end:
Identifiable assets $ $ 708,666 $ 703,647 $ 702,600 $ 684,133 $1,059,494 $1,460,408
======== ========== ========== ========== ========== ========== ==========
----------
(a) Including litigation settlement per limited partnership interest of $3.37
in 1996.
387
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 85-B, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
85-B, Ltd. and supplements the proxy statement/prospectus dated ,2001, of
Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by
which Pioneer USA is soliciting proxies to be voted at a special meeting of
limited partners of the partnership. The purpose of the special meeting is for
you to vote upon the merger of the partnership with and into Pioneer USA that,
if completed, will result in your receiving common stock of Pioneer Natural
Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 85-B, Ltd.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's quarterly report on Form 10-Q, including
management's discussion and analysis of financial condition and
results of operations, for the three months ended March 31, 2001
o The partnership's annual report on Form 10-K, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
388
PARKER & PARSLEY 85-B LTD.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 7,988
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 7,425
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 1,132
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 142.77
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.66 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 117.13
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 128.89
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 139.06
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 210
(b), (c)
-----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
(1) neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners; and (2)
neither the grant nor exercise of such right will result in the loss of any
limited partner's limited liability. In addition, the counsel designated to
render the opinion must be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
389
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 FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 2-99079B
PARKER & PARSLEY 85-B, LTD.
(Exact name of Registrant as specified in its charter)
TEXAS 75-2075492
------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039
---------------------------------------------------------------- -------------
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES / X / 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / X /
No market currently exists for the limited partnership interests of the
Registrant. Based on the original purchase price, the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$7,930,000.
As of March 8, 2001, the number of outstanding limited partnership
interests was 7,988.
The following documents are incorporated by reference into the indicated parts
of this Annual Report on Form 10-K: None
PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACCORDINGLY, NO
ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS AND RESULTS WILL NOT BE
MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD
LOOKING STATEMENTS. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS
THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE
ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
390
PART I
ITEM 1. BUSINESS
Parker & Parsley 85-B, Ltd. (the "Partnership") is a limited partnership
organized in 1985 under the laws of the State of Texas. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company
("Pioneer"). As of March 8, 2001, the Partnership had 7,988 limited partnership
interests outstanding.
The Partnership does not have any employees of its own. Pioneer USA employs 701
persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this Report is filed. Pioneer
USA supplies all management functions.
The Partnership engages in oil and gas development and production and is not
involved in any industry segment other than oil and gas. The Partnership's
production is geographically concentrated in West Texas.
The principal markets during 2000 for the oil produced by the Partnership were
refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. During 2000, Pioneer USA marketed the
Partnership's gas to a variety of purchasers. Of the Partnership's total oil and
gas revenues for 2000, approximately 48%, 20% and 10% were attributable to sales
made to Mobil Oil Corporation, Plains Marketing, L.P. and NGTS LLC,
respectively. Pioneer USA is of the opinion that the loss of any one purchaser
would not have an adverse effect on its ability to sell its oil, natural gas
liquids ("NGLs") and gas production.
The Partnership's revenues, profitability, cash flow and future rate of growth
are highly dependent on the prevailing prices of oil and gas, which are affected
by numerous factors beyond the Partnership's control. Oil and gas prices
historically have been very volatile. A substantial or extended decline in the
prices of oil or gas could have a material adverse effect on the Partnership's
revenues, profitability and cash flow and could, under certain circumstances,
result in a reduction in the carrying value of the Partnership's oil and gas
properties.
Oil and gas production operations are subject to various types of regulations by
local, state and federal agencies. The Partnership's operations are also subject
to state conservation laws and regulations, including the establishment of
maximum rates of production from wells and the regulation of spacing, plugging
and abandonment of wells. Each state generally imposes a production or severance
tax with respect to production and sale of oil and gas within their respective
jurisdictions. Noncompliance with the laws and regulations may subject the
Partnership to penalties, damages or other liabilities and compliance may
increase the cost of the Partnership's operations. The oil and gas business is
also subject to environmental hazards such as oil spills, gas leaks and ruptures
and discharges of toxic substances or gases that could expose the Partnership to
substantial
2
391
liability due to pollution and other environmental damages. Although the
Partnership believes that its business operations do not impair environmental
quality and that its costs of complying with any applicable environmental
regulations are not currently significant, the Partnership cannot predict what,
if any, effect these environmental regulations may have on its current or future
operations.
Numerous uncertainties exist in estimating quantities of proved reserves and
future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the Partnership
conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist of leasehold 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 Spraberry Trend Area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 22
productive oil and gas wells. One well was converted to a saltwater disposal
well during 1987 and four wells have been plugged and abandoned. At December 31,
2000, the Partnership had 17 producing wells.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 2000, 1999 and 1998, and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been evaluated by Williamson Petroleum Consultants, Inc., an independent
petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer USA believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the partners during the fourth
quarter of 2000.
3
392
PART II
ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP
DISTRIBUTIONS
At March 8, 2001, the Partnership had 7,988 outstanding limited partnership
interests held of record by 717 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are not
required to meet the Partnership's obligations are distributed to the partners
at least quarterly in accordance with the limited partnership agreement. During
the years ended December 31, 2000 and 1999, distributions of $309,279 and
$115,631, respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
2000 1999 1998 1997 1996
--------- -------- --------- -------- ---------
Operating results:
-----------------
Oil and gas sales $ 619,365 $ 387,551 $ 341,048 $ 538,813 $ 616,863
========= ======== ========= ======== =========
Impairment of oil and
gas properties $ 10,050 $ 95,253 $ 52,922 $ 324,374 $ -
========= ======== ========= ======== =========
Gain on litigation
settlement, net $ - $ - $ - $ - $ 62,948
========= ======== ========= ======== =========
Net income (loss) $ 277,323 $ (14,097) $ (117,257) $(177,091) $ 286,574
========= ======== ========= ======== =========
Allocation of net income
(loss):
Managing general
partner $ 2,773 $ (141) $ (1,172) $ (1,771) $ 2,866
========= ======== ========= ======== =========
Limited partners $ 274,550 $ (13,956) $ (116,085) $(175,320) $ 283,708
========= ======== ========= ======== =========
Limited partners' net
income (loss) per limited
partnership interest $ 34.37 $ (1.75) $ (14.53) $ (21.95) $ 35.52
========= ======== ======== ======== =========
Limited partners' cash
distributions per limited
partnership interest $ 38.72 $ 14.48 $ 17.29 $ 33.72 $ 42.90 (a)
========= ========= ======== ======== =========
At year end:
-----------
Identifiable assets $ 955,947 $ 992,521 $1,122,069 $1,386,758 $1,831,497
========= ======== ========= ========= =========
--------------
(a) Including litigation settlement per limited partnership interest of
$7.80 in 1996.
4
393
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 60% to $619,365 for 2000 as
compared to $387,551 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decline in production. In 2000, 14,002
barrels of oil, 6,807 barrels of natural gas liquids ("NGLs") and 30,909 mcf of
gas were sold, or 25,961 barrel of oil equivalents ("BOEs"). In 1999, 14,280
barrels of oil, 7,130 barrels of NGLs and 33,467 mcf of gas were sold, or 26,988
BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $11.95, or 66%, from
$18.07 in 1999 to $30.02 in 2000. The average price received per barrel of NGLs
increased $5.86, or 58%, from $10.10 in 1999 to $15.96 in 2000. The average
price received per mcf of gas increased 70% from $1.72 in 1999 to $2.92 in 2000.
The market price for oil and gas has been extremely volatile in the past decade
and management expects a certain amount of volatility in the foreseeable future.
The Partnership may therefore sell its future oil and gas production at average
prices lower or higher than that received in 2000.
Total costs and expenses decreased in 2000 to $347,682 as compared to $404,907
in 1999, a decrease of $57,225, or 14%. The decrease was primarily due to
declines in the impairment of oil and gas properties and depletion, offset by
increases in production costs and general and administrative expenses ("G&A").
Production costs were $264,543 in 2000 and $207,744 in 1999, resulting in an
increase of $56,799, or 27%. The increase was primarily due to additional well
maintenance costs incurred to stimulate well production and higher production
taxes associated with higher oil and gas prices.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
60% from $11,626 in 1999 to $18,581 in 2000 primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 3% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $15,555 in 2000 and $6,624 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized
non-cash charges of $10,050 and $95,253 related to its oil and gas properties
during 2000 and 1999, respectively.
5
394
Depletion was $54,508 in 2000 as compared to $90,284 in 1999, representing a
decrease of $35,776, or 40%. This decrease was primarily due to a 17,204 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
prices and a reduction in the Partnership's net depletable basis from charges
taken in accordance with SFAS 121 during the fourth quarter of 1999.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 14% to $387,551 from
$341,048 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 14,280 barrels of oil,
7,130 barrels of NGLs and 33,467 mcf of gas were sold, or 26,988 BOEs. In 1998,
16,204 barrels of oil, 8,599 barrels of NGLs and 41,501 mcf of gas were sold, or
31,720 BOEs.
The average price received per barrel of oil increased $4.77, or 36%, from
$13.30 in 1998 to $18.07 in 1999. The average price received per barrel of NGLs
increased $3.15, or 45%, from $6.95 in 1998 to $10.10 in 1999. The average price
received per mcf of gas increased 9% from $1.58 in 1998 to $1.72 in 1999.
Total costs and expenses decreased in 1999 to $404,907 as compared to $462,704
in 1998, a decrease of $57,797, or 12%. The decrease was primarily due to
declines in production costs and depletion, offset by increases in the
impairment of oil and gas properties and G&A.
Production costs were $207,744 in 1999 and $269,093 in 1998, resulting in a
$61,349 decrease, or 23%. The decrease was attributable to less well maintenance
costs and ad valorem taxes.
During this period, G&A increased, in aggregate, 14% from $10,231 in 1998 to
$11,626 in 1999 primarily due to a higher percentage of the managing general
partner's G&A being allocated (limited to 3% of oil and gas revenues) as a
result of increased oil and gas revenues. The Partnership paid the managing
general partner $6,624 in 1999 and $7,884 in 1998 for G&A incurred on behalf of
the Partnership.
The Partnership recognized non-cash SFAS 121 charges of $95,253 and $52,922
related to its oil and gas properties during 1999 and 1998, respectively.
Depletion was $90,284 in 1999 compared to $130,458 in 1998. This represented a
decrease of $40,174, or 31%. This decrease was the result of an increase in
proved reserves of 117,564 barrels of oil during 1999 as a result of higher
commodity prices, a reduction in the Partnership's net depletable basis from
charges taken in accordance with SFAS 121 during the fourth quarter of 1998 and
a decline in oil production of 1,924 barrels for the period ended December 31,
1999 compared to the same period in 1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but
6
395
to a lesser extent, market prices for natural gas declined. During 1999 and
2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain
other crude oil exporting nations announced reductions in their planned export
volumes. Those announcements, together with the enactment of the announced
reductions in export volumes, had a positive impact on world oil prices, as have
overall natural gas supply and demand fundamentals on North American natural gas
prices. Although the favorable commodity price environment and stable field
service cost environment is expected to continue during 2001, there is no
assurance that commodity prices will not return to a less favorable level or
that field service costs will not escalate in the future, both of which could
negatively impact the Partnership's future results of operations and cash
distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $163,858 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $234,195, offset by increases in production costs paid
of $56,799, G&A expenses paid of $6,955 and working capital of $6,583. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $255,175 to oil and gas receipts,
offset by a decrease of $20,980 resulting from the decline in production during
2000. The increase in production costs was primarily due to increased production
taxes associated with higher oil and gas prices and well maintenance costs
incurred to stimulate well production. The increase in G&A was primarily due to
higher percentage of the managing general partner's G&A being allocated (limited
to 3% of oil and gas revenues) as a result of increased oil and gas revenues.
Net Cash Provided by (Used in) Investing Activities
The Partnership's principal investing activities during 2000 and 1999 were for
expenditures related to oil and gas equipment upgrades on active properties.
Proceeds from disposition of assets of $6,412 and $134 during 2000 and 1999,
respectively, were from equipment credits received on active wells.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $312,403, of which $3,124 was
distributed to the managing general partner and $309,279 to the limited
partners. In 1999, cash distributions to the partners were $116,799, of which
$1,168 was distributed to the managing general partner and $115,631 to the
limited partners.
7
396
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements of Parker & Parsley 85-B, Ltd:
Independent Auditors' Report......................................................... 9
Balance Sheets as of December 31, 2000 and 1999...................................... 10
Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998................................................................ 11
Statements of Partners' Capital for the Years Ended
December 31, 2000, 1999 and 1998................................................... 12
Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998................................................................ 13
Notes to Financial Statements........................................................ 14
8
397
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 85-B, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheets of Parker & Parsley 85-B, Ltd. as of December
31, 2000 and 1999, and the related statements of operations, partners' capital
and cash flows for each of the three years in the period ended December 31,
2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 85-B, Ltd. as
of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
9
398
PARKER & PARSLEY 85-B, LTD.
(A Texas Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
----------- -----------
ASSETS
Current assets:
Cash $ 80,718 $ 74,959
Accounts receivable - oil and gas sales 84,740 59,750
----------- -----------
Total current assets 165,458 134,709
----------- -----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 5,317,256 5,320,021
Accumulated depletion (4,526,767) (4,462,209)
----------- -----------
Net oil and gas properties 790,489 857,812
----------- -----------
$ 955,947 $ 992,521
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable - affiliate $ 10,515 $ 12,009
Partners' capital:
Managing general partner 9,805 10,156
Limited partners (7,988 interests) 935,627 970,356
----------- -----------
945,432 980,512
----------- -----------
$ 955,947 $ 992,521
=========== ===========
10
399
The accompanying notes are an integral part of these financial statements.
PARKER & PARSLEY 85-B, LTD.
(A Texas Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Revenues:
Oil and gas $ 619,365 $ 387,551 $ 341,048
Interest 5,640 3,259 4,399
--------- --------- ---------
625,005 390,810 345,447
--------- --------- ---------
Costs and expenses:
Oil and gas production 264,543 207,744 269,093
General and administrative 18,581 11,626 10,231
Impairment of oil and gas properties 10,050 95,253 52,922
Depletion 54,508 90,284 130,458
--------- --------- ---------
347,682 404,907 462,704
--------- --------- ---------
Net income (loss) $ 277,323 $ (14,097) $(117,257)
========= ========= =========
Allocation of net income (loss):
Managing general partner $ 2,773 $ (141) $ (1,172)
========= ========= =========
Limited partners $ 274,550 $ (13,956) $(116,085)
========= ========= =========
Net income (loss) per limited partnership
interest $ 34.37 $ (1.75) $ (14.53)
========= ========= =========
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400
The accompanying notes are an integral part of these financial statements.
PARKER & PARSLEY 85-B, LTD.
(A Texas Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
-------------- -------------- --------------
Partners' capital at January 1, 1998 $ 14,031 $1,354,156 $1,368,187
Distributions (1,394) (138,128) (139,522)
Net loss (1,172) (116,085) (117,257)
------- -------- --------
Partners' capital at December 31, 1998 11,465 1,099,943 1,111,408
Distributions (1,168) (115,631) (116,799)
Net loss (141) (13,956) (14,097)
------- -------- -------
Partners' capital at December 31, 1999 10,156 970,356 980,512
Distributions (3,124) (309,279) (312,403)
Net income 2,773 274,550 277,323
------- -------- -------
Partners' capital at December 31, 2000 $ 9,805 $ 935,627 $ 945,432
======== ========= ========
12
401
The accompanying notes are an integral part of these financial statements.
PARKER & PARSLEY 85-B, LTD.
(A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ 277,323 $ (14,097) $(117,257)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties 10,050 95,253 52,922
Depletion 54,508 90,284 130,458
Changes in assets and liabilities:
Accounts receivable (24,990) (21,249) 46,814
Accounts payable (1,494) 1,348 (7,910)
--------- --------- ---------
Net cash provided by operating activities 315,397 151,539 105,027
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas equipment (3,647) (7,285) (7,947)
Proceeds from disposition of assets 6,412 134 --
--------- --------- ---------
Net cash provided by (used in)
investing activities 2,765 (7,151) (7,947)
--------- --------- ---------
Cash flows used in financing activities:
Cash distributions to partners (312,403) (116,799) (139,522)
--------- --------- ---------
Net increase (decrease) in cash 5,759 27,589 (42,442)
Cash at beginning of year 74,959 47,370 89,812
--------- --------- ---------
Cash at end of year $ 80,718 $ 74,959 $ 47,370
========= ========= =========
13
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The accompanying notes are an integral part of these financial statements.
PARKER & PARSLEY 85-B, LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 85-B, Ltd. (the "Partnership") is a limited partnership
organized in 1985 under the laws of the State of Texas. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements - Preparation
of the accompanying 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 periods.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
14
403
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative expenses
are allocated in part to the Partnership by the managing general partner.
Allocated expenses are determined by the managing general partner based upon the
level of activity of the Partnership relative to the non-partnership activities
of the managing general partner. The method of allocation has been consistent
over the past several years with certain modifications incorporated to reflect
changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized non-cash impairment provisions of $10,050, $95,253 and
$52,922 related to its proved oil and gas properties during 2000, 1999 and 1998,
respectively.
15
404
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $89,078 greater than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
--------- --------- ---------
Net income (loss) per statements of operations $ 277,323 $ (14,097) $(117,257)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes 50,022 86,267 127,807
Impairment of oil and gas properties for financial
reporting purposes 10,050 95,253 52,922
Other, net 5,557 (1,887) 2,207
--------- --------- ---------
Net income per Federal income tax
returns $ 342,952 $ 165,536 $ 65,679
========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
------ ------ ------
Development costs $ 3,647 $ 7,285 $ 7,947
======== ======== ========
Capitalized oil and gas properties consist of the following:
2000 1999
----------- -----------
Proved properties:
Property acquisition costs $ 292,864 $ 292,864
Completed wells and equipment 5,024,392 5,027,157
----------- -----------
5,317,256 5,320,021
Accumulated depletion (4,526,767) (4,462,209)
----------- -----------
Net oil and gas properties $ 790,489 $ 857,812
=========== ===========
16
405
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
-------- -------- ---------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $105,647 $ 97,004 $111,206
Reimbursement of general and administrative
expenses $ 15,555 $ 6,624 $ 7,884
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. In addition,
Pioneer USA and the Partnership are parties to the Program agreement.
The costs and revenues of the Program are allocated to Pioneer USA and
the Partnership as follows:
Pioneer
USA (1) Partnership
------------- -------------
Revenues:
Proceeds from disposition of depreciable properties 9.09091% 90.90909%
All other revenues 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion costs 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated
at the Partnership level and 58 limited partner interests owned by
Pioneer USA.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
17
406
Oil and NGLs Gas
(bbls) (mcf)
------------- ------------
Net proved reserves at January 1, 1998 333,208 531,982
Revisions (139,875) (179,491)
Production (24,803) (41,501)
-------- --------
Net proved reserves at December 31, 1998 168,530 310,990
Revisions 177,510 247,011
Production (21,410) (33,467)
-------- --------
Net proved reserves at December 31, 1999 324,630 524,534
Revisions 634 (33,966)
Production (20,809) (30,909)
-------- --------
Net proved reserves at December 31, 2000 304,455 459,659
======== ========
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.43 per barrel of NGLs and $7.87 per mcf of gas,
discounted at 10% was approximately $2,332,000 and undiscounted was $4,536,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
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407
For the years ended December 31,
-------------------------------------
2000 1999 1998
----------- --------- ----------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 10,394 $ 8,008 $ 1,850
Future production costs (5,858) (4,882) (1,499)
-------- -------- --------
4,536 3,126 351
10% annual discount factor (2,204) (1,410) (95)
-------- -------- --------
Standardized measure of discounted future net cash flows $ 2,332 $ 1,716 $ 256
======== ======== ========
For the years ended December 31,
-------------------------------------------
2000 1999 1998
-------- --------- --------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (355) $ (180) $ (72)
Net changes in prices and production costs 1,003 954 (923)
Revisions of previous quantity estimates (33) 1,209 (154)
Accretion of discount 172 25 133
Changes in production rates, timing and other (171) (548) (54)
-------- --------- --------
Change in present value of future net revenues 616 1,460 (1,070)
-------- --------- --------
Balance, beginning of year 1,716 256 1,326
-------- --------- --------
Balance, end of year $ 2,332 $ 1,716 $ 256
========= ========== =========
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Mobil Oil Corporation 48% 51% 45%
Plains Marketing, L.P. 20% 16% -
NGTS LLC 10% 7% 1%
Western Gas Resources, Inc. 4% 6% 29%
Genesis Crude Oil, L.P. - - 18%
At December 31, 2000, the amounts receivable from Mobil Oil Corporation,
Plains Marketing, L.P. and NGTS LLC were $23,621, $7,883 and $1,228,
respectively, which are included in the caption "Accounts receivable - oil and
gas sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would not
have an adverse effect on the ability of the Partnership to sell its oil, NGLs
and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the limited partnership agreement:
Managing general partner - The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Partnership affairs. As managing
general partner and operator of the Partnership's properties, all
production expenses are incurred by Pioneer USA and billed to the
Partnership. The majority of the Partnership's oil and gas revenues are
received directly by the Partnership, however, a portion of the oil and
gas revenue is initially received by Pioneer USA prior to being paid to
the Partnership. Under the limited partnership agreement, the managing
general partner pays 1% of the Partnership's acquisition, drilling and
completion costs and 1% of its operating and general and administrative
expenses. In return, it is allocated 1% of the Partnership's revenues.
19
408
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his share
of any undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of
$7,988,000. Pioneer USA is required to contribute amounts equal to 1% of
initial Partnership capital less commission and offering expenses
allocated to the limited partners and to contribute amounts necessary to
pay costs and expenses allocated to it under the Partnership agreement to
the extent its share of revenues does not cover such costs.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
20
409
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and executive
officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the
next annual meeting of stockholders or until their successors are elected and
qualified.
Age at
December 31,
Name 2000 Position
---- ---- --------
Scott D. Sheffield 48 President
Timothy L. Dove 44 Executive Vice President, Chief
Financial Officer and Director
Dennis E. Fagerstone 51 Executive Vice President and Director
Mark L. Withrow 53 Executive Vice President, General
Counsel and Director
Danny Kellum 46 Executive Vice President - Domestic
Operations and Director
Rich Dealy 34 Vice President and Chief Accounting
Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of
Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as
President, Chief Executive Officer and a director of Pioneer and President of
Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of
Pioneer in August 1999. He served as a director of Pioneer USA from August 1997
until his resignation from the board in June 1999. Mr. Sheffield was the
President and a director of Parker & Parsley Petroleum Company ("Parker &
Parsley") from May 1990 until August 1997 and was the Chairman of the Board and
Chief Executive Officer of Parker & Parsley from October 1990 until August 1997.
He was the sole director of Parker & Parsley from May 1990 until October 1990.
Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a
predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as
Vice President - Engineering of PPDC from September 1981 until April 1985 when
he was elected President and a director. In March 1989, Mr. Sheffield was
elected Chairman of the Board and Chief Executive Officer of PPDC. Before
joining PPDC's predecessor, Mr. Sheffield was employed as a production and
reservoir engineer for Amoco Production Company.
21
410
Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from
Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981
from the University of Chicago. He became Executive Vice President - Business
Development of Pioneer and Pioneer USA in August 1997 and was also appointed a
director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief
Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr.
Dove joined Parker & Parsley in May 1994 as Vice President - International and
was promoted to Senior Vice President - Business Development in October 1996, in
which position he served until August 1997. Prior to joining Parker & Parsley,
Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus
Energy Corp, in various capacities in international exploration and production,
marketing, refining and marketing and planning and development.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School
of Mines with a B.S. in Petroleum Engineering, became an Executive Vice
President of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. He served as Executive Vice President
and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until
August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior
Vice President and Chief Operating Officer of Mesa and from May 1991 to October
1996, he served as Vice President - Exploration and Production of Mesa. From
June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of
Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President - General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979, was elected Executive
Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000
and Director of Pioneer USA on February 1, 2000. From January 2000 until May
2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and
Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and
Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served
as Spraberry District Manager and as Vice President of the Spraberry and Permian
Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker &
Parsley as an operations engineer in 1981 after a brief career with Mobil Oil
Corporation.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with
a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He
became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
22
411
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is performed by Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA pays 10% of the Program's acquisition, drilling and
completion costs and 25% of its operating and general and administrative
expenses. In return, Pioneer USA is allocated 25% of the Program's revenues.
The Partnership does not directly pay any salaries of the executive officers of
Pioneer USA, but does pay a portion of Pioneer USA's general and administrative
expenses of which these salaries are a part.
See Notes 6 and 9 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" for information regarding fees and
reimbursements paid to the managing general partner by the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more of
the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 58 limited partner interests at January 1, 2001.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general
partner of the Partnership, Pioneer USA, has the exclusive right and full
authority to manage, control and administer the Partnership's business. Under
the limited partnership agreement, limited partners holding a majority of the
outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
23
412
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner
Pursuant to the limited partnership agreement, the Partnership had the following
related party transactions with the managing general partner during the years
ended December 31:
2000 1999 1998
------------- ------------- -------------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 105,647 $ 97,004 $111,206
Reimbursement of general and administrative
expenses $ 15,555 $ 6,624 $ 7,884
Under the limited partnership agreement, the managing general partner pays 1% of
the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
24
413
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial statements
The following are filed as part of this Report:
Independent Auditors' Report
Balance sheets as of December 31, 2000 and 1999
Statements of operations for the years ended December 31, 2000,
1999 and 1998
Statements of partners' capital for the years ended December 31,
2000, 1999 and 1998
Statements of cash flows for the years ended December 31, 2000,
1999 and 1998
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the
required information is in the financial statements or notes
thereto, or is not applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this Report.
25
414
S I G N A T U R E S
Pursuant to the requirements 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.
PARKER & PARSLEY 85-B, LTD.
Dated: March 27, 2001 By: Pioneer Natural Resources USA, Inc.
Managing General Partner
By: /s/ Scott D. Sheffield
------------------------------------
Scott D. Sheffield, President
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/ Scott D. Sheffield President of Pioneer USA March 27, 2001
-------------------------------
Scott D. Sheffield
/s/ Timothy L. Dove Executive Vice President, Chief March 27, 2001
------------------------------- Financial Officer and Director of
Timothy L. Dove Pioneer USA
/s/ Dennis E. Fagerstone Executive Vice President and March 27, 2001
------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ Mark L. Withrow Executive Vice President, General March 27, 2001
------------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ Danny Kellum Executive Vice President - Domestic March 27, 2001
------------------------------- Operations and Director of Pioneer
Danny Kellum USA
/s/ Rich Dealy Vice President and Chief Accounting March 27, 2001
------------------------------- Officer of Pioneer USA
Rich Dealy
26
415
PARKER & PARSLEY 85-B, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
Exhibit No. Description Page
----------- ----------- ----
3(a) Amended and Restated Certificate of -
Limited Partnership of Parker & Parsley
85-B, Ltd. incorporated by reference to
Exhibit A of the Partnership's Registration
Statement on Form S-1 (Registration No.
2-99079) (hereinafter called the Partnership's
Registration Statement)
4(a) Agreement of Limited Partnership of -
Parker & Parsley 85-B, Ltd. incorporated by
reference to an Exhibit of the Partnership's
Registration Statement
4(b) Form of Subscription Agreement and Power -
of Attorney incorporated by reference to an
Exhibit of the Partnership's Registration
Statement
4(c) Specimen Certificate of Limited Partnership -
Interest incorporated by reference to an Exhibit
of the Partnership's Registration Statement
27
416
PARKER & PARSLEY 85-B, LTD.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 135,322 $ 619,365 $ 387,551 $ 341,048 $ 538,813 $ 616,863
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ 10,050 $ 95,253 $ 52,922 $ 324,374 $ --
======== ========== ========== ========== ========== ========== ==========
Gain on litigation
settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 62,948
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 61,019 $ 277,323 $ (14,097) $ (117,257) $ (177,091) $ 286,574
======== ========== ========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general
partner $ $ 610 $ 2,773 $ (141) $ (1,172) $ (1,771) $ 2,866
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 60,409 $ 274,550 $ (13,956) $ (116,085) $ (175,320) $ 283,708
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 7.56 $ 34.37 $ (1.75) $ (14.53) $ (21.95) $ 35.52
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 7.95 $ 38.72 $ 14.48 $ 17.29 $ 33.72 $ 42.90(a)
======== ========== ========== ========== ========== ========== ==========
At year end:
Identifiable assets $ $ 990,617 $ 955,947 $ 992,521 $1,122,069 $1,386,758 $1,831,497
======== ========== ========== ========== ========== ========== ==========
----------
(a) Including litigation settlement per limited partnership interest of $7.80
in 1996.
417
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
Private Investment 85-A, Ltd. and supplements the proxy statement/prospectus
dated ,2001, of Pioneer Natural Resources Company and Pioneer Natural
Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a
special meeting of limited partners of the partnership. The purpose of the
special meeting is for you to vote upon the merger of the partnership with and
into Pioneer USA that, if completed, will result in your receiving common stock
of Pioneer Natural Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley Private Investment 85-A, Ltd.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the three months ended March 31, 2001
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
418
PARKER & PARSLEY PRIVATE INVESTEMENT 85-A, LTD.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 5,000
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 5,481
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 1,351
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 276.85
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.92 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 148.95
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 256.79
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 269.36
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 275
(b), (c)
-----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
(1) neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners; and (2)
neither the grant nor exercise of such right will result in the loss of any
limited partner's limited liability. In addition, the counsel designated to
render the opinion must be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
419
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD.
(A Texas Limited Partnership)
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT
December 31, 2000 and 1999
420
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley Private Investment 85-A, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheets of Parker & Parsley Private Investment 85-A,
Ltd. as of December 31, 2000 and 1999, and the related statements of operations,
partners' capital and cash flows for each of the three years in the period ended
December 31, 2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley Private
Investment 85-A, Ltd. as of December 31, 2000 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
2
421
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD.
(A Texas Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
---------------- ----------------
ASSETS
------
Current assets:
Cash $ 74,084 $ 79,497
Accounts receivable - oil and gas sales 68,251 45,956
------------ -------------
Total current assets 142,335 125,453
------------ -------------
Oil and gas properties - at cost, based on the
successful efforts accounting method 3,399,009 4,113,242
Accumulated depletion (2,780,814) (3,391,494)
------------ -------------
Net oil and gas properties 618,195 721,748
------------ -------------
$ 760,530 $ 847,201
============= ==============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 5,818 $ 8,160
Partners' capital:
Managing general partner 9,957 10,800
Limited partners (125 interests) 744,755 828,241
------------ -------------
754,712 839,041
------------ -------------
$ 760,530 $ 847,201
============= ==============
The accompanying notes are an integral part of these financial statements.
3
422
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD.
(A Texas Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Revenues:
Oil and gas $ 502,432 $ 342,760 $ 269,068
Interest 6,051 3,587 3,856
Gain on disposition of assets 33,459 -- --
--------- --------- ----------
541,942 346,347 272,924
--------- --------- ----------
Costs and expenses:
Oil and gas production 164,183 157,138 173,592
General and administrative 10,049 6,855 6,018
Impairment of oil and gas properties 61,942 -- 130,873
Depletion 35,049 65,329 131,389
Abandoned property 7,038 -- --
--------- --------- ----------
278,261 229,322 441,872
--------- --------- ----------
Net income (loss) $ 263,681 $ 117,025 $ (168,948)
========= ========= ==========
Allocation of net income (loss):
Managing general partner $ 2,637 $ 1,170 $ (1,689)
========= ========= ==========
Limited partners $ 261,044 $ 115,855 $ (167,259)
========= ========= ==========
Net income (loss) per limited partnership interest $2,088.35 $ 926.84 $(1,338.07)
========= ========= ==========
The accompanying notes are an integral part of these financial statements.
4
423
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD.
(A Texas Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
------------- -------------- ---------------
Partners' capital at January 1, 1998 $ 13,952 $ 1,140,211 $ 1,154,163
Distributions (1,142) (112,983) (114,125)
Net loss (1,689) (167,259) (168,948)
----------- ------------ ------------
Partners' capital at December 31, 1998 11,121 859,969 871,090
Distributions (1,491) (147,583) (149,074)
Net income 1,170 115,855 117,025
----------- ------------ ------------
Partners' capital at December 31, 1999 10,800 828,241 839,041
Distributions (3,480) (344,530) (348,010)
Net income 2,637 261,044 263,681
----------- ------------ ------------
Partners' capital at December 31, 2000 $ 9,957 $ 744,755 $ 754,712
============ ============= =============
The accompanying notes are an integral part of these financial statements.
5
424
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD.
(A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
-------------- -------------- --------------
Cash flows from operating activities:
Net income (loss) $ 263,681 $ 117,025 $ (168,948)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties 61,942 - 130,873
Depletion 35,049 65,329 131,389
Gain on disposition of assets (33,459) - -
Changes in assets and liabilities:
Accounts receivable (22,295) (7,696) 9,222
Accounts payable (2,342) 1,422 2,238
----------- ----------- -----------
Net cash provided by operating activities 302,576 176,080 104,774
----------- ----------- -----------
Cash flows used in investing activities:
Additions to oil and gas properties (1,948) (6,572) (1,756)
Proceeds from disposition of assets 41,969 - -
----------- ----------- -----------
Net cash provided (used by) investing
activities 40,021 (6,572) (1,756)
----------- ----------- -----------
Cash flows used in financing activities:
Cash distributions to partners (348,010) (149,074) (114,125)
----------- ----------- -----------
Net increase (decrease) in cash (5,413) 20,434 (11,107)
Cash at beginning of year 79,497 59,063 70,170
----------- ----------- -----------
Cash at end of year $ 74,084 $ 79,497 $ 59,063
============ ============ ============
The accompanying notes are an integral part of these financial statements.
6
425
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley Private Investment 85-A, Ltd. (the "Partnership") is a
limited partnership organized in 1985 under the laws of the State of Texas.
The Partnership's managing general partner is Pioneer Natural Resources USA,
Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as determined evaluated by independent petroleum
consultants. The carrying amounts of properties sold or otherwise disposed of
and the related allowances for depletion are eliminated from the accounts and
any gain or loss is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -
Preparation of the accompanying 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 periods. Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
7
426
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated in part to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non-partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized non-cash impairment provisions of $61,942 and $130,873
related to its
8
427
proved oil and gas properties during 2000 and 1998, respectively.
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $5,983 less than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements
of operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
-------------- -------------- --------------
Net income (loss) per statements of operations $ 263,681 $ 117,025 $ (168,948)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes 32,046 62,742 129,509
Impairment of oil and gas properties for
financial reporting purposes 61,942 - 130,873
Other, net (7,404) 1,067 (933)
------------ ----------- ------------
Net income per Federal income tax returns $ 350,265 $ 180,834 $ 90,501
============= ============ =============
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
-------------- -------------- --------------
Development costs $ 1,948 $ 6,572 $ 1,756
============ ============ ===========
Capitalized oil and gas properties consist of the following:
2000 1999
---------------- ----------------
Proved properties:
Property acquisition costs $ 102,103 $ 102,995
Completed wells and equipment 3,296,906 4,010,247
------------ ------------
3,399,009 4,113,242
Accumulated depletion (2,780,814) (3,391,494)
------------ ------------
Net oil and gas properties $ 618,195 $ 721,748
============= =============
9
428
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
-------------- -------------- --------------
Payment of lease operating and supervision
charges in accordance with standard industry
operating agreements $ 66,336 $ 73,804 $ 78,418
Reimbursement of general and administrative
expenses $ 8,067 $ 3,581 $ 4,294
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA
and the Partnership are parties to the Program agreement.
The costs and revenues of the Program are allocated to Pioneer USA and the
Partnership as follows:
Pioneer USA (1) Partnership
------------------- ---------------
Revenues:
Proceeds from disposition of depreciable
properties 9.09091% 90.90909%
All other revenues 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion
costs and all other costs 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is
allocated at the Partnership level.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
10
429
Oil and NGLs Gas
(bbls) (mcf)
-------------------- -------------------
Net proved reserves at January 1, 1998 271,658 288,529
Revisions (91,942) (76,028)
Production (21,200) (22,343)
------------ ------------
Net proved reserves at December 31, 1998 158,516 190,158
Revisions 180,472 261,855
Production (20,664) (23,218)
------------ ------------
Net proved reserves at December 31, 1999 318,324 428,795
Revisions 27,943 (50,880)
Production (17,619) (20,905)
------------ ------------
Net proved reserves at December 31, 2000 328,648 357,010
============ ============
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.00 per barrel of NGLs and $7.43 per mcf of gas,
discounted at 10% was approximately $2,408,000 and undiscounted was $5,247,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
----------------------------------------------------
2000 1999 1998
---------------- ---------------- ----------------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 10,071 $ 7,881 $ 1,713
Future production costs (4,824) (4,213) (1,293)
------------- ------------ -------------
5,247 3,668 420
10% annual discount factor (2,839) (1,850) (139)
------------- ------------ -------------
Standardized measure of discounted future net cash flows $ 2,408 $ 1,818 $ 281
============== ============= ==============
11
430
For the years ended December 31,
----------------------------------------------------
2000 1999 1998
---------------- ---------------- ----------------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (338) $ (186) $ (95)
Net changes in prices and production costs 820 905 (674)
Revisions of previous quantity estimates 130 1,414 (124)
Accretion of discount 182 28 109
Changes in production rates, timing and other (204) (624) (21)
------------- ------------ ------------
Change in present value of future net revenues 590 1,537 (805)
------------- ------------ ------------
Balance, beginning of year 1,818 281 1,086
------------- ------------ ------------
Balance, end of year $ 2,408 $ 1,818 $ 281
============== ============= =============
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 64% 60% -
Genesis Crude Oil, L.P. - - 63%
Western Gas Resources, Inc. 3% 6% 25%
At December 31, 2000, the amount receivable from Plains Marketing, L.P.
was $27,002 which is included in the caption "Accounts receivable - oil and gas
sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the limited partnership agreement:
Managing general partner - The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Partnership affairs. As managing
general partner and operator of the Partnership's properties, all
production expenses are incurred by Pioneer USA and billed to the
Partnership. The majority of the Partnership's oil and gas revenues are
received directly by the Partnership, however, a portion
12
431
of the oil and gas revenue is initially received by Pioneer USA prior to
being paid to the Partnership. Under the limited partnership agreement,
the managing general partner pays 1% of the Partnership's acquisition,
drilling and completion costs and 1% of its operating and general and
administrative expenses. In return, it is allocated 1% of the
Partnership's revenues.
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of
$5,000,000. Pioneer USA was required to contribute amounts equal to 1%
of initial Partnership capital less commission and organization and
offering costs allocated to the limited partners and to contribute
amounts necessary to pay costs and expenses allocated to it under the
Partnership agreement to the extent its share of revenues does not cover
such costs.
13
432
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD.
(A TEXAS LIMITED PARTNERSHIP)
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACCORDINGLY, NO ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS
AND RESULTS WILL NOT BE MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS
DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 47% to $502,432 for 2000 as
compared to $342,760 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decline in production. In 2000, 11,945
barrels of oil, 5,674 barrels of natural gas liquids ("NGLs") and 20,905 mcf of
gas were sold, or 21,103 barrel of oil equivalents ("BOEs"). In 1999, 14,568
barrels of oil, 6,096 barrels of NGLs and 23,218 mcf of gas were sold, or 24,534
BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $13.28, or 79%, from
$16.91 in 1999 to $30.19 in 2000. The average price received per barrel of NGLs
increased $5.27, or 53%, from $9.95 in 1999 to $15.22 in 2000. The average price
received per mcf of gas increased 72% from $1.54 in 1999 to $2.65 in 2000. The
market price for oil and gas has been extremely volatile in the past decade, and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
Gain on disposition of assets recognized during 2000 of $33,459 was due to
equipment credits received on two wells plugged and abandoned during the current
year. Abandoned property costs of $7,038 incurred in 2000 related to the
abandonment of these two wells.
Total costs and expenses increased in 2000 to $278,261 as compared to $229,322
in 1999, an increase of $48,939, or 21%. The increase was primarily due to the
impairment of oil and gas properties and increases in production costs,
abandoned property costs and general and administrative expenses ("G&A"), offset
by a decline in depletion.
Production costs were $164,183 in 2000 and $157,138 in 1999, resulting in a
$7,045 increase, or 4%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices and workover costs incurred to
stimulate well production, offset by a decline in well maintenance costs.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
47% from $6,855 in 1999 to $10,049 in 2000, primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 2% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $8,067 in 2000 and $3,581 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $61,942 related to its oil and gas properties during 2000.
433
Depletion was $35,049 in 2000 as compared to $65,329 in 1999, representing a
decrease of $30,280, or 46%. This decrease was primarily due to a 20,767 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
prices and a decline in oil production of 2,623 barrels for the period ended
December 31, 2000 compared to the same period in 1999.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 27% to $342,760 from
$269,068 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 14,568 barrels of oil,
6,096 barrels of NGLs and 23,218 mcf of gas were sold, or 24,534 BOEs. In 1998,
14,874 barrels of oil, 6,326 barrels of NGLs and 22,343 mcf of gas were sold, or
24,924 BOEs.
The average price received per barrel of oil increased $3.71, or 28%, from
$13.20 in 1998 to $16.91 in 1999. The average price received per barrel of NGLs
increased $3.46, or 53%, from $6.49 in 1998 to $9.95 in 1999. The average price
received per mcf of gas increased 9% from $1.41 in 1998 to $1.54 in 1999.
Total costs and expenses decreased in 1999 to $229,322 as compared to $441,872
in 1998, a decrease of $212,550, or 48%. The decrease was primarily due to
declines in the impairment of oil and gas properties, depletion and production
costs, offset by an increase in G&A.
Production costs were $157,138 in 1999 and $173,592 in 1998, resulting in a
$16,454 decrease, or 9%. The decrease was due to declines in well maintenance
costs and ad valorem taxes.
During this period, G&A increased 14% from $6,018 in 1998 to $6,855 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 2% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $3,581 in
1999 and $4,294 in 1998 for G&A incurred on behalf of the Partnership.
The Partnership recognized a non-cash SFAS 121 charge of $130,873 related to its
oil and gas properties during 1998.
Depletion was $65,329 in 1999 compared to $131,389 in 1998, representing a
decrease of $66,060, or 50%. This decrease was the result of an increase in
proved reserves of 120,513 barrels of oil during 1999 due to higher commodity
prices and a reduction in the Partnership's net depletable basis from charges
taken in accordance with SFAS 121 during the fourth quarter of 1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
434
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $126,496 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $162,136, offset by increases in production costs paid
of $7,045, G&A expenses paid of $3,194, abandoned property costs paid of $7,038
and working capital of $18,363. The increase in oil and gas receipts resulted
from the increase in commodity prices during 2000 which contributed an
additional $253,878 to oil and gas receipts, offset by $91,742 resulting from
the decline in production during 2000. The increase in production costs was
primarily due to increased production taxes associated with higher oil and gas
prices and workover costs incurred to stimulate well production, offset by a
decline in well maintenance costs. The increase in G&A was primarily due to
higher percentage of the managing general partner's G&A being allocated (limited
to 2% of oil and gas revenues) as a result of increased oil and gas revenues.
Net Cash Provided by (Used in) Investing Activities
The Partnership's principal investing activities during 2000 and 1999 included
expenditures related to equipment upgrades on several oil and gas properties.
Proceeds from disposition of assets during 2000 of $41,969 were related to
$33,459 salvage income received on two wells plugged and abandoned during the
current year and $8,510 from equipment credits received on one active well.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $348,010, of which $3,480 was
distributed to the managing general partner and $344,530 to the limited
partners. In 1999, cash distributions to the partners were $149,074, of which
$1,491 was distributed to the managing general partner and $147,583 to the
limited partners.
435
PARKER & PARSLEY PRIVATE INVESTMENT 85-A, LTD.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 118,048 $ 502,432 $ 342,760 $ 269,068 $ 396,312 $ 474,256
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ 61,942 $ -- $ 130,873 $ 154,523 $ --
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 83,840 $ 263,681 $ 117,025 $ (168,948) $ (35,440) $ 214,177
======== ========== ========== ========== ========== ========== ==========
Allocation of net
income (loss):
Managing general
partner $ $ 838 $ 2,637 $ 1,170 $ (1,689) $ (354) $ 2,142
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 83,002 $ 261,044 $ 115,855 $ (167,259) $ (35,086) $ 212,035
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 664.02 $ 2,088.35 $ 926.84 $(1,338.07) $ (280.69) $ 1,696.28
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 620.21 $ 2,756.24 $ 1,180.66 $ 903.86 $ 1,914.33 $ 2,012.00
======== ========== ========== ========== ========== ========== ==========
At year end:
Total assets $ $ 850,756 $ 760,530 $ 847,201 $ 877,828 $1,158,663 $1,438,725
======== ========== ========== ========== ========== ========== ==========
436
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD.,
A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
Selected 85 Private Investment, Ltd. and supplements the proxy
statement/prospectus dated , 2001, of Pioneer Natural Resources Company and
Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting proxies
to be voted at a special meeting of limited partners of the partnership. The
purpose of the special meeting is for you to vote upon the merger of the
partnership with and into Pioneer USA that, if completed, will result in your
receiving common stock of Pioneer Natural Resources Company and cash for your
partnership interests.
This document contains the following information concerning Parker &
Parsley Private Selected 85 Private Investment, Ltd.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the three months ended March 31, 2001
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
437
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 4,690
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 4,370
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 880
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 190.87
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 4.01 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 110.65
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 175.51
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 185.81
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 215
(b), (c)
-----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
(1) neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners; and (2)
neither the grant nor exercise of such right will result in the loss of any
limited partner's limited liability. In addition, the counsel designated to
render the opinion must be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
438
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD.
(A Texas Limited Partnership)
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT
December 31, 2000 and 1999
439
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley Selected 85 Private Investment, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheets of Parker & Parsley Selected 85 Private
Investment, Ltd. as of December 31, 2000 and 1999, and the related statements of
operations, partners' capital and cash flows for each of the three years in the
period ended December 31, 2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley Selected 85
Private Investment, Ltd. as of December 31, 2000 and 1999, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
2
440
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD.
(A Texas Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
--------- ---------
ASSETS
Current assets:
Cash $ 32,773 $ 39,610
Accounts receivable - oil and gas sales 78,218 45,630
--------- ---------
Total current assets 110,991 85,240
--------- ---------
Oil and gas properties - at cost, based on
the successful efforts accounting method 3,864,140 3,859,832
Accumulated depletion (3,441,568) (3,408,713)
--------- ---------
Net oil and gas properties 422,572 451,119
------- ---------
$ 533,563 $ 536,359
======= =========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable - affiliate $ 6,722 $ 8,178
Partners' capital:
Managing general partner 7,892 7,905
Limited partners (117 interests) 518,949 520,276
------- ---------
526,841 528,181
$ 533,563 $ 536,359
======== =========
The accompanying notes are an integral part of these financial statements.
3
441
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD.
(A Texas Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
-------- ------- -------
Revenues:
Oil and gas $ 441,200 $ 252,399 $ 206,099
Interest 3,585 1,728 2,200
------- ------- -------
444,785 254,127 208,299
------- ------- -------
Costs and expenses:
Oil and gas production 184,074 153,832 153,789
General and administrative 8,824 5,048 4,122
Impairment of oil and gas properties - - 92,133
Depletion 31,732 33,899 118,737
------- ------- -------
224,630 192,779 368,781
------- ------- -------
Net income (loss) $ 220,155 $ 61,348 $ (160,482)
------- ------- -------
Allocation of net income (loss):
Managing general partner $ 2,202 $ 613 $ (1,605)
======= ======= =======
Limited partners $ 217,953 $ 60,735 $ (158,877)
======= ======= =======
Net income (loss) per limited
partnership interest $1,862.85 $ 519.10 $(1,357.92)
======== ======= ========
The accompanying notes are an integral part of these financial statements.
4
442
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD.
(A Texas Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
-------- -------- -----
Partners' capital at January 1, 1998 $ 10,253 $ 752,707 $ 762,960
Distributions (756) (74,884) (75,640)
Net loss (1,605) (158,877) (160,482)
------ -------- --------
Partners' capital at December 31, 1998 7,892 518,946 526,838
Distributions (600) (59,405) (60,005)
Net income 613 60,735 61,348
------ -------- --------
Partners' capital at December 31, 1999 7,905 520,276 528,181
Distributions (2,215) (219,280) (221,495)
Net income 2,202 217,953 220,155
------ -------- --------
Partners' capital at December 31, 2000 $ 7,892 $ 518,949 $ 526,841
======= ======= =======
The accompanying notes are an integral part of these financial statements.
5
443
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD.
(A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
------- ------ -------
Cash flows from operating activities:
Net income (loss) $ 220,155 $ 61,348 $ (160,482)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties - - 92,133
Depletion 31,732 33,899 118,737
Changes in assets and liabilities:
Accounts receivable (32,588) (22,369) 20,237
Accounts payable (1,456) 2,063 (3,647)
-------- ------ -------
Net cash provided by operating activities 217,843 74,941 66,978
-------- ------ -------
Cash flows from investing activities:
Additions to oil and gas properties (3,185) (3,269) (4,417)
Proceeds from asset dispositions - - 3,057
-------- ------ -------
Net cash used in investing activities (3,185) (3,269) (1,360)
-------- ------ -------
Cash flows used in financing activities:
Cash distributions to partners (221,495) (60,005) (75,640)
-------- ------ -------
Net increase (decrease) in cash (6,837) 11,667 (10,022)
Cash at beginning of year 39,610 27,943 37,965
-------- ------ -------
Cash at end of year $ 32,773 $ 39,610 $ 27,943
======== ====== =======
The accompanying notes are an integral part of these financial statements.
6
444
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley Selected 85 Private Investment, Ltd. (the
"Partnership") is a limited partnership organized in 1985 under the laws of
the State of Texas. The Partnership's managing general partner is Pioneer
Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages oil and gas development and production in Texas and
is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements - Preparation
of the accompanying 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 periods.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the
7
445
respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative expenses
are allocated in part to the Partnership by the managing general partner.
Allocated expenses are determined by the managing general partner based upon the
level of activity of the Partnership relative to the non-partnership activities
of the managing general partner. The method of allocation has been consistent
over the past several years with certain modifications incorporated to reflect
changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. The Partnership has estimated the expected future cash flows of its
oil and gas properties as of December 31, 2000, 1999 and 1998, based on proved
reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized a non-cash impairment provision of $92,133 related to its
proved oil and gas properties during 1998.
8
446
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $152,466 less than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
-------- ------- --------
Net income (loss) per statements of operations $ 220,155 $ 61,348 $ (160,482)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes 28,649 30,978 116,164
Impairment of oil and gas properties for financial
reporting purposes - - 92,133
Salvage income - - 2,904
Other, net (493) (727) 859
Net income per Federal income tax returns $ 248,311 $ 91,599 $ 51,578
======== ======= ========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
------ ------- -------
Development costs $ 3,185 $ 3,269 $ 4,417
====== ======= =======
Capitalized oil and gas properties consist of the following:
2000 1999
--------- ---------
Proved properties:
Property acquisition costs $ 141,791 $ 141,791
Completed wells and equipment 3,722,349 3,718,041
--------- ---------
3,864,140 3,859,832
Accumulated depletion (3,441,568) (3,408,713)
Net oil and gas properties $ 422,572 $ 451,119
========= =========
9
447
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
-------- -------- --------
Payment of lease operating and supervision
charges in accordance with standard industry
operating agreements $ 66,669 $ 78,823 $ 77,025
Reimbursement of general and administrative
expenses $ 6,888 $ 1,886 $ 2,442
The Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Pioneer USA and
the Partnership are parties to the Program agreement.
The costs and revenues of the Program are allocated to the Partnership and
Pioneer USA as follows:
Pioneer USA (1) Partnership
-------------- -----------
Revenues:
Proceeds from disposition of depreciable
properties 9.09091% 90.90909%
All other revenues 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion
costs and all other costs 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at
the Partnership level.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
10
448
Oil and NGLs Gas
(bbls) (mcf)
------------ ----------
Net proved reserves at January 1, 1998 186,210 271,087
Revisions (76,968) (74,549)
Production (15,439) (25,328)
-------- --------
Net proved reserves at December 31, 1998 93,803 171,210
Revisions 121,880 243,365
Production (14,598) (27,627)
-------- --------
Net proved reserves at December 31, 1999 201,085 386,948
Revisions 46,612 21,005
Production (15,698) (22,987)
-------- --------
Net proved reserves at December 31, 2000 231,999 384,966
======== ========
As of December 31, 2000, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 2000 prices of $26.63 per
barrel of oil, $13.32 per barrel of NGLs and $7.55 per mcf of gas, discounted at
10% was approximately $1,829,000 and undiscounted was approximately $3,687,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
--------------------------------
2000 1999 1998
--------- ---------- ---------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 7,746 $ 4,941 $ 1,023
Future production costs (4,059) (2,870) (797)
------ ------- ------
3,687 2,071 226
10% annual discount factor (1,858) (980) (69)
------ ------- ------
Standardized measure of discounted
future net cash flows $ 1,829 $ 1,091 $ 157
====== ======= ======
11
449
For the years ended December 31,
--------------------------------
2000 1999 1998
--------- ---------- ---------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (257) $ (98) $ (53)
Net changes in prices and production costs 658 492 (426)
Revisions of previous quantity estimates 328 882 (98)
Accretion of discount 109 16 70
Changes in production rates, timing and
other (100) (358) (32)
------ ------- ------
Change in present value of future net
revenues 738 934 (539)
------ ------- ------
Balance, beginning of year 1,091 157 696
------ ------- ------
Balance, end of year $ 1,829 $ 1,091 $ 157
====== ======= ======
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 57% 49% -
Koch Midstream Services Company 9% 11% -
NGTS LLC 9% 10% -
Western Gas Resources, Inc. 4% 10% 34%
Genesis Crude Oil, L.P. - - 52%
At December 31, 2000, the amount receivable from Plains Marketing, L.P. was
$26,039, which is included in the caption "Accounts receivable - oil and gas
sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would not
have an adverse effect on the ability of the Partnership to sell its oil, NGLs
and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of the
limited partnership agreement:
Managing general partner - The managing general partner of the Partnership
is Pioneer USA. Pioneer USA has the power and authority to manage, control
and administer all Partnership affairs. As managing general partner and
operator of the Partnership's properties, all production expenses are
incurred by Pioneer USA and billed to the Partnership. The majority of the
Partnership's oil and gas revenues are received directly by the
Partnership, however, a portion of the oil and gas revenue is initially
received by Pioneer USA prior to being paid to the
12
450
Partnership. Under the limited partnership agreement, the managing general
partner pays 1% of the Partnership's acquisition, drilling and completion
costs and 1% of its operating and general and administrative expenses. In
return, it is allocated 1% of the Partnership's revenues.
Limited partner liability - The maximum amount of liability of any limited
partner is the total contributions of such partner plus his share of any
undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of $4,690,000.
Pioneer USA was required to contribute amounts equal to 1% of initial
Partnership capital less commission and organization and offering costs
allocated to the limited partners and to contribute amounts necessary to
pay costs and expenses allocated to it under the Partnership agreement to
the extent its share of revenues does not cover such costs.
13
451
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD.
(A TEXAS LIMITED PARTNERSHIP)
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACCORDINGLY, NO ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS
AND RESULTS WILL NOT BE MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS
DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 75% to $441,200 for 2000 as
compared to $252,399 in 1999. The increase in revenues resulted from higher
average prices received and a slight increase in production. In 2000, 9,509
barrels of oil, 6,189 barrels of natural gas liquids ("NGLs") and 22,987 mcf of
gas were sold, or 19,529 barrel of oil equivalents ("BOEs"). In 1999, 7,828
barrels of oil, 6,770 barrels of NGLs and 27,627 mcf of gas were sold, or 19,203
BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.32, or 71%, from
$17.27 in 1999 to $29.59 in 2000. The average price received per barrel of NGLs
increased $5.03, or 48%, from $10.49 in 1999 to $15.52 in 2000. The average
price received per mcf of gas increased 66% from $1.67 in 1999 to $2.77 in 2000.
The market price for oil and gas has been extremely volatile in the past decade,
and management expects a certain amount of volatility to continue in the
foreseeable future. The Partnership may therefore sell its future oil and gas
production at average prices lower or higher than that received in 2000.
Total costs and expenses increased in 2000 to $224,630 as compared to $192,779
in 1999, an increase of $31,851, or 17%. The increase was primarily due to
increases in production costs and general and administrative expenses ("G&A"),
offset by a decline in depletion.
Production costs were $184,074 in 2000 and $153,832 in 1999, resulting in a
$30,242 increase, or 20%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices and workover costs incurred to
stimulate well production, offset by a decline in well maintenance costs.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
75% from $5,048 in 1999 to $8,824 in 2000, primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 2% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $6,888 in 2000 and $1,886 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
Depletion was $31,732 in 2000 as compared to $33,899 in 1999, representing a
decrease of $2,167, or 6%. This decrease was primarily due to a 28,956 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
prices, offset by an increase in oil production of 1,681 barrels for the period
ended December 31, 2000 compared to the same period in 1999.
452
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 22% to $252,399 from
$206,099 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 7,828 barrels of oil,
6,770 barrels of NGLs and 27,627 mcf of gas were sold, or 19,203 BOEs. In 1998,
9,075 barrels of oil, 6,364 barrels of NGLs and 25,328 mcf of gas were sold, or
19,660 BOEs.
The average price received per barrel of oil increased $3.83, or 28%, from
$13.44 in 1998 to $17.27 in 1999. The average price received per barrel of NGLs
increased $3.50, or 50%, from $6.99 in 1998 to $10.49 in 1999. The average price
received per mcf of gas increased 7% from $1.56 in 1998 to $1.67 in 1999.
Total costs and expenses decreased in 1999 to $192,779 as compared to $368,781
in 1998, a decrease of $176,002, or 48%. The decrease was primarily due to
declines in the impairment of oil and gas properties and depletion, offset by
increases in G&A and production costs.
Production costs were $153,832 in 1999 and $153,789 in 1998, resulting in a $43
increase. The increase was due to increases in production taxes due to increased
oil and gas revenues and additional well maintenance costs incurred to stimulate
well production, offset by a decline in ad valorem taxes.
During this period, G&A increased 22% from $4,122 in 1998 to $5,048 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 2% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $1,886 in
1999 and $2,442 in 1998 for G&A incurred on behalf of the Partnership.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $92,133 related to its oil and gas properties during 1998.
Depletion was $33,899 in 1999 compared to $118,737 in 1998, representing a
decrease of $84,838, or 71%. This decrease was the result of a combination of
factors that included an increase in proved reserves of 65,798 barrels of oil
during 1999 as a result of higher commodity prices, a reduction in the
Partnership's net depletable basis from charges taken in accordance with SFAS
121 during the fourth quarter of 1998 and a decline in oil production of 1,247
barrels for the period ended December 31, 1999 compared to the same period in
1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
453
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $142,902 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $190,658, offset by increases in production costs paid
of $30,242, G&A expenses paid of $3,776 and working capital of $13,738. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $162,805 to oil and gas receipts and
an increase of $27,853 resulting from the increase in production during 2000.
The increase in production costs was primarily due to increased production taxes
associated with higher oil and gas prices and workover costs incurred to
stimulate well production, offset by a decline in well maintenance costs.. The
increase in G&A was primarily due to higher percentage of the managing general
partner's G&A being allocated (limited to 2% of oil and gas revenues) as a
result of increased oil and gas revenues.
Net Cash Used in Investing Activities
The Partnership's principal investing activities during 2000 and 1999 included
expenditures related to equipment upgrades on various oil and gas properties.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $221,495, of which $2,215 was
distributed to the managing general partner and $219,280 to the limited
partners. In 1999, cash distributions to the partners were $60,005, of which
$600 was distributed to the managing general partner and $59,405 to the limited
partners.
454
PARKER & PARSLEY SELECTED 85 PRIVATE INVESTMENT, LTD.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 89,527 $ 441,200 $ 252,399 $ 206,099 $ 324,463 $ 387,747
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ -- $ -- $ 92,133 $ 258,548 $ --
======== ========== ========== ========== ========== ========== ==========
Gain on litigation
settlement, net $ $ -- $ -- $ -- $ -- $ -- $ 27,488
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 39,915 $ 220,155 $ 61,348 $ (160,482) $ (197,320) $ 165,606
======== ========== ========== ========== ========== ========== ==========
Allocation of net
income (loss):
Managing general
partner $ $ 399 $ 2,202 $ 613 $ (1,605) $ (1,973) $ 1,656
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 39,516 $ 217,953 $ 60,735 $ (158,877) $ (195,347) $ 163,950
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 337.74 $ 1,862.85 $ 519.10 $(1,357.92) $(1,669.63) $ 1,401.28
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 368.03 $ 1,874.19 $ 507.74 $ 640.03 $ 1,393.78 $ 1,583.47(a)
======== ========== ========== ========== ========== ========== ==========
At year end:
Total assets $ $ 533,639 $ 533,563 $ 536,359 $ 532,953 $ 772,722 $1,133,345
======== ========== ========== ========== ========== ========== ==========
---------
(a) Including litigation settlement per limited partnership interest of $234.94
in 1996.
455
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 86-A, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
86-A, Ltd. and supplements the proxy statement/prospectus dated , 2001, of
Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by
which Pioneer USA is soliciting proxies to be voted at a special meeting of
limited partners of the partnership. The purpose of the special meeting is for
you to vote upon the merger of the partnership with and into Pioneer USA that,
if completed, will result in your receiving common stock of Pioneer Natural
Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 86-A, Ltd.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's quarterly report on Form 10-Q, including
management's discussion and analysis of financial condition and
results of operations, for the three months ended March 31, 2001
o The partnership's annual report on Form 10-K, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
456
PARKER & PARSLEY 86-A, LTD.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 10,131
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 13,584
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 1,697
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 168.12
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.67 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 58.31
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 151.94
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 163.62
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 225
(b), (c)
----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
(1) neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners; and (2)
neither the grant nor exercise of such right will result in the loss of any
limited partner's limited liability. In addition, the counsel designated to
render the opinion must be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
457
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 FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 33-3353-A
PARKER & PARSLEY 86-A, LTD.
(Exact name of Registrant as specified in its charter)
TEXAS 75-2124884
----------------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039
---------------------------------------------------------------- -------------
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
-----------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES / X / 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / X /
No market currently exists for the limited partnership interests of the
Registrant. Based on the original purchase price, the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$10,096,000.
As of March 8, 2001, the number of outstanding limited
partnership interests was 10,131.
The following documents are incorporated by reference into the indicated parts
of this Annual Report on Form 10-K: None
PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACCORDINGLY, NO
ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS AND RESULTS WILL NOT BE
MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD
LOOKING STATEMENTS. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS
THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE
ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
458
PART I
ITEM 1. BUSINESS
Parker & Parsley 86-A, Ltd. (the "Partnership") is a limited partnership
organized in 1986 under the laws of the State of Texas. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company
("Pioneer"). As of March 8, 2001, the Partnership had 10,131 limited partnership
interests outstanding.
The Partnership does not have any employees of its own. Pioneer USA employs 701
persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this Report is filed. Pioneer
USA supplies all management functions.
The Partnership engages in oil and gas development and production and is not
involved in any industry segment other than oil and gas. The Partnership's
production is geographically concentrated in West Texas.
The principal markets during 2000 for the oil produced by the Partnership were
refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. During 2000, Pioneer USA marketed the
Partnership's gas to a variety of purchasers. Of the Partnership's total oil and
gas revenues for 2000 approximately 51% was attributable to sales made to Plains
Marketing, L.P. Pioneer USA is of the opinion that the loss of any one purchaser
would not have an adverse effect on its ability to sell its oil, natural gas
liquids ("NGLs") and gas production.
The Partnership's revenues, profitability, cash flow and future rate of growth
are highly dependent on the prevailing prices of oil and gas, which are affected
by numerous factors beyond the Partnership's control. Oil and gas prices
historically have been very volatile. A substantial or extended decline in the
prices of oil or gas could have a material adverse effect on the Partnership's
revenues, profitability and cash flow and could, under certain circumstances,
result in a reduction in the carrying value of the Partnership's oil and gas
properties.
Oil and gas production operations are subject to various types of regulations by
local, state and federal agencies. The Partnership's operations are also subject
to state conservation laws and regulations, including the establishment of
maximum rates of production from wells and the regulation of spacing, plugging
and abandonment of wells. Each state generally imposes a production or severance
tax with respect to production and sale of oil and gas within their respective
jurisdictions. Noncompliance with the laws and regulations may subject the
Partnership to penalties, damages or other liabilities and compliance may
increase the cost of the Partnership's operations.
The oil and gas business is also subject to environmental hazards such as oil
spills, gas leaks and ruptures and discharges of toxic substances or gases that
could expose the Partnership to substantial
2
459
liability due to pollution and other environmental damages. Although the
Partnership believes that its business operations do not impair environmental
quality and that its costs of complying with any applicable environmental
regulations are not currently significant, the Partnership cannot predict what,
if any, effect these environmental regulations may have on its current or future
operations.
Numerous uncertainties exist in estimating quantities of proved reserves and
future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the Partnership
conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist of leasehold 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 Spraberry Trend area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 32
oil and gas wells. Five wells were sold and one well was abandoned. At December
31, 2000, 26 wells were producing.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 2000, 1999 and 1998 and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been evaluated by Williamson Petroleum Consultants, Inc., an independent
petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer USA believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the partners during the fourth
quarter of 2000.
3
460
PART II
ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP
DISTRIBUTIONS
At March 8, 2001, the Partnership had 10,131 outstanding limited partnership
interests held of record by 962 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are not
required to meet the Partnership's obligations are distributed to the partners
at least quarterly in accordance with the limited partnership agreement. During
the years ended December 31, 2000 and 1999, distributions of $462,584 and
$154,204, respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
2000 1999 1998 1997 1996
--------------- --------------- --------------- --------------- ---------------
Operating results:
-----------------
Oil and gas sales $ 881,177 $ 555,781 $ 415,842 $ 605,964 $ 843,204
=========== =========== ========== ========== ===========
Gain on litigation
settlement, net $ - $ - $ - $ - $ 290,690
=========== =========== ========== ========== ===========
Impairment of oil and gas
properties $ 12,800 $ 28,052 $ 23,593 $ 496,887 $ -
=========== =========== ========== ========== ===========
Net income (loss) $ 487,574 $ 96,423 $ (248,515) $ (467,727) $ 741,771
=========== =========== ========== ========== ===========
Allocation of net income (loss):
Managing general partner $ 4,876 $ 964 $ (2,485) $ (4,677) $ 7,417
=========== =========== ========== ========== ===========
Limited partners $ 482,698 $ 95,459 $ (246,030) $ (463,050) $ 734,354
=========== =========== ========== ========== ===========
Limited partners' net income
(loss) per limited
partnership interest $ 47.65 $ 9.42 $ (24.28) $ (45.71) $ 72.49
=========== =========== ========== ========== ===========
Limited partners' cash
distributions per
limited partnership
interest $ 45.66 $ 15.22 $ 9.42 $ 27.44 $ 94.54 (a)
=========== =========== ========== ========== ===========
At year end:
-----------
Identifiable assets $ 607,763 $ 594,270 $ 646,224 $ 1,000,424 $ 1,804,366
=========== =========== ========== ========== ===========
---------------
(a) Including litigation settlement per limited partnership interest of $28.41
in 1996.
4
461
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 59% to $881,177 for 2000 as
compared to $555,781 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decrease in production. In 2000, 18,760
barrels of oil, 13,025 barrels of natural gas liquids ("NGLs") and 56,549 mcf of
gas were sold, or 41,210 barrel of oil equivalents ("BOEs"). In 1999, 18,743
barrels of oil, 14,483 barrels of NGLs and 62,354 mcf of gas were sold, or
43,618 BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $11.87, or 70%, from
$17.00 in 1999 to $28.87 in 2000. The average price received per barrel of NGLs
increased $5.31, or 55%, from $9.63 in 1999 to $14.94 in 2000. The average price
received per mcf of gas increased 63% from $1.57 in 1999 to $2.56 in 2000. The
market price for oil and gas has been extremely volatile in the past decade and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
Gain on disposition of assets of $31,944 was recognized during 2000 resulting
from equipment credits on two fully depleted wells.
Total costs and expenses decreased in 2000 to $432,464 as compared to $463,135
in 1999, a decrease of $30,671, or 7%. The decrease was due to declines in
depletion and the impairment of oil and gas properties, offset by increases in
production costs and general and administrative expense ("G&A").
Production costs were $364,985 in 2000 and $341,430 in 1999, resulting in an
increase of $23,555, or 7%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices, offset by a slight decline in
well maintenance costs.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
73% from $16,673 in 1999 to $28,772 in 2000 primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 3% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $24,184 in 2000 and $9,436 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
5
462
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long- lived assets for impairment, the Partnership recognized
non-cash charges of $12,800 and $28,052 related to its oil and gas properties
during 2000 and 1999, respectively.
Depletion was $25,907 in 2000 as compared to $76,980 in 1999, representing a
decrease of $51,073, or 66%. This decrease was primarily due to a 40,953 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
prices and a reduction in the Partnership's net depletable basis from charges
taken in accordance with SFAS 121 during the fourth quarter of 1999.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 34% to $555,781 from
$415,842 in 1998. The increase in revenues resulted from higher average prices
received and an increase in production from 1998 to 1999. In 1999, 18,743
barrels of oil, 14,483 barrels of NGLs and 62,354 mcf of gas were sold, or
43,618 BOEs. In 1998, 20,308 barrels of oil, 11,164 barrels of NGLs and 49,805
mcf of gas were sold, or 39,773 BOEs.
The average price received per barrel of oil increased $3.68, or 28%, from
$13.32 in 1998 to $17.00 in 1999. The average price received per barrel of NGLs
increased $3.10, or 47%, from $6.53 in 1998 to $9.63 in 1999. The average price
received per mcf of gas increased 8% from $1.46 in 1998 to $1.57 in 1999.
Total costs and expenses decreased in 1999 to $463,135 as compared to $669,121
in 1998, a decrease of $205,986, or 31%. The decrease was due to declines in
depletion and production costs, offset by increases in the impairment of oil and
gas properties and G&A.
Production costs were $341,430 in 1999 and $372,460 in 1998, resulting in a
$31,030 decrease, or 8%. The decrease was due to declines in workover costs,
well maintenance costs and ad valorem taxes, offset by an increase in production
taxes due to an increase in oil and gas revenues.
During this period, G&A increased 34% from $12,476 in 1998 to $16,673 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $9,436 in
1999 and $9,062 in 1998 for G&A incurred on behalf of the Partnership.
The Partnership recognized non-cash SFAS 121 charges of $28,052 and $23,593
related to its oil and gas properties during 1999 and 1998, respectively.
Depletion was $76,980 in 1999 compared to $260,592 in 1998. This represented a
decrease of $183,612, or 70%. This decrease was the result of an increase in
proved reserves of 148,893 barrels of oil during 1999 due to higher commodity
prices and a reduction in the Partnership's net depletable basis from charges
taken in accordance with SFAS 121 during the fourth quarter of 1998.
6
463
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $229,299 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $328,536, offset by increases in production costs paid
of $23,555, G&A expenses paid of $12,099 and working capital of $63,583. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $364,711 to oil and gas receipts,
offset by a decrease of $36,175 resulting from a decrease in production during
2000. The increase in production costs was primarily due to increased production
taxes associated with higher oil and gas prices, offset by a slight decline in
well maintenance costs. The increase in G&A was primarily due to higher
percentage of the managing general partner's G&A being allocated (limited to 3%
of oil and gas revenues) as a result of increased oil and gas revenues.
Net Cash Provided by (Used in) Investing Activities
The Partnership's principal investing activities during 2000 and 1999 were for
expenditures related to oil and gas equipment upgrades on active properties.
Proceeds from asset dispositions of $31,944 received during 2000 were due to
equipment credits received on two fully depleted wells. Proceeds of $120 were
recognized in 1999 primarily from equipment credits received on active
properties.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $467,257, of which $4,673 was
distributed to the managing general partner and $462,584 to the limited
partners. In 1999, cash distributions to the partners were $155,762, of which
$1,558 was distributed to the managing general partner and $154,204 to the
limited partners.
7
464
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements of Parker & Parsley 86-A, Ltd:
Independent Auditors' Report.......................................................................... 10
Balance Sheets as of December 31, 2000 and 1999....................................................... 11
Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998................................................................................. 12
Statements of Partners' Capital for the Years Ended
December 31, 2000, 1999 and 1998.................................................................... 13
Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998................................................................................. 14
Notes to Financial Statements......................................................................... 15
8
465
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 86-A, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheets of Parker & Parsley 86-A, Ltd. as of December
31, 2000 and 1999, and the related statements of operations, partners' capital
and cash flows for each of the three years in the period ended December 31,
2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 86-A, Ltd. as
of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
9
466
PARKER & PARSLEY 86-A, LTD.
(A Texas Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
---------------- ----------------
ASSETS
------
Current assets:
Cash $ 46,169 $ 76,838
Accounts receivable - oil and gas sales 150,881 74,543
---------- ----------
Total current assets 197,050 151,381
---------- ----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 7,132,242 7,125,711
Accumulated depletion (6,721,529) (6,682,822)
---------- ----------
Net oil and gas properties 410,713 442,889
---------- ----------
$ 607,763 $ 594,270
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 12,398 $ 19,222
Partners' capital:
Managing general partner 4,647 4,444
Limited partners (10,131 interests) 590,718 570,604
---------- ----------
595,365 575,048
---------- ----------
$ 607,763 $ 594,270
=========== ===========
The accompanying notes are an integral part of these financial statements.
10
467
PARKER & PARSLEY 86-A, LTD.
(A Texas Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
--------------- -------------- ---------------
Revenues:
Oil and gas $ 881,177 $ 555,781 $ 415,842
Interest 6,917 3,777 4,764
Gain on disposition of assets 31,944 - -
--------- -------- ---------
920,038 559,558 420,606
--------- -------- ---------
Costs and expenses:
Oil and gas production 364,985 341,430 372,460
General and administrative 28,772 16,673 12,476
Depletion 25,907 76,980 260,592
Impairment of oil and gas properties 12,800 28,052 23,593
--------- -------- ---------
432,464 463,135 669,121
--------- -------- ---------
Net income (loss) $ 487,574 $ 96,423 $ (248,515)
========== ========= ==========
Allocation of net income (loss):
Managing general partner $ 4,876 $ 964 $ (2,485)
========== ========= ==========
Limited partners $ 482,698 $ 95,459 $ (246,030)
========== ========= ==========
Net income (loss) per limited partnership
interest $ 47.65 $ 9.42 $ (24.28)
========== ========= ==========
The accompanying notes are an integral part of these financial statements.
11
468
PARKER & PARSLEY 86-A, LTD.
(A Texas Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
--------------- -------------- ---------------
Partners' capital at January 1, 1998 $ 8,487 $ 970,792 $ 979,279
Distributions (964) (95,413) (96,377)
Net loss (2,485) (246,030) (248,515)
--------- --------- ---------
Partners' capital at December 31, 1998 5,038 629,349 634,387
Distributions (1,558) (154,204) (155,762)
Net income 964 95,459 96,423
--------- --------- ---------
Partners' capital at December 31, 1999 4,444 570,604 575,048
Distributions (4,673) (462,584) (467,257)
Net income 4,876 482,698 487,574
--------- --------- ---------
Partners' capital at December 31, 2000 $ 4,647 $ 590,718 $ 595,365
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
12
469
PARKER & PARSLEY 86-A, LTD.
(A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
-------------- -------------- --------------
Cash flows from operating activities:
Net income (loss) $ 487,574 $ 96,423 $ (248,515)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties 12,800 28,052 23,593
Depletion 25,907 76,980 260,592
Gain on disposition of assets (31,944) - -
Changes in assets and liabilities:
Accounts receivable (76,338) (26,964) 32,195
Accounts payable (6,824) 7,385 (9,308)
--------- -------- ---------
Net cash provided by operating activities 411,175 181,876 58,557
--------- -------- ---------
Cash flows from investing activities:
Additions to oil and gas properties (6,531) (7,619) (22,830)
Proceeds from asset dispositions 31,944 120 -
--------- -------- ---------
Net cash provided by (used in)
investing activities 25,413 (7,499) (22,830)
--------- -------- ---------
Cash flows used in financing activities:
Cash distributions to partners (467,257) (155,762) (96,377)
--------- -------- ---------
Net increase (decrease) in cash (30,669) 18,615 (60,650)
Cash at beginning of year 76,838 58,223 118,873
--------- -------- ---------
Cash at end of year $ 46,169 $ 76,838 $ 58,223
========== ========= ==========
The accompanying notes are an integral part of these financial statements.
13
470
PARKER & PARSLEY 86-A, LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 86-A, Ltd. (the "Partnership") is a limited partnership
organized in 1986 under the laws of the State of Texas. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -
Preparation of the accompanying 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 periods. Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
14
471
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated in part to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non- partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environ mental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized non-cash impairment provisions of $12,800, $28,052 and
$23,593 related to its proved oil and gas properties during 2000, 1999 and 1998,
respectively.
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $695,197 less
15
472
than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
------------- -------------- --------------
Net income (loss) per statements of operations $ 487,574 $ 96,423 $ (248,515)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes 16,131 66,147 251,615
Impairment of oil and gas properties for financial
reporting purposes 12,800 28,052 23,593
Timing difference 67,848 - -
Other, net (1,032) (1,773) 2,118
---------- --------- ---------
Net income per Federal income tax
returns $ 583,321 $ 188,849 $ 28,811
========== ========== ==========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
-------------- -------------- --------------
Development costs $ 6,531 $ 7,619 $ 22,830
========== ========= ==========
Capitalized oil and gas properties consist of the following:
2000 1999
---------------- ----------------
Proved properties:
Property acquisition costs $ 264,211 $ 264,211
Completed wells and equipment 6,868,031 6,861,500
---------- ----------
7,132,242 7,125,711
Accumulated depletion (6,721,529) (6,682,822)
---------- ----------
Net oil and gas properties $ 410,713 $ 442,889
=========== ===========
16
473
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
-------------- -------------- --------------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 167,350 $ 167,820 $ 161,913
Reimbursement of general and administrative
expenses $ 24,184 $ 9,436 $ 9,062
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. In addition,
Pioneer USA and the Partnership are parties to the Program agreement.
The costs and revenues of the Program are allocated to Pioneer USA and
the Partnership as follows:
Pioneer
USA (1) Partnership
------------- ---------------
Revenues:
Proceeds from disposition of depreciable properties 9.09091% 90.90909%
All other revenues 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion costs
and all other costs 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated
at the Partnership level and 35 limited partner interests owned by
Pioneer USA.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
17
474
Oil and NGLs Gas
(bbls) (mcf)
-------------------- -------------------
Net proved reserves at January 1, 1998 315,662 469,065
Revisions (123,571) (148,399)
Production (31,472) (49,805)
---------- ----------
Net proved reserves at December 31, 1998 160,619 270,861
Revisions 273,095 545,216
Production (33,226) (62,354)
---------- ----------
Net proved reserves at December 31, 1999 400,488 753,723
Revisions 83,992 171,142
Production (31,785) (56,549)
---------- ----------
Net proved reserves at December 31, 2000 452,695 868,316
========== ==========
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $12.60 per barrel of NGLs and $7.15 per mcf of gas,
discounted at 10% was approximately $3,610,000 and undiscounted was $7,252,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year- end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
18
475
For the years ended December 31,
-------------------------------------------------
2000 1999 1998
---------------- ---------------- ---------------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 15,459 $ 9,741 $ 1,763
Future production costs (8,207) (5,896) (1,433)
---------- ---------- ----------
7,252 3,845 330
10% annual discount factor (3,642) (1,727) (89)
---------- ---------- ----------
Standardized measure of discounted future net cash flows $ 3,610 $ 2,118 $ 241
=========== =========== ===========
For the years ended December 31,
-------------------------------------------------
2000 1999 1998
---------------- ---------------- ---------------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (516) $ (214) $ (43)
Net changes in prices and production costs 1,408 829 (761)
Revisions of previous quantity estimates 753 1,942 (147)
Accretion of discount 212 24 113
Changes in production rates, timing and other (365) (704) (51)
---------- ----------- ----------
Change in present value of future net revenues 1,492 1,877 (889)
---------- ----------- ----------
Balance, beginning of year 2,118 241 1,130
---------- ----------- ----------
Balance, end of year $ 3,610 $ 2,118 $ 241
=========== ============ ===========
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's
oil and gas sales (a major customer is defined as a customer whose sales exceed
10% of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 51% 48% -
Genesis Crude Oil, L.P. - - 62%
Western Gas Resources, Inc. 7% 9% 29%
At December 31, 2000, the amount receivable from Plains Marketing, L.P.
was $31,479, which is included in the caption "Accounts receivable - oil and gas
sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
19
476
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the limited partnership agreement:
Managing general partner - The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Partnership affairs. As managing
general partner and operator of the Partnership's properties, all
production expenses are incurred by Pioneer USA and billed to the
Partnership. The majority of the Partnership's oil and gas revenues are
received directly by the Partnership, however, a portion of the oil and
gas revenue is initially received by Pioneer USA prior to being paid to
the Partnership. Under the limited partnership agreement, the managing
general partner pays 1% of the Partnership's acquisition, drilling and
completion costs and 1% of its operating and general and administrative
expenses. In return, it is allocated 1% of the Partnership's revenues.
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of
$10,131,000. Pioneer USA is required to contribute amounts equal to 1%
of initial Partnership capital less commission and offering expenses
allocated to the limited partners and to contribute amounts necessary to
pay costs and expenses allocated to it under the Partnership agreement
to the extent its share of revenues does not cover such costs.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
20
477
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and executive
officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the
next annual meeting of stockholders or until their successors are elected and
qualified.
Age at
December 31,
Name 2000 Position
---- ---- --------
Scott D. Sheffield 48 President
Timothy L. Dove 45 Executive Vice President, Chief
Financial Officer and Director
Dennis E. Fagerstone 51 Executive Vice President and Director
Mark L. Withrow 53 Executive Vice President, General
Counsel and Director
Danny Kellum 46 Executive Vice President - Domestic
Operations and Director
Rich Dealy 34 Vice President and Chief Accounting
Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of
Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as
President, Chief Executive Officer and a director of Pioneer and President of
Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of
Pioneer in August 1999. He served as a director of Pioneer USA from August 1997
until his resignation from the board in June 1999. Mr. Sheffield was the
President and a director of Parker & Parsley Petroleum Company ("Parker &
Parsley") from May 1990 until August 1997 and was the Chairman of the Board and
Chief Executive Officer of Parker & Parsley from October 1990 until August 1997.
He was the sole director of Parker & Parsley from May 1990 until October 1990.
Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a
predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as
Vice President - Engineering of PPDC from September 1981 until April 1985 when
he was elected President and a director. In March 1989, Mr. Sheffield was
elected Chairman of the Board and Chief Executive Officer of PPDC. Before
joining PPDC's predecessor, Mr. Sheffield was employed as a production and
reservoir engineer for Amoco Production Company.
Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from
Massachusetts
21
478
Institute of Technology in 1979 and received his M.B.A. in 1981 from the
University of Chicago. He became Executive Vice President - Business Development
of Pioneer and Pioneer USA in August 1997 and was also appointed a director of
Pioneer USA in August 1997. Mr. Dove assumed the position of Chief Financial
Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr. Dove joined
Parker & Parsley in May 1994 as Vice President - International and was promoted
to Senior Vice President - Business Development in October 1996, in which
position he served until August 1997. Prior to joining Parker & Parsley, Mr.
Dove was employed with Diamond Shamrock Corp., and its successor, Maxus Energy
Corp, in various capacities in international exploration and production,
marketing, refining and marketing and planning and development.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School
of Mines with a B.S. in Petroleum Engineering, became an Executive Vice
President of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. He served as Executive Vice President
and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until
August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior
Vice President and Chief Operating Officer of Mesa and from May 1991 to October
1996, he served as Vice President - Exploration and Production of Mesa. From
June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of
Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President - General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979, was elected Executive
Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000
and Director of Pioneer USA on February 1, 2000. From January 2000 until May
2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and
Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and
Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served
as Spraberry District Manager and as Vice President of the Spraberry and Permian
Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker &
Parsley as an operations engineer in 1981 after a brief career with Mobil Oil
Corporation.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University
with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He
became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
22
479
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is performed by Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA pays approximately 10% of the Program's acquisition,
drilling and completion costs and approximately 25% of its operating and general
and administrative expenses. In return, Pioneer USA is allocated approximately
25% of the Program's revenues.
The Partnership does not directly pay any salaries of the executive officers of
Pioneer USA, but does pay a portion of Pioneer USA's general and administrative
expenses of which these salaries are a part.
See Notes 6 and 9 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" for information regarding fees and
reimbursements paid to the managing general partner by the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more of
the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 35 limited partner interests at January 1, 2001.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general
partner of the Partnership, Pioneer USA, has the exclusive right and full
authority to manage, control and administer the Partnership's business. Under
the limited partnership agreement, limited partners holding a majority of the
outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
23
480
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner
Pursuant to the limited partnership agreement, the Partnership had the following
related party transactions with the managing general partner during the years
ended December 31:
2000 1999 1998
------------- ------------- -------------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 167,350 $ 167,820 $ 161,913
Reimbursement of general and administrative
expenses $ 24,184 $ 9,436 $ 9,062
Under the limited partnership agreement, the managing general partner pays 1% of
the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
24
481
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial statements
The following are filed as part of this Report:
Independent Auditors' Report
Balance sheets as of December 31, 2000 and 1999
Statements of operations for the years ended December 31,
2000, 1999 and 1998
Statements of partners' capital for the years ended
December 31, 2000, 1999 and 1998
Statements of cash flows for the years ended December 31,
2000, 1999 and 1998
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the
required information is in the financial statements or notes
thereto, or is not applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this Report.
25
482
S I G N A T U R E S
Pursuant to the requirements 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.
PARKER & PARSLEY 86-A, LTD.
Dated: March 28, 2001 By: Pioneer Natural Resources USA, Inc.
Managing General Partner
By: /s/ Scott D. Sheffield
-----------------------------
Scott D. Sheffield, President
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/ Scott D. Sheffield President of Pioneer USA March 28, 2001
--------------------------------------
Scott D. Sheffield
/s/ Timothy L. Dove Executive Vice President, Chief March 28, 2001
-------------------------------------- Financial Officer and Director of
Timothy L. Dove Pioneer USA
/s/ Dennis E. Fagerstone Executive Vice President and March 28, 2001
-------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ Mark L. Withrow Executive Vice President, General March 28, 2001
-------------------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ Danny Kellum Executive Vice President - Domestic March 28, 2001
-------------------------------------- Operations and Director of Pioneer
Danny Kellum USA
/s/ Rich Dealy Vice President and Chief Accounting March 28, 2001
-------------------------------------- Officer of Pioneer USA
Rich Dealy
26
483
PARKER & PARSLEY 86-A, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to
Item 14(c):
Exhibit No. Description Page
----------- ----------- ----
3(a) Amended and Restated Certificate of -
Limited Partnership of Parker & Parsley
86-A, Ltd. incorporated by reference to
Exhibit 3a of the Partnership's Registration
Statement on Form S-1 (Registration No.
33-3353) (hereinafter called the Partnership's
Registration Statement)
4(a) Form of Agreement of Limited Partnership of -
Parker & Parsley 86-A, Ltd. incorporated by
reference to Exhibit A of Amendment No. 1 of
the Partnership's Registration Statement
4(b) Form of Subscription Agreement incorporated by
reference to Exhibit C of Amendment No. 1 of
the Partnership's Registration Statement -
4(b) Power of Attorney incorporated by reference to -
an Exhibit of the Partnership's Registration
Statement
4(c) Specimen Certificate of Limited Partnership -
Interest incorporated by reference to Exhibit
4c of the Partnership's Registration Statement
10(b) Development Program Agreement incorporated -
by reference to Exhibit B of Amendment No. 1
of the Partnership's Registration Statement
27
484
PARKER & PARSLEY 86-A, LTD.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
------ ---------- ---------- ---------- ---------- ---------- ----------
1996
Operating results:
Oil and gas sales ............... $ $ 196,979 $ 881,177 $ 555,781 $ 415,842 $ 605,964 $ 843,204
====== ========== ========== ========== ========== ========== ==========
Gain on litigation
settlement, net ................. $ -- $ -- $ -- $ -- $ -- $ -- $ 290,690
====== ========== ========== ========== ========== ========== ==========
Impairment of oil and gas
properties .................. $ $ -- $ 12,800 $ 28,052 $ 23,593 $ 496,887 $ --
====== ========== ========== ========== ========== ========== ==========
Net income (loss) ............... $ $ 105,432 $ 487,574 $ 96,423 $ (248,515) $ (467,727) $ 741,771
====== ========== ========== ========== ========== ========== ==========
Allocation of net
income (loss):
Managing general
partner ................... $ $ 1,054 $ 4,876 $ 964 $ (2,485) $ (4,677) $ 7,417
====== ========== ========== ========== ========== ========== ==========
Limited partners ............ $ $ 104,378 $ 482,698 $ 95,459 $ (246,030) $ (463,050) $ 734,354
====== ========== ========== ========== ========== ========== ==========
Limited partners' net income
(loss) per limited
partnership interest ........ $ $ 10.30 $ 47.65 $ 9.42 $ (24.28) $ (45.71) $ 72.49
====== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per
limited partnership
interest .................... $ $ 8.66 $ 45.66 $ 15.22 $ 9.42 $ 27.44 $ 94.54(a)
====== ========== ========== ========== ========== ========== ==========
At year end:
Identifiable assets ............. $ $ 613,701 $ 607,763 $ 594,270 $ 646,224 $1,000,424 $1,804,366
====== ========== ========== ========== ========== ========== ==========
----------
(a) Including litigation settlement per limited partnership interest of $28.41
in 1996.
485
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 86-B, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
86-B, Ltd. and supplements the proxy statement/prospectus dated , 2001, of
Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by
which Pioneer USA is soliciting proxies to be voted at a special meeting of
limited partners of the partnership. The purpose of the special meeting is for
you to vote upon the merger of the partnership with and into Pioneer USA that,
if completed, will result in your receiving common stock of Pioneer Natural
Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 86-B, Ltd.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's quarterly report on Form 10-Q, including
management's discussion and analysis of financial condition and
results of operations, for the three months ended March 31, 2001
o The partnership's annual report on Form 10-K, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
486
PARKER & PARSLEY 86-B, LTD.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 17,208
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 26,572
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 3,728
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 218.28
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 4.04 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 128.81
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 197.86
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 212.53
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 235
(b), (c)
----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
(1) neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners; and (2)
neither the grant nor exercise of such right will result in the loss of any
limited partner's limited liability. In addition, the counsel designated to
render the opinion must be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
487
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 FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 33-3353B
PARKER & PARSLEY 86-B, LTD.
(Exact name of Registrant as specified in its charter)
TEXAS 75-2140235
----------------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039
---------------------------------------------------------------- -------------
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES / X / 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / X /
No market currently exists for the limited partnership interests of the
Registrant. Based on the original purchase price, the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$17,080,000.
As of March 8, 2001, the number of outstanding limited
partnership interests was 17,208.
The following documents are incorporated by reference into the indicated parts
of this Annual Report on Form 10-K: None
PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACCORDINGLY, NO
ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS AND RESULTS WILL NOT BE
MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD
LOOKING STATEMENTS. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS
THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE
ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
488
PART I
ITEM 1. BUSINESS
Parker & Parsley 86-B, Ltd. (the "Partnership") is a limited partnership
organized in 1986 under the laws of the State of Texas. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company
("Pioneer"). As of March 8, 2001, the Partnership had 17,208 limited partnership
interests outstanding.
The Partnership does not have any employees of its own. Pioneer USA employs 701
persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this Report is filed. Pioneer
USA supplies all management functions.
The Partnership engages in oil and gas development and production and is not
involved in any industry segment other than oil and gas. The Partnership's
production is geographically concentrated in West Texas.
The principal markets during 2000 for the oil produced by the Partnership were
refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. During 2000, Pioneer USA marketed the
Partnership's gas to a variety of purchasers, none of which accounted for 10% or
more of the Partnership's oil and gas revenues. Of the Partnership's total oil
and gas revenues for 2000, approximately 36% and 16% were attributable to sales
made to Plains Marketing, L.P. and Mobil Oil Corporation, respectively. Pioneer
USA is of the opinion that the loss of any one purchaser would not have an
adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and
gas production.
The Partnership's revenues, profitability, cash flow and future rate of growth
are highly dependent on the prevailing prices of oil and gas, which are affected
by numerous factors beyond the Partnership's control. Oil and gas prices
historically have been very volatile. A substantial or extended decline in the
prices of oil or gas could have a material adverse effect on the Partnership's
revenues, profitability and cash flow and could, under certain circumstances,
result in a reduction in the carrying value of the Partnership's oil and gas
properties.
Oil and gas production operations are subject to various types of regulations by
local, state and federal agencies. The Partnership's operations are also subject
to state conservation laws and regulations, including the establishment of
maximum rates of production from wells and the regulation of spacing, plugging
and abandonment of wells. Each state generally imposes a production or severance
tax with respect to production and sale of oil and gas within their respective
jurisdictions. Noncompliance with the laws and regulations may subject the
Partnership to penalties, damages or other liabilities and compliance may
increase the cost of the Partnership's operations.
The oil and gas business is also subject to environmental hazards such as oil
spills, gas leaks and ruptures and discharges of toxic substances or gases that
could expose the Partnership to substantial
2
489
liability due to pollution and other environmental damages. Although the
Partnership believes that its business operations do not impair environmental
quality and that its costs of complying with any applicable environmental
regulations are not currently significant, the Partnership cannot predict what,
if any, effect these environmental regulations may have on its current or future
operations.
Numerous uncertainties exist in estimating quantities of proved reserves and
future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the Partnership
conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist of leasehold 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 Spraberry Trend area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 56
oil and gas wells. At December 31, 2000, 43 wells were producing. Nine wells and
interests in two abandoned wells were sold and two wells were plugged and
abandoned.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 2000, 1999 and 1998, and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been evaluated by Williamson Petroleum Consultants, Inc., an independent
petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer USA believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the partners during the fourth
quarter of 2000.
3
490
PART II
ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP
DISTRIBUTIONS
At March 8, 2001, the Partnership had 17,208 outstanding limited partnership
interests held of record by 1,409 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are not
required to meet the Partnership's obligations are distributed to the partners
at least quarterly in accordance with the limited partnership agreement. During
the years ended December 31, 2000 and 1999, distributions of $923,558 and
$357,887, respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
2000 1999 1998 1997 1996
--------------- --------------- --------------- --------------- ---------------
Operating results:
-----------------
Oil and gas sales $ 1,756,242 $ 1,056,533 $ 928,899 $ 1,369,807 $ 1,700,251
========== =========== ========== =========== ===========
Gain on litigation
settlement, net $ - $ - $ - $ - $ 565,756
========== =========== ========== =========== ===========
Impairment of oil and gas
properties $ 13,279 $ - $ 509,585 $ 561,432 $ 4,960
========== =========== ========== =========== ===========
Net income (loss) $ 933,292 $ 246,008 $ (807,041) $ (158,796) $ 1,229,639
========== =========== ========== =========== ===========
Allocation of net income
(loss):
Managing general partner $ 9,333 $ 2,460 $ (8,070) $ (1,587) $ 12,296
========== =========== ========== =========== ===========
Limited partners $ 923,959 $ 243,548 $ (798,971) $ (157,209) $ 1,217,343
========== =========== ========== =========== ===========
Limited partners' net
income (loss) per limited
partnership interest $ 53.69 $ 14.15 $ (46.43) $ (9.14) $ 70.74
========== =========== ========== =========== ===========
Limited partners' cash
distributions per limited
partnership interest $ 53.67 $ 20.80 $ 18.70 $ 46.77 $ 86.49 (a)
========== =========== ========== =========== ===========
At year end:
-----------
Identifiable assets $ 2,252,955 $ 2,266,438 $ 2,363,955 $ 3,520,172 $ 4,548,338
========== =========== ========== =========== ===========
---------------
(a) Including litigation settlement per limited partnership interest of $32.55
in 1996.
4
491
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 66% to $1,756,242 for 2000 as
compared to $1,056,533 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decline in production. In 2000, 41,276
barrels of oil, 21,061 barrels of natural gas liquids ("NGLs") and 79,859 mcf of
gas were sold, or 75,647 barrel of oil equivalents ("BOEs"). In 1999, 40,490
barrels of oil, 22,642 barrels of NGLs and 86,726 mcf of gas were sold, or
77,586 BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.27, or 71%, from
$17.18 in 1999 to $29.45 in 2000. The average price received per barrel of NGLs
increased $5.61, or 60%, from $9.39 in 1999 to $15.00 in 2000. The average price
received per mcf of gas increased 65% from $1.71 in 1999 to $2.82 in 2000. The
market price for oil and gas has been extremely volatile in the past decade and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
A gain on disposition of assets of $21,074 was received during 2000 due to the
sale of equipment on one plugged and abandoned well. Abandoned property costs of
$12,161 were also incurred during 2000 to plug and abandon this well.
Total costs and expenses increased in 2000 to $861,600 as compared to $821,102
in 1999, an increase of $40,498, or 5%. The increase was due to increases in
production costs, general and administrative expenses ("G&A"), the impairment of
oil and gas properties and abandoned property costs, offset by a decline in
depletion.
Production costs were $670,780 in 2000 and $611,991 in 1999, resulting in an
increase of $58,789, or 10%. This increase was primarily due to higher
production taxes associated with higher oil and gas prices and additional well
maintenance costs incurred to stimulate well production.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
66% from $31,696 in 1999 to $52,687 in 2000 primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 3% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $44,975 in 2000 and $19,909 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated
5
492
to reflect changes in Pioneer USA's overall business activities.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $13,279 related to its oil and gas properties during 2000.
Depletion was $112,693 in 2000 as compared to $177,415 in 1999, representing a
decrease of $64,722, or 36%. This decrease was primarily due to a 65,045 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
prices.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 14% to $1,056,533 from
$928,899 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 40,490 barrels of oil,
22,642 barrels of NGLs and 86,726 mcf of gas were sold, or 77,586 BOEs. In 1998,
47,107 barrels of oil, 23,292 barrels of NGLs and 97,715 mcf of gas were sold,
or 86,685 BOEs.
The average price received per barrel of oil increased $4.10, or 31%, from
$13.08 in 1998 to $17.18 in 1999. The average price received per barrel of NGLs
increased $2.59, or 38%, from $6.80 in 1998 to $9.39 in 1999. The average price
received per mcf of gas increased 8% from $1.58 in 1998 to $1.71 in 1999.
A gain on disposition of assets of $6,371 was recognized during 1998 from the
sale of equipment on one well plugged and abandoned during 1998. Abandoned
property costs of $20,389 were also incurred during 1998 to plug and abandon
this well.
Total costs and expenses decreased in 1999 to $821,102 as compared to $1,755,278
in 1998, a decrease of $934,176, or 53%. The decrease was due to declines in the
impairment of oil and gas properties, depletion, production costs and abandoned
property costs, offset by an increase in G&A.
Production costs were $611,991 in 1999 and $662,691 in 1998, resulting in a
$50,700 decrease, or 8%. This decrease was due to lower well maintenance costs
and ad valorem taxes, offset by an increase in workover costs incurred to
stimulate well production.
During this period, G&A increased 14% from $27,867 in 1998 to $31,696 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $19,909 in
1999 and $21,984 in 1998 for G&A incurred on behalf of the Partnership.
The Partnership recognized a non-cash SFAS 121 charge of $509,585 related to its
oil and gas properties during 1998.
6
493
Depletion was $177,415 in 1999 compared to $534,746 in 1998. This represented a
decrease of $357,331, or 67%. This decrease was the result of a combination of
factors that included an increase in proved reserves of 343,529 barrels of oil
during 1999 as a result of higher commodity prices, a reduction in the
Partnership's net depletable basis from charges taken in accordance with SFAS
121 during the fourth quarter of 1998 and a decline in oil production of 6,617
barrels for the period ended December 31, 1999 compared to the same period in
1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $561,909 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $706,708, offset by increases in production costs paid
of $58,789, G&A expenses paid of $20,991, abandoned costs paid of $12,161 and
working capital of $52,858. The increase in oil and gas receipts resulted from
the increase in commodity prices during 2000 which contributed an additional
$726,611 to oil and gas receipts, offset by $19,903 resulting from the decline
in production during 2000. The increase in production costs was primarily due to
increased production taxes associated with higher oil and gas prices and well
maintenance costs incurred to stimulate well production. The increase in G&A was
primarily due to higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues.
Net Cash Provided by (Used in) Investing Activities
The Partnership's investing activities during 2000 and 1999 were related to
expenditures for oil and gas equipment upgrades on active properties.
Proceeds from disposition of assets of $23,670 was recognized during 2000. The
gain was comprised of $21,074 received from the sale of equipment on one well
plugged and abandoned during the current period and $2,596 from equipment
credits received on one active well. Proceeds of $8,980 in 1999 were from
equipment credits received on active properties.
7
494
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $932,887, of which $9,329 was
distributed to the managing general partner and $923,558 to the limited
partners. In 1999, cash distributions to the partners were $361,502, of which
$3,615 was distributed to the managing general partner and $357,887 to the
limited partners.
8
495
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements of Parker & Parsley 86-B, Ltd:
Independent Auditors' Report.......................................................................... 10
Balance Sheets as of December 31, 2000 and 1999....................................................... 11
Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998................................................................................. 12
Statements of Partners' Capital for the Years Ended
December 31, 2000, 1999 and 1998.................................................................... 13
Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998................................................................................. 14
Notes to Financial Statements......................................................................... 15
9
496
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 86-B, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheets of Parker & Parsley 86-B, Ltd. as of December
31, 2000 and 1999, and the related statements of operations, partners' capital
and cash flows for each of the three years in the period ended December 31,
2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 86-B, Ltd. as
of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
10
497
PARKER & PARSLEY 86-B, LTD.
(A Texas Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
------------------ ------------------
ASSETS
------
Current assets:
Cash $ 220,466 $ 206,408
Accounts receivable - oil and gas sales 260,049 179,740
------------ -----------
Total current assets 480,515 386,148
------------ -----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 11,805,173 12,044,833
Accumulated depletion (10,032,733) (10,164,543)
------------ -----------
Net oil and gas properties 1,772,440 1,880,290
------------ -----------
$ 2,252,955 $ 2,266,438
============= ============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 15,305 $ 29,193
Partners' capital:
Managing general partner 21,100 21,096
Limited partners (17,208 interests) 2,216,550 2,216,149
------------ -----------
2,237,650 2,237,245
------------ -----------
$ 2,252,955 $ 2,266,438
============= ============
The accompanying notes are an integral part of these financial statements.
11
498
PARKER & PARSLEY 86-B, LTD.
(A Texas Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
---------------- ---------------- ----------------
Revenues:
Oil and gas $ 1,756,242 $ 1,056,533 $ 928,899
Interest 17,576 10,577 12,967
Gain on disposition of assets 21,074 - 6,371
---------- ----------- ----------
1,794,892 1,067,110 948,237
---------- ----------- ----------
Costs and expenses:
Oil and gas production 670,780 611,991 662,691
General and administrative 52,687 31,696 27,867
Impairment of oil and gas properties 13,279 - 509,585
Depletion 112,693 177,415 534,746
Abandoned property 12,161 - 20,389
---------- ----------- ----------
861,600 821,102 1,755,278
---------- ----------- ----------
Net income (loss) $ 933,292 $ 246,008 $ (807,041)
=========== ============ ===========
Allocation of net income (loss):
Managing general partner $ 9,333 $ 2,460 $ (8,070)
=========== ============ ===========
Limited partners $ 923,959 $ 243,548 $ (798,971)
=========== ============ ===========
Net income (loss) per limited partnership interest $ 53.69 $ 14.15 $ (46.43)
=========== ============ ===========
The accompanying notes are an integral part of these financial statements.
12
499
PARKER & PARSLEY 86-B, LTD.
(A Texas Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
--------------- --------------- ----------------
Partners' capital at January 1, 1998 $ 33,572 $ 3,451,264 $ 3,484,836
Distributions (3,251) (321,805) (325,056)
Net loss (8,070) (798,971) (807,041)
---------- ---------- ----------
Partners' capital at December 31, 1998 22,251 2,330,488 2,352,739
Distributions (3,615) (357,887) (361,502)
Net income 2,460 243,548 246,008
---------- ---------- ----------
Partners' capital at December 31, 1999 21,096 2,216,149 2,237,245
Distributions (9,329) (923,558) (932,887)
Net income 9,333 923,959 933,292
---------- ---------- ----------
Partners' capital at December 31, 2000 $ 21,100 $ 2,216,550 $ 2,237,650
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
13
500
PARKER & PARSLEY 86-B, LTD.
(A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
-------------- -------------- --------------
Cash flows from operating activities:
Net income (loss) $ 933,292 $ 246,008 $ (807,041)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties 13,279 - 509,585
Depletion 112,693 177,415 534,746
Gain on disposition of assets (21,074) - (6,371)
Changes in assets and liabilities:
Accounts receivable (80,309) (59,316) 47,751
Accounts payable (13,888) 17,977 (24,120)
--------- -------- ---------
Net cash provided by operating activities 943,993 382,084 254,550
--------- -------- ---------
Cash flows from investing activities:
Additions to oil and gas properties (20,718) (8,474) (19,495)
Proceeds from disposition of assets 23,670 8,980 15,526
--------- -------- ---------
Net cash provided by (used in)
investing activities 2,952 506 (3,969)
--------- -------- ---------
Cash flows used in financing activities:
Cash distributions to partners (932,887) (361,502) (325,056)
--------- -------- ---------
Net increase (decrease) in cash 14,058 21,088 (74,475)
Cash at beginning of year 206,408 185,320 259,795
--------- -------- ---------
Cash at end of year $ 220,466 $ 206,408 $ 185,320
========== ========= ==========
The accompanying notes are an integral part of these financial statements.
14
501
PARKER & PARSLEY 86-B, LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 86-B, Ltd. (the "Partnership") is a limited partnership
organized in 1986 under the laws of the State of Texas. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the unit-of-
production method on a property-by-property basis based on proved oil (dominant
mineral) reserves as evaluated by independent petroleum consultants. The
carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -
Preparation of the accompanying 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 periods. Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the
15
502
respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated in part to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non- partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized non-cash impairment provisions of $13,279 and $509,585
related to its proved oil and gas properties during 2000 and 1998, respectively.
16
503
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $38,785 greater than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
-------------- -------------- --------------
Net income (loss) per statements of operations $ 933,292 $ 246,008 $ (807,041)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes 104,139 168,298 525,430
Impairment of oil and gas properties for financial
reporting purposes 13,279 - 509,585
Intangible development costs capitalized for
financial reporting purposes and expensed
for tax reporting purposes (13,305) - -
Other, net (142) 11,789 6,831
--------- --------- ---------
Net income per Federal income tax
returns $ 1,037,263 $ 426,095 $ 234,805
========== ========== ==========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
-------------- -------------- --------------
Development costs $ 20,718 $ 8,474 $ 19,495
=========== ========== ==========
Capitalized oil and gas properties consist of the following:
2000 1999
------------------ ------------------
Proved properties:
Property acquisition costs $ 439,613 $ 444,922
Completed wells and equipment 11,365,560 11,599,911
------------ ------------
11,805,173 12,044,833
Accumulated depletion (10,032,733) (10,164,543)
------------ ------------
Net oil and gas properties $ 1,772,440 $ 1,880,290
============= =============
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
17
504
2000 1999 1998
-------------- -------------- --------------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 298,127 $ 298,479 $ 296,383
Reimbursement of general and administrative
expenses $ 44,975 $ 19,909 $ 21,984
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. In addition,
Pioneer USA and the Partnership are parties to the Program agreement.
The costs and revenues of the Program are allocated to Pioneer USA and
the Partnership as follows:
Pioneer
USA (1) Partnership
-------------- ---------------
Revenues:
Proceeds from disposition of depreciable properties 9.09091% 90.90909%
All other revenues 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion costs
and all other costs 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated
at the Partnership level and 128 limited partner interests owned by
Pioneer USA.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
18
505
Oil and NGLs Gas
(bbls) (mcf)
-------------------- -------------------
Net proved reserves at January 1, 1998 940,047 1,239,206
Revisions (401,595) (457,837)
Production (70,399) (97,715)
----------- ----------
Net proved reserves at December 31, 1998 468,053 683,654
Revisions 550,528 841,323
Production (63,132) (86,726)
----------- ----------
Net proved reserves at December 31, 1999 955,449 1,438,251
Revisions 42,519 (145,295)
Production (62,337) (79,859)
----------- ----------
Net proved reserves at December 31, 2000 935,631 1,213,097
=========== ==========
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.61 per barrel of NGLs and $7.82 per mcf of gas,
discounted at 10% was approximately $7,100,000 and undiscounted was $14,263,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
19
506
For the years ended December 31,
-------------------------------------------------
2000 1999 1998
---------------- ---------------- ---------------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 30,354 $ 23,606 $ 5,045
Future production costs (16,091) (13,697) (3,839)
---------- ---------- ----------
14,263 9,909 1,206
10% annual discount factor (7,163) (4,671) (387)
---------- ---------- ----------
Standardized measure of discounted future net cash flows $ 7,100 $ 5,238 $ 819
=========== =========== ===========
For the years ended December 31,
-------------------------------------------------
2000 1999 1998
---------------- ---------------- ---------------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (1,085) $ (445) $ (266)
Net changes in prices and production costs 2,757 2,398 (2,377)
Revisions of previous quantity estimates 121 3,891 (547)
Accretion of discount 524 82 377
Changes in production rates, timing and other (455) (1,507) (140)
---------- ----------- ----------
Change in present value of future net revenues 1,862 4,419 (2,953)
---------- ----------- ----------
Balance, beginning of year 5,238 819 3,772
---------- ----------- ----------
Balance, end of year $ 7,100 $ 5,238 $ 819
=========== ============ ===========
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's
oil and gas sales (a major customer is defined as a customer whose sales exceed
10% of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 36% 35% -
Genesis Crude Oil, L.P. - - 41%
Western Gas Resources, Inc. 2% 4% 17%
Mobil Oil Corporation 16% 15% 15%
Texaco Trading & Transportation 4% 8% 10%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P.
and Mobil Oil Corporation were $54,631 and $21,954, respectively, which are
included in the caption "Accounts receivable - oil and gas sales" in the
accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the limited partnership agreement:
Managing general partner - The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Program and Partnership affairs. As
managing general partner and operator of the Partnership's properties,
all production expenses are incurred by Pioneer USA and billed to the
Partnership. The majority of the Partnership's oil and gas revenues are
received directly by the Partnership, however, a portion of the oil and
gas revenue is initially received by Pioneer USA prior to being paid to
the Partnership. Under the limited partnership agreement, the managing
general partner pays 1% of the Partnership's acquisition, drilling and
completion costs and 1% of its operating
20
507
and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues.
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of
$17,208,000. Pioneer USA is required to contribute amounts equal to 1%
of initial Partnership capital less commission and offering expenses
allocated to the limited partners and to contribute amounts necessary to
pay costs and expenses allocated to it under the Partnership agreement
to the extent its share of revenues does not cover such costs.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
21
508
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and executive
officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the
next annual meeting of stockholders or until their successors are elected and
qualified.
Age at
December 31,
Name 2000 Position
---- ---- --------
Scott D. Sheffield 48 President
Timothy L. Dove 44 Executive Vice President, Chief
Financial Officer and Director
Dennis E. Fagerstone 51 Executive Vice President and Director
Mark L. Withrow 53 Executive Vice President, General
Counsel and Director
Danny Kellum 46 Executive Vice President - Domestic
Operations and Director
Rich Dealy 34 Vice President and Chief Accounting
Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of
Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as
President, Chief Executive Officer and a director of Pioneer and President of
Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of
Pioneer in August 1999. He served as a director of Pioneer USA from August 1997
until his resignation from the board in June 1999. Mr. Sheffield was the
President and a director of Parker & Parsley Petroleum Company ("Parker &
Parsley") from May 1990 until August 1997 and was the Chairman of the Board and
Chief Executive Officer of Parker & Parsley from October 1990 until August 1997.
He was the sole director of Parker & Parsley from May 1990 until October 1990.
Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a
predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as
Vice President - Engineering of PPDC from September 1981 until April 1985 when
he was elected President and a director. In March 1989, Mr. Sheffield was
elected Chairman of the Board and Chief Executive Officer of PPDC. Before
joining PPDC's predecessor, Mr. Sheffield was employed as a production and
reservoir engineer for Amoco Production Company.
22
509
Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from
Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981
from the University of Chicago. He became Executive Vice President - Business
Development of Pioneer and Pioneer USA in August 1997 and was also appointed a
director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief
Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr.
Dove joined Parker & Parsley in May 1994 as Vice President - International and
was promoted to Senior Vice President - Business Development in October 1996, in
which position he served until August 1997. Prior to joining Parker & Parsley,
Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus
Energy Corp, in various capacities in international exploration and production,
marketing, refining and marketing and planning and development.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School
of Mines with a B.S. in Petroleum Engineering, became an Executive Vice
President of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. He served as Executive Vice President
and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until
August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior
Vice President and Chief Operating Officer of Mesa and from May 1991 to October
1996, he served as Vice President - Exploration and Production of Mesa. From
June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of
Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President - General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979, was elected Executive
Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000
and Director of Pioneer USA on February 1, 2000. From January 2000 until May
2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and
Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and
Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served
as Spraberry District Manager and as Vice President of the Spraberry and Permian
Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker &
Parsley as an operations engineer in 1981 after a brief career with Mobil Oil
Corporation.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University
with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He
became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
23
510
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is performed by Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA pays approximately 10% of the Program's acquisition,
drilling and completion costs and approximately 25% of its operating and general
and administrative expenses. In return, Pioneer USA is allocated approximately
25% of the Program's revenues.
The Partnership does not directly pay any salaries of the executive officers of
Pioneer USA, but does pay a portion of Pioneer USA's general and administrative
expenses of which these salaries are a part.
See Note 6 and 9 of Notes to Financial Statements included in "Item 8. Financial
Statements and Supplementary Data" for information regarding fees and
reimbursements paid to the managing general partner by the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more of
the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 128 limited partner interests at January 1, 2001.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general
partner of the Partnership, Pioneer USA, has the exclusive right and full
authority to manage, control and administer the Partnership's business. Under
the limited partnership agreement, limited partners holding a majority of the
outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner
Pursuant to the limited partnership agreement, the Partnership had the following
related party transactions with the managing general partner during the years
ended December 31:
24
511
2000 1999 1998
------------- ------------- -------------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 298,127 $ 298,479 $ 296,383
Reimbursement of general and administrative
expenses $ 44,975 $ 19,909 $ 21,984
Under the limited partnership agreement, the managing general partner pays 1% of
the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
25
512
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial statements
The following are filed as part of this Report:
Independent Auditors' Report
Balance sheets as of December 31, 2000 and 1999
Statements of operations for the years ended December 31,
2000, 1999 and 1998
Statements of partners' capital for the years ended
December 31, 2000, 1999 and 1998
Statements of cash flows for the years ended December 31,
2000, 1999 and 1998
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the
required information is in the financial statements or notes
thereto, or is not applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this Report.
26
513
S I G N A T U R E S
Pursuant to the requirements 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.
PARKER & PARSLEY 86-B, LTD.
Dated: March 29, 2001 By: Pioneer Natural Resources USA, Inc.
Managing General Partner
By: /s/ Scott D. Sheffield
------------------------------
Scott D. Sheffield, President
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/ Scott D. Sheffield President of Pioneer USA March 29, 2001
--------------------------------------
Scott D. Sheffield
/s/ Timothy L. Dove Executive Vice President, Chief March 29, 2001
-------------------------------------- Financial Officer and Director of
Timothy L. Dove Pioneer USA
/s/ Dennis E. Fagerstone Executive Vice President and March 29, 2001
-------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ Mark L. Withrow Executive Vice President, General March 29, 2001
-------------------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ Danny Kellum Executive Vice President - Domestic March 29, 2001
-------------------------------------- Operations and Director of Pioneer
Danny Kellum USA
/s/ Rich Dealy Vice President and Chief Accounting March 29, 2001
-------------------------------------- Officer of Pioneer USA
Rich Dealy
27
514
PARKER & PARSLEY 86-B, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to
Item 14(c):
Exhibit No. Description Page
----------- ----------- ----
3(a) Amended and Restated Certificate of -
Limited Partnership of Parker & Parsley
86-B, Ltd. incorporated by reference to
Exhibit 3a of the Partnership's Registration
Statement on Form S-1 (Registration No.
33-3353) (hereinafter called the Partnership's
Registration Statement)
4(a) Form of Agreement of Limited Partnership of -
Parker & Parsley 86-B, Ltd. incorporated by
reference to Exhibit A of Amendment No. 1 of
the Partnership's Registration Statement
4(b) Form of Subscription Agreement incorporated by
reference to Exhibit C of Amendment No. 1 of
the Partnership's Registration Statement -
4(b) Power of Attorney incorporated by reference to -
an Exhibit of the Partnership's Registration
Statement
4(c) Specimen Certificate of Limited Partnership -
Interest incorporated by reference to Exhibit
4c of the Partnership's Registration Statement
10(b) Development Program Agreement incorporated -
by reference to Exhibit B of Amendment No. 1
of the Partnership's Registration Statement
28
515
PARKER & PARSLEY 86-B, LTD.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 402,132 $1,756,242 $1,056,533 $ 928,899 $1,369,807 $1,700,251
======== ========== ========== ========== ========== ========== ==========
Gain on litigation
settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 565,756
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and gas
properties $ $ -- $ 13,279 $ -- $ 509,585 $ 561,432 $ 4,960
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 191,450 $ 933,292 $ 246,008 $ (807,041) $ (158,796) $1,229,639
======== ========== ========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general
partner $ $ 1,915 $ 9,333 $ 2,460 $ (8,070) $ (1,587) $ 12,296
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 189,535 $ 923,959 $ 243,548 $ (798,971) $ (157,209) $1,217,343
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 11.01 $ 53.69 $ 14.15 $ (46.43) $ (9.14) $ 70.74
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 10.40 $ 53.67 $ 20.80 $ 18.70 $ 46.77 $ 86.49(a)
======== ========== ========== ========== ========== ========== ==========
At year end:
Identifiable assets $ $2,283,933 $2,252,955 $2,266,438 $2,363,955 $3,520,172 $4,548,338
======== ========== ========== ========== ========== ========== ==========
----------
(a) Including litigation settlement per limited partnership interest of $32.55
in 1996.
516
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 86-C, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
86-C, Ltd. and supplements the proxy statement/prospectus dated , 2001, of
Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by
which Pioneer USA is soliciting proxies to be voted at a special meeting of
limited partners of the partnership. The purpose of the special meeting is for
you to vote upon the merger of the partnership with and into Pioneer USA that,
if completed, will result in your receiving common stock of Pioneer Natural
Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 86-C, Ltd.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's quarterly report on Form 10-Q, including
management's discussion and analysis of financial condition and
results of operations, for the three months ended March 31, 2001
o The partnership's annual report on Form 10-K, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
517
PARKER & PARSLEY 86-C, LTD.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 19,317
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 28,137
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 3,129
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 162.51
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.81 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 98.36
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 145.42
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 158.29
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 225
(b), (c)
-----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
(1) neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners; and (2)
neither the grant nor exercise of such right will result in the loss of any
limited partner's limited liability. In addition, the counsel designated to
render the opinion must be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
518
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 FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 33-3353C
PARKER & PARSLEY 86-C, LTD.
(Exact name of Registrant as specified in its charter)
TEXAS 75-2142283
-------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039
---------------------------------------------------------------- ------------
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
-----------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES / X / 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / X /
No market currently exists for the limited partnership interests of the
Registrant. Based on the original purchase price, the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$19,257,000.
As of March 8, 2001, the number of outstanding limited partnership
interests was 19,317.
The following documents are incorporated by reference into the indicated parts
of this Annual Report on Form 10-K: None
PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACCORDINGLY, NO
ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS AND RESULTS WILL NOT BE
MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD
LOOKING STATEMENTS. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS
THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE
ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
519
PART I
ITEM 1. BUSINESS
Parker & Parsley 86-C, Ltd. (the "Partnership") is a limited partnership
organized in 1986 under the laws of the State of Texas. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company
("Pioneer"). As of March 8, 2001, the Partnership had 19,317 limited partnership
interests outstanding.
The Partnership does not have any employees of its own. Pioneer USA employs 701
persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this Report is filed. Pioneer
USA is responsible for all management functions.
The Partnership engages in oil and gas development and production and is not
involved in any industry segment other than oil and gas. The Partnership's
production is geographically concentrated in West Texas.
The principal markets during 2000 for the oil produced by the Partnership were
refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. During 2000, Pioneer USA marketed the
Partnership's gas to a variety of purchasers, none of which accounted for 10% or
more of the Partnership's oil and gas revenues. Of the Partnership's total oil
and gas revenues for 2000, approximately 37% and 15% were attributable to sales
made to Plains Marketing, L.P. and TEPPCO Crude Oil LLC, respectively. Pioneer
USA is of the opinion that the loss of any one purchaser would not have an
adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and
gas production.
The Partnership's revenues, profitability, cash flow and future rate of growth
are highly dependent on the prevailing prices of oil and gas, which are affected
by numerous factors beyond the Partnership's control. Oil and gas prices
historically have been very volatile. A substantial or extended decline in the
prices of oil or gas could have a material adverse effect on the Partnership's
revenues, profitability and cash flow and could, under certain circumstances,
result in a reduction in the carrying value of the Partnership's oil and gas
properties.
Oil and gas production operations are subject to various types of regulations by
local, state and federal agencies. The Partnership's operations are also subject
to state conservation laws and regulations, including the establishment of
maximum rates of production from wells and the regulation of spacing, plugging
and abandonment of wells. Each state generally imposes a production or severance
tax with respect to production and sale of oil and gas within their respective
jurisdictions. Noncompliance with the laws and regulations may subject the
Partnership to penalties, damages or other liabilities and compliance may
increase the cost of the Partnership's operations.
The oil and gas business is also subject to environmental hazards such as oil
spills, gas leaks and ruptures and discharges of toxic substances or gases that
could expose the Partnership to substantial
2
520
liability due to pollution and other environmental damages. Although the
Partnership believes that its business operations do not impair environmental
quality and that its costs of complying with any applicable environmental
regulations are not currently significant, the Partnership cannot predict what,
if any, effect these environmental regulations may have on its current or future
operations.
Numerous uncertainties exist in estimating quantities of proved reserves and
future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the Partnership
conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist of leasehold 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 Spraberry Trend area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 60
productive oil and gas wells. Four wells were sold and three wells were
abandoned due to uneconomical operations. At December 31, 2000, 53 wells were
producing.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 2000, 1999 and 1998, and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been evaluated by Williamson Petroleum Consultants, Inc., an independent
petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer USA believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the partners during the fourth
quarter of 2000.
3
521
PART II
ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP
DISTRIBUTIONS
At March 8, 2001, the Partnership had 19,317 outstanding limited partnership
interests held of record by 1,332 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are not
required to meet the Partnership's obligations are distributed to the partners
at least quarterly in accordance with the limited partnership agreement. During
the years ended December 31, 2000 and 1999, distributions of $821,264 and
$236,960, respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
2000 1999 1998 1997 1996
---------- --------- --------- --------- ---------
Operating results:
------------------
Oil and gas sales $1,865,405 $1,067,096 $ 973,632 $1,484,170 $1,750,717
========= ========= ========= ========= =========
Gain on litigation
settlement, net $ - $ - $ - $ - $ 704,864
========= ========= ========= ========= =========
Impairment of oil and gas
properties $ - $ 26,652 $ 277,277 $ 895,701 $ 132,778
========= ========= ========= ========= =========
Net income (loss) $ 828,383 $ 105,421 $ (423,942) $ (577,071) $1,142,509
========= ========= ========= ========= =========
Allocation of net income
(loss):
Managing general partner $ 8,284 $ 1,054 $ (4,240) $ (5,770) $ 11,425
========= ========= ========= ========= =========
Limited partners $ 820,099 $ 104,367 $ (419,702) $ (571,301) $1,131,084
========= ========= ========= ========= =========
Limited partners' net income
(loss) per limited
partnership interest $ 42.45 $ 5.40 $ (21.73) $ (29.58) $ 58.55
========= ========= ========= ========= =========
Limited partners' cash
distributions per limited
limited partnership
interest $ 42.52 $ 12.27 $ 15.20 $ 37.84 $ 69.40(a)
========= ========= ========= ========= =========
At year end:
------------
Identifiable assets $1,948,019 $1,958,255 $2,071,111 $2,820,637 $4,193,447
========= ========= ========= ========= =========
---------------
(a) Including litigation settlement per limited partnership interest of $36.12
in 1996.
4
522
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 75% to $1,865,405 for 2000 as
compared to $1,067,096 in 1999. The increase in revenues resulted from higher
average prices received, offset by a slight decline in production. In 2000,
41,783 barrels of oil, 24,546 barrels of natural gas liquids ("NGLs") and 95,610
mcf of gas were sold, or 82,264 barrel of oil equivalents ("BOEs"). In 1999,
37,899 barrels of oil, 26,995 barrels of NGLs and 105,081 mcf of gas were sold,
or 82,408 BOEs. Due to the decline characteristics of the Partnership's oil and
gas properties, management expects a certain amount of decline in production in
the future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.25, or 71%, from
$17.18 in 1999 to $29.43 in 2000. The average price received per barrel of NGLs
increased $5.79, or 62%, from $9.27 in 1999 to $15.06 in 2000. The average price
received per mcf of gas increased 76% from $1.58 in 1999 to $2.78 in 2000. The
market price for oil and gas has been extremely volatile in the past decade and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
Total costs and expenses increased in 2000 to $1,051,119 as compared to $969,444
in 1999, an increase of $81,675, or 8%. The increase was due to increases in
production costs and general and administrative ("G&A") expenses, offset by
declines in depletion and the impairment of oil and gas properties.
Production costs were $848,089 in 2000 and $713,921 in 1999, resulting in an
increase of $134,168, or 19%. The increase was primarily due to additional well
maintenance and workover costs incurred to stimulate well production and higher
production taxes associated with higher oil and gas prices.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
75% from $32,012 in 1999 to $55,962 in 2000 primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 3% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $46,688 in 2000 and $17,953 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
5
523
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $26,652 related to its oil and gas properties during 1999.
Depletion was $147,068 in 2000 compared to $196,859 in 1999, representing a
decrease of $49,791, or 25%. This decrease was primarily due to a 158,291
barrels of oil increase in proved reserves during 2000 as a result of higher
commodity prices and a reduction in the Partnership's net depletable basis from
charges taken in accordance with SFAS 121 during the fourth quarter of 1999,
offset by an increase in oil production of 3,884 barrels for the period ended
December 31, 2000 compared to the same period in 1999.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 10% to $1,067,096 from
$973,632 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 37,899 barrels of oil,
26,995 barrels of NGLs and 105,081 mcf of gas were sold, or 82,408 BOEs. In
1998, 44,016 barrels of oil, 30,658 barrels of NGLs and 129,149 mcf of gas were
sold, or 96,199 BOEs.
The average price received per barrel of oil increased $3.92, or 30%, from
$13.26 in 1998 to $17.18 in 1999. The average price received per barrel of NGL's
increased $2.81, or 43%, from $6.46 in 1998 to $9.27 in 1999. The average price
received per mcf of gas increased 6% from $1.49 in 1998 to $1.58 in 1999.
Total costs and expenses decreased in 1999 to $969,444 as compared to $1,406,971
in 1998, a decrease of $437,527, or 31%. The decrease was due to declines in the
impairment of oil and gas properties, depletion and production costs, offset by
an increase in G&A.
Production costs were $713,921 in 1999 and $737,587 in 1998, resulting in a
$23,666 decrease, or 3%. The decrease was due to declines in well maintenance
costs and ad valorem taxes.
During this period, G&A increased 10% from $29,209 in 1998 to $32,012 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $17,953 in
1999 and $21,776 in 1998 for G&A incurred on behalf of the Partnership.
The Partnership recognized non-cash SFAS 121 charges of $26,652 and $277,277
related to its oil and gas properties during 1999 and 1998, respectively.
Depletion was $196,859 in 1999 compared to $362,898 in 1998. This represented a
decrease of $166,039, or 46%. This decrease was primarily due to an increase in
proved reserves of 291,530 barrels of oil during 1999 as a result of higher
commodity prices and a reduction in the Partnership's net depletable basis from
charges taken in accordance with SFAS 121 during the fourth quarter of
6
524
1998 and a decline in oil production of 6,117 barrels for the period ended
December 31, 1999 compared to the same period in 1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $596,449 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $804,637, offset by increases in production costs paid
of $134,168, G&A expenses paid of $23,950 and working capital of $50,070. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $753,537 to oil and gas receipts and
an increase of $51,100 resulting from the increase in oil production during
2000. The increase in production costs was primarily due to increased production
taxes associated with higher oil and gas prices and additional well maintenance
and workover costs incurred to stimulate well production. The increase in G&A
was primarily due to higher percentage of the managing general partner's G&A
being allocated (limited to 3% of oil and gas revenues) as a result of increased
oil and gas revenues.
Net Cash Used in Investing Activities
The Partnership's investing activities during 2000 and 1999 were related to
expenditures for oil and gas equipment upgrades on active properties.
Proceeds from asset dispositions of $847 were recognized during 1999 from
equipment credits received on active properties.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $829,560, of which $8,296 was
distributed to the managing general partner and $821,264 to the limited
partners. In 1999, cash distributions to the partners were $239,353, of which
$2,393 was distributed to the managing general partner and $236,960 to the
limited partners.
7
525
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
Financial Statements of Parker & Parsley 86-C, Ltd:
Independent Auditors' Report......................................................... 10
Balance Sheets as of December 31, 2000 and 1999...................................... 11
Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998................................................................ 12
Statements of Partners' Capital for the Years Ended
December 31, 2000, 1999 and 1998................................................... 13
Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998................................................................ 14
Notes to Financial Statements........................................................ 15
8
526
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 86-C, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheets of Parker & Parsley 86-C, Ltd. as of December
31, 2000 and 1999, and the related statements of operations, partners' capital
and cash flows for each of the three years in the period ended December 31,
2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 86-C, Ltd. as
of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
9
527
PARKER & PARSLEY 86-C, LTD.
(A Texas Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
----------- ----------
ASSETS
------
Current assets:
Cash $ 161,347 $ 142,687
Accounts receivable - oil and gas sales 296,462 194,380
---------- ----------
Total current assets 457,809 337,067
---------- ----------
Oil and gas properties - at cost, based on
the successful efforts accounting method 14,598,140 14,582,050
Accumulated depletion (13,107,930) (12,960,862)
---------- ----------
Net oil and gas properties 1,490,210 1,621,188
---------- ----------
$ 1,948,019 $ 1,958,255
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 30,112 $ 39,171
Partners' capital:
Managing general partner 17,871 17,883
Limited partners (19,317 interests) 1,900,036 1,901,201
---------- ----------
1,917,907 1,919,084
---------- ----------
$ 1,948,019 $ 1,958,255
========== ==========
The accompanying notes are an integral part of these financial statements.
10
528
PARKER & PARSLEY 86-C, LTD.
(A Texas Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
---------- ---------- ---------
Revenues:
Oil and gas $1,865,405 $1,067,096 $ 973,632
Interest 14,097 7,769 9,397
--------- --------- ---------
1,879,502 1,074,865 983,029
--------- --------- ---------
Costs and expenses:
Oil and gas production 848,089 713,921 737,587
General and administrative 55,962 32,012 29,209
Impairment of oil and gas properties - 26,652 277,277
Depletion 147,068 196,859 362,898
--------- --------- ---------
1,051,119 969,444 1,406,971
--------- --------- ---------
Net income (loss) $ 828,383 $ 105,421 $ (423,942)
========= ========= =========
Allocation of net income (loss):
Managing general partner $ 8,284 $ 1,054 $ (4,240)
========= ========= =========
Limited partners $ 820,099 $ 104,367 $ (419,702)
========= ========= =========
Net income (loss) per limited partnership interest $ 42.45 $ 5.40 $ (21.73)
========= ========= =========
The accompanying notes are an integral part of these financial statements.
11
529
PARKER & PARSLEY 86-C, LTD.
(A Texas Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
-------- --------- ---------
Partners' capital at January 1, 1998 $ 26,428 $2,747,103 $2,773,531
Distributions (2,966) (293,607) (296,573)
Net loss (4,240) (419,702) (423,942)
-------- --------- ---------
Partners' capital at December 31, 1998 19,222 2,033,794 2,053,016
Distributions (2,393) (236,960) (239,353)
Net income 1,054 104,367 105,421
-------- --------- ---------
Partners' capital at December 31, 1999 17,883 1,901,201 1,919,084
Distributions (8,296) (821,264) (829,560)
Net income 8,284 820,099 828,383
-------- --------- ---------
Partners' capital at December 31, 2000 $ 17,871 $1,900,036 $1,917,907
======== ========= =========
The accompanying notes are an integral part of these financial statements.
12
530
PARKER & PARSLEY 86-C, LTD.
(A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
--------- -------- -------
Cash flows from operating activities:
Net income (loss) $ 828,383 $ 105,421 $(423,942)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties - 26,652 277,277
Depletion 147,068 196,859 362,898
Changes in assets and liabilities:
Accounts receivable (102,082) (82,147) 91,550
Accounts payable (9,059) 21,076 (29,011)
-------- -------- --------
Net cash provided by operating activities 864,310 267,861 278,772
-------- -------- --------
Cash flows from investing activities:
Additions to oil and gas properties (16,090) (13,291) (19,770)
Proceeds from asset dispositions - 847 626
-------- -------- --------
Net cash used in investing activities (16,090) (12,444) (19,144)
-------- -------- --------
Cash flows used in financing activities:
Cash distributions to partners (829,560) (239,353) (296,573)
-------- -------- --------
Net increase (decrease) in cash 18,660 16,064 (36,945)
Cash at beginning of year 142,687 126,623 163,568
-------- -------- --------
Cash at end of year $ 161,347 $ 142,687 $ 126,623
======== ======== ========
The accompanying notes are an integral part of these financial statements.
13
531
PARKER & PARSLEY 86-C, LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 86-C, Ltd. (the "Partnership") is a limited partnership
organized in 1986 under the laws of the State of Texas. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -
Preparation of the accompanying 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 periods. Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
14
532
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated in part to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non-partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized non-cash impairment provisions $26,652 and $277,277
related to its proved oil and gas properties during 1999 and 1998, respectively.
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $533,255 less than the tax basis at December 31, 2000.
15
533
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
-------- -------- --------
Net income (loss) per statements of operations $ 828,383 $ 105,421 $(423,942)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes 132,379 182,068 348,153
Impairment of oil and gas properties for financial
reporting purposes - 26,652 277,277
Salvage income - - 431
Other, net (2,097) (2,839) 4,014
-------- -------- --------
Net income per Federal income tax
returns $ 958,665 $ 311,302 $ 205,933
======== ======== ========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
-------- -------- --------
Development costs $ 16,090 $ 13,291 $ 19,770
======== ======== ========
Capitalized oil and gas properties consist of the following:
2000 1999
---------- ----------
Proved properties:
Property acquisition costs $ 645,990 $ 645,990
Completed wells and equipment 13,952,150 13,936,060
---------- ----------
14,598,140 14,582,050
Accumulated depletion (13,107,930) (12,960,862)
----------- -----------
Net oil and gas properties $ 1,490,210 $ 1,621,188
=========== ===========
16
534
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
-------- --------- --------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 373,973 $ 354,129 $ 348,965
Reimbursement of general and administrative
expenses $ 46,688 $ 17,953 $ 21,776
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. In addition,
Pioneer USA and the Partnership are parties to the Program agreement.
The costs and revenues of the Program are allocated to Pioneer USA and
the Partnership as follows:
Pioneer USA (1) Partnership
--------------- ---------------
Revenues:
Proceeds from disposition of depreciable properties 9.09091% 90.90909%
All other revenues 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion costs
and all other costs 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated
at the Partnership level and 60 limited partner interests owned by
Pioneer USA.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
17
535
Oil and NGLs Gas
(bbls) (mcf)
------------ ----------
Net proved reserves at January 1, 1998 831,525 1,374,642
Revisions (383,916) (502,202)
Production (74,674) (129,149)
----------- ----------
Net proved reserves at December 31, 1998 372,935 743,291
Revisions 507,962 924,982
Production (64,894) (105,081)
----------- ----------
Net proved reserves at December 31, 1999 816,003 1,563,192
Revisions 148,591 (208,305)
Production (66,329) (95,610)
----------- ----------
Net proved reserves at December 31, 2000 898,265 1,259,277
=========== ==========
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.39 per barrel of NGLs and $7.64 per mcf of gas,
discounted at 10% was approximately $6,568,000 and undiscounted was $12,019,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
18
536
For the years ended December 31,
-----------------------------------
2000 1999 1998
---------- --------- --------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 29,187 $ 20,004 $ 4,058
Future production costs (17,168) (12,833) (3,287)
--------- --------- --------
12,019 7,171 771
10% annual discount factor (5,451) (3,031) (217)
--------- --------- --------
Standardized measure of discounted future net cash flows $ 6,568 $ 4,140 $ 554
========= ========= =======
For the years ended December 31,
-------------------------------------
2000 1999 1998
---------- --------- --------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (1,017) $ (353) $ (236)
Net changes in prices and production costs 2,672 1,767 (2,176)
Revisions of previous quantity estimates 714 3,173 (425)
Accretion of discount 414 55 323
Changes in production rates, timing and other (355) (1,056) (163)
-------- --------- --------
Change in present value of future net revenues 2,428 3,586 (2,677)
-------- --------- --------
Balance, beginning of year 4,140 554 3,231
-------- --------- --------
Balance, end of year $ 6,568 $ 4,140 $ 554
========= ========== =========
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's
oil and gas sales (a major customer is defined as a customer whose sales exceed
10% of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 37% 36% -
TEPPCO Crude Oil LLC 15% 14% -
Genesis Crude Oil, L.P. - - 50%
Western Gas Resources Inc. 5% 7% 31%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P.
and TEPPCO Crude Oil LLP were $72,179 and $15,378, respectively, which are
included in the caption "Accounts receivable - oil and gas sales" in the
accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the limited partnership agreement:
Managing general partner - The general partner of the Partnership is
Pioneer USA. Pioneer USA, the managing general partner, has the power
and authority to manage, control and administer all Partnership affairs.
As managing general partner and operator of the Partnership's
properties, all production expenses are incurred by Pioneer USA and
billed to the Partnership. The majority of the Partnership's oil and gas
revenues are received directly by the Partnership, however, a portion of
the oil and gas revenue is initially received by Pioneer USA prior to
being paid to the Partnership. Under the limited partnership agreement,
the managing general partner pays 1% of the Partnership's acquisition,
drilling and completion costs and 1% of its operating and general and
administrative expenses. In return, it is allocated 1% of the
Partnership's revenues.
19
537
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of
$19,317,000. Pioneer USA is required to contribute amounts equal to 1%
of initial Partnership capital less commission and offering expenses
allocated to the limited partners and to contribute amounts necessary to
pay costs and expenses allocated to it under the Partnership agreement
to the extent its share of revenues does not cover such costs.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
20
538
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and executive
officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the
next annual meeting of stockholders or until their successors are elected and
qualified.
Age at
December 31,
Name 2000 Position
---- ---- --------
Scott D. Sheffield 48 President
Timothy L. Dove 44 Executive Vice President, Chief
Financial Officer and Director
Dennis E. Fagerstone 51 Executive Vice President and Director
Mark L. Withrow 53 Executive Vice President, General
Counsel and Director
Danny Kellum 46 Executive Vice President - Domestic
Operations and Director
Rich Dealy 34 Vice President and Chief Accounting
Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of
Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as
President, Chief Executive Officer and a director of Pioneer and President of
Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of
Pioneer in August 1999. He served as a director of Pioneer USA from August 1997
until his resignation from the board in June 1999. Mr. Sheffield was the
President and a director of Parker & Parsley Petroleum Company ("Parker &
Parsley") from May 1990 until August 1997 and was the Chairman of the Board and
Chief Executive Officer of Parker & Parsley from October 1990 until August 1997.
He was the sole director of Parker & Parsley from May 1990 until October 1990.
Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a
predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as
Vice President - Engineering of PPDC from September 1981 until April 1985 when
he was elected President and a director. In March 1989, Mr. Sheffield was
elected Chairman of the Board and Chief Executive Officer of PPDC. Before
joining PPDC's predecessor, Mr. Sheffield was employed as a production and
reservoir engineer for Amoco Production Company.
21
539
Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from
Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981
from the University of Chicago. He became Executive Vice President - Business
Development of Pioneer and Pioneer USA in August 1997 and was also appointed a
director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief
Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr.
Dove joined Parker & Parsley in May 1994 as Vice President - International and
was promoted to Senior Vice President - Business Development in October 1996, in
which position he served until August 1997. Prior to joining Parker & Parsley,
Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus
Energy Corp, in various capacities in international exploration and production,
marketing, refining and marketing and planning and development.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School
of Mines with a B.S. in Petroleum Engineering, became an Executive Vice
President of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. He served as Executive Vice President
and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until
August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior
Vice President and Chief Operating Officer of Mesa and from May 1991 to October
1996, he served as Vice President - Exploration and Production of Mesa. From
June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of
Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President - General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979, was elected Executive
Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000
and Director of Pioneer USA on February 1, 2000. From January 2000 until May
2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and
Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and
Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served
as Spraberry District Manager and as Vice President of the Spraberry and Permian
Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker &
Parsley as an operations engineer in 1981 after a brief career with Mobil Oil
Corporation.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University
with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He
became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
22
540
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is performed by Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA pays approximately 10% of the Program's acquisition,
drilling and completion costs and approximately 25% of its operating and general
and administrative expenses. In return, Pioneer USA is allocated approximately
25% of the Program's revenues.
The Partnership does not directly pay any salaries of the executive officers of
Pioneer USA, but does pay a portion of Pioneer USA's general and administrative
expenses of which these salaries are a part.
See Notes 6 and 9 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" for information regarding fees and
reimbursements paid to the managing general partner by the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more of
the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 60 limited partner interests at January 1, 2001.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general
partner of the Partnership, Pioneer USA, has the exclusive right and full
authority to manage, control and administer the Partnership's business. Under
the limited partnership agreement, limited partners holding a majority of the
outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner
Pursuant to the limited partnership agreement, the Partnership had the following
related party transactions with the managing general partner during the years
ended December 31:
23
541
2000 1999 1998
------------- ------------- -------------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $373,973 $ 354,129 $348,965
Reimbursement of general and administrative
expenses $ 46,688 $ 17,953 $ 21,776
Under the limited partnership agreement, the managing general partner pays 1% of
the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data"
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
24
542
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial statements
The following are filed as part of this Report:
Independent Auditors' Report
Balance sheets as of December 31, 2000 and 1999
Statements of operations for the years ended December 31, 2000,
1999 and 1998
Statements of partners' capital for the years ended December 31,
2000, 1999 and 1998
Statements of cash flows for the years ended December 31, 2000,
1999 and 1998
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the
required information is in the financial statements or notes thereto,
or is not applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this Report.
25
543
SIGNATURES
Pursuant to the requirements 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.
PARKER & PARSLEY 86-C, LTD.
Dated: March 27, 2001 By: Pioneer Natural Resources USA, Inc.
Managing General Partner
By: /s/ Scott D. Sheffield
-------------------------------
Scott D. Sheffield, President
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/ Scott D. Sheffield President of Pioneer USA March 27, 2001
------------------------------
Scott D. Sheffield
/s/ Timothy L. Dove Executive Vice President, Chief March 27, 2001
------------------------------ Financial Officer and Director of
Timothy L. Dove Pioneer USA
/s/ Dennis E. Fagerstone Executive Vice President and March 27, 2001
------------------------------ Director of Pioneer USA
Dennis E. Fagerstone
/s/ Mark L. Withrow Executive Vice President, General March 27, 2001
------------------------------ Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ Danny Kellum Executive Vice President - Domestic March 27, 2001
------------------------------ Operations and Director of Pioneer
Danny Kellum USA
/s/ Rich Dealy Vice President and Chief Accounting March 27, 2001
------------------------------ Officer of Pioneer USA
Rich Dealy
26
544
PARKER & PARSLEY 86-C, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to
Item 14(c):
Exhibit No. Description Page
----------- ----------- ----
3(a) Amended and Restated Certificate of -
Limited Partnership of Parker & Parsley
86-C, Ltd. incorporated by reference to
Exhibit 3a of the Partnership's Registration
Statement on Form S-1 (Registration No.
33-3353) (hereinafter called the Partnership's
Registration Statement)
4(a) Form of Agreement of Limited Partnership of -
Parker & Parsley 86-C, Ltd. incorporated by
reference to Exhibit A of Amendment No. 1 of
the Partnership's Registration Statement
4(b) Form of Subscription Agreement incorporated by
reference to Exhibit C of Amendment No. 1 of
the Partnership's Registration Statement -
4(b) Power of Attorney incorporated by reference to an -
Exhibit of the Partnership's Registration
Statement
4(c) Specimen Certificate of Limited Partnership -
Interest incorporated by reference to Exhibit
4c of the Partnership's Registration Statement
10(b) Development Program Agreement incorporated -
by reference to Exhibit B of Amendment No. 1
of the Partnership's Registration Statement
27
545
PARKER & PARSLEY 86-C, LTD.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 417,147 $1,865,405 $1,067,096 $ 973,632 $1,484,170 $1,750,717
======== ========== ========== ========== ========== ========== ==========
Gain on litigation
settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 704,864
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and gas
properties $ $ -- $ -- $ 26,652 $ 277,277 $ 895,701 $ 132,778
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 146,975 $ 828,383 $ 105,421 $ (423,942) $ (577,071) $1,142,509
======== ========== ========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general
partner $ $ 1,470 $ 8,284 $ 1,054 $ (4,240) $ (5,770) $ 11,425
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 145,505 $ 820,099 $ 104,367 $ (419,702) $ (571,301) $1,131,084
======== ========== ========== ========== ========== ========== ==========
Limited partners' net income
(loss) per limited
partnership interest $ $ 7.53 $ 42.45 $ 5.40 $ (21.73) $ (29.58) $ 58.55
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
limited partnership
interest $ $ 8.35 $ 42.52 $ 12.27 $ 15.20 $ 37.84 $ 69.40(a)
======== ========== ========== ========== ========== ========== ==========
At year end:
Identifiable assets $ $1,946,021 $1,948,019 $1,958,255 $2,071,111 $2,820,637 $4,193,447
======== ========== ========== ========== ========== ========== ==========
----------
(a) Including litigation settlement per limited partnership interest of $36.12
in 1996.
546
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
Private Investment 86, Ltd. and supplements the proxy statement/prospectus dated
, 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources
USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special
meeting of limited partners of the partnership. The purpose of the special
meeting is for you to vote upon the merger of the partnership with and into
Pioneer USA that, if completed, will result in your receiving common stock of
Pioneer Natural Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley Private Investment 86, Ltd.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the three months ended March 31, 2001
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
547
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 4,920
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 7,847
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 1,229
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 249.80
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 4.50 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 183.56
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 229.84
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 243.17
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 225
(b), (c)
-----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
(1) neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners; and (2)
neither the grant nor exercise of such right will result in the loss of any
limited partner's limited liability. In addition, the counsel designated to
render the opinion must be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
548
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD.
(A Texas Limited Partnership)
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT
December 31, 2000 and 1999
549
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley Private Investment 86, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheets of Parker & Parsley Private Investment 86,
Ltd. as of December 31, 2000 and 1999, and the related statements of operations,
partners' capital and cash flows for each of the three years in the period ended
December 31, 2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley Private
Investment 86, Ltd. as of December 31, 2000 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
2
550
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD.
(A Texas Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
---------------- ----------------
ASSETS
------
Current assets:
Cash $ 57,176 $ 72,318
Accounts receivable - oil and gas sales 90,053 49,878
------------- -------------
Total current assets 147,229 122,196
------------- -------------
Oil and gas properties - at cost, based on
the successful efforts accounting method 4,032,771 4,022,126
Accumulated depletion (3,261,600) (3,212,495)
------------- -------------
Net oil and gas properties 771,171 809,631
------------- -------------
$ 918,400 $ 931,827
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 5,165 $ 10,250
Partners' capital:
Managing general partner 10,101 10,184
Limited partners (123 interests) 903,134 911,393
------------- -------------
913,235 921,577
------------- -------------
$ 918,400 $ 931,827
============== ==============
The accompanying notes are an integral part of these financial statements.
3
551
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD.
(A Texas Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Revenues:
Oil and gas $ 611,774 $ 354,462 $ 301,556
Interest 4,927 2,697 3,224
--------- --------- ----------
616,701 357,159 304,780
--------- --------- ----------
Costs and expenses:
Oil and gas production 287,563 236,129 213,042
General and administrative 12,235 7,089 6,031
Impairment of oil and gas properties -- -- 98,274
Depletion 49,103 65,740 151,842
--------- --------- ----------
348,901 308,958 469,189
--------- --------- ----------
Net income (loss) $ 267,800 $ 48,201 $ (164,409)
========= ========= ==========
Allocation of net income (loss):
Managing general partner $ 2,678 $ 482 $ (1,644)
========= ========= ==========
Limited partners $ 265,122 $ 47,719 $ (162,765)
========= ========= ==========
Net income (loss) per limited partnership interest $2,155.46 $ 387.96 $(1,323.29)
========= ========= ==========
The accompanying notes are an integral part of these financial statements.
4
552
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD.
(A Texas Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
------------- -------------- ---------------
Partners' capital at January 1, 1998 $ 13,138 $ 1,203,846 $ 1,216,984
Distributions (1,107) (109,619) (110,726)
Net loss (1,644) (162,765) (164,409)
----------- ------------ -----------
Partners' capital at December 31, 1998 10,387 931,462 941,849
Distributions (685) (67,788) (68,473)
Net income 482 47,719 48,201
----------- ------------ -----------
Partners' capital at December 31, 1999 10,184 911,393 921,577
Distributions (2,761) (273,381) (276,142)
Net income 2,678 265,122 267,800
----------- ------------ -----------
Partners' capital at December 31, 2000 $ 10,101 $ 903,134 $ 913,235
============ ============= ============
The accompanying notes are an integral part of these financial statements.
5
553
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD.
(A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
-------------- -------------- --------------
Cash flows from operating activities:
Net income (loss) $ 267,800 $ 48,201 $ (164,409)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties - - 98,274
Depletion 49,103 65,740 151,842
Changes in assets and liabilities:
Accounts receivable (40,175) (18,067) 21,645
Accounts payable (5,085) 5,541 (8,987)
---------- ----------- ------------
Net cash provided by operating activities 271,643 101,415 98,365
----------- ----------- ------------
Cash flows from investing activities:
Additions to oil and gas properties (10,643) (7,363) (9,842)
Proceeds from asset dispositions - 701 -
----------- ----------- ------------
Net cash used in investing activities (10,643) (6,662) (9,842)
----------- ----------- ------------
Cash flows used in financing activities:
Cash distributions to partners (276,142) (68,473) (110,726)
----------- ----------- ------------
Net increase (decrease) in cash (15,142) 26,280 (22,203)
Cash at beginning of year 72,318 46,038 68,241
----------- ----------- ------------
Cash at end of year $ 57,176 $ 72,318 $ 46,038
============ ============ =============
The accompanying notes are an integral part of these financial statements.
6
554
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley Private Investment 86, Ltd. (the "Partnership") is a
limited partnership organized in 1986 under the laws of the State of Texas. The
Partnership's managing general partner is Pioneer Natural Resources USA, Inc.
("Pioneer USA").
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -
Preparation of the accompanying 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 periods. Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
7
555
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated in part to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non-partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized a non-cash impairment provision of $98,274 related to its
proved oil and gas properties during 1998.
8
556
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $209,861 greater than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
-------------- -------------- --------------
Net income (loss) per statements of operations $ 267,800 $ 48,201 $ (164,409)
Depletion and depreciation provisions for tax reporting
less than amounts for financial reporting purposes 43,051 60,686 147,947
Impairment of oil and gas properties for financial
reporting purposes - - 98,274
Other, net (688) (98) 931
----------- ------------ -----------
Net income per Federal income tax returns $ 310,163 $ 108,789 $ 82,743
============ ============ ============
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
-------------- -------------- --------------
Development costs $ 10,643 $ 7,363 $ 9,842
============ ============ ============
Capitalized oil and gas properties consist of the following:
2000 1999
---------------- ----------------
Proved properties:
Property acquisition costs $ 176,667 $ 176,667
Completed wells and equipment 3,856,104 3,845,459
------------ ------------
4,032,771 4,022,126
Accumulated depletion (3,261,600) (3,212,495)
------------ ------------
Net oil and gas properties $ 771,171 $ 809,631
============= =============
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
-------------- -------------- --------------
Payment of lease operating and supervision
charges in accordance with standard industry
operating agreements $ 113,494 $ 109,568 $ 108,785
Reimbursement of general and administrative expenses $ 10,107 $ 3,583 $ 4,004
9
557
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA
and the Partnership are parties to the Program agreement.
The costs and revenues of the Program are allocated to Pioneer USA and
the Partnership as follows:
Pioneer USA (1) Partnership
--------------- ---------------
Revenues:
Proceeds from disposition of depreciable
properties 9.09091% 90.90909%
All other revenues 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion
costs and all other costs 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is
allocated at the Partnership level.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
Oil and NGLs Gas
(bbls) (mcf)
-------------------- -------------------
Net proved reserves at January 1, 1998 268,312 360,572
Revisions (79,340) (72,226)
Production (22,245) (33,219)
------------- ------------
Net proved reserves at December 31, 1998 166,727 255,127
Revisions 157,207 248,047
Production (20,843) (30,923)
------------- ------------
Net proved reserves at December 31, 1999 303,091 472,251
Revisions 35,219 57,281
Production (20,938) (33,570)
------------- ------------
Net proved reserves at December 31, 2000 317,372 495,962
============= ============
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.44 per barrel of NGLs and $7.89 per mcf of gas,
discounted at 10% was approximately $2,493,000 and undiscounted $4,970,000.
10
558
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
-------------------------------------------------------
2000 1999 1998
---------------- ---------------- ----------------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 10,955 $ 7,464 $ 1,802
Future production costs (5,985) (4,360) (1,436)
------------- ------------ -------------
4,970 3,104 366
10% annual discount factor (2,477) (1,468) (105)
------------- ------------ -------------
Standardized measure of discounted future net cash flows $ 2,493 $ 1,636 $ 261
============== ============= ==============
11
559
For the years ended December 31,
-------------------------------------------------------
2000 1999 1998
---------------- ---------------- ----------------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (324) $ (118) $ (89)
Net changes in prices and production costs 864 922 (654)
Revisions of previous quantity estimates 293 1,155 (93)
Accretion of discount 164 26 102
Changes in production rates, timing and other (140) (610) (25)
------------- ------------ ------------
Change in present value of future net revenues 857 1,375 (759)
------------- ------------ ------------
Balance, beginning of year 1,636 261 1,020
------------- ------------ ------------
Balance, end of year $ 2,493 $ 1,636 $ 261
============== ============= =============
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil and
gas sales (a major customer is defined as a customer whose sales exceed 10% of
total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 45% 45% -
Mobil Oil Corporation 19% 18% 18%
Genesis Crude Oil, L.P. - - 46%
Western Gas Resources, Inc. 3% 5% 21%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P.
and Mobil Oil Corporation were $23,848 and $10,948, respectively, which are
included in the caption "Accounts receivable - oil and gas sales" in the
accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the limited partnership agreement:
Managing general partner - The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Partnership affairs. As managing
general partner and operator of the Partnership's properties, all
production expenses are incurred by Pioneer USA and billed to the
Partnership. The majority of the Partnership's oil and gas revenues are
received directly by the Partnership, however, a portion of the oil and
gas revenue is initially received by Pioneer USA prior to being paid to
the Partnership. Under the limited partnership agreement, the managing
general partner pays 1% of the Partnership's acquisition, drilling and
completion costs and 1% of its operating and general and administrative
expenses. In return, it is allocated 1% of the Partnership's revenues.
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of
$4,920,000. Pioneer USA is required to contribute amounts equal to 1% of
initial Partnership capital less commission and organization and
offering costs
12
560
allocated to the limited partners and to contribute amounts necessary to
pay costs and expenses allocated to it under the Partnership agreement
to the extent its share of revenues does not cover such costs.
13
561
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD.
(A TEXAS LIMITED PARTNERSHIP)
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACCORDINGLY, NO ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS
AND RESULTS WILL NOT BE MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS
DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 73% to $611,774 for 2000 as
compared to $354,462 in 1999. The increase in revenues resulted from higher
average prices received and an increase in production. In 2000, 13,860 barrels
of oil, 7,078 barrels of natural gas liquids ("NGLs") and 33,570 mcf of gas were
sold, or 26,533 barrel of oil equivalents ("BOEs"). In 1999, 13,331 barrels of
oil, 7,512 barrels of NGLs and 30,923 mcf of gas were sold, or 25,997 BOEs. Due
to the decline characteristics of the Partnership's oil and gas properties,
management expects a certain amount of decline in production in the future until
the Partnership's economically recoverable reserves are fully depleted.
The average price received per barrel of oil increased $12.11, or 70%, from
$17.34 in 1999 to $29.45 in 2000. The average price received per barrel of NGLs
increased $5.74, or 62%, from $9.27 in 1999 to $15.01 in 2000. The average price
received per mcf of gas increased 68% from $1.73 in 1999 to $2.90 in 2000. The
market price for oil and gas has been extremely volatile in the past decade, and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
Total costs and expenses increased in 2000 to $348,901 as compared to $308,958
in 1999, an increase of $39,943, or 13%. The increase was primarily due to
increases in production costs and general and administrative expenses ("G&A"),
offset by a decline in depletion.
Production costs were $287,563 in 2000 and $236,129 in 1999, resulting in a
$51,434 increase, or 22%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices and additional well maintenance
costs incurred to stimulate well production.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
73% from $7,089 in 1999 to $12,235 in 2000, primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 2% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $10,107 in 2000 and $3,583 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
Depletion was $49,103 in 2000 as compared to $65,740 in 1999, representing a
decrease of $16,637, or 25%. This decrease was primarily due to a 34,384 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
prices.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 18% to $354,462 from
$301,556 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 13,331 barrels of oil,
7,512 barrels of NGLs and 30,923 mcf of gas were sold, or 25,997 BOEs. In 1998,
14,914 barrels of oil, 7,331 barrels of NGLs and 33,219 mcf of gas were sold, or
27,782 BOEs.
562
The average price received per barrel of oil increased $4.00, or 30%, from
$13.34 in 1998 to $17.34 in 1999. The average price received per barrel of NGLs
increased $2.58, or 39%, from $6.69 in 1998 to $9.27 in 1999. The average price
received per mcf of gas increased 7% from $1.61 in 1998 to $1.73 in 1999.
Total costs and expenses decreased in 1999 to $308,958 as compared to $469,189
in 1998, a decrease of $160,231, or 34%. The decrease was primarily due to
declines in the impairment of oil and gas properties and depletion, offset by
increases in production costs and G&A.
Production costs were $236,129 in 1999 and $213,042 in 1998, resulting in a
$23,087 increase, or 11%. The increase was due to increased workover costs and
well maintenance costs incurred to stimulate well production, offset by a
decrease in ad valorem taxes.
During this period, G&A increased 18% from $6,031 in 1998 to $7,089 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 2% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $3,583 in
1999 and $4,004 in 1998 for G&A incurred on behalf of the Partnership.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $98,274 related to its oil and gas properties during 1998.
Depletion was $65,740 in 1999 compared to $151,842 in 1998, representing a
decrease of $86,102, or 57%. This decrease was the result of a combination of
factors that included an increase in proved reserves of 97,690 barrels of oil
during 1999 as a result of higher commodity prices, a reduction in the
Partnership's net depletable basis from charges taken in accordance with SFAS
121 during the fourth quarter of 1998 and a decline in oil production of 1,583
barrels for the period ended December 31, 1999 compared to the same period in
1998.
Petroleum Industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $170,228 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $259,542, offset by increases in production costs paid
of $51,434, G&A expenses paid of $5,146 and working capital of $32,734. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $242,798 to oil and gas receipts and
an increase of $16,744 resulting from the increase in production during 2000.
The increase in production costs was primarily due to increased production taxes
associated with higher oil and gas prices and well maintenance costs incurred to
stimulate well production. The increase in G&A was primarily due to higher
percentage of the managing general partner's G&A being allocated (limited to 2%
of oil and gas revenues) as a result of increased oil and gas revenues.
563
Net Cash Used in Investing Activities
The Partnership's principal investing activities during 2000 and 1999 included
expenditures related to equipment upgrades on various oil and gas properties.
Proceeds from asset dispositions in 1999 of $701 were from equipment credits
received on two wells.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $276,142, of which $2,761 was
distributed to the managing general partner and $273,381 to the limited
partners. In 1999, cash distributions to the partners were $68,473, of which
$685 was distributed to the managing general partner and $67,788 to the limited
partners.
564
PARKER & PARSLEY PRIVATE INVESTMENT 86, LTD.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 139,554 $ 611,774 $ 354,462 $ 301,556 $ 443,324 $ 531,378
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ -- $ -- $ 98,274 $ 87,003 $ --
======== ========== ========== ========== ========== ========== ==========
Gain on litigation
settlement, net $ $ -- $ -- $ -- $ -- $ -- $ 181,309
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 50,191 $ 267,800 $ 48,201 $ (164,409) $ (1,482) $ 394,220
======== ========== ========== ========== ========== ========== ==========
Allocation of net
income (loss):
Managing general
partner $ $ 502 $ 2,678 $ 482 $ (1,644) $ (15) $ 3,942
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 49,689 $ 265,122 $ 47,719 $ (162,765) $ (1,467) $ 390,278
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 403.98 $ 2,155.46 $ 387.96 $(1,323.29) $ (11.93) $ 3,172.99
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 562.71 $ 2,222.61 $ 551.12 $ 891.21 $ 1,688.39 $ 3,519.32(a)
======== ========== ========== ========== ========== ========== ==========
At year end:
Total assets $ $ 913,254 $ 918,400 $ 931,827 $ 946,558 $1,230,680 $1,439,437
======== ========== ========== ========== ========== ========== ==========
----------
(a) Including litigation settlement per limited partnership interest of
$1,474.06 in 1996.
565
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 87-A CONV., LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
87-A Conv., Ltd. and supplements the proxy statement/prospectus dated ,
2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA,
Inc., by which Pioneer USA is soliciting proxies to be voted at a special
meeting of limited partners of the partnership. The purpose of the special
meeting is for you to vote upon the merger of the partnership with and into
Pioneer USA that, if completed, will result in your receiving common stock of
Pioneer Natural Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 87-A Conv., Ltd.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the three months ended March 31, 2001
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
566
PARKER & PARSLEY 87-A CONV., LTD.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 3,856
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 5,013
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 718
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 187.88
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.48 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 113.34
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 170.06
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 182.98
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 177
(b), (c)
-----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
(1) neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners; and (2)
neither the grant nor exercise of such right will result in the loss of any
limited partner's limited liability. In addition, the counsel designated to
render the opinion must be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
567
PARKER & PARSLEY 87-A CONV., LTD.
(A Texas Limited Partnership)
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT
December 31, 2000 and 1999
568
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 87-A Conv., Ltd.
(A Texas Limited Partnership):
We have audited the balance sheets of Parker & Parsley 87-A Conv., Ltd. as of
December 31, 2000 and 1999, and the related statements of operations, partners'
capital and cash flows for each of the three years in the period ended December
31, 2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 87-A Conv.,
Ltd. as of December 31, 2000 and 1999, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
2
569
PARKER & PARSLEY 87-A CONV., LTD.
(A Texas Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
----------- -----------
ASSETS
------
Current assets:
Cash $ 42,044 $ 53,265
Accounts receivable - oil and gas sales 58,386 34,510
----------- -----------
Total current assets 100,430 87,775
----------- -----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 2,703,338 2,701,261
Accumulated depletion (2,357,166) (2,326,550)
----------- -----------
Net oil and gas properties 346,172 374,711
----------- -----------
$ 446,602 $ 462,486
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 5,133 $ 6,175
Partners' capital:
Managing general partner 4,417 4,565
Limited partners (3,856 interests) 437,052 451,746
----------- -----------
441,469 456,311
----------- -----------
$ 446,602 $ 462,486
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
570
PARKER & PARSLEY 87-A CONV., LTD.
(A Texas Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
-------- --------- ---------
Revenues:
Oil and gas $ 380,908 $ 234,259 $ 194,541
Interest 3,744 2,131 2,599
Gain on disposition of assets 857 1,184 102
--------- --------- ---------
385,509 237,574 197,242
--------- --------- ---------
Costs and expenses:
Oil and gas production 150,075 126,927 143,008
General and administrative 11,235 6,978 5,727
Impairment of oil and gas properties 5,726 -- 63,814
Depletion 24,890 35,270 83,255
--------- --------- ---------
191,926 169,175 295,804
--------- --------- ---------
Net income (loss) $ 193,583 $ 68,399 $ (98,562)
========= ========= =========
Allocation of net income (loss):
Managing general partner $ 1,936 $ 684 $ (986)
========= ========= =========
Limited partners $ 191,647 $ 67,715 $ (97,576)
========= ========= =========
Net income (loss) per limited partnership interest $ 49.70 $ 17.56 $ (25.30)
========= ========= =========
The accompanying notes are an integral part of these financial statements.
4
571
PARKER & PARSLEY 87-A CONV., LTD.
(A Texas Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
---------- --------- ---------
Partners' capital at January 1, 1998 $ 6,329 $ 626,350 $ 632,679
Distributions (761) (75,346) (76,107)
Net loss (986) (97,576) (98,562)
--------- --------- ---------
Partners' capital at December 31, 1998 4,582 453,428 458,010
Distributions (701) (69,397) (70,098)
Net income 684 67,715 68,399
--------- --------- ---------
Partners' capital at December 31, 1999 4,565 451,746 456,311
Distributions (2,084) (206,341) (208,425)
Net income 1,936 191,647 193,583
--------- --------- ---------
Partners' capital at December 31, 2000 $ 4,417 $ 437,052 $ 441,469
========= ========= =========
The accompanying notes are an integral part of these financial statements.
5
572
PARKER & PARSLEY 87-A CONV., LTD.
(A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ 193,583 $ 68,399 $ (98,562)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties 5,726 -- 63,814
Depletion 24,890 35,270 83,255
Gain on disposition of assets (857) (1,184) (102)
Changes in assets and liabilities:
Accounts receivable (23,876) (12,786) 17,191
Accounts payable (1,042) 1,263 (2,930)
--------- --------- ---------
Net cash provided by operating activities 198,424 90,962 62,666
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties (2,560) (5,634) (2,338)
Proceeds from disposition of assets 1,340 1,238 2,095
--------- --------- ---------
Net cash used in investing activities (1,220) (4,396) (243)
--------- --------- ---------
Cash flows used in financing activities:
Cash distributions to partners (208,425) (70,098) (76,107)
--------- --------- ---------
Net increase (decrease) in cash (11,221) 16,468 (13,684)
Cash at beginning of year 53,265 36,797 50,481
--------- --------- ---------
Cash at end of year $ 42,044 $ 53,265 $ 36,797
========= ========= =========
The accompanying notes are an integral part of these financial statements.
6
573
PARKER & PARSLEY 87-A CONV., LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 87-A Conv., Ltd. (the "Partnership") was organized in
1987 as a general partnership under the laws of the State of Texas and was
converted to a Texas limited partnership in 1989. The Partnership's managing
general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -
Preparation of the accompanying 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 periods. Actual results could differ from those estimates.
7
574
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated in part to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non-partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future
8
575
cash flows at a discount rate commensurate with the risks involved in the
industry. As a result, the Partnership recognized non-cash impairment provisions
of $5,726 and $63,814 related to its proved oil and gas properties during 2000
and 1998, respectively.
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $34,055 less than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
-------- -------- --------
Net income (loss) per statements of operations $ 193,583 $ 68,399 $(98,562)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes 21,481 31,994 77,835
Impairment of oil and gas properties for financial
reporting purposes 5,726 -- 63,814
Salvage income -- -- 1,795
Other, net (320) (923) 1,074
-------- -------- --------
Net income per Federal income tax returns $ 220,470 $ 99,470 $ 45,956
======== ======== ========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
-------- --------- ---------
Development costs $ 2,560 $ 5,634 $ 2,338
======== ======== ========
Capitalized oil and gas properties consist of the following:
2000 1999
---- ----
Proved properties:
Property acquisition costs $ 126,683 $ 126,683
Completed wells and equipment 2,576,655 2,574,578
----------- -----------
2,703,338 2,701,261
Accumulated depletion (2,357,166) (2,326,550)
----------- -----------
Net oil and gas properties $ 346,172 $ 374,711
=========== ===========
9
576
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
---------- --------- ---------
Payment of lease operating and supervision
charges in accordance with standard industry
operating agreements $ 57,269 $ 58,965 $ 59,200
Reimbursement of general and administrative
expenses $ 9,809 $ 4,592 $ 4,507
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
Parker & Parsley 87-A, Ltd. and the Partnership (the "Partnerships") are parties
to the Program agreement.
The costs and revenues of the Program are allocated to Pioneer USA and
the Partnerships as follows:
Pioneer USA (1) Partnerships (2)
-------------- ---------------
Revenues:
Proceeds from disposition of depreciable
properties 9.09091% 90.90909%
All other revenues 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion
costs and all other costs 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated
at the Partnership level and 35 limited partner interests owned by
Pioneer USA.
(2) The allocation between the Partnership and Parker & Parsley 87-A, Ltd.
is 11.80396% and 88.19604%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
10
577
Oil and NGLs Gas
(bbls) (mcf)
------------ ----------
Net proved reserves at January 1, 1998 173,242 260,824
Revisions (70,303) (79,797)
Production (14,371) (24,025)
-------- --------
Net proved reserves at December 31, 1998 88,568 157,002
Revisions 121,459 218,318
Production (13,578) (24,503)
-------- --------
Net proved reserves at December 31, 1999 196,449 350,817
Revisions (1,562) (40,268)
Production (13,096) (20,355)
-------- --------
Net proved reserves at December 31, 2000 181,791 290,194
======== ========
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.38 per barrel of NGLs and $7.67 per mcf of gas,
discounted at 10% was approximately $1,465,000 and undiscounted was $2,903,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
11
578
For the years ended December 31,
------------------------------
2000 1999 1998
------- ------- -------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 6,182 $ 4,834 $ 964
Future production costs (3,279) (2,837) (754)
------- ------- -------
2,903 1,997 210
10% annual discount factor (1,438) (931) (61)
------- ------- -------
Standardized measure of discounted future net cash flows $ 1,465 $ 1,066 $ 149
======= ======= =======
For the years ended December 31,
-----------------------------------
2000 1999 1998
-------- --------- --------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (231) $ (107) $ (52)
Net changes in prices and production costs 663 480 (462)
Revisions of previous quantity estimates (56) 878 (87)
Accretion of discount 106 15 71
Changes in production rates, timing and other (83) (349) (26)
-------- --------- --------
Change in present value of future net revenues 399 917 (556)
-------- --------- --------
Balance, beginning of year 1,066 149 705
-------- --------- --------
Balance, end of year $ 1,465 $ 1,066 $ 149
========= ========== =========
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
2000 1999 1998
---- ---- ----
Plains Marketing, L.P. 43% 40% --
Phillips Petroleum Company 10% -- --
Genesis Crude Oil, L.P. -- -- 54%
Western Gas Resources, Inc. 4% 7% 29%
NGTS LLC 8% -- --
At December 31, 2000, the amounts receivable from Plains Marketing, L.P.
and Phillips Petroleum Company were $16,353 and $3,196, respectively, which are
included in the caption "Accounts receivable - oil and gas sales" in the
accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
12
579
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the limited partnership agreement:
Managing general partner - The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Program and Partnership affairs. As
managing general partner and operator of the Partnership's properties,
all production expenses are incurred by Pioneer USA and billed to the
Partnership. The majority of the Partnership's oil and gas revenues are
received directly by the Partnership, however, a portion of the oil and
gas revenue is initially received by Pioneer USA prior to being paid to
the Partnership. Under the limited partnership agreement, the managing
general partner pays 1% of the Partnership's acquisition, drilling and
completion costs and 1% of its operating and general and administrative
expenses. In return, it is allocated 1% of the Partnership's revenues.
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The partners entered into subscription
agreements for aggregate capital contributions of $3,856,000. Pioneer
USA is required to contribute amounts equal to 1% of initial Partnership
capital less commission and organization and offering costs allocated to
the limited partners and to contribute amounts necessary to pay costs
and expenses allocated to it under the Partnership agreement to the
extent its share of revenues does not cover such costs.
13
580
PARKER & PARSLEY 87-A CONV., LTD.
(A TEXAS LIMITED PARTNERSHIP)
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACCORDINGLY, NO ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS
AND RESULTS WILL NOT BE MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS
DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 63% to $380,908 for 2000 as
compared to $234,259 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decrease in production. In 2000, 8,407
barrels of oil, 4,689 barrels of natural gas liquids ("NGLs") and 20,355 mcf of
gas were sold, or 16,489 barrel of oil equivalents ("BOEs"). In 1999, 8,263
barrels of oil, 5,315 barrels of NGLs and 24,503 mcf of gas were sold, or 17,662
BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.40, or 73%, from
$17.06 in 1999 to $29.46 in 2000. The average price received per barrel of NGLs
increased $6.20, or 63%, from $9.81 in 1999 to $16.01 in 2000. The average price
received per mcf of gas increased 70% from $1.68 in 1999 to $2.86 in 2000. The
market price for oil and gas has been extremely volatile in the past decade, and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
Total costs and expenses increased in 2000 to $191,926 as compared to $169,175
in 1999, an increase of $22,751, or 13%. The increase was primarily due to
increases in production costs, impairment of oil and gas properties and general
and administrative expenses ("G&A"), offset by a decline in depletion.
Gains on disposition of assets of $857 and $1,184 were due to equipment credits
received on one well during 2000 and 1999, respectively.
Production costs were $150,075 in 2000 and $126,927 in 1999, resulting in a
$23,148 increase, or 18%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices and additional workover and well
maintenance costs incurred to stimulate well production.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
61% from $6,978 in 1999 to $11,235 in 2000, primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 3% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $9,809 in 2000 and $4,592 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $5,726 related to its oil and gas properties during 2000.
581
Depletion was $24,890 in 2000 as compared to $35,270 in 1999, representing a
decrease of $10,380, or 29%. This decrease was primarily due to an 8,116 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
prices.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 20% to $234,259 from
$194,541 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decrease in production. In 1999, 8,263 barrels of oil,
5,315 barrels of NGLs and 24,503 mcf of gas were sold, or 17,662 BOEs. In 1998,
9,354 barrels of oil, 5,017 barrels of NGLs and 24,025 mcf of gas were sold, or
18,375 BOEs.
The average price received per barrel of oil increased $3.84, or 29%, from
$13.22 in 1998 to $17.06 in 1999. The average price received per barrel of NGLs
increased $3.05, or 45%, from $6.76 in 1998 to $9.81 in 1999. The average price
received per mcf of gas increased 9% from $1.54 in 1998 to $1.68 in 1999.
Total costs and expenses decreased in 1999 to $169,175 as compared to $295,804
in 1998, a decrease of $126,629, or 43%. The decrease was primarily due to
declines in the impairment of oil and gas properties, depletion and production
costs, offset by an increase in G&A.
Production costs were $126,927 in 1999 and $143,008 in 1998, resulting in a
$16,081 decrease, or 11%. The decrease was due to declines in well maintenance
costs, workover expenses and ad valorem taxes, offset by an increase in
production taxes due to increased oil and gas revenues.
During this period, G&A increased 22% from $5,727 in 1998 to $6,978 in 1999
primarily due to a higher allocation of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $4,592 in
1999 and $4,507 in 1998 for G&A incurred on behalf of the Partnership.
The Partnership recognized a non-cash SFAS 121 charge of $63,814 related to its
oil and gas properties during 1998.
Depletion was $35,270 in 1999 compared to $83,255 in 1998, representing a
decrease of $47,985, or 58%. This decrease was primarily due to an increase in
proved reserves of 71,246 barrels of oil during 1999 as a result of higher
commodity prices, a reduction in the Partnership's net depletable basis from
charges taken in accordance with SFAS 121 during the fourth quarter of 1998 and
a decline in oil production of 1,091 barrels for the period ended December 31,
1999 compared to the same period in 1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
582
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $107,462 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $148,262, offset by increases in production costs paid
of $23,148, G&A expenses paid of $4,257 and working capital of $13,395. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $165,908 to oil and gas receipts,
offset by $17,646 resulting from the decline in production during 2000. The
increase in production costs was primarily due to increased production taxes
associated with higher oil and gas prices and workover and well maintenance
costs incurred to stimulate well production. The increase in G&A was primarily
due to higher percentage of the managing general partner's G&A being allocated
(limited to 3% of oil and gas revenues) as a result of increased oil and gas
revenues.
Net Cash Used in Investing Activities
The Partnership's investing activities during 2000 and 1999 were related to
upgrades of equipment on active properties.
Proceeds from asset dispositions of $1,340 and $1,238 received during 2000 and
1999, respectively, were primarily due to equipment credits received on active
properties.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $208,425, of which $2,084 was
distributed to the managing general partner and $206,341 to the limited
partners. In 1999, cash distributions to the partners were $70,098, of which
$701 was distributed to the managing general partner and $69,397 to the limited
partners.
583
PARKER & PARSLEY 87-A CONV., LTD.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 86,783 $ 380,908 $ 234,259 $ 194,541 $ 298,836 $ 351,679
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ 5,726 $ -- $ 63,814 $ 98,114 $ 46,639
======== ========== ========== ========== ========== ========== ==========
Gain on litigation
settlement, net $ $ -- $ -- $ -- $ -- $ -- $ 113,535
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 43,193 $ 193,583 $ 68,399 $ (98,562) $ (7,019) $ 241,359
======== ========== ========== ========== ========== ========== ==========
Allocation of net
income (loss):
Managing general
partner $ $ 432 $ 1,936 $ 684 $ (986) $ (70) $ 2,413
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 42,761 $ 191,647 $ 67,715 $ (97,576) $ (6,949) $ 238,946
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 11.09 $ 49.70 $ 17.56 $ (25.30) $ (1.80) $ 61.97
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 11.58 $ 53.51 $ 18.00 $ 19.54 $ 42.51 $ 89.89(a)
======== ========== ========== ========== ========== ========== ==========
At year end:
Total assets $ $ 462,018 $ 446,602 $ 462,486 $ 462,922 $ 640,521 $ 825,116
======== ========== ========== ========== ========== ========== ==========
----------
(a) Including litigation settlement per limited partnership interest of $29.44
in 1996.
584
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 87-A, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
87-A, Ltd. and supplements the proxy statement/prospectus dated , 2001, of
Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by
which Pioneer USA is soliciting proxies to be voted at a special meeting of
limited partners of the partnership. The purpose of the special meeting is for
you to vote upon the merger of the partnership with and into Pioneer USA that,
if completed, will result in your receiving common stock of Pioneer Natural
Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 87-A, Ltd.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's quarterly report on Form 10-Q, including
management's discussion and analysis of financial condition and
results of operations, for the three months ended March 31, 2001
o The partnership's annual report on Form 10-K, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
585
PARKER & PARSLEY 87-A, LTD.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 28,811
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 37,461
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 5,372
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 187.59
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.48 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 113.60
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 169.78
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 182.71
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 177
(b), (c)
----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
(1) neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners; and (2)
neither the grant nor exercise of such right will result in the loss of any
limited partner's limited liability. In addition, the counsel designated to
render the opinion must be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
586
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 FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 33-12244-01
PARKER & PARSLEY 87-A, LTD.
(Exact name of Registrant as specified in its charter)
TEXAS 75-2185148
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039
---------------------------------------------------------------- -------------
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
-----------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES / X / 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / X /
No market currently exists for the limited partnership interests of the
Registrant. Based on the original purchase price, the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$28,636,000.
As of March 8, 2001, the number of outstanding limited partnership
interests was 28,811.
The following documents are incorporated by reference into the indicated parts
of this Annual Report on Form 10-K: None
PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACCORDINGLY, NO
ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS AND RESULTS WILL NOT BE
MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD
LOOKING STATEMENTS. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS
THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE
ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
587
PART I
ITEM 1. BUSINESS
Parker & Parsley 87-A, Ltd. (the "Partnership") is a limited partnership
organized in 1987 under the laws of the State of Texas. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company
("Pioneer"). As of March 8, 2001, the Partnership had 28,811 limited partnership
interests outstanding.
The Partnership does not have any employees of its own. Pioneer USA employs 701
persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this Report is filed. Pioneer
USA supplies all management functions.
The Partnership engages in oil and gas development and production and is not
involved in any industry segment other than oil and gas. The Partnership's
production is geographically concentrated in West Texas.
The principal markets during 2000 for the oil produced by the Partnership were
refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. During 2000, Pioneer USA marketed the
Partnership's gas to a variety of purchasers. Of the Partnership's total oil and
gas revenues for 2000, approximately 43% and 11% was attributable to sales made
to Plains Marketing, L.P. and NGTS LLC, respectively. Pioneer USA is of the
opinion that the loss of any one purchaser would not have an adverse effect on
its ability to sell its oil, natural gas liquids ("NGLs") and gas production.
The Partnership's revenues, profitability, cash flow and future rate of growth
are highly dependent on the prevailing prices of oil and gas, which are affected
by numerous factors beyond the Partnership's control. Oil and gas prices
historically have been very volatile. A substantial or extended decline in the
prices of oil or gas could have a material adverse effect on the Partnership's
revenues, profitability and cash flow and could, under certain circumstances,
result in a reduction in the carrying value of the Partnership's oil and gas
properties.
Oil and gas production operations are subject to various types of regulations by
local, state and federal agencies. The Partnership's operations are also subject
to state conservation laws and regulations, including the establishment of
maximum rates of production from wells and the regulation of spacing, plugging
and abandonment of wells. Each state generally imposes a production or severance
tax with respect to production and sale of oil and gas within their respective
jurisdictions. Noncompliance with the laws and regulations may subject the
Partnership to penalties, damages or other liabilities and compliance may
increase the cost of the Partnership's operations.
The oil and gas business is also subject to environmental hazards such as oil
spills, gas leaks and ruptures and discharges of toxic substances or gases that
could expose the Partnership to substantial
2
588
liability due to pollution and other environmental damages. Although the
Partnership believes that its business operations do not impair environmental
quality and that its costs of complying with any applicable environmental
regulations are not currently significant, the Partnership cannot predict what,
if any, effect these environmental regulations may have on its current or future
operations.
Numerous uncertainties exist in estimating quantities of proved reserves and
future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the Partnership
conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist of leasehold 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 Spraberry Trend area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 96
oil and gas wells. Two wells were dry holes. Six uneconomical wells were plugged
and abandoned and 15 oil and gas wells have been sold. At December 31, 2000, 73
wells were producing.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 2000, 1999 and 1998, and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been evaluated by Williamson Petroleum Consultants, Inc., an independent
petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer USA believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the partners during the fourth
quarter of 2000.
3
589
PART II
ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP
DISTRIBUTIONS
At March 8, 2001, the Partnership had 28,811 outstanding limited partnership
interests held of record by 2,148 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are not
required to meet the Partnership's obligations are distributed to the partners
at least quarterly in accordance with the limited partnership agreement. During
the years ended December 31, 2000 and 1999, distributions of $1,541,726 and
$518,518, respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
2000 1999 1998 1997 1996
------------- ------------ ----------- ------------ -----------
Operating results:
------------------
Oil and gas sales $ 2,845,556 $ 1,750,425 $ 1,453,492 $ 2,232,898 $ 2,627,636
============ =========== ============ ============ ===========
Gain on litigation
settlement, net $ - $ - $ - $ - $ 848,304
============ =========== ============ ============ ===========
Impairment of oil and gas
properties $ 42,807 $ - $ 477,501 $ 732,890 $ 348,546
============ =========== ============ ============ ===========
Net income (loss) $ 1,444,249 $ 511,237 $ (736,103) $ (49,528) $ 1,803,894
============ =========== ============ ============ ===========
Allocation of net income
(loss):
Managing general partner $ 14,442 $ 5,112 $ (7,361) $ (495) $ 18,039
=========== =========== ============ ============ ===========
Limited partners $ 1,429,807 $ 506,125 $ (728,742) $ (49,033) $ 1,785,855
=========== =========== ============ ============ ===========
Limited partners' net income
(loss) per limited
partnership interest $ 49.63 $ 17.57 $ (25.29) $ (1.70) $ 61.99
=========== =========== ============ ============ ============
Limited partners' cash
distributions per limited
partnership interest $ 53.51 $ 18.00 $ 19.54 $ 42.52 $ 89.89(a)
============ =========== ============ ============ ===========
At year end:
------------
Identifiable assets $ 3,343,783 $ 3,464,619 $ 3,466,459 $ 4,793,102 $ 6,171,831
============ =========== ============ ============ ===========
---------------
(a) Including litigation settlement per limited partnership interest of $29.15
in 1996.
4
590
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 63% to $2,845,556 for 2000 as
compared to $1,750,425 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decrease in production. In 2000, 62,796
barrels of oil, 35,028 barrels of natural gas liquids ("NGLs") and 152,075 mcf
of gas were sold, or 123,170 barrel of oil equivalents ("BOEs"). In 1999, 61,734
barrels of oil, 39,707 barrels of NGLs and 183,099 mcf of gas were sold, or
131,958 BOEs. Due to the decline characteristics of the Partnership's oil and
gas properties, management expects a certain amount of decline in production in
the future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.40, or 73%, from
$17.06 in 1999 to $29.46 in 2000. The average price received per barrel of NGLs
increased $6.20, or 63%, from $9.81 in 1999 to $16.01 in 2000. The average price
received per mcf of gas increased 70% from $1.68 in 1999 to $2.86 in 2000. The
market price received for oil and gas has been extremely volatile in the past
decade and management expects a certain amount of volatility to continue in the
foreseeable future. The Partnership may therefore sell its future oil and gas
production at average prices lower or higher than that received in 2000.
Gains on disposition of assets of $6,407 and $8,848 were due to equipment
credits received on one well during 2000 and 1999, respectively.
Total costs and expenses increased in 2000 to $1,435,888 compared to $1,264,233
in 1999, an increase of $171,655, or 14%. The increase resulted from increases
in production costs, the impairment of oil and gas properties and general and
administrative expenses ("G&A"), offset by a decline in depletion.
Production costs were $1,121,487 in 2000 and $948,362 in 1999, resulting in an
increase of $173,125, or 18%. This increase was primarily due to higher
production taxes associated with higher oil and gas prices and additional well
maintenance and workover costs incurred to stimulate well production.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
63% from $52,563 in 1999 to $85,559 in 2000 primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 3% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $73,296 in 2000 and $34,349 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
5
591
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $42,807 related to its oil and gas properties during 2000.
Depletion was $186,035 in 2000 as compared to $263,308 in 1999, representing a
decrease of $77,273, or 29%. This decrease was primarily due to a 45,228 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
prices.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 20% to $1,750,425 from
$1,453,492 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decrease in production. In 1999, 61,734 barrels of oil,
39,707 barrels of NGLs and 183,099 mcf of gas were sold, or 131,958 BOEs. In
1998, 69,905 barrels of oil, 37,470 barrels of NGLs and 179,494 mcf of gas were
sold, or 137,291 BOEs.
The average price received per barrel of oil increased $3.84, or 29%, from
$13.22 in 1998 to $17.06 in 1999. The average price received per barrel of NGLs
increased $3.05, or 45%, from $6.76 in 1998 to $9.81 in 1999. The average price
received per mcf of gas increased 9% from $1.54 in 1998 to $1.68 in 1999.
A gain on disposition of assets of $8,848 was recognized during 1999 from
equipment credits received on one fully depleted well. During 1998, a gain on
disposition of assets of $765 was received from the sale of equipment on one
saltwater disposal well plugged and abandoned in a prior year.
Total costs and expenses decreased in 1999 to $1,264,233 compared to $2,210,330
in 1998, a decrease of $946,097, or 43%. The decrease resulted from declines in
the impairment of oil and gas properties, depletion and production costs, offset
by an increase in G&A.
Production costs were $948,362 in 1999 and $1,068,450 in 1998, resulting in a
$120,088 decrease, or 11%. This decrease was primarily attributable to
reductions in well maintenance costs, workover expenses and ad valorem taxes,
offset by an increase in production taxes due to increased in oil and gas
revenues.
During this period, G&A increased, in aggregate, 23% from $42,787 in 1998 to
$52,563 in 1999 primarily due to a higher percentage of the managing general
partner's G&A being allocated (limited to 3% of oil and gas revenues) as a
result of increased oil and gas revenues. The Partnership paid the managing
general partner $34,349 in 1999 and $33,674 in 1998 for G&A incurred on behalf
of the Partnership.
The Partnership recognized a non-cash SFAS 121 charge of $477,501 related to its
oil and gas properties during 1998.
6
592
Depletion was $263,308 in 1999 compared to $621,592 in 1998. This represented a
decrease of $358,284, or 58%. This decrease was the result of a combination of
factors that included an increase in proved reserves of 532,499 barrels of oil
during 1999 as a result of higher commodity prices, a reduction in the
Partnership's net depletable basis from charges taken in accordance with SFAS
121 during the fourth quarter of 1998 and a decline in oil production of 8,171
barrels for the period ended December 31, 1999 compared to the same period in
1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $934,385 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $1,107,108 and a decline in working capital of
$33,398, offset by increases in production costs paid of $173,125 and G&A
expenses paid of $32,996. The increase in oil and gas receipts resulted from the
increase in commodity prices during 2000 which contributed an additional
$1,239,482 to oil and gas receipts, offset by $132,374 resulting from the
decline in production during 2000. The increase in production costs was
primarily due to increased production taxes associated with higher oil and gas
prices and additional well maintenance and workover costs incurred to stimulate
well production. The increase in G&A was primarily due to higher percentage of
the managing general partner's G&A being allocated (limited to 3% of oil and gas
revenues) as a result of increased oil and gas revenues.
Net Cash Used in Investing Activities
The Partnership's investing activities during 2000 and 1999 were related to the
upgrades of oil and gas equipment on active properties.
Proceeds from asset dispositions of $10,011 and $9,249 received during 2000 and
1999, respectively, were from equipment credits on one well in each year.
Net Cash Used in Financing Activities
7
593
In 2000, cash distributions to the partners were $1,557,299, of which $15,573
was distributed to the managing general partner and $1,541,726 to the limited
partners. In 1999, cash distributions to the partners were $523,756, of which
$5,238 was distributed to the managing general partner and $518,518 to the
limited partners.
8
594
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
Financial Statements of Parker & Parsley 87-A, Ltd:
Independent Auditors' Report......................................................... 10
Balance Sheets as of December 31, 2000 and 1999...................................... 11
Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998................................................................ 12
Statements of Partners' Capital for the Years Ended
December 31, 2000, 1999 and 1998................................................... 13
Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998................................................................ 14
Notes to Financial Statements........................................................ 15
9
595
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 87-A, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheets of Parker & Parsley 87-A, Ltd. as of December
31, 2000 and 1999, and the related statements of operations, partners' capital
and cash flows for each of the three years in the period ended December 31,
2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 87-A, Ltd. as
of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
10
596
PARKER & PARSLEY 87-A, LTD.
(A Texas Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
---- ----
ASSETS
------
Current assets:
Cash $ 321,340 $ 339,531
Accounts receivable - oil and gas sales 435,508 324,832
---------- ----------
Total current assets 756,848 664,363
---------- ----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 20,198,629 20,183,108
Accumulated depletion (17,611,694) (17,382,852)
----------- -----------
Net oil and gas properties 2,586,935 2,800,256
---------- -----------
$ 3,343,783 $ 3,464,619
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 37,865 $ 45,651
Partners' capital:
Managing general partner 33,032 34,163
Limited partners (28,811 interests) 3,272,886 3,384,805
---------- ---------
3,305,918 3,418,968
----------- ----------
$ 3,343,783 $ 3,464,619
=========== ==========
The accompanying notes are an integral part of these financial statements.
11
597
PARKER & PARSLEY 87-A, LTD.
(A Texas Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
------------ ---------- ------------
Revenues:
Oil and gas $ 2,845,556 $ 1,750,425 $ 1,453,492
Interest 28,174 16,197 19,970
Gain on disposition of assets 6,407 8,848 765
----------- ----------- -----------
2,880,137 1,775,470 1,474,227
----------- ----------- -----------
Costs and expenses:
Oil and gas production 1,121,487 948,362 1,068,450
General and administrative 85,559 52,563 42,787
Impairment of oil and gas properties 42,807 -- 477,501
Depletion 186,035 263,308 621,592
----------- ----------- -----------
1,435,888 1,264,233 2,210,330
----------- ----------- -----------
Net income (loss) $ 1,444,249 $ 511,237 $ (736,103)
=========== =========== ===========
Allocation of net income (loss):
Managing general partner $ 14,442 $ 5,112 $ (7,361)
=========== =========== ===========
Limited partners $ 1,429,807 $ 506,125 $ (728,742)
=========== =========== ===========
Net income (loss) per limited partnership interest $ 49.63 $ 17.57 $ (25.29)
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
12
598
PARKER & PARSLEY 87-A, LTD.
(A Texas Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
----------- ----------- -----------
Partners' capital at January 1, 1998 $ 47,336 $ 4,688,910 $ 4,736,246
Distributions (5,686) (562,970) (568,656)
Net loss (7,361) (728,742) (736,103)
----------- ----------- -----------
Partners' capital at December 31, 1998 34,289 3,397,198 3,431,487
Distributions (5,238) (518,518) (523,756)
Net income 5,112 506,125 511,237
----------- ----------- -----------
Partners' capital at December 31, 1999 34,163 3,384,805 3,418,968
Distributions (15,573) (1,541,726) (1,557,299)
Net income 14,442 1,429,807 1,444,249
----------- ----------- -----------
Partners' capital at December 31, 2000 $ 33,032 $ 3,272,886 $ 3,305,918
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
13
599
PARKER & PARSLEY 87-A, LTD.
(A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
------------ ----------- -----------
Cash flows from operating activities:
Net income (loss) $ 1,444,249 $ 511,237 $ (736,103)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties 42,807 -- 477,501
Depletion 186,035 263,308 621,592
Gain on disposition of assets (6,407) (8,848) (765)
Changes in assets and liabilities:
Accounts receivable (110,676) (162,539) 128,574
Accounts payable (7,786) 10,679 (21,884)
----------- ----------- -----------
Net cash provided by operating activities 1,548,222 613,837 468,915
----------- ----------- -----------
Cash flows from investing activities:
Additions to oil and gas properties (19,125) (42,098) (17,466)
Proceeds from disposition of assets 10,011 9,249 15,652
----------- ----------- -----------
Net cash used in investing activities (9,114) (32,849) (1,814)
----------- ----------- -----------
Cash flows used in financing activities:
Cash distributions to partners (1,557,299) (523,756) (568,656)
----------- ----------- -----------
Net increase (decrease) in cash (18,191) 57,232 (101,555)
Cash at beginning of year 339,531 282,299 383,854
----------- ----------- -----------
Cash at end of year $ 321,340 $ 339,531 $ 282,299
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
14
600
PARKER & PARSLEY 87-A, LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 87-A, Ltd. (the "Partnership") is a limited partnership
organized in 1987 under the laws of the State of Texas. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -
Preparation of the accompanying 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 periods. Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
15
601
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated in part to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non-partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized non-cash impairment provisions of $42,807 and $477,501
related to its proved oil and gas properties during 2000 and 1998, respectively.
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $254,091 less than the tax basis at December 31, 2000.
16
602
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
----------- ----------- -----------
Net income (loss) per statements of operations $ 1,444,249 $ 511,237 $ (736,103)
Intangible development costs capitalized for
financial reporting purposes and expensed
for tax reporting purposes -- -- (6)
Depletion and depreciation provisions for tax
reporting purposes less than amount for
financial reporting purposes 162,602 238,819 584,799
Impairment of oil and gas properties for financial
reporting purposes 42,807 -- 477,501
Salvage income 1,288 -- 13,408
Other, net (3,728) (5,120) 6,254
----------- ----------- -----------
Net income per Federal income tax
returns $ 1,647,218 $ 744,936 $ 345,853
=========== =========== ===========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
--------- -------- ---------
Development costs $ 19,125 $ 42,098 $ 17,466
======== ======== =========
Capitalized oil and gas properties consist of the following:
2000 1999
----------- -----------
Proved properties:
Property acquisition costs $ 946,545 $ 946,545
Completed wells and equipment 19,252,084 19,236,563
----------- -----------
20,198,629 20,183,108
Accumulated depletion (17,611,694) (17,382,852)
------------ -----------
Net oil and gas properties $ 2,586,935 $ 2,800,256
=========== ===========
17
603
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
--------- --------- ---------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 428,017 $ 440,563 $ 442,313
Reimbursement of general and administrative
expenses $ 73,296 $ 34,349 $ 33,674
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. In addition,
Pioneer USA, Parker & Parsley 87-A Conv., L.P. and the Partnership (the
"Partnerships") are parties to the Program agreement.
The costs and revenues of the Program are allocated to Pioneer USA and
the Partnerships as follows:
Pioneer
USA (1) Partnerships(2)
---------- ---------------
Revenues:
Proceeds from disposition of depreciable properties 9.09091% 90.90909%
All other revenues 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion
and all other costs 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated
at the Partnership level and 175 limited partner interests owned by
Pioneer USA.
(2) The allocation between the Partnership and Parker & Parsley 87-A Conv.,
L.P. is 88.19604% and 11.80396%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
18
604
Oil and NGLs Gas
(bbls) (mcf)
---------- ----------
Net proved reserves at January 1, 1998 1,294,911 1,949,548
Revisions (525,530) (596,528)
Production (107,375) (179,494)
---------- ----------
Net proved reserves at December 31, 1998 662,006 1,173,526
Revisions 907,814 1,631,783
Production (101,441) (183,099)
---------- ----------
Net proved reserves at December 31, 1999 1,468,379 2,622,210
Revisions (35,573) (336,529)
Production (97,824) (152,075)
---------- ----------
Net proved reserves at December 31, 2000 1,334,982 2,133,606
========== ==========
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.83 per barrel of NGLs and $7.67 per mcf of gas,
discounted at 10% was approximately $10,856,000 and undiscounted was
$21,368,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
----------------------------------
2000 1999 1998
-------- -------- --------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 45,412 $ 36,134 $ 7,206
Future production costs (24,044) (21,211) (5,635)
-------- -------- --------
21,368 14,923 1,571
10% annual discount factor (10,512) (6,959) (455)
-------- -------- --------
Standardized measure of discounted future net cash flows $ 10,856 $ 7,964 $ 1,116
======== ======== ========
19
605
For the years ended December 31,
------------------------------------
2000 1999 1998
-------- ---------- ---------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (1,724) $ (802) $ (385)
Net changes in prices and production costs 4,989 3,587 (3,456)
Revisions of estimated future development costs - - -
Revisions of previous quantity estimates (618) 6,565 (652)
Accretion of discount 796 111 527
Changes in production rates, timing and other (551) (2,613) (189)
-------- ---------- ---------
Change in present value of future net revenues 2,892 6,848 (4,155)
-------- ---------- ---------
Balance, beginning of year 7,964 1,116 5,271
-------- ---------- ---------
Balance, end of year $ 10,856 $ 7,964 $ 1,116
========= ========== =========
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 43% 39% -
Genesis Crude Oil, L.P. - - 54%
Western Gas Resources, Inc. 3% 7% 29%
NGTS LLC 11% 9% 1%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P.
and NGTS LLC were $122,179 and $4,335, respectively, which is included in the
caption "Accounts receivable - oil and gas sales" in the accompanying Balance
Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the limited partnership agreement:
Managing general partner - The general partner of the Partnership is
Pioneer USA. Pioneer USA, the managing general partner, has the power
and authority to manage, control and administer all Program and
Partnership affairs. As managing general partner and operator of the
Partnership's properties, all production expenses are incurred by
Pioneer USA and billed to the Partnership. The majority of the
Partnership's oil and gas revenues are received directly by the
Partnership, however, a portion of the oil and gas revenue is initially
received by Pioneer USA prior to being paid to the Partnership. Under
the limited partnership agreement,
20
606
the managing general partner pays 1% of the Partnership's acquisition,
drilling and completion costs and 1% of its operating and general and
administrative expenses. In return, it is allocated 1% of the
Partnership's revenues.
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of
$28,811,000. Pioneer USA is required to contribute amounts equal to 1%
of initial Partnership capital less commission and offering expenses
allocated to the limited partners and to contribute amounts necessary to
pay costs and expenses allocated to it under the Partnership agreement
to the extent its share of revenues does not cover such costs.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
21
607
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and executive
officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the
next annual meeting of stockholders or until their successors are elected and
qualified.
Age at
December 31,
Name 2000 Position
---- ---- --------
Scott D. Sheffield 48 President
Timothy L. Dove 44 Executive Vice President, Chief
Financial Officer and Director
Dennis E. Fagerstone 51 Executive Vice President and Director
Mark L. Withrow 53 Executive Vice President, General
Counsel and Director
Danny Kellum 46 Executive Vice President - Domestic
Operations and Director
Rich Dealy 34 Vice President and Chief Accounting
Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of
Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as
President, Chief Executive Officer and a director of Pioneer and President of
Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of
Pioneer in August 1999. He served as a director of Pioneer USA from August 1997
until his resignation from the board in June 1999. Mr. Sheffield was the
President and a director of Parker & Parsley Petroleum Company ("Parker &
Parsley") from May 1990 until August 1997 and was the Chairman of the Board and
Chief Executive Officer of Parker & Parsley from October 1990 until August 1997.
He was the sole director of Parker & Parsley from May 1990 until October 1990.
Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a
predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as
Vice President - Engineering of PPDC from September 1981 until April 1985 when
he was elected President and a director. In March 1989, Mr. Sheffield was
elected Chairman of the Board and Chief Executive Officer of PPDC. Before
joining PPDC's predecessor, Mr. Sheffield was employed as a production and
reservoir engineer for Amoco Production Company.
22
608
Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from
Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981
from the University of Chicago. He became Executive Vice President - Business
Development of Pioneer and Pioneer USA in August 1997 and was also appointed a
director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief
Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr.
Dove joined Parker & Parsley in May 1994 as Vice President - International and
was promoted to Senior Vice President - Business Development in October 1996, in
which position he served until August 1997. Prior to joining Parker & Parsley,
Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus
Energy Corp, in various capacities in international exploration and production,
marketing, refining and marketing and planning and development.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School
of Mines with a B.S. in Petroleum Engineering, became an Executive Vice
President of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. He served as Executive Vice President
and Chief Operating Officer of MESA, Inc. ("Mesa") from March 1, 1997 until
August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior
Vice President and Chief Operating Officer of Mesa and from May 1991 to October
1996, he served as Vice President - Exploration and Production of Mesa. From
June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of
Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President - General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979, was elected Executive
Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000
and Director of Pioneer USA on February 1, 2000. From January 2000 until May
2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and
Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and
Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served
as Spraberry District Manager and as Vice President of the Spraberry and Permian
Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker &
Parsley as an operations engineer in 1981 after a brief career with Mobil Oil
Corporation.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University
with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He
became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
23
609
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is performed by Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA pays approximately 10% of the Program's acquisition,
drilling and completion costs and approximately 25% of its operating and general
and administrative expenses. In return, Pioneer USA is allocated approximately
25% of the Program's revenues.
The Partnership does not directly pay any salaries of the executive officers of
Pioneer USA, but does pay a portion of Pioneer USA's general and administrative
expenses of which these salaries are a part.
See Notes 6 and 9 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" for information regarding fees and
reimbursements paid to the managing general partner by the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more of
the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 175 limited partner interests at January 1, 2001.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general
partner of the Partnership, Pioneer USA, has the exclusive right and full
authority to manage, control and administer the Partnership's business. Under
the limited partnership agreement, limited partners holding a majority of the
outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
24
610
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner
Pursuant to the limited partnership agreement, the Partnership had the following
related party transactions with the managing general partner during the years
ended December 31:
2000 1999 1998
-------- -------- ---------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 428,017 $ 440,563 $ 442,313
Reimbursement of general and administrative
expenses $ 73,296 $ 34,349 $ 33,674
Under the limited partnership agreement, the managing general partner pays 1% of
the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
25
611
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial statements
The following are filed as part of this Report:
Independent Auditors' Report
Balance sheets as of December 31, 2000 and 1999
Statements of operations for the years ended December 31, 2000,
1999 and 1998
Statements of partners' capital for the years ended December
31, 2000, 1999 and 1998
Statements of cash flows for the years ended December 31, 2000,
1999 and 1998
Notes to financial statements
2. Financial statement schedules.
All financial statement schedules have been omitted since the
required information is in the financial statements or notes thereto,
or is not applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this Report.
26
612
SIGNATURES
Pursuant to the requirements 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.
PARKER & PARSLEY 87-A, LTD.
Dated: March 29, 2001 By: Pioneer Natural Resources USA, Inc.
Managing General Partner
By: /s/ Scott D. Sheffield
------------------------------
Scott D. Sheffield, President
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/ Scott D. Sheffield President of Pioneer USA March 29, 2001
-------------------------------
Scott D. Sheffield
/s/ Timothy L. Dove Executive Vice President, Chief March 29, 2001
------------------------------- Financial Officer and Director of
Timothy L. Dove Pioneer USA
/s/ Dennis E. Fagerstone Executive Vice President and March 29, 2001
------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ Mark L. Withrow Executive Vice President, General March 29, 2001
------------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ Danny Kellum Executive Vice President - Domestic March 29, 2001
------------------------------- Operations and Director of Pioneer
Danny Kellum USA
/s/ Rich Dealy Vice President and Chief Accounting March 29, 2001
------------------------------- Officer of Pioneer USA
Rich Dealy
27
613
PARKER & PARSLEY 87-A, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
Exhibit No. Description Page
----------- ----------- ----
4(a) Agreement of Limited Partnership of Parker -
& Parsley 87-A, Ltd. incorporated by
reference to Exhibit A of the Partnership's
Registration Statement on Form S-1
(Registration No. 33-16910) (hereinafter
called the Partnership's Registration Statement
4(b) Form of Subscription Agreement and Power -
of Attorney incorporated by reference to
Exhibit D of the Partnership's Registration
Statement
4(c) Specimen Certificate of Limited Partnership -
Interest incorporated by reference to Exhibit
D of the Partnership's Registration Statement
10(b) Development Program Agreement incorporated -
by reference to Exhibit C of the Partnership's
Registration Statement
28
614
PARKER & PARSLEY 87-A, LTD.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 648,941 $2,845,556 $1,750,425 $1,453,492 $2,232,898 $2,627,636
======== ========== ========== ========== ========== ========== ==========
Gain on litigation
settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 848,304
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and gas
properties $ $ -- $ 42,807 $ -- $ 477,501 $ 732,890 $ 348,546
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 323,110 $1,444,249 $ 511,237 $ (736,103) $ (49,528) $1,803,894
======== ========== ========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general
partner $ $ 3,231 $ 14,442 $ 5,112 $ (7,361) $ (495) $ 18,039
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 319,879 $1,429,807 $ 506,125 $ (728,742) $ (49,033) $1,785,855
======== ========== ========== ========== ========== ========== ==========
Limited partners' net income
(loss) per limited
partnership interest $ $ 11.10 $ 49.63 $ 17.57 $ (25.29) $ (1.70) $ 61.99
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 11.58 $ 53.51 $ 18.00 $ 19.54 $ 42.52 $ 89.89(a)
======== ========== ========== ========== ========== ========== ==========
At year end:
Identifiable assets $ $3,462,012 $3,343,783 $3,464,619 $3,466,459 $4,793,102 $6,171,831
======== ========== ========== ========== ========== ========== ==========
----------
(a) Including litigation settlement per limited partnership interest of $29.15
in 1996.
615
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 87-B, CONV., LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
87-B Conv., Ltd. and supplements the proxy statement/prospectus dated ,
2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA,
Inc., by which Pioneer USA is soliciting proxies to be voted at a special
meeting of limited partners of the partnership. The purpose of the special
meeting is for you to vote upon the merger of the partnership with and into
Pioneer USA that, if completed, will result in your receiving common stock of
Pioneer Natural Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 87-B Conv., Ltd.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the three months ended March 31, 2001
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
616
PARKER & PARSLEY 87-B CONV., LTD.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 4,919
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 6,008
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 972
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 198.02
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 4.03 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 138.95
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 180.33
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 192.95
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 173
(b), (c)
-----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners. Although not
required by the partnership agreement, the opinion will also state that neither
the grant nor exercise of such right will result in the loss of any limited
partner's limited liability. In addition, the counsel designated to render the
opinion must be counsel other than counsel to Pioneer USA or the partnership.
Both the designated counsel and the legal opinion must be approved by the
limited partners. Pioneer USA has retained __________ of Dallas, Texas for the
purpose of rendering this legal opinion on behalf of the limited partners to
Pioneer USA. The merger proposals include an approval of that counsel and the
form of its opinion. A copy of the opinion is attached as an exhibit to the
merger proposals.
-2-
617
PARKER & PARSLEY 87-B CONV., LTD.
(A Texas Limited Partnership)
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT
December 31, 2000 and 1999
618
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 87-B Conv., Ltd.
(A Texas Limited Partnership):
We have audited the balance sheets of Parker & Parsley 87-B Conv., Ltd. as of
December 31, 2000 and 1999, and the related statements of operations, partners'
capital and cash flows for each of the three years in the period ended December
31, 2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 87-B Conv.,
Ltd. as of December 31, 2000 and 1999, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
2
619
PARKER & PARSLEY 87-B CONV., LTD.
(A Texas Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
---- ----
ASSETS
------
Current assets:
Cash $ 62,552 $ 71,344
Accounts receivable - oil and gas sales 87,620 36,226
----------- -----------
Total current assets 150,172 107,570
----------- -----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 3,280,150 3,277,595
Accumulated depletion (2,733,516) (2,675,751)
----------- -----------
Net oil and gas properties 546,634 601,844
----------- -----------
$ 696,806 $ 709,414
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 6,423 $ 7,274
Partners' capital:
Managing general partner 6,889 7,006
Limited partners (4,919 interests) 683,494 695,134
----------- -----------
690,383 702,140
----------- -----------
$ 696,806 $ 709,414
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
620
PARKER & PARSLEY 87-B CONV., LTD.
(A Texas Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Revenues:
Oil and gas $ 469,502 $ 278,326 $ 236,434
Interest 5,144 3,117 3,558
Gain on disposition of assets 1,005 -- 3,419
--------- --------- ---------
475,651 281,443 243,411
--------- --------- ---------
Costs and expenses:
Oil and gas production 172,228 155,029 146,967
General and administrative 13,873 8,214 7,093
Impairment of oil and gas properties 21,231 -- 48,745
Depletion 36,534 49,790 120,823
Abandoned property -- -- 965
--------- --------- ---------
243,866 213,033 324,593
--------- --------- ---------
Net income (loss) $ 231,785 $ 68,410 $ (81,182)
========= ========= =========
Allocation of net income (loss):
Managing general partner $ 2,318 $ 684 $ (812)
========= ========= =========
Limited partners $ 229,467 $ 67,726 $ (80,370)
========= ========= =========
Net income (loss) per limited partnership interest $ 46.65 $ 13.77 $ (16.34)
========= ========= =========
The accompanying notes are an integral part of these financial statements.
4
621
PARKER & PARSLEY 87-B CONV., LTD.
(A Texas Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
--------- --------- ---------
Partners' capital at January 1, 1998 $ 9,098 $ 902,134 $ 911,232
Distributions (1,056) (104,488) (105,544)
Net loss (812) (80,370) (81,182)
--------- --------- ---------
Partners' capital at December 31, 1998 7,230 717,276 724,506
Distributions (908) (89,868) (90,776)
Net income 684 67,726 68,410
--------- --------- ---------
Partners' capital at December 31, 1999 7,006 695,134 702,140
Distributions (2,435) (241,107) (243,542)
Net income 2,318 229,467 231,785
--------- --------- ---------
Partners' capital at December 31, 2000 $ 6,889 $ 683,494 $ 690,383
========= ========= =========
The accompanying notes are an integral part of these financial statements.
5
622
PARKER & PARSLEY 87-B CONV., LTD.
(A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ 231,785 $ 68,410 $ (81,182)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties 21,231 -- 48,745
Depletion 36,534 49,790 120,823
Gain on disposition of assets (1,005) -- (3,419)
Changes in assets and liabilities:
Accounts receivable (51,394) (7,809) 15,837
Accounts payable (851) 2,071 (4,734)
--------- --------- ---------
Net cash provided by operating activities 236,300 112,462 96,070
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties (2,609) (4,857) (5,631)
Proceeds from disposition of assets 1,059 1,226 3,419
--------- --------- ---------
Net cash used in investing activities (1,550) (3,631) (2,212)
--------- --------- ---------
Cash flows used in financing activities:
Cash distributions to partners (243,542) (90,776) (105,544)
--------- --------- ---------
Net increase (decrease) in cash (8,792) 18,055 (11,686)
Cash at beginning of year 71,344 53,289 64,975
--------- --------- ---------
Cash at end of year $ 62,552 $ 71,344 $ 53,289
========= ========= =========
The accompanying notes are an integral part of these financial statements.
6
623
PARKER & PARSLEY 87-B CONV., LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 87-B Conv., Ltd. (the "Partnership") was organized in
1987 as a general partnership under the laws of the State of Texas and was
converted to a Texas limited partnership in 1989. The Partnership's managing
general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -
Preparation of the accompanying 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 periods. Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
7
624
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated in part to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non-partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized non-cash impairment provisions of $21,231 and $48,745
related to its proved oil and gas properties during 2000 and 1998, respectively.
8
625
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $63,837 greater than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
--------- --------- ---------
Net income (loss) per statements of operations $ 231,785 $ 68,410 $(81,182)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes 33,614 47,165 116,988
Impairment of oil and gas properties for financial
reporting purposes 21,231 -- 48,745
Other, net (643) (5,995) (1,248)
--------- --------- ---------
Net income per Federal income tax returns $ 285,987 $ 109,580 $ 83,303
========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
-------- --------- ---------
Development costs $ 2,609 $ 4,857 $ 5,631
======== ======== ========
Capitalized oil and gas properties consist of the following:
2000 1999
--------- ---------
Proved properties:
Property acquisition costs $ 135,396 $ 135,396
Completed wells and equipment 3,144,754 3,142,199
--------- ---------
3,280,150 3,277,595
Accumulated depletion (2,733,516) (2,675,751)
---------- ----------
Net oil and gas properties $ 546,634 $ 601,844
========== ==========
9
626
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
------- ------- --------
Payment of lease operating and supervision
charges in accordance with standard industry
operating agreements $74,535 $73,744 $71,600
Reimbursement of general and administrative
expenses $12,385 $ 5,720 $ 5,800
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
Parker & Parsley 87-B, Ltd. and the Partnership (the "Partnerships") are parties
to the Program agreement.
The costs and revenues of the Program are allocated to Pioneer USA and the
Partnerships as follows:
Pioneer USA (1) Partnerships (2)
-------------- ----------------
Revenues:
Proceeds from disposition of depreciable
properties 9.09091% 90.90909%
All other revenues 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion
costs and all other costs 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is
allocated at the Partnership level and 10 limited partner interests
owned by Pioneer USA.
(2) The allocation between the Partnership and Parker & Parsley 87-B,
Ltd. is 19.66971% and 80.33029%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
Oil and NGLs Gas
(bbls) (mcf)
-------- --------
Net proved reserves at January 1, 1998 230,505 316,120
Revisions (76,948) (70,310)
Production (17,879) (25,477)
-------- --------
Net proved reserves at December 31, 1998 135,678 220,333
Revisions 155,187 272,717
Production (16,758) (24,436)
-------- --------
Net proved reserves at December 31, 1999 274,107 468,614
Revisions (9,351) (76,076)
Production (16,015) (23,682)
-------- --------
Net proved reserves at December 31, 2000 248,741 368,856
======== ========
10
627
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.26 per barrel of NGLs and $7.62 per mcf of gas,
discounted at 10% was approximately $1,851,000 and undiscounted was $3,947,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
----------------------------------
2000 1999 1998
---- ---- ----
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 8,237 $ 6,760 $ 1,480
Future production costs (4,290) (3,786) (1,130)
------- ------- -------
3,947 2,974 350
10% annual discount factor (2,096) (1,454) (110)
------- ------- -------
Standardized measure of discounted future net cash flows $ 1,851 $ 1,520 $ 240
======= ======= =======
11
628
For the years ended December 31,
------------------------------------
2000 1999 1998
---- ---- ----
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (297) $ (123) $ (89)
Net changes in prices and production costs 795 742 (585)
Revisions of previous quantity estimates (143) 1,162 (100)
Accretion of discount 152 24 94
Changes in production rates, timing and other (176) (525) (21)
-------- --------- --------
Change in present value of future net revenues 331 1,280 (701)
-------- --------- --------
Balance, beginning of year 1,520 240 941
-------- --------- --------
Balance, end of year $ 1,851 $ 1,520 $ 240
========= ========== =========
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil and
gas sales (a major customer is defined as a customer whose sales exceed 10% of
total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 49% 50% -
Genesis Crude Oil, L.P. 2% 1% 57%
Western Gas Resources, Inc. 4% 6% 26%
Phillips Petroleum Company 16% - -
At December 31, 2000, the amounts receivable from Plains Marketing, L.P.
and Phillips Petroleum Company were $23,391 and $10,443, respectively, which are
included in the caption "Accounts receivable - oil and gas sales" in the
accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the limited partnership agreement:
Managing general partner - The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Program and Partnership affairs. As
managing general partner and operator of the Partnership's properties,
all production expenses are incurred by Pioneer USA and billed to the
Partnership. The majority of the Partnership's oil and gas revenues are
received directly by the Partnership, however, a portion of the oil and
gas revenue is initially received by Pioneer USA prior to being paid to
the Partnership. Under the limited partnership agreement, the managing
general partner pays 1% of the Partnership's acquisition, drilling and
completion costs and 1% of its operating and general and administrative
expenses. In return, it is allocated 1% of the Partnership's revenues.
12
629
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The partners entered into subscription
agreements for aggregate capital contributions of $4,919,000. Pioneer
USA is required to contribute amounts equal to 1% of initial Partnership
capital less commission and organization and offering costs allocated to
the limited partners and to contribute amounts necessary to pay costs
and expenses allocated to it under the Partnership agreement to the
extent its share of revenues does not cover such costs.
13
630
PARKER & PARSLEY 87-B CONV., LTD.
(A TEXAS LIMITED PARTNERSHIP)
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACCORDINGLY, NO ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS
AND RESULTS WILL NOT BE MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS
DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 69% to $469,502 for 2000 as
compared to $278,326 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decline in production. In 2000, 10,352
barrels of oil, 5,663 barrels of natural gas liquids ("NGLs") and 23,682 mcf of
gas were sold, or 19,962 barrel of oil equivalents ("BOEs"). In 1999, 10,784
barrels of oil, 5,974 barrels of NGLs and 24,436 mcf of gas were sold, or 20,831
BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.60, or 75%, from
$16.71 in 1999 to $29.31 in 2000. The average price received per barrel of NGLs
increased $7.17, or 74%, from $9.73 in 1999 to $16.90 in 2000. The average price
received per mcf of gas increased 82% from $1.64 in 1999 to $2.98 in 2000. The
market price for oil and gas has been extremely volatile in the past decade, and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
A gain on disposition of assets of $1,005, recognized during 2000, was
attributable to credits received from the disposal of oil and gas equipment on
one fully depleted well.
Total costs and expenses increased in 2000 to $243,866 as compared to $213,033
in 1999, an increase of $30,833, or 14%. The increase was primarily due to the
impairment of oil and gas properties and increases in production costs and
general and administrative expenses ("G&A"), offset by a decline in depletion.
Production costs were $172,228 in 2000 and $155,029 in 1999, resulting in a
$17,199 increase, or 11%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices and additional well maintenance
costs incurred to stimulate well production, offset by a decline in workover
expenses.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
69% from $8,214 in 1999 to $13,873 in 2000, primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 3% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $12,385 in 2000 and $5,720 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $21,231 related to its oil and gas properties during 2000.
Depletion was $36,534 in 2000 as compared to $49,790 in 1999, representing a
decrease of $13,256, or 27%. This decrease was primarily due to a 2,194 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
631
prices.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 18% to $278,326 from
$236,434 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 10,784 barrels of oil,
5,974 barrels of NGLs and 24,436 mcf of gas were sold, or 20,831 BOEs. In 1998,
12,040 barrels of oil, 5,839 barrels of NGLs and 25,477 mcf of gas were sold, or
22,125 BOEs.
The average price received per barrel of oil increased $3.54, or 27%, from
$13.17 in 1998 to $16.71 in 1999. The average price received per barrel of NGLs
increased $2.91, or 43%, from $6.82 in 1998 to $9.73 in 1999. The average price
received per mcf of gas increased 10% from $1.49 in 1998 to $1.64 in 1999.
A gain on disposition of assets of $3,419 was recognized during 1998 from the
sale of oil and gas equipment on one well abandoned in a prior year. Abandoned
property costs of $965 in 1998 were related to this abandonment.
Total costs and expenses decreased in 1999 to $213,033 as compared to $324,593
in 1998, a decrease of $111,560, or 34%. The decrease was primarily due to
declines in depletion, the impairment of oil and gas properties and abandoned
property costs, offset by increases in production costs and G&A.
Production costs were $155,029 in 1999 and $146,967 in 1998, resulting in an
$8,062 increase, or 5%. The increase was due to increases in well maintenance
costs and workover costs incurred to stimulate well production, offset by a
decline in ad valorem taxes.
During this period, G&A increased 16% from $7,093 in 1998 to $8,214 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $5,720 in
1999 and $5,800 in 1998 for G&A incurred on behalf of the Partnership.
The Partnership recognized a non-cash SFAS 121 charge of $48,745 related to its
oil and gas properties during 1998.
Depletion was $49,790 in 1999 compared to $120,823 in 1998, representing a
decrease of $71,033, or 59%. This decrease was the result of a 92,485 barrels of
oil increase in proved reserves during 1999 as a result of higher commodity
prices, a reduction in the Partnership's net depletable basis from charges taken
in accordance with SFAS 121 during the fourth quarter of 1998 and a decline in
oil production of 1,256 barrels for the period ended December 31, 1999 compared
to the same period in 1998.
Petroleum Industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
632
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $123,838 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $193,203, offset by increases in production costs paid
of $17,199, G&A expenses paid of $5,659 and working capital of $46,507. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $213,360 to oil and gas receipts,
offset by $20,157 resulting from the decline in production during 2000. The
increase in production costs was primarily due to increased production taxes
associated with higher oil and gas prices and additional well maintenance costs
incurred to stimulate well production, offset by a decline in workover expense.
The increase in G&A was primarily due to higher percentage of the managing
general partner's G&A being allocated (limited to 3% of oil and gas revenues) as
a result of increased oil and gas revenues.
Net Cash Used in Investing Activities
The Partnership's principal investing activities during 2000 and 1999 were
related to expenditures for oil and gas equipment upgrades on active properties.
Proceeds from asset dispositions of $1,059 were comprised of $1,005 received
from salvage income on one fully depleted well and $54 from equipment credits
received on one active well. Proceeds of $1,226 received during 1999 were from
equipment credits received on one temporarily abandoned well.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $243,542, of which $2,435 was
distributed to the managing general partner and $241,107 to the limited
partners. In 1999, cash distributions to the partners were $90,776, of which
$908 was distributed to the managing general partner and $89,868 to the limited
partners.
633
PARKER & PARSLEY 87-B CONV., LTD.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 111,198 $ 469,502 $ 278,326 $ 236,434 $ 345,942 $ 422,550
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ 21,231 $ -- $ 48,745 $ 188,163 $ --
======== ========== ========== ========== ========== ========== ==========
Gain on litigation
settlement, net $ $ -- $ -- $ -- $ -- $ -- $ 144,643
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 60,346 $ 231,785 $ 68,410 $ (81,182) $ (85,292) $ 293,575
======== ========== ========== ========== ========== ========== ==========
Allocation of net
income (loss):
Managing general
partner $ $ 604 $ 2,318 $ 684 $ (812) $ (853) $ 2,936
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 59,742 $ 229,467 $ 67,726 $ (80,370) $ (84,439) $ 290,639
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 12.15 $ 46.65 $ 13.77 $ (16.34) $ (17.17) $ 59.08
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 10.07 $ 49.02 $ 18.27 $ 21.24 $ 35.81 $ 87.22(a)
======== ========== ========== ========== ========== ========== ==========
At year end:
Total assets $ $ 721,918 $ 696,806 $ 709,414 $ 729,709 $ 921,169 $1,202,384
======== ========== ========== ========== ========== ========== ==========
----------
(a) Including litigation settlement per limited partnership interest of $29.40
in 1996.
634
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 87-B, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
87-B, Ltd. and supplements the proxy statement/prospectus dated , 2001, of
Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by
which Pioneer USA is soliciting proxies to be voted at a special meeting of
limited partners of the partnership. The purpose of the special meeting is for
you to vote upon the merger of the partnership with and into Pioneer USA that,
if completed, will result in your receiving common stock of Pioneer Natural
Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 87-B, Ltd.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's quarterly report on Form 10-Q, including
management's discussion and analysis of financial condition and
results of operations, for the three months ended March 31, 2001
o The partnership's annual report on Form 10-K, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
635
PARKER & PARSLEY 87-B, LTD.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 20,089
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 24,540
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 3,972
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 198.15
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 4.03 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 139.11
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 180.46
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 193.08
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 173
(b), (c)
----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as any
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
(1) neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners; and (2)
neither the grant nor exercise of such right will result in the loss of any
limited partner's limited liability. In addition, the counsel designated to
render the opinion must be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
636
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 FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 33-12244-02
PARKER & PARSLEY 87-B, LTD.
(Exact name of Registrant as specified in its charter)
TEXAS 75-2185706
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039
---------------------------------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
-----------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES / X / 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / X /
No market currently exists for the limited partnership interests of the
Registrant. Based on the original purchase price, the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$20,044,000.
As of March 8, 2001, the number of outstanding limited partnership
interests was 20,089.
The following documents are incorporated by reference into the indicated parts
of this Annual Report on Form 10-K: None
PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACCORDINGLY, NO
ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS AND RESULTS WILL NOT BE
MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD
LOOKING STATEMENTS. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS
THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE
ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
637
PART I
ITEM 1. BUSINESS
Parker & Parsley 87-B, Ltd. (the "Partnership") is a limited partnership
organized in 1987 under the laws of the State of Texas. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company
("Pioneer"). As of March 8, 2001, the Partnership had 20,089 limited partnership
interests outstanding.
The Partnership does not have any employees of its own. Pioneer USA employs 701
persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this Report is filed. Pioneer
USA supplies all management functions.
The Partnership engages in oil and gas development and production and is not
involved in any industry segment other than oil and gas. The Partnership's
production is geographically concentrated in West Texas.
The principal markets during 2000 for the oil produced by the Partnership were
refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. During 2000, Pioneer USA marketed the
Partnership's gas to a variety of purchasers, none of which accounted for 10% or
more of the Partnership's oil and gas revenues. Of the Partnership's total oil
and gas revenues for 2000, approximately 49% and 16% was attributable to sales
made to Plains Marketing, L.P. and Phillips Petroleum Company. Pioneer USA is of
the opinion that the loss of any one purchaser would not have an adverse effect
on its ability to sell its oil, natural gas liquids ("NGLs") and gas production.
The Partnership's revenues, profitability, cash flow and future rate of growth
are highly dependent on the prevailing prices of oil and gas, which are affected
by numerous factors beyond the Partnership's control. Oil and gas prices
historically have been very volatile. A substantial or extended decline in the
prices of oil or gas could have a material adverse effect on the Partnership's
revenues, profitability and cash flow and could, under certain circumstances,
result in a reduction in the carrying value of the Partnership's oil and gas
properties.
Oil and gas production operations are subject to various types of regulations by
local, state and federal agencies. The Partnership's operations are also subject
to state conservation laws and regulations, including the establishment of
maximum rates of production from wells and the regulation of spacing, plugging
and abandonment of wells. Each state generally imposes a production or severance
tax with respect to production and sale of oil and gas within their respective
jurisdictions. Noncompliance with the laws and regulations may subject the
Partnership to penalties, damages or other liabilities and compliance may
increase the cost of the Partnership's operations.
The oil and gas business is also subject to environmental hazards such as oil
spills, gas leaks and ruptures and discharges of toxic substances or gases that
could expose the Partnership to substantial
2
638
liability due to pollution and other environmental damages. Although the
Partnership believes that its business operations do not impair environmental
quality and that its costs of complying with any applicable environmental
regulations are not currently significant, the Partnership cannot predict what,
if any, effect these environmental regulations may have on its current or future
operations.
Numerous uncertainties exist in estimating quantities of proved reserves and
future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the Partnership
conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist of leasehold 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 in
Texas were acquired by the Partnership, resulting in the Partnership's
participation in the drilling of 64 oil and gas wells. At December 31, 2000, 49
wells were producing; one well was a dry hole from a previous year; five wells
have been plugged and abandoned and nine wells were sold.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 2000, 1999 and 1998 and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been evaluated by Williamson Petroleum Consultants, Inc., an independent
petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer USA believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the partners during the fourth
quarter of 2000.
3
639
PART II
ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP
DISTRIBUTIONS
At March 8, 2001, the Partnership had 20,089 outstanding limited partnership
interests held of record by 1,468 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are not
required to meet the Partnership's obligations are distributed to the partners
at least quarterly in accordance with the limited partnership agreement. During
the years ended December 31, 2000 and 1999, distributions of $984,669 and
$367,015, respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
Operating results:
------------------
Oil and gas sales $1,917,791 $1,136,700 $ 965,599 $1,412,905 $1,725,580
========== ========== ========== ========== ==========
Gain on litigation
settlement, net $ - $ - $ - $ - $ 590,715
========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ 86,674 $ - $ 199,037 $ 768,208 $ -
========== ========== ========== ========== ==========
Net income (loss) $ 945,927 $ 279,094 $ (331,789) $ (347,350) $1,199,153
========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general partner $ 9,459 $ 2,791 $ (3,318) $ (3,473) $ 11,992
========== ========== ========== ========== ==========
Limited partners $ 936,468 $ 276,303 $ (328,471) $ (343,877) $1,187,161
========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ 46.62 $ 13.75 $ (16.35) $ (17.12) $ 59.10
========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ 49.02 $ 18.27 $ 21.24 $ 35.83 $ 87.23 (a)
========== ========== ========== ========== ==========
At year end:
------------
Identifiable assets $2,848,775 $2,900,940 $2,984,346 $3,766,001 $4,914,489
========== ========== ========== ========== ==========
---------------
(a) Including litigation settlement per limited partnership interest of $29.11
in 1996.
4
640
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 69% to $1,917,791 for 2000 as
compared to $1,136,700 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decline in production. In 2000, 42,280
barrels of oil, 23,121 barrels of natural gas liquids ("NGLs") and 96,740 mcf of
gas were sold, or 81,524 barrel of oil equivalents ("BOEs"). In 1999, 44,029
barrels of oil, 24,404 barrels of NGLs and 99,771 mcf of gas were sold, or
85,062 BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production to
continue in the future until the Partnership's economically recoverable reserves
are fully depleted.
The average price received per barrel of oil increased $12.60, or 75%, from
$16.71 in 1999 to $29.31 in 2000. The average price received per barrel of NGLs
increased $7.17, or 74%, from $9.73 in 1999 to $16.90 in 2000. The average price
received per mcf of gas increased 82% from $1.64 in 1999 to $2.98 in 2000. The
market price received for oil and gas has been extremely volatile in the past
decade and management expects a certain amount of volatility to continue in the
foreseeable future. The Partnership may therefore sell its future oil and gas
production at average prices lower or higher than that received in 2000.
A gain on disposition of assets of $4,102, recognized during 2000, was
attributable to credits received from the disposal of oil and gas equipment on
one fully depleted well.
Total costs and expenses increased in 2000 to $997,051 as compared to $870,434
in 1999, an increase of $126,617, or 15%. The increase was primarily due to the
impairment of oil and gas properties and increases in production costs and
general and administrative expenses ("G&A"), offset by a decline in depletion.
Production costs were $703,352 in 2000 and $633,091 in 1999, resulting in an
increase of $70,261, or 11%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices and additional well maintenance
costs incurred to stimulate production, offset by a decline in workover
expenses.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
69% from $34,237 in 1999 to $57,746 in 2000 primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 3% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $50,579 in 2000 and $23,361 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated
5
641
to reflect changes in Pioneer USA's overall business activities.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $86,674 related to its oil and gas properties during 2000.
Depletion was $149,279 in 2000 compared to $203,106 in 1999, representing a
decrease of $53,827, or 27%. The decrease was primarily due to an 8,836 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
prices.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 18% to $1,136,700 from
$965,599 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 44,029 barrels of oil,
24,404 barrels of NGLs and 99,771 mcf of gas were sold, or 85,062 BOEs. In 1998,
49,182 barrels of oil, 23,854 barrels of NGLs and 104,072 mcf of gas were sold,
or 90,381 BOEs.
The average price received per barrel of oil increased $3.54, or 27%, from
$13.17 in 1998 to $16.71 in 1999. The average price received per barrel of NGLs
increased $2.91, or 43%, from $6.82 in 1998 to $9.73 in 1999. The average price
received per mcf of gas increased 10% from $1.49 in 1998 to $1.64 in 1999.
A gain on disposition of assets of $13,965 was received during 1998 from the
sale of oil and gas equipment on one well abandoned in a prior year. Abandoned
property costs of $3,943 were incurred in 1998. These costs were attributable to
the plugging and abandonment of one uneconomical well in a prior year.
Total costs and expenses decreased in 1999 to $870,434 as compared to $1,326,204
in 1998, a decrease of $455,770, or 34%. The decrease was due to declines in
depletion, the impairment of oil and gas properties and abandoned property
costs, offset by increases in production costs and G&A.
Production costs were $633,091 in 1999 and $600,702 in 1998, resulting in a
$32,389 increase, or 5%. The increase was due to increases in well maintenance
costs and workover costs incurred to stimulate well production, offset by a
decline in ad valorem taxes.
During this period, G&A increased 18% from $28,968 in 1998 to $34,237 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $23,361 in
1999 and $23,688 in 1998 for G&A incurred on behalf of the Partnership.
The Partnership recognized a non-cash SFAS 121 charge of $199,037 related to its
oil and gas
6
642
properties during 1998.
Depletion was $203,106 in 1999 compared to $493,554 in 1998. This represented a
decrease of $290,448, or 59%. The decrease was the result of a combination of
factors that included an increase in proved reserves of 377,754 barrels of oil
during 1999 as a result of higher commodity prices, a reduction in the
Partnership's net depletable basis from charges taken in accordance with SFAS
121 during the fourth quarter of 1998 and a decline in oil production of 5,153
barrels for the period ended December 31, 1999 compared to the same period in
1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $569,152 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $789,348, offset by increases in production costs paid
of $70,261, G&A expenses paid of $23,509 and working capital of $126,426. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $871,310 to oil and gas receipts,
offset by $81,962 resulting from the decline in production during 2000. The
increase in production costs was primarily due to increased production taxes
associated with higher oil and gas prices and additional well maintenance costs
incurred to stimulate well production, offset by a decline in workover expenses.
The increase in G&A was primarily due to higher percentage of the managing
general partner's G&A being allocated (limited to 3% of oil and gas revenues) as
a result of increased oil and gas revenues.
Net Cash Used in Investing Activities
The Partnership's investing activities during 2000 and 1999 were related to
expenditures for oil and gas equipment upgrades on active properties.
Proceeds from asset dispositions of $4,326 and $5,007 were received during 2000
and 1999, respectively. The proceeds of $4,326 were due to $4,102 salvage income
on one fully depleted well
7
643
and the remaining $224 on equipment credits received on an active well. The
proceeds of $5,007 were due to equipment credits received on one temporarily
abandoned well.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $994,615, of which $9,946 was
distributed to the managing general partner and $984,669 to the limited
partners. In 1999, cash distributions to the partners were $370,722, of which
$3,707 was distributed to the managing general partner and $367,015 to the
limited partners.
8
644
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements of Parker & Parsley 87-B, Ltd:
Independent Auditors' Report......................................................... 10
Balance Sheets as of December 31, 2000 and 1999...................................... 11
Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998................................................................ 12
Statements of Partners' Capital for the Years Ended
December 31, 2000, 1999 and 1998................................................... 13
Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998................................................................ 14
Notes to Financial Statements........................................................ 15
9
645
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 87-B, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheets of Parker & Parsley 87-B, Ltd. as of December
31, 2000 and 1999, and the related statements of operations, partners' capital
and cash flows for each of the three years in the period ended December 31,
2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 87-B, Ltd. as
of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
10
646
PARKER & PARSLEY 87-B, LTD.
(A Texas Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
------------ -----------
ASSETS
------
Current assets:
Cash $ 257,845 $ 262,756
Accounts receivable - oil and gas sales 357,836 179,571
------------ -----------
Total current assets 615,681 442,327
------------ -----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 13,396,004 13,385,570
Accumulated depletion (11,162,910) (10,926,957)
------------ -----------
Net oil and gas properties 2,233,094 2,458,613
------------ -----------
$ 2,848,775 $ 2,900,940
============ ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 25,998 $ 29,475
Partners' capital:
Managing general partner 28,156 28,643
Limited partners (20,089 interests) 2,794,621 2,842,822
------------ -----------
2,822,777 2,871,465
------------ -----------
$ 2,848,775 $ 2,900,940
============ ===========
The accompanying notes are an integral part of these financial statements.
11
647
PARKER & PARSLEY 87-B, LTD.
(A Texas Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
---------- ---------- ----------
Revenues:
Oil and gas $1,917,791 $1,136,700 $ 965,599
Interest 21,085 12,828 14,851
Gain on disposition of assets 4,102 - 13,965
---------- ---------- ----------
1,942,978 1,149,528 994,415
---------- ---------- ----------
Costs and expenses:
Oil and gas production 703,352 633,091 600,702
General and administrative 57,746 34,237 28,968
Impairment of oil and gas properties 86,674 - 199,037
Depletion 149,279 203,106 493,554
Abandoned property - - 3,943
---------- ---------- ----------
997,051 870,434 1,326,204
---------- ---------- ----------
Net income (loss) $ 945,927 $ 279,094 $ (331,789)
========== ========== ==========
Allocation of net income (loss):
Managing general partner $ 9,459 $ 2,791 $ (3,318)
========== ========== ==========
Limited partners $ 936,468 $ 276,303 $ (328,471)
========== ========== ==========
Net income (loss) per limited partnership
interest $ 46.62 $ 13.75 $ (16.35)
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
12
648
PARKER & PARSLEY 87-B, LTD.
(A Texas Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
----------- ----------- -----------
Partners' capital at January 1, 1998 $ 37,187 $3,688,711 $3,725,898
Distributions (4,310) (426,706) (431,016)
Net loss (3,318) (328,471) (331,789)
----------- ----------- -----------
Partners' capital at December 31, 1998 29,559 2,933,534 2,963,093
Distributions (3,707) (367,015) (370,722)
Net income 2,791 276,303 279,094
----------- ----------- -----------
Partners' capital at December 31, 1999 28,643 2,842,822 2,871,465
Distributions (9,946) (984,669) (994,615)
Net income 9,459 936,468 945,927
----------- ----------- -----------
Partners' capital at December 31, 2000 $ 28,156 $2,794,621 $2,822,777
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
13
649
PARKER & PARSLEY 87-B, LTD.
(A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ 945,927 $ 279,094 $(331,789)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties 86,674 - 199,037
Depletion 149,279 203,106 493,554
Gain on disposition of assets (4,102) - (13,965)
Changes in assets and liabilities:
Accounts receivable (178,265) (63,538) 64,682
Accounts payable (3,477) 8,222 (18,850)
--------- --------- ---------
Net cash provided by operating activities 996,036 426,884 392,669
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties (10,658) (19,835) (22,998)
Proceeds from disposition of assets 4,326 5,007 13,965
--------- --------- ---------
Net cash used in investing activities (6,332) (14,828) (9,033)
--------- --------- ---------
Cash flows used in financing activities:
Cash distributions to partners (994,615) (370,722) (431,016)
--------- --------- ---------
Net increase (decrease) in cash (4,911) 41,334 (47,380)
Cash at beginning of year 262,756 221,422 268,802
--------- --------- ---------
Cash at end of year $ 257,845 $ 262,756 $ 221,422
========= ========= =========
The accompanying notes are an integral part of these financial statements.
14
650
PARKER & PARSLEY 87-B, LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 87-B, Ltd. (the "Partnership") is a limited partnership
organized in 1987 under the laws of the State of Texas. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in Texas
and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements - Preparation
of the accompanying 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 periods.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the
15
651
respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative expenses
are allocated in part to the Partnership by the managing general partner.
Allocated expenses are determined by the managing general partner based upon the
level of activity of the Partnership relative to the non-partnership activities
of the managing general partner. The method of allocation has been consistent
over the past several years with certain modifications incorporated to reflect
changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. The Partnership has estimated the expected future cash flows of its
oil and gas properties as of December 31, 2000, 1999 and 1998, based on proved
reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized non-cash impairment provisions of $86,674 and $199,037
related to its proved oil and gas properties during 2000 and 1998, respectively.
NOTE 4. INCOME TAXES
16
652
The financial statement basis of the Partnership's net assets and
liabilities was $261,429 greater than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
---------- -------- ---------
Net income (loss) per statements of operations $ 945,927 $279,094 $(331,789)
Intangible development costs capitalized for
financial reporting purposes and expensed
for tax reporting purposes -- (273) (5)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes 137,352 192,661 477,912
Impairment of oil and gas properties for financial
reporting purposes 86,674 -- 199,037
Loss on sale of assets for tax reporting purposes
greater than amounts for financial reporting
purposes -- (25,328) --
Other, net (2,628) 2,156 (4,671)
---------- -------- ---------
Net income per Federal income tax returns $1,167,325 $448,310 $ 340,484
========== ======== =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
---------- -------- ---------
Development costs $ 10,658 $ 19,835 $ 22,998
========== ======== =========
Capitalized oil and gas properties consist of the following:
2000 1999
----------- -----------
Proved properties:
Property acquisition costs $ 552,956 $ 552,956
Completed wells and equipment 12,843,048 12,832,614
----------- -----------
13,396,004 13,385,570
Accumulated depletion (11,162,910) (10,926,957)
----------- -----------
Net oil and gas properties $ 2,233,094 $ 2,458,613
=========== ===========
17
653
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
---------- -------- ---------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 304,400 $ 301,167 $ 292,411
Reimbursement of general and administrative
expenses $ 50,579 $ 23,361 $ 23,688
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. In addition,
Pioneer USA, Parker & Parsley 87-B Conv., Ltd. and the Partnership (the
"Partnerships") are parties to the Program agreement.
The costs and revenues of the Program are allocated to Pioneer USA and the
Partnerships as follows:
Pioneer
USA (1) Partnerships (2)
---------- ----------------
Revenues:
Proceeds from disposition of depreciable properties 9.09091% 90.90909%
All other revenues 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion
costs and all other costs 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is
allocated at the Partnership level and 45 limited partner interests
owned by Pioneer USA.
(2) The allocation between the Partnership and Parker & Parsley 87-B
Conv., Ltd. is 80.33029% and 19.66971%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
18
654
Oil and NGLs Gas
(bbls) (mcf)
------------ -------------
Net proved reserves at January 1, 1998 941,555 1,291,273
Revisions (314,311) (287,194)
Production (73,036) (104,072)
----------- ------------
Net proved reserves at December 31, 1998 554,208 900,007
Revisions 633,879 1,113,934
Production (68,433) (99,771)
----------- ------------
Net proved reserves at December 31, 1999 1,119,654 1,914,170
Revisions (38,404) (311,039)
Production (65,401) (96,740)
----------- ------------
Net proved reserves at December 31, 2000 1,015,849 1,506,391
=========== ============
As of December 31, 2000, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 2000 prices of $26.64 per
barrel of oil, $13.26 per barrel of NGLs and $7.62 per mcf of gas, discounted at
10% was approximately $7,561,000 and undiscounted was $16,119,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
--------------------------------------
2000 1999 1998
---------- ---------- ----------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 33,638 $ 27,613 $ 6,049
Future production costs (17,519) (15,463) (4,620)
---------- ---------- ----------
16,119 12,150 1,429
10% annual discount factor (8,558) (5,940) (449)
---------- ---------- ----------
Standardized measure of discounted future net cash flows $ 7,561 $ 6,210 $ 980
========== ========== ==========
19
655
For the years ended December 31,
--------------------------------------
2000 1999 1998
---------- ---------- ----------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (1,214) $ (504) $ (365)
Net changes in prices and production costs 3,247 3,033 (2,391)
Revisions of estimated future development costs - - -
Revisions of previous quantity estimates (587) 4,749 (410)
Accretion of discount 621 98 385
Changes in production rates, timing and other (716) (2,146) (87)
---------- ----------- ----------
Change in present value of future net revenues 1,351 5,230 (2,868)
---------- ----------- ----------
Balance, beginning of year 6,210 980 3,848
---------- ----------- ----------
Balance, end of year $ 7,561 $ 6,210 $ 980
========== =========== ==========
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
2000 1999 1998
---- ---- ----
Plains Marketing, L.P. 49% 50% -
Genesis Crude Oil, L.P. 2% - 57%
Western Gas Resources, Inc. 4% 6% 26%
Phillips Petroleum Company 16% 9% 8%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P.
and Phillips Petroleum Company were $95,526 and $42,656, respectively, which are
included in the caption "Accounts receivable - oil and gas sales" in the
accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would not
have an adverse effect on the ability of the Partnership to sell its oil, NGLs
and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the limited partnership agreement:
Managing general partner - The managing general partner of the Partnership
is Pioneer USA. Pioneer USA has the power and authority to manage, control
and administer all Program and Partnership affairs. As managing general
partner and operator of the Partnership's properties, all production
expenses are incurred by Pioneer USA and billed to the Partnership. The
majority of the Partnership's oil and gas revenues are received directly
by the Partnership, however, a portion of the oil and gas revenue is
initially received by Pioneer USA prior to being paid to the Partnership.
Under the limited partnership agreement, the managing general partner pays
1% of the Partnership's acquisition, drilling and completion costs and 1%
of its operating and general and administrative expenses. In return, it is
allocated 1% of the Partnership's revenues.
20
656
Limited partner liability - The maximum amount of liability of any limited
partner is the total contributions of such partner plus his share of any
undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of
$20,089,000. Pioneer USA is required to contribute amounts equal to 1% of
initial Partnership capital less commission and offering expenses
allocated to the limited partners and to contribute amounts necessary to
pay costs and expenses allocated to it under the Partnership agreement to
the extent its share of revenues does not cover such costs.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
21
657
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and executive
officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the
next annual meeting of stockholders or until their successors are elected and
qualified.
Age at
December 31,
Name 2000 Position
---- ---- --------
Scott D. Sheffield 48 President
Timothy L. Dove 44 Executive Vice President, Chief
Financial Officer and Director
Dennis E. Fagerstone 51 Executive Vice President and Director
Mark L. Withrow 53 Executive Vice President, General
Counsel and Director
Danny Kellum 46 Executive Vice President - Domestic
Operations and Director
Rich Dealy 34 Vice President and Chief Accounting
Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas
with a B.S. in Petroleum Engineering. Since August 1997, he has served as
President, Chief Executive Officer and a director of Pioneer and President of
Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of
Pioneer in August 1999. He served as a director of Pioneer USA from August 1997
until his resignation from the board in June 1999. Mr. Sheffield was the
President and a director of Parker & Parsley Petroleum Company ("Parker &
Parsley") from May 1990 until August 1997 and was the Chairman of the Board and
Chief Executive Officer of Parker & Parsley from October 1990 until August 1997.
He was the sole director of Parker & Parsley from May 1990 until October 1990.
Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a
predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as
Vice President - Engineering of PPDC from September 1981 until April 1985 when
he was elected President and a director. In March 1989, Mr. Sheffield was
elected Chairman of the Board and Chief Executive Officer of PPDC. Before
joining PPDC's predecessor, Mr. Sheffield was employed as a production and
reservoir engineer for Amoco Production Company.
22
658
Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from
Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981
from the University of Chicago. He became Executive Vice President - Business
Development of Pioneer and Pioneer USA in August 1997 and was also appointed a
director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief
Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr.
Dove joined Parker & Parsley in May 1994 as Vice President - International and
was promoted to Senior Vice President - Business Development in October 1996, in
which position he served until August 1997. Prior to joining Parker & Parsley,
Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus
Energy Corp, in various capacities in international exploration and production,
marketing, refining and marketing and planning and development.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997.
From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice
President and Chief Operating Officer of Mesa and from May 1991 to October 1996,
he served as Vice President - Exploration and Production of Mesa. From June 1988
to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President - General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979, was elected Executive
Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000
and Director of Pioneer USA on February 1, 2000. From January 2000 until May
2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and
Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and
Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served
as Spraberry District Manager and as Vice President of the Spraberry and Permian
Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker &
Parsley as an operations engineer in 1981 after a brief career with Mobil Oil
Corporation.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with
a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He
became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
23
659
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is performed by Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA pays approximately 10% of the Program's acquisition,
drilling and completion costs and approximately 25% of its operating and general
and administrative expenses. In return, Pioneer USA is allocated approximately
25% of the Program's revenues.
The Partnership does not directly pay any salaries of the executive officers of
Pioneer USA, but does pay a portion of Pioneer USA's general and administrative
expenses of which these salaries are a part.
See Notes 6 and 9 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" for information regarding fees and
reimbursements paid to the managing general partner by the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more of
the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 45 limited partner interests at January 1, 2001.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general
partner of the Partnership, Pioneer USA, has the exclusive right and full
authority to manage, control and administer the Partnership's business. Under
the limited partnership agreement, limited partners holding a majority of the
outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner
Pursuant to the limited partnership agreement, the Partnership had the following
related party transactions with the managing general partner during the years
ended December 31:
24
660
2000 1999 1998
---- ---- ----
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $304,400 $ 301,167 $292,411
Reimbursement of general and administrative
expenses $ 50,579 $ 23,361 $ 23,688
Under the limited partnership agreement, the managing general partner pays 1% of
the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data"
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
25
661
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial statements
The following are filed as part of this Report:
Independent Auditors' Report
Balance sheets as of December 31, 2000 and 1999
Statements of operations for the years ended December 31,
2000, 1999 and 1998
Statements of partners' capital for the years ended December
31, 2000, 1999 and 1998
Statements of cash flows for the years ended December 31,
2000, 1999 and 1998
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the
required information is in the financial statements or notes thereto,
or is not applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this Report.
26
662
S I G N A T U R E S
Pursuant to the requirements 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.
PARKER & PARSLEY 87-B, LTD.
Dated: March 28, 2001 By: Pioneer Natural Resources USA, Inc.
Managing General Partner
By: /s/ Scott D. Sheffield
-----------------------------
Scott D. Sheffield, President
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/ Scott D. Sheffield President of Pioneer USA March 28, 2001
----------------------------
Scott D. Sheffield
/s/ Timothy L. Dove Executive Vice President, Chief March 28, 2001
---------------------------- Financial Officer and Director of
Timothy L. Dove Pioneer USA
/s/ Dennis E. Fagerstone Executive Vice President and March 28, 2001
---------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ Mark L. Withrow Executive Vice President, General March 28, 2001
---------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ Danny Kellum Executive Vice President - Domestic March 28, 2001
---------------------------- Operations and Director of Pioneer
Danny Kellum USA
/s/ Rich Dealy Vice President and Chief Accounting March 28, 2001
---------------------------- Officer of Pioneer USA
Rich Dealy
27
663
PARKER & PARSLEY 87-B, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
Exhibit No. Description Page
----------- ----------- ----
4(a) Agreement of Limited Partnership of Parker -
& Parsley 87-B, Ltd. incorporated by
reference to Exhibit A of the Partnership's
Registration Statement on Form S-1
(Registration No. 33-16910) (hereinafter
called the Partnership's Registration Statement
4(b) Form of Subscription Agreement and Power -
of Attorney incorporated by reference to
Exhibit D of the Partnership's Registration
Statement
4(c) Specimen Certificate of Limited Partnership -
Interest incorporated by reference to Exhibit
D of the Partnership's Registration Statement
10(b) Development Program Agreement incorporated -
by reference to Exhibit C of the Partnership's
Registration Statement
28
664
PARKER & PARSLEY 87-B, LTD.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 453,944 $1,917,791 $1,136,700 $ 965,599 $1,412,905 $1,725,580
======== ========== ========== ========== ========== ========== ==========
Gain on litigation
settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 590,715
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ 86,674 $ -- $ 199,037 $ 768,208 $ --
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 246,373 $ 945,927 $ 279,094 $ (331,789) $ (347,350) $1,199,153
======== ========== ========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general
partner $ $ 2,464 $ 9,459 $ 2,791 $ (3,318) $ (3,473) $ 11,992
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 243,909 $ 936,468 $ 276,303 $ (328,471) $ (343,877) $1,187,161
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 12.14 $ 46.62 $ 13.75 $ (16.35) $ (17.12) $ 59.10
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 10.07 $ 49.02 $ 18.27 $ 21.24 $ 35.83 $ 87.23(a)
======== ========== ========== ========== ========== ========== ==========
At year end:
Identifiable assets $ $2,952,153 $2,848,775 $2,900,940 $2,984,346 $3,766,001 $4,914,489
======== ========== ========== ========== ========== ========== ==========
----------
(a) Including litigation settlement per limited partnership interest of $29.11
in 1996.
665
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
Producing Properties 87-A, Ltd. and supplements the proxy statement/prospectus
dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural
Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a
special meeting of limited partners of the partnership. The purpose of the
special meeting is for you to vote upon the merger of the partnership with and
into Pioneer USA that, if completed, will result in your receiving common stock
of Pioneer Natural Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley Producing Properties 87-A, Ltd.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's quarterly report on From 10-Q, including
management's discussion and analysis of financial condition and
results of operations, for the three months ended March 31, 2001
o The partnership's annual report on Form 10-K, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
666
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 12,213
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 11,708
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, Excluding $ 2,616
Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 214.99
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 12 4.23 times
Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 90.89
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 194.24
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 209.61
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment(c) --
----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Not applicable. Since this partnership purchased producing properties,
there were no intangible drilling and development costs nor any related
write-off for tax purposes.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
(1) neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners; and (2)
neither the grant nor exercise of such right will result in the loss of any
limited partner's limited liability. In addition, the counsel designated to
render the opinion must be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
667
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 FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 33-11193-1
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
(Exact name of Registrant as specified in its charter)
TEXAS 75-2195512
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039
---------------------------------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($500 PER UNIT)
---------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES / X / 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / X /
No market currently exists for the limited partnership interests of the
Registrant. Based on the original purchase price, the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$12,170,000.
As of March 8, 2001, the number of outstanding limited partnership
interests was 24,426.
The following documents are incorporated by reference into the indicated parts
of this Annual Report on Form 10-K: None
PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACCORDINGLY, NO
ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS AND RESULTS WILL NOT BE
MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD
LOOKING STATEMENTS. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS
THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE
ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
668
PART I
ITEM 1. BUSINESS
Parker & Parsley Producing Properties 87-A, Ltd. (the "Partnership") is a
limited partnership organized in 1987 under the laws of the State of Texas. The
Partnership's managing general partner is Pioneer Natural Resources USA, Inc.
("Pioneer USA"). Pioneer USA is a wholly-owned subsidiary of Pioneer Natural
Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had 24,426
limited partnership interests outstanding.
The Partnership does not have any employees of its own. Pioneer USA employs 701
persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this Report is filed. Pioneer
USA supplies all management functions.
The Partnership engages in oil and gas development and production and is not
involved in any industry segment other than oil and gas. The Partnership's
production is geographically concentrated in West Texas.
The principal markets during 2000 for the oil produced by the Partnership were
refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. During 2000, Pioneer USA marketed the
Partnership's gas to a variety of purchasers, none of which accounted for 10% or
more of the Partnership's oil and gas revenues. Of the Partnership's total oil
and gas revenues for 2000, approximately 59%, 15% and 11% were attributable to
sales made to Plains Marketing, L.P., Phillips Petroleum Company and TEPPCO
Crude Oil LLC, respectively. Pioneer USA is of the opinion that the loss of any
one purchaser would not have an adverse effect on its ability to sell its oil,
natural gas liquids ("NGLs") and gas production.
The Partnership's revenues, profitability, cash flow and future rate of growth
are highly dependent on the prevailing prices of oil and gas, which are affected
by numerous factors beyond the Partnership's control. Oil and gas prices
historically have been very volatile. A substantial or extended decline in the
prices of oil or gas could have a material adverse effect on the Partnership's
revenues, profitability and cash flow and could, under certain circumstances,
result in a reduction in the carrying value of the Partnership's oil and gas
properties.
Oil and gas production operations are subject to various types of regulations by
local, state and federal agencies. The Partnership's operations are also subject
to state conservation laws and regulations, including the establishment of
maximum rates of production from wells and the regulation of spacing, plugging
and abandonment of wells. Each state generally imposes a production or severance
tax with respect to production and sale of oil and gas within their respective
jurisdictions. Noncompliance with the laws and regulations may subject the
Partnership to penalties, damages or other liabilities and compliance may
increase the cost of the Partnership's operations.
The oil and gas business is also subject to environmental hazards such as oil
spills, gas leaks and
2
669
ruptures and discharges of toxic substances or gases that could expose the
Partnership to substantial liability due to pollution and other environmental
damages. Although the Partnership believes that its business operations do not
impair environmental quality and that its costs of complying with any applicable
environmental regulations are not currently significant, the Partnership cannot
predict what, if any, effect these environmental regulations may have on its
current or future operations.
Numerous uncertainties exist in estimating quantities of proved reserves and
future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the Partnership
conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist of leasehold 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.
The Partnership completed seven purchases of producing properties. These
acquisitions involved the purchase of working interests in 187 properties of
which 98 uneconomical oil and gas wells were plugged and abandoned and seven
wells were sold. The Partnership also participated in the drilling of two oil
and gas wells during 1988 which were completed as producers. During 1997, the
Partnership participated in the recompletion of one well in which Pioneer USA
acquired the deep rights. The Partnership already owned the shallow rights of
the well bore. At December 31, 2000, the Partnership had 85 producing oil and
gas wells.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 2000, 1999 and 1998 and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been evaluated by Williamson Petroleum Consultants, Inc., an independent
petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer USA believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the partners during the fourth
quarter of 2000.
3
670
PART II
ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP
DISTRIBUTIONS
At March 8, 2001, the Partnership had 24,426 outstanding limited partnership
interests held of record by 1,104 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are not
required to meet the Partnership's obligations are distributed to the partners
at least quarterly in accordance with the limited partnership agreement. During
the years ended December 31, 2000 and 1999, distributions of $618,681 and
$223,952, respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
2000 1999 1998 1997 1996
--------- --------- -------- --------- ---------
Operating results:
-----------------
Oil and gas sales $1,514,918 $ 860,305 $ 807,421 $1,244,727 $1,772,612
========= ========= ========= ========= =========
Gain on litigation
settlement, net $ - $ - $ - $ - $ 19,935
========= ========= ========= ========= =========
Impairment of oil and gas
properties $ 59,777 $ 43,412 $ 37,388 $ 420,264 $ 39,087
========= ========= ========= ========= =========
Net income (loss) $ 601,515 $ 134,700 $ (357,482) $ (397,297) $ 984,877
========= ========= ========= ========= =========
Allocation of net income
(loss):
Managing general partner $ 6,015 $ 1,347 $ (3,575) $ (3,973) $ 9,849
========= ========= ========= ========= =========
Limited partners $ 595,500 $ 133,353 $ (353,907) $ (393,324) $ 975,028
========= ========= ========= ========= =========
Limited partners' net income
(loss) per limited
partnership interest $ 24.38 $ 5.46 $ (14.49) $ (16.10) $ 39.92
========= ========= ========= ========= =========
Limited partners' cash
distributions per limited
partnership interest $ 25.33 $ 9.17 $ 9.31 $ 24.14 $ 36.01 (a)
========= ========= ========= ========= =========
At year end:
-----------
Identifiable assets $1,159,746 $1,181,827 $1,270,446 $1,871,158 $2,817,583
========= ========= ========= ========= =========
---------------
(a) Including litigation settlement of $.81 per limited partnership interest in
1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
4
671
2000 compared to 1999
The Partnership's oil and gas revenues increased 76% to $1,514,918 for 2000 as
compared to $860,305 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decline in production. In 2000, 43,390
barrels of oil, 10,266 barrels of natural gas liquids ("NGLs") and 45,872 mcf of
gas were sold, or 61,301 barrel of oil equivalents ("BOEs"). In 1999, 41,606
barrels of oil, 11,495 barrels of NGLs and 53,145 mcf of gas were sold, or
61,959 BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.54, or 75%, from
$16.80 in 1999 to $29.34 in 2000. The average price received per barrel of NGLs
increased $4.80, or 66%, from $7.32 in 1999 to $12.12 in 2000. The average price
received per mcf of gas increased 75% from $1.46 in 1999 to $2.56 in 2000. The
market price for oil and gas has been extremely volatile in the past decade and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
Gain on disposition of assets of $37,944 recognized during 2000 resulted from
$26,860 in salvage income received on a fully depleted well and wells plugged
and abandoned in prior years, in addition to an $11,084 gain recognized from the
abandonment of three wells during the current year. Gain on disposition of
assets of $25,173 for 1999 resulted from $17,629 in salvage income received on
the abandonment of two oil and gas wells during 1999, in addition to $7,544
salvage income received on fully depleted wells and wells plugged and abandoned
in prior years.
Total costs and expenses increased in 2000 to $967,456 as compared to $760,971
in 1999, an increase of $206,485, or 27%. The increase was due to higher
production costs, general and administrative expenses ("G&A"), the impairment of
oil and gas properties and abandoned property costs, offset by a decline in
depletion.
Production costs were $765,021 in 2000 and $555,988 in 1999, resulting in an
increase of $209,033, or 38%. The increase was primarily due to additional
workover costs and well maintenance costs incurred to stimulate production and
higher production taxes associated with higher oil and gas prices.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
76%, from $25,809 in 1999 to $45,448 in 2000 primarily due to a higher
percentage of the managing general partner's G&A being allocated (limited to 3%
of oil and gas revenues) as a result of increased oil and gas revenues. The
Partnership paid the managing general partner $29,711 in 2000 and $1,550 in 1999
for G&A incurred on behalf of the Partnership. The remaining G&A was paid
directly by the Partnership. The managing general partner determines the
allocated expenses based upon the level of activity of the Partnership relative
to the non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
5
672
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized
non-cash charges of $59,777 and $43,412 related to its oil and gas properties
during 2000 and 1999, respectively.
Depletion was $69,296 in 2000 as compared to $109,034 in 1999, representing a
decrease of $39,738, or 36%. This decrease was primarily due to a 119,706
barrels of oil increase in proved reserves during 2000 as a result of higher
commodity prices and a reduction in the Partnership's net depletable basis from
charges taken in accordance with SFAS 121 during the fourth quarter of 1999.
Abandoned property costs of $27,914 and $26,728 were incurred on the abandonment
of several properties in 2000 and 1999, respectively.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 7% to $860,305 from
$807,421 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 41,606 barrels of oil,
11,495 barrels of NGLs and 53,145 mcf of gas were sold, or 61,959 BOEs. In 1998,
51,039 barrels of oil, 13,328 barrels of NGLs and 56,240 mcf of gas were sold,
or 73,740 BOEs.
The average price received per barrel of oil increased $3.76, or 29%, from
$13.04 in 1998 to $16.80 in 1999. The average price received per barrel of NGLs
increased $1.86, or 34%, from $5.46 in 1998 to $7.32 in 1999. The average price
received per mcf of gas increased 19% from $1.23 in 1998 to $1.46 in 1999.
The $25,173 gain on disposition of assets for 1999 resulted from $17,629 in
salvage income received on the abandonment of two oil and gas wells during 1999,
in addition to $7,544 salvage income received on fully depleted wells and wells
plugged and abandoned in prior years. During 1998, the $24,040 gain on
disposition of assets resulted from $29,099 in salvage income received during
1998 on properties that were plugged and abandoned in prior years, offset by a
$5,059 loss on the abandonment of two oil and gas wells and one saltwater
disposal well.
Total costs and expenses decreased in 1999 to $760,971 as compared to $1,202,296
in 1998, a decrease of $441,325, or 37%. The decrease was due to declines in
depletion, production costs and abandoned property costs, offset by increases in
the impairment of oil and gas properties and G&A.
Production costs were $555,988 in 1999 and $682,634 in 1998, resulting in a
$126,646 decrease, or 19%. The decrease was due to reductions in well
maintenance costs and ad valorem taxes, offset by an increase in workover costs
incurred to stimulate production.
During this period, G&A increased 7%, from $24,223 in 1998 to $25,809 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and
6
673
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $1,550 in 1999 and $10,723 in 1998 for G&A
incurred on behalf of the Partnership.
The Partnership recognized non-cash SFAS 121 charges of $43,412 and $37,388
related to its oil and gas properties during 1999 and 1998, respectively.
Depletion was $109,034 in 1999 compared to $383,398 in 1998, representing a
decrease of $274,364, or 72%. This decrease was the result of an increase in
proved reserves of 306,417 barrels of oil during 1999 as a result of higher
commodity prices, a reduction in the Partnership's net depletable basis from
charges taken in accordance with SFAS 121 during the fourth quarter of 1998 and
a decline in oil production of 9,433 barrels for the period ended December 31,
1999 compared to the same period in 1998.
Abandoned property costs of $26,728 and $74,653 were incurred on the abandonment
of several properties in 1999 and 1998, respectively.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $389,055 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $660,529, offset by increases in production costs paid
of $209,033, G&A expenses paid of $19,639, abandoned property costs paid of
$1,186 and working capital of $41,616. The increase in oil and gas receipts
resulted from the increase in commodity prices during 2000 which contributed an
additional $641,727 to oil and gas receipts and an increase of $18,802 resulting
from an increase in oil production during 2000. The increase in production costs
was primarily due to increased production taxes associated with higher oil and
gas prices and additional workover and well maintenance costs incurred to
stimulate well production. The increase in G&A was primarily due to higher
percentage of the managing general partner's G&A being allocated (limited to 3%
of oil and gas revenues) as a result of increased oil and gas revenues.
7
674
Net Cash Provided by Investing Activities
The Partnership's investing activities during 2000 and 1999 were related to the
addition of oil and gas equipment on active properties.
Proceeds from disposition of assets of $57,999 for 2000 resulted from $36,906
salvage income on a fully depleted well and wells abandoned in a prior year,
$15,711 salvage income received on two wells plugged and abandoned in 2000 and
$5,382 from equipment credits on one active well. Proceeds from disposition of
assets of $21,887 for 1999 resulted from $7,583 in salvage income received on
one well plugged and abandoned during 1999, in addition to $7,544 salvage income
primarily received on fully depleted wells and $6,760 from equipment credits on
one active well.
Net Cash Used in Financing Activities
For 2000, cash distributions to the partners were $624,930, of which $6,249 was
distributed to the managing general partner and $618,681 to the limited
partners. In 1999, cash distributions to the partners were $226,214, of which
$2,262 was distributed to the managing general partner and $223,952 to the
limited partners.
8
675
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements of Parker & Parsley Producing Properties 87-A, Ltd:
Independent Auditors' Report......................................................... 10
Balance Sheets as of December 31, 2000 and 1999...................................... 11
Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998................................................................ 12
Statements of Partners' Capital for the Years Ended
December 31, 2000, 1999 and 1998................................................... 13
Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998................................................................ 14
Notes to Financial Statements........................................................ 15
9
676
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley Producing Properties 87-A, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheets of Parker & Parsley Producing Properties
87-A, Ltd. as of December 31, 2000 and 1999, and the related statements of
operations, partners' capital and cash flows for each of the three years in the
period ended December 31, 2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley Producing
Properties 87-A, Ltd. as of December 31, 2000 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
10
677
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
(A Texas Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
------------ ------------
ASSETS
------
Current assets:
Cash $ 182,206 $ 170,538
Accounts receivable - oil and gas sales 296,053 195,636
------------ -----------
Total current assets 478,259 366,174
------------ -----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 5,701,037 5,774,563
Accumulated depletion (5,019,550) (4,958,910)
------------ -----------
Net oil and gas properties 681,487 815,653
------------ -----------
$ 1,159,746 $1,181,827
============ ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 37,242 $ 35,908
Partners' capital:
Managing general partner 12,466 12,700
Limited partners (24,426 interests) 1,110,038 1,133,219
------------ -----------
1,122,504 1,145,919
------------ -----------
$ 1,159,746 $1,181,827
============ ===========
The accompanying notes are an integral part of these financial statements.
11
678
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
(A Texas Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
----------- ----------- -----------
Revenues:
Oil and gas $ 1,514,918 $ 860,305 $ 807,421
Interest 16,109 10,193 13,353
Gain on disposition of assets 37,944 25,173 24,040
----------- ----------- -----------
1,568,971 895,671 844,814
----------- ----------- -----------
Costs and expenses:
Oil and gas production 765,021 555,988 682,634
General and administrative 45,448 25,809 24,223
Impairment of oil and gas properties 59,777 43,412 37,388
Depletion 69,296 109,034 383,398
Abandoned property 27,914 26,728 74,653
----------- ----------- -----------
967,456 760,971 1,202,296
----------- ----------- -----------
Net income (loss) $ 601,515 $ 134,700 $ (357,482)
=========== =========== ===========
Allocation of net income (loss):
Managing general partner $ 6,015 $ 1,347 $ (3,575)
=========== =========== ===========
Limited partners $ 595,500 $ 133,353 $ (353,907)
=========== =========== ===========
Net income (loss) per limited partnership
interest $ 24.38 $ 5.46 $ (14.49)
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
12
679
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
(A Texas Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
---------- ----------- -----------
Partners' capital at January 1, 1998 $ 19,487 $1,805,112 $1,824,599
Distributions (2,297) (227,387) (229,684)
Net loss (3,575) (353,907) (357,482)
---------- ----------- -----------
Partners' capital at December 31, 1998 13,615 1,223,818 1,237,433
Distributions (2,262) (223,952) (226,214)
Net income 1,347 133,353 134,700
---------- ----------- -----------
Partners' capital at December 31, 1999 12,700 1,133,219 1,145,919
Distributions (6,249) (618,681) (624,930)
Net income 6,015 595,500 601,515
---------- ----------- -----------
Partners' capital at December 31, 2000 $ 12,466 $1,110,038 $1,122,504
========== =========== ===========
The accompanying notes are an integral part of these financial statements.
13
680
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
(A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
---------- ---------- ----------
Cash flows from operating activities:
Net income (loss) $ 601,515 $ 134,700 $(357,482)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties 59,777 43,412 37,388
Depletion 69,296 109,034 383,398
Gain on disposition of assets (37,944) (25,173) (24,040)
Changes in assets and liabilities:
Accounts receivable (100,417) (80,454) 95,326
Accounts payable (8,712) 12,941 (13,546)
---------- ---------- ----------
Net cash provided by operating activities 583,515 194,460 121,044
---------- ---------- ----------
Cash flows from investing activities:
Additions to oil and gas equipment (4,916) (2,818) (11,491)
Proceeds from disposition of assets 57,999 21,887 83,839
---------- ---------- ----------
Net cash provided by investing activities 53,083 19,069 72,348
---------- ---------- ----------
Cash flows used in financing activities:
Cash distributions to partners (624,930) (226,214) (229,684)
---------- ---------- ----------
Net increase (decrease) in cash 11,668 (12,685) (36,292)
Cash at beginning of year 170,538 183,223 219,515
---------- ---------- ----------
Cash at end of year $ 182,206 $ 170,538 $ 183,223
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
14
681
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley Producing Properties 87-A, Ltd. (the "Partnership") is a
limited partnership organized in 1987 under the laws of the State of Texas. The
Partnership's managing general partner is Pioneer Natural Resources USA, Inc.
("Pioneer USA").
The Partnership engages in oil and gas production in Texas and is not
involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements - Preparation
of the accompanying 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 periods.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in the
financial statements as the income (loss) of the Partnership is included in the
individual Federal income tax returns of the
15
682
respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative expenses
are allocated in part to the Partnership by the managing general partner.
Allocated expenses are determined by the managing general partner based upon the
level of activity of the Partnership relative to the non-partnership activities
of the managing general partner. The method of allocation has been consistent
over the past several years with certain modifications incorporated to reflect
changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of the cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. The Partnership has estimated the expected future cash flows of its
oil and gas properties as of December 31, 2000, 1999 and 1998, based on proved
reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized non-cash impairment provisions of $59,777, $43,412 and
$37,388 related to its proved oil and gas properties during 2000, 1999 and 1998,
respectively.
16
683
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $1,521,385 less than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income (loss) per Federal income tax returns for the
years ended December 31:
2000 1999 1998
-------- -------- ---------
Net income (loss) per statements of operations $ 601,515 $ 134,700 $ (357,482)
Depletion and depreciation provisions for tax
reporting purposes (greater than) less than
amounts for financial reporting purposes (12,672) 47,101 (84,454)
Impairment of oil and gas properties for financial
reporting purposes 59,777 43,412 37,388
Other, net (15,730) (2,287) 4,922
-------- -------- ---------
Net income (loss) per Federal income
tax returns $ 632,890 $ 222,926 $ (399,626)
======== ======== =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the net costs incurred, whether capitalized
or expensed, related to the Partnership's oil and gas producing activities for
the years ended December 31:
2000 1999 1998
-------- -------- ---------
Property acquisition costs $ 4,087 $ 1,104 $ 11,491
======== ======== =========
Development costs $ 829 $ 1,714 $ -
======== ======== =========
Capitalized oil and gas properties consist of the following:
2000 1999
---------- -----------
Proved properties:
Property acquisition costs $5,021,262 $ 5,095,617
Completed wells and equipment 679,775 678,946
---------- -----------
5,701,037 5,774,563
Accumulated depletion (5,019,550) (4,958,910)
---------- -----------
Net oil and gas properties $ 681,487 $ 815,653
========== ===========
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
--------- --------- ----------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 268,224 $ 254,244 $ 292,539
Reimbursement of general and administrative
expenses $ 29,711 $ 1,550 $ 10,723
17
684
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
P&P Employees Producing Properties 87-A ("EMPL") and the Partnership are parties
to the Program agreement. EMPL is a general partnership organized for the
benefit of certain employees of Pioneer USA. EMPL was merged with Pioneer USA on
December 28, 2000.
The costs and revenues of the Program are allocated to Pioneer USA and the
Partnership as follows:
Pioneer USA (1) Partnership
--------------- -----------
Revenues:
Revenues from oil and gas production, proceeds from
sales of producing properties and all other
revenues:
Before payout (2) 4.040405% 95.959595%
After payout 19.191920% 80.808080%
Costs and expenses:
Property acquisition costs, operating costs, general
and administrative expenses and other costs:
Before payout (2) 4.040405% 95.959595%
After payout 19.191920% 80.808080%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated
at the Partnership level and 86 limited partner interests owned by
Pioneer USA.
(2) The Partnership has not reached payout.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
18
685
Oil and NGLs Gas
(bbls) (mcf)
------------ ----------
Net proved reserves at January 1, 1998 719,789 996,755
Revisions (302,841) (385,883)
Production (64,367) (56,240)
---------- ----------
Net proved reserves at December 31, 1998 352,581 554,632
Revisions 461,643 633,460
Production (53,101) (53,145)
---------- ----------
Net proved reserves at December 31, 1999 761,123 1,134,947
Revisions 6,756 (376,058)
Production (53,656) (45,872)
---------- ----------
Net proved reserves at December 31, 2000 714,223 713,017
========== ==========
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $12.58 per barrel of NGLs and $7.60 per mcf of gas,
discounted at 10% was approximately $4,683,000 and undiscounted was $9,322,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
19
686
For the years ended December 31,
--------------------------------------
2000 1999 1998
----------- ----------- -----------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 22,258 $ 18,298 $ 3,739
Future production costs (12,936) (10,698) (2,777)
----------- ----------- -----------
9,322 7,600 962
10% annual discount factor (4,639) (3,477) (323)
----------- ----------- -----------
Standardized measure of discounted future net cash flows $ 4,683 $ 4,123 $ 639
=========== =========== ===========
For the years ended December 31,
--------------------------------------
2000 1999 1998
----------- ----------- -----------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (750) $ (304) $ (125)
Net changes in prices and production costs 1,685 1,668 (1,687)
Revisions of previous quantity estimates (339) 3,013 (453)
Accretion of discount 412 64 275
Changes in production rates, timing and other (448) (957) (118)
-------- --------- --------
Change in present value of future net revenues 560 3,484 (2,108)
-------- --------- --------
Balance, beginning of year 4,123 639 2,747
-------- --------- --------
Balance, end of year $ 4,683 $ 4,123 $ 639
========= ========== =========
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 59% 60% -
Phillips Petroleum Company 15% 14% 16%
TEPPCO Crude Oil LLC 11% - -
Genesis Crude Oil, L.P. - - 66%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P.,
Phillips Petroleum Company and TEPPCO Crude Oil LLC were $78,270, $54,144 and
$29,228, respectively, which are included in the caption "Accounts receivable -
oil and gas sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would not
have an adverse effect on the ability of the Partnership to sell its oil, NGLs
and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of the
limited partnership agreement:
Managing general partner - The managing general partner of the Partnership
is Pioneer USA. Pioneer USA has the power and authority to manage, control
and administer all Partnership
20
687
affairs. As managing general partner and operator of the Partnership's
properties, all production expenses are incurred by Pioneer USA and billed
to the Partnership. The majority of the Partnership's oil and gas revenues
are received directly by Pioneer USA prior to being paid to the
Partnership. Under the limited partnership agreement, the managing general
partner pays 1% of the Partnership's acquisition, drilling and completion
costs and 1% of its operating and general and administrative expenses. In
return, it is allocated 1% of the Partnership's revenues.
Limited partner liability - The maximum amount of liability of any limited
partner is the total contributions of such partner plus his share of any
undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of
$12,213,000. Pioneer USA is required to contribute amounts equal to 1% of
initial Partnership capital less commission and organization and offering
costs allocated to the limited partners and to contribute amounts
necessary to pay costs and expenses allocated to it under the Partnership
agreement to the extent its share of revenues does not cover such costs.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
21
688
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and executive
officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the
next annual meeting of stockholders or until their successors are elected and
qualified.
Age at
December 31,
Name 2000 Position
---- ---- --------
Scott D. Sheffield 48 President
Timothy L. Dove 44 Executive Vice President, Chief
Financial Officer and Director
Dennis E. Fagerstone 51 Executive Vice President and Director
Mark L. Withrow 53 Executive Vice President, General
Counsel and Director
Danny Kellum 46 Executive Vice President - Domestic
Operations and Director
Rich Dealy 34 Vice President and Chief Accounting
Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas
with a B.S. in Petroleum Engineering. Since August 1997, he has served as
President, Chief Executive Officer and a director of Pioneer and President of
Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of
Pioneer in August 1999. He served as a director of Pioneer USA from August 1997
until his resignation from the board in June 1999. Mr. Sheffield was the
President and a director of Parker & Parsley Petroleum Company ("Parker &
Parsley") from May 1990 until August 1997 and was the Chairman of the Board and
Chief Executive Officer of Parker & Parsley from October 1990 until August 1997.
He was the sole director of Parker & Parsley from May 1990 until October 1990.
Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a
predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as
Vice President - Engineering of PPDC from September 1981 until April 1985 when
he was elected President and a director. In March 1989, Mr. Sheffield was
elected Chairman of the Board and Chief Executive Officer of PPDC. Before
joining PPDC's predecessor, Mr. Sheffield was employed as a production and
reservoir engineer for Amoco Production Company.
22
689
Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from
Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981
from the University of Chicago. He became Executive Vice President - Business
Development of Pioneer and Pioneer USA in August 1997 and was also appointed a
director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief
Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr.
Dove joined Parker & Parsley in May 1994 as Vice President - International and
was promoted to Senior Vice President - Business Development in October 1996, in
which position he served until August 1997. Prior to joining Parker & Parsley,
Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus
Energy Corp, in various capacities in international exploration and production,
marketing, refining and marketing and planning and development.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997.
From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice
President and Chief Operating Officer of Mesa and from May 1991 to October 1996,
he served as Vice President - Exploration and Production of Mesa. From June 1988
to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President - General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979, was elected Executive
Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000
and Director of Pioneer USA on February 1, 2000. From January 2000 until May
2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and
Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and
Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served
as Spraberry District Manager and as Vice President of the Spraberry and Permian
Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker &
Parsley as an operations engineer in 1981 after a brief career with Mobil Oil
Corporation.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with
a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He
became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
23
690
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is performed by Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the limited
partnership agreement, Pioneer USA pays 1% of the Program's acquisition,
drilling and completion costs and 1% of its operating and general and
administrative expenses. In return, Pioneer USA is allocated 1% of the Program's
revenues.
The Partnership does not directly pay any salaries of the executive officers of
Pioneer USA, but does pay a portion of Pioneer USA's general and administrative
expenses of which these salaries are a part.
See Notes 6 and 9 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" for information regarding fees and
reimbursements paid to the managing general partner by the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more of
the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 86 limited partnership interests at January 1, 2001.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general
partner of the Partnership, Pioneer USA, has the exclusive right and full
authority to manage, control and administer the Partnership's business. Under
the limited partnership agreement, limited partners holding a majority of the
outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer of director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner
Pursuant to the limited partnership agreement, the Partnership had the following
related party transactions with the managing general partner during the years
ended December 31:
24
691
2000 1999 1998
------------- ------------- -------------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $268,224 $ 254,244 $292,539
Reimbursement of general and administrative
expenses $ 29,711 $ 1,550 $ 10,723
Under the limited partnership agreement, the managing general partner pays 1% of
the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
25
692
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial statements
The following are filed as part of this Report:
Independent Auditors' Report
Balance sheets as of December 31, 2000 and 1999
Statements of operations for the years ended December 31, 2000,
1999 and 1998
Statements of partners' capital for the years ended December
31, 2000, 1999 and 1998
Statements of cash flows for the years ended December 31, 2000,
1999 and 1998
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the
required information is in the financial statements or notes thereto,
or is not applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this Report.
26
693
S I G N A T U R E S
Pursuant to the requirements 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.
PARKER & PARSLEY PRODUCING
PROPERTIES 87-A, LTD.
Dated: March 26, 2001 By: Pioneer Natural Resources USA, Inc.
Managing General Partner
By: /s/ Scott D. Sheffield
------------------------------------
Scott D. Sheffield, President
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/ Scott D. Sheffield President of Pioneer USA March 26, 2001
-------------------------------
Scott D. Sheffield
/s/ Timothy L. Dove Executive Vice President, Chief March 26, 2001
------------------------------- Financial Officer and Director of
Timothy L. Dove Pioneer USA
/s/ Dennis E. Fagerstone Executive Vice President and March 26, 2001
------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ Mark L. Withrow Executive Vice President, General March 26, 2001
------------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ Danny Kellum Executive Vice President - Domestic March 26, 2001
------------------------------- Operations and Director of Pioneer
Danny Kellum USA
/s/ Rich Dealy Vice President and Chief Accounting March 26, 2001
------------------------------- Officer of Pioneer USA
Rich Dealy
27
694
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
Exhibit No. Description Page
----------- ----------- ----
3(a) Amended and Restated Certificate of Limited -
Partnership of Parker & Parsley Producing
Properties 87-A, Ltd. incorporated by reference
to Exhibit 3a of Amendment No. 1 of the
Partnership's Registration Statement on Form
S-1 (Registration No. 33-11193)
4(a) Agreement of Limited Partnership of Parker -
& Parsley Producing Properties 87-A, Ltd.
incorporated by reference to Exhibit A of
Amendment No, 1 of the Partnership's
Registration Statement on Form S-1
(Registration No. 33-11193)
4(b) Subscription Agreement incorporated by -
reference to Exhibit C of Amendment No. 1
of the Partnership's Registration Statement
on Form S-1 (Registration No. 33-11193)
4(b) Power of Attorney incorporated by reference -
to Exhibit B of Amendment No. 1 of the
Partnership's Registration Statement on
Form S-1 (Registration No. 33-11193)
4(c) Specimen Certificate of Limited Partnership -
Interest incorporated by reference to Exhibit
4c of the Partnership's Registration Statement
on Form S-1 (Registration No. 33-11193)
10(b) Program Agreement incorporated by reference -
to Exhibit B of Amendment No. 1 of the
Partnership's Registration Statement on
Form S-1 (Registration No. 33-11193)
28
695
PARKER & PARSLEY PRODUCING PROPERTIES 87-A, LTD.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 366,869 $1,514,918 $ 860,305 $ 807,421 $1,244,727 $1,772,612
======== ========== ========== ========== ========== ========== ==========
Gain on litigation
settlement, net $ -- $ -- $ -- $ -- $ -- $ -- $ 19,935
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ 59,777 $ 43,412 $ 37,388 $ 420,264 $ 39,087
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 184,335 $ 601,515 $ 134,700 $ (357,482) $ (397,297) $ 984,877
======== ========== ========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general
partner $ $ 1,843 $ 6,015 $ 1,347 $ (3,575) $ (3,973) $ 9,849
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 182,492 $ 595,500 $ 133,353 $ (353,907) $ (393,324) $ 975,028
======== ========== ========== ========== ========== ========== ==========
Limited partners' net income
(loss) per limited
partnership interest $ $ 7.47 $ 24.38 $ 5.46 $ (14.49) $ (16.10) $ 39.92
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 5.46 $ 25.33 $ 9.17 $ 9.31 $ 24.14 $ 36.01(a)
======== ========== ========== ========== ========== ========== ==========
At year end:
Identifiable assets $ $1,232,462 $1,159,746 $1,181,827 $1,270,446 $1,871,158 $2,817,583
======== ========== ========== ========== ========== ========== ==========
----------
(a) Including litigation settlement of $.81 per limited partnership interest in
1996.
696
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
Producing Properties 87-B, Ltd. and supplements the proxy statement/prospectus
dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural
Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a
special meeting of limited partners of the partnership. The purpose of the
special meeting is for you to vote upon the merger of the partnership with and
into Pioneer USA that, if completed, will result in your receiving common stock
of Pioneer Natural Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley Producing Properties 87-B, Ltd.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's quarterly report on Form 10-Q, including
management's discussion and analysis of financial condition and
results of operations, for the three months ended March 31, 2001
o The partnership's annual report on Form 10-K, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
697
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 6,096
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 6,584
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, Excluding $ 2,209
Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 368.26
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 12 3.77 times
Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 136.41
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 334.60
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 358.16
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment(c) --
----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Not applicable. Since this partnership purchased producing properties,
there were no intangible drilling and development costs nor any related
write-off for tax purposes.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
(1) neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners; and (2)
neither the grant nor exercise of such right will result in the loss of any
limited partner's limited liability. In addition, the counsel designated to
render the opinion must be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
698
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 FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 33-11193-2
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
(Exact name of Registrant as specified in its charter)
TEXAS 75-2205943
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039
---------------------------------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($500 PER UNIT)
---------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES / X / 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / X /
No market currently exists for the limited partnership interests of the
Registrant. Based on the original purchase price, the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$5,997,500.
As of March 8, 2001, the number of outstanding limited partnership
interests was 12,191.
The following documents are incorporated by reference into the indicated parts
of this Annual Report on Form 10-K: None
PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACCORDINGLY, NO
ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS AND RESULTS WILL NOT BE
MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD
LOOKING STATEMENTS. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS
THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE
ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
699
PART I
ITEM 1. BUSINESS
Parker & Parsley Producing Properties 87-B, Ltd. (the "Partnership") is a
limited partnership organized in 1987 under the laws of the state of Texas. The
Partnership's managing general partner is Pioneer Natural Resources USA, Inc.
("Pioneer USA"). Pioneer USA is a wholly-owned subsidiary of Pioneer Natural
Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had 12,191
limited partnership interests outstanding.
The Partnership does not have any employees of its own. Pioneer USA employs 701
persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this Report is filed. Pioneer
USA supplies all management functions.
The Partnership engages in oil and gas development and production and is not
involved in any industry segment other than oil and gas. The Partnership's
production is geographically concentrated in West Texas.
The principal markets during 2000 for the oil produced by the Partnership were
refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. During 2000, Pioneer USA marketed the
Partnership's gas to a variety of purchasers, none of which accounted for 10% or
more of the Partnership's oil and gas revenues. Of the Partnership's total oil
and gas revenues for 2000, approximately 32%, 22% and 20% were attributable to
sales made to Plains Marketing, L.P., TEPPCO Crude Oil LLC and Phillips
Petroleum Company, respectively. Pioneer USA is of the opinion that the loss of
any one purchaser would not have an adverse effect on its ability to sell its
oil, natural gas liquids ("NGLs") and gas production.
The Partnership's revenues, profitability, cash flow and future rate of growth
are highly dependent on the prevailing prices of oil and gas, which are affected
by numerous factors beyond the Partnership's control. Oil and gas prices
historically have been very volatile. A substantial or extended decline in the
prices of oil or gas could have a material adverse effect on the Partnership's
revenues, profitability and cash flow and could, under certain circumstances,
result in a reduction in the carrying value of the Partnership's oil and gas
properties.
Oil and gas production operations are subject to various types of regulations by
local, state and federal agencies. The Partnership's operations are also subject
to state conservation laws and regulations, including the establishment of
maximum rates of production from wells and the regulation of spacing, plugging
and abandonment of wells. Each state generally imposes a production or severance
tax with respect to production and sale of oil and gas within their respective
jurisdictions. Noncompliance with the laws and regulations may subject the
Partnership to penalties, damages or other liabilities and compliance may
increase the cost of the Partnership's operations.
The oil and gas business is also subject to environmental hazards such as oil
spills, gas leaks and ruptures and discharges of toxic substances or gases that
could expose the Partnership to substantial liability due to pollution and other
environmental damages. Although the Partnership believes that
2
700
its business operations do not impair environmental quality and that its costs
of complying with any applicable environmental regulations are not currently
significant, the Partnership cannot predict what, if any, effect these
environmental regulations may have on its current or future operations.
Numerous uncertainties exist in estimating quantities of proved reserves and
future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the Partnership
conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist of leasehold 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.
The Partnership completed seven purchases of producing properties. These
acquisitions involved the purchase of working interests in 54 properties. The
Partnership also participated in the drilling of two oil and gas wells during
1988 which were completed as producers. Additionally, the Partnership purchased
15 overriding royalty interests effective January 1, 1990 and two additional
overriding royalty interests during 1991. Twenty-two uneconomical wells have
been abandoned. At December 31, 2000, the Partnership had 34 producing oil and
gas wells.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 2000, 1999 and 1998 and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been evaluated by Williamson Petroleum Consultants, Inc., an independent
petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer USA believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the partners during the fourth
quarter of 2000.
3
701
PART II
ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP
DISTRIBUTIONS
At March 8, 2001, the Partnership had 12,191 outstanding limited partnership
interests held of record by 550 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are not
required to meet the Partnership's obligations are distributed to the partners
at least quarterly in accordance with the limited partnership agreement. During
the years ended December 31, 2000 and 1999, $586,016 and $170,405, respectively,
of such revenue-related distributions were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
2000 1999 1998 1997 1996
--------- --------- -------- --------- ---------
Operating results:
-----------------
Oil and gas sales $ 982,604 $ 625,861 $ 532,606 $ 846,163 $ 980,232
========= ======== ========= ========= =========
Impairment of oil and gas
properties $ - $ - $ 35,017 $ 317,255 $ 42,277
========= ======== ========= ========= =========
Net income (loss) $ 562,621 $ 163,148 $ (118,738) $ (142,439) $ 303,380
========= ======== ========= ========= =========
Allocation of net income
(loss):
Managing general partner $ 5,626 $ 1,631 $ (1,187) $ (1,424) $ 3,034
========= ======== ========= ========= =========
Limited partners $ 556,995 $ 161,517 $ (117,551) $ (141,015) $ 300,346
========= ======== ========= ========= =========
Limited partners' net income
(loss) per limited
partnership interest $ 45.69 $ 13.25 $ (9.64) $ (11.57) $ 24.64
========= ======== ========= ========= =========
Limited partners' cash
distributions per limited
partnership interest $ 48.07 $ 13.98 $ 16.41 $ 39.20 $ 35.59
========= ======== ========= ========= =========
At year end:
-----------
Identifiable assets $ 860,545 $ 892,550 $ 878,401 $1,241,161 $1,823,614
========= ======== ========= ========= =========
4
702
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 57% to $982,604 for 2000 as
compared to $625,861 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decline in production. In 2000, 22,713
barrels of oil, 10,402 barrels of natural gas liquids ("NGLs") and 49,380 mcf of
gas were sold, or 41,345 barrel of oil equivalents ("BOEs"). In 1999, 24,976
barrels of oil, 10,794 barrels of NGLs and 48,774 mcf of gas were sold, or
43,899 BOEs. Of the decrease, 5,393 BOEs are attributable to the fact that on
April 1, 2000, the Partnership's revenue and operating expense allocation
reverted to 80.808081% from 95.959595% pursuant to the Program Agreement
governing the Partnership which provides for a reversionary interest of
80.808081% once cumulative distributions equal initial partner's capital
("Reversionary Interest"). This is offset by a production increase of 2,839
BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $11.92, or 68%, from
$17.44 in 1999 to $29.36 in 2000. The average price received per barrel of NGLs
increased $6.36, or 62%, from $10.32 in 1999 to $16.68 in 2000. The average
price received per mcf of gas increased 78% from $1.62 in 1999 to $2.88 in 2000.
The market price for oil and gas has been extremely volatile in the past decade
and management expects a certain amount of volatility to continue in the
foreseeable future. The Partnership may therefore sell its future oil and gas
production at average prices lower or higher than that received in 2000.
Gains on disposition of assets of $8,294 and $11,482 were recognized in 2000 and
1999, respectively. The gain from 2000 was from equipment salvage on one well
abandoned in a prior year. The gain from 1999 was from equipment salvage of
$12,955 on one well plugged and abandoned in a prior year, offset by a $1,473
loss on the write-off of basis on one well plugged and abandoned during 1999.
Total costs and expenses decreased in 2000 to $434,793 as compared to $477,552
in 1999, a decrease of $42,759, or 9%. The decrease was primarily attributable
to declines in depletion, production costs and abandoned property costs, offset
by an increase in general and administrative expenses ("G&A").
Production costs were $347,938 in 2000 and $364,187 in 1999, resulting in a
decrease of $16,249, or 4%. Lease operating costs and production taxes declined
12% which was attributable to the Reversionary Interest change, offset by an 8%
increase in production costs resulting from high production taxes due to higher
oil and gas prices and additional well maintenance costs incurred to stimulate
well production.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
79%, from $18,776 in 1999 to
5
703
$33,521 in 2000 primarily due to a higher percentage of the managing general
partner's G&A being allocated (limited to 3% of oil and gas revenues) as a
result of increased oil and gas revenues. The Partnership paid the managing
general partner $27,424 in 2000 and $8,400 in 1999 for G&A incurred on behalf of
the Partnership. The remaining G&A was paid directly by the Partnership. The
managing general partner determines the allocated expenses based upon the level
of activity of the Partnership relative to the non-partnership activities of the
managing general partner. The method of allocation has been consistent over the
past several years with certain modifications incorporated to reflect changes in
Pioneer USA's overall business activities.
Depletion was $53,334 in 2000 as compared to $79,975 in 1999, a decrease of
$26,641, or 33%. This decrease was primarily due to a 51,092 barrels of oil
increase in proved reserves during 2000 as a result of higher commodity prices.
Abandoned property costs of $14,614 incurred in 1999 were related to the
temporary abandonment of one well during 1999 and two wells plugged and
abandoned in prior years.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 18% to $625,861 from
$532,606 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 24,976 barrels of oil,
10,794 barrels of NGLs and 48,774 mcf of gas were sold, or 43,899 BOEs. In 1998,
29,481 barrels of oil, 11,315 barrels of NGLs and 50,220 mcf of gas were sold,
or 49,166 BOEs.
The average price received per barrel of oil increased $4.39, or 34%, from
$13.05 in 1998 to $17.44 in 1999. The average price received per barrel of NGLs
increased $3.74, or 57%, from $6.58 in 1998 to $10.32 in 1999. The average price
received per mcf of gas increased 11% from $1.46 in 1998 to $1.62 in 1999.
Gain on disposition of assets of $11,482 was recognized in 1999 from equipment
salvage of $12,955 on one well plugged and abandoned in a prior year, offset by
a $1,473 loss on the write-off of basis on one well plugged and abandoned during
1999. In 1998, $4,248 gain on disposition of assets was recognized from proceeds
received from equipment salvage on wells plugged in prior years.
Total costs and expenses decreased in 1999 to $477,552 as compared to $659,670
in 1998, a decrease of $182,118, or 28%. The decrease was primarily attributable
to declines in depletion, the impairment of oil and gas properties, production
costs and abandoned property costs, offset by an increase in G&A.
Production costs were $364,187 in 1999 and $385,648 in 1998, resulting in a
$21,461 decrease, or 6%. The decrease was the result of declines in well
maintenance costs, ad valorem taxes and workover expenses.
During this period, G&A increased 18% from $15,978 in 1998 to $18,776 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $8,400 in
1999 and $9,662 in 1998 for G&A incurred on behalf of the Partnership.
6
704
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $35,017 related to its oil and gas properties during 1998.
Depletion was $79,975 in 1999 compared to $206,289 in 1998, a decrease of
$126,314, or 61%. This decrease was primarily due to an increase in proved
reserves of 180,622 barrels of oil during 1999 as a result of higher commodity
prices, a reduction in the Partnership's net depletable basis from charges taken
in accordance with SFAS 121 during the fourth quarter of 1998 and a decline in
oil production of 4,505 barrels for the period ended December 31, 1999 compared
to the same period in 1998.
Abandoned property costs of $14,614 incurred in 1999 were related to the
temporary abandonment of one well during 1999 and two wells plugged and
abandoned in prior years. Expenses of $16,738 were incurred in 1998 to plug and
abandon one oil and gas well which was temporarily abandoned in a prior year.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
7
705
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $392,559 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $359,902 and declines in production costs paid of
$16,249, abandoned property costs paid of $14,614 and working capital of
$16,539, offset by an increase in G&A expenses paid of $14,745. The increase in
oil and gas receipts resulted from the increase in commodity prices during 2000
which contributed an additional $431,139 to oil and gas receipts, offset by
$71,237 resulting from the decline in production during 2000. The decrease in
production costs was primarily due to the Reversionary Interest change, offset
by higher production taxes associated with high oil and gas prices and
additional well maintenance costs incurred to stimulate well production. The
increase in G&A was primarily due to higher percentage of the managing general
partner's G&A being allocated (limited to 3% of oil and gas revenues) as a
result of increased oil and gas revenues.
Net Cash Provided by (Used in) Investing Activities
The Partnership's investing activities during 1999 were primarily for
expenditures related to upgrades of equipment on various oil and gas properties.
Proceeds of $13,943 and $12,956 were recognized during 2000 and 1999,
respectively, from equipment salvage on wells abandoned in prior years.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $591,935, of which $5,919 was
distributed to the managing general partner and $586,016 to the limited
partners. In 1999, cash distributions to the partners were $172,065, of which
$1,660 was distributed to the managing general partner and $170,405 to the
limited partners.
8
706
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements of Parker & Parsley Producing Properties 87-B, Ltd.:
Independent Auditors' Report......................................................... 10
Balance Sheets as of December 31, 2000 and 1999...................................... 11
Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998................................................................ 12
Statements of Partners' Capital for the Years Ended
December 31, 2000, 1999 and 1998................................................... 13
Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998................................................................ 14
Notes to Financial Statements........................................................ 15
9
707
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley Producing Properties 87-B, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheets of Parker & Parsley Producing Properties
87-B, Ltd. as of December 31, 2000 and 1999, and the related statements of
operations, partners' capital and cash flows for each of the three years in the
period ended December 31, 2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley Producing
Properties 87-B, Ltd. as of December 31, 2000 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
10
708
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
(A Texas Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
------------ ------------
ASSETS
------
Current assets:
Cash $ 19,277 $ 21,724
Accounts receivable - oil and gas sales 194,002 164,577
---------- ----------
Total current assets 213,279 186,301
---------- ----------
Oil and gas properties - at cost, based on
the successful efforts accounting method 4,829,203 4,837,591
Accumulated depletion (4,181,937) (4,131,342)
---------- ----------
Net oil and gas properties 647,266 706,249
---------- ----------
$ 860,545 $ 892,550
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 20,375 $ 23,066
Partners' capital:
Managing general partner 8,661 8,954
Limited partners (12,191 interests) 831,509 860,530
---------- ----------
840,170 869,484
$ 860,545 $ 892,550
========== ==========
The accompanying notes are an integral part of these financial statements.
11
709
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
(A Texas Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Revenues:
Oil and gas $ 982,604 $ 625,861 $ 532,606
Interest 6,516 3,357 4,078
Gain on disposition of assets 8,294 11,482 4,248
--------- --------- ---------
997,414 640,700 540,932
--------- --------- ---------
Costs and expenses:
Oil and gas production 347,938 364,187 385,648
General and administrative 33,521 18,776 15,978
Impairment of oil and gas properties - - 35,017
Depletion 53,334 79,975 206,289
Abandoned property - 14,614 16,738
--------- --------- ---------
434,793 477,552 659,670
--------- --------- ---------
Net income (loss) $ 562,621 $ 163,148 $(118,738)
========= ========= =========
Allocation of net income (loss):
Managing general partner $ 5,626 $ 1,631 $ (1,187)
========= ========= =========
Limited partners $ 556,995 $ 161,517 $(117,551)
========= ========= =========
Net income (loss) per limited partnership
interest $ 45.69 $ 13.25 $ (9.64)
========= ========= =========
The accompanying notes are an integral part of these financial statements.
12
710
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
(A Texas Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
---------- ----------- -----------
Partners' capital at January 1, 1998 $ 11,934 $1,186,985 $1,198,919
Distributions (1,764) (200,016) (201,780)
Net loss (1,187) (117,551) (118,738)
---------- ---------- ----------
Partners' capital at December 31, 1998 8,983 869,418 878,401
Distributions (1,660) (170,405) (172,065)
Net income 1,631 161,517 163,148
---------- ---------- ----------
Partners' capital at December 31, 1999 8,954 860,530 869,484
Distributions (5,919) (586,016) (591,935)
Net income 5,626 556,995 562,621
---------- ---------- ----------
Partners' capital at December 31, 2000 $ 8,661 $ 831,509 $ 840,170
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
13
711
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
(A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
---------- ---------- ----------
Cash flows from operating activities:
Net income (loss) $ 562,621 $ 163,148 $ (118,738)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Gain on disposition of assets (8,294) (11,482) (4,248)
Impairment of oil and gas properties - - 35,017
Depletion 53,334 79,975 206,289
Changes in assets and liabilities
Accounts receivable (29,425) (75,008) 65,047
Accounts payable (2,691) 26,353 (42,242)
--------- --------- ----------
Net cash provided by operating activities 575,545 182,986 141,125
--------- --------- ----------
Cash flows from investing activities:
Additions to oil and gas equipment - (12,012) (8,617)
Proceeds from disposition of assets 13,943 12,956 4,248
--------- --------- ----------
Net cash provided by (used in)
investing activities 13,943 944 (4,369)
--------- --------- ----------
Cash flows used in financing activities:
Cash distributions to partners (591,935) (172,065) (201,780)
--------- --------- ----------
Net increase (decrease) in cash (2,447) 11,865 (65,024)
Cash at beginning of year 21,724 9,859 74,883
--------- ------- ----------
Cash at end of year $ 19,277 $ 21,724 $ 9,859
========= ========= ==========
The accompanying notes are an integral part of these financial statements.
14
712
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley Producing Properties 87-B, Ltd. (the "Partnership") is a
limited partnership organized in 1987 under the laws of the State of Texas. The
Partnership's managing general partner is Pioneer Natural Resources USA, Inc.
("Pioneer USA").
The Partnership engages in oil and gas production in Texas and is not
involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements - Preparation
of the accompanying 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 periods.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
15
713
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative expenses
are allocated in part to the Partnership by the managing general partner.
Allocated expenses are determined by the managing general partner based upon the
level of activity of the Partnership relative to the non-partnership activities
of the managing general partner. The method of allocation has been consistent
over the past several years with certain modifications incorporated to reflect
changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. The Partnership has estimated the expected future cash flows of its
oil and gas properties as of December 31, 2000, 1999 and 1998, based on proved
reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized a non-cash impairment provision of $35,017 related to its
proved oil and gas properties during 1998.
16
714
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $838,681 less than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income (loss) per Federal income tax returns for the
years ended December 31:
2000 1999 1998
-------- -------- ---------
Net income (loss) per statements of operations $ 562,621 $ 163,148 $(118,738)
Depletion and depreciation provisions for tax
reporting purposes (greater than) less than
amounts for financial reporting purposes (39,072) 7,412 (59,976)
Impairment of oil and gas properties for financial
reporting purposes - - 35,017
Abandoned property dispositions for tax reporting
greater than (less than) amounts for financial
reporting purposes - - (218,079)
Other, net 4,370 (7,638) 3,376
------- ------- -------
Net income (loss) per Federal income tax
returns $ 527,919 $ 162,922 $(358,400)
======== ======== ========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
-------- -------- ---------
Property acquisition costs $ - $ (2,313) $ 6,754
======== ======== ========
Development costs $ - $ 4,136 $ 1,863
======== ======== ========
Capitalized oil and gas properties consist of the following:
2000 1999
---------- ----------
Proved properties:
Property acquisition costs $ 3,288,184 $ 3,289,170
Completed wells and equipment 1,541,019 1,548,421
--------- ----------
4,829,203 4,837,591
Accumulated depletion (4,181,937) (4,131,342)
---------- ----------
Net oil and gas properties $ 647,266 $ 706,249
========= ==========
17
715
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
-------- -------- ---------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 121,257 $ 137,769 $ 144,149
Reimbursement of general and administrative
expenses $ 27,424 $ 8,400 $ 9,662
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
P&P Producing Properties 87-B Employees ("EMPL") and the Partnership are parties
to the Program agreement. EMPL is a general partnership organized for the
benefit of certain employees of Pioneer USA. EMPL was merged with Pioneer USA on
December 28, 2000.
The costs and revenues of the Program are allocated to Pioneer USA and the
Partnership as follows:
Pioneer USA (1) Partnership
--------------- -----------
Revenues:
Revenues from oil and gas production, proceeds from
sales of producing properties and all other
revenues:
Before payout 4.040405% 95.959595%
After payout (2) 19.191920% 80.808080%
Costs and expenses:
Property acquisition costs, operating costs, general
and administrative expenses and other costs:
Before payout 4.040405% 95.959595%
After payout (2) 19.191920% 80.808080%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated
at the Partnership level and 196 limited partner interests owned by
Pioneer USA.
(2) The Partnership reached payout in April 2000.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
18
716
Oil and NGLs Gas
(bbls) (mcf)
------------ ---------
Net proved reserves at January 1, 1998 419,589 664,089
Revisions (95,538) (99,794)
Production (40,796) (50,220)
---------- ---------
Net proved reserves at December 31, 1998 283,255 514,075
Revisions 292,082 490,347
Production (35,770) (48,774)
---------- ---------
Net proved reserves at December 31, 1999 539,567 955,648
Revisions 31,315 (45,195)
Production (33,115) (49,380)
---------- ---------
Net proved reserves at December 31, 2000 537,767 861,073
========== =========
As of December 31, 2000, the estimated present value of future net revenues
of proved reserves, calculated using December 31, 2000 prices of $26.63 per
barrel of oil, $13.33 per barrel of NGLs and $7.67 per mcf of gas, discounted at
10% was approximately $4,413,000 and undiscounted was $9,495,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
--------------------------------------
2000 1999 1998
----------- ----------- -----------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 18,453 $ 13,256 $ 3,115
Future production costs (8,958) (7,154) (2,221)
-------- -------- --------
9,495 6,102 894
10% annual discount factor (5,082) (3,024) (335)
-------- -------- --------
Standardized measure of discounted future net cash flows $ 4,413 $ 3,078 $ 559
========= ========= ========
19
717
For the years ended December 31,
--------------------------------------
2000 1999 1998
----------- ----------- -----------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (635) $ (262) $ (147)
Net changes in prices and production costs 1,865 1,419 (1,151)
Revisions of previous quantity estimates 168 2,042 (144)
Accretion of discount 308 56 185
Changes in production rates, timing and other (371) (736) (32)
-------- --------- --------
Change in present value of future net revenues 1,335 2,519 (1,289)
-------- --------- --------
Balance, beginning of year 3,078 559 1,848
-------- --------- --------
Balance, end of year $ 4,413 $ 3,078 $ 559
========= ========== =========
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 32% 37% -
TEPPCO Crude Oil LLC 22% 23% -
Phillips Petroleum Company 20% 10% 9%
Genesis Crude Oil, L.P. - - 58%
Western Gas Resources, Inc. 6% 7% 23%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P.,
TEPPCO Crude Oil LLC and Phillips Petroleum Company were $25,204, $31,416 and
$21,019, respectively, which are included in the caption "Accounts receivable -
oil and gas sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would not
have an adverse effect on the ability of the Partnership to sell its oil, NGLs
and gas production.
20
718
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of the
limited partnership agreement:
Managing general partner - The managing general partner of the Partnership
is Pioneer USA. Pioneer USA has the power and authority to manage, control
and administer all Partnership affairs. As managing general partner and
operator of the Partnership's properties, all production expenses are
incurred by Pioneer USA and billed to the Partnership. The majority of the
Partnership's oil and gas revenues are received directly by the
Partnership, however, a portion of the oil and gas revenue is initially
received by Pioneer USA prior to being paid to the Partnership. Under the
limited partnership agreement, the managing general partner pays 1% of the
Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is
allocated 1% of the Partnership's revenues.
Limited partner liability - The maximum amount of liability of any limited
partner is the total contributions of such partner plus his share of any
undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of $6,095,500.
Pioneer USA is required to contribute amounts equal to 1% of initial
Partnership capital less commission and offering expenses allocated to the
limited partners and to contribute amounts necessary to pay costs and
expenses allocated to it under the Partnership agreement to the extent its
share of revenues does not cover such costs.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
21
719
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and executive
officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the
next annual meeting of stockholders or until their successors are elected and
qualified.
Age at
December 31,
Name 2000 Position
---- ---- --------
Scott D. Sheffield 48 President
Timothy L. Dove 44 Executive Vice President, Chief
Financial Officer and Director
Dennis E. Fagerstone 51 Executive Vice President and Director
Mark L. Withrow 53 Executive Vice President, General
Counsel and Director
Danny Kellum 46 Executive Vice President - Domestic
Operations and Director
Rich Dealy 34 Vice President and Chief Accounting
Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas
with a B.S. in Petroleum Engineering. Since August 1997, he has served as
President, Chief Executive Officer and a director of Pioneer and President of
Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of
Pioneer in August 1999. He served as a director of Pioneer USA from August 1997
until his resignation from the board in June 1999. Mr. Sheffield was the
President and a director of Parker & Parsley Petroleum Company ("Parker &
Parsley") from May 1990 until August 1997 and was the Chairman of the Board and
Chief Executive Officer of Parker & Parsley from October 1990 until August 1997.
He was the sole director of Parker & Parsley from May 1990 until October 1990.
Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a
predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as
Vice President - Engineering of PPDC from September 1981 until April 1985 when
he was elected President and a director. In March 1989, Mr. Sheffield was
elected Chairman of the Board and Chief Executive Officer of PPDC. Before
joining PPDC's predecessor, Mr. Sheffield was employed as a production and
reservoir engineer for Amoco Production Company.
22
720
Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from
Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981
from the University of Chicago. He became Executive Vice President - Business
Development of Pioneer and Pioneer USA in August 1997 and was also appointed a
director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief
Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr.
Dove joined Parker & Parsley in May 1994 as Vice President - International and
was promoted to Senior Vice President - Business Development in October 1996, in
which position he served until August 1997. Prior to joining Parker & Parsley,
Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus
Energy Corp, in various capacities in international exploration and production,
marketing, refining and marketing and planning and development.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997.
From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice
President and Chief Operating Officer of Mesa and from May 1991 to October 1996,
he served as Vice President - Exploration and Production of Mesa. From June 1988
to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President - General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979, was elected Executive
Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000
and Director of Pioneer USA on February 1, 2000. From January 2000 until May
2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and
Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and
Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served
as Spraberry District Manager and as Vice President of the Spraberry and Permian
Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker &
Parsley as an operations engineer in 1981 after a brief career with Mobil Oil
Corporation.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with
a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He
became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
23
721
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is performed by Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the limited
partnership agreement, Pioneer USA pays 1% of the Program's acquisition,
drilling and completion costs and 1% of its operating and general and
administrative expenses. In return, Pioneer USA is allocated 1% of the Program's
revenues.
The Partnership does not directly pay any salaries of the executive officers of
Pioneer USA, but does pay a portion of Pioneer USA's general and administrative
expenses of which these salaries are a part.
See Notes 6 and 9 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" for information regarding fees and
reimbursements paid to the managing general partner by the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more of
the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 196 limited partner interests at January 1, 2001.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general
partner of the Partnership, Pioneer USA, has the exclusive right and full
authority to manage, control and administer the Partnership's business. Under
the limited partnership agreement, limited partners holding a majority of the
outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
24
722
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner
Pursuant to the limited partnership agreement, the Partnership had the following
related party transactions with the managing general partner during the years
ended December 31:
2000 1999 1998
-------- -------- --------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $121,257 $ 137,769 $144,149
Reimbursement of general and administrative
expenses $ 27,424 $ 8,400 $ 9,662
Under the limited partnership agreement, the managing general partner pays 1% of
the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data"
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
25
723
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial statements
The following are filed as part of this Report:
Independent Auditors' Report
Balance sheets as of December 31, 2000 and 1999
Statements of operations for the years ended December 31, 2000,
1999 and 1998
Statements of partners' capital for the years ended December 31,
2000, 1999 and 1998
Statements of cash flows for the years ended December 31, 2000,
1999 and 1998
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the
required information is in the financial statements or notes thereto,
or is not applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this Report.
26
724
S I G N A T U R E S
Pursuant to the requirements 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.
PARKER & PARSLEY PRODUCING
PROPERTIES 87-B, LTD.
Dated: March 29, 2001 By: Pioneer Natural Resources USA, Inc.
Managing General Partner
By: /s/ Scott D. Sheffield
-----------------------------
Scott D. Sheffield, President
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/ Scott D. Sheffield President of Pioneer USA March 29, 2001
-------------------------------
Scott D. Sheffield
/s/ Timothy L. Dove Executive Vice President, Chief March 29, 2001
------------------------------- Financial Officer and Director of
Timothy L. Dove Pioneer USA
/s/ Dennis E. Fagerstone Executive Vice President and March 29, 2001
------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ Mark L. Withrow Executive Vice President, General March 29, 2001
------------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ Danny Kellum Executive Vice President - Domestic March 29, 2001
------------------------------- Operations and Director of Pioneer
Danny Kellum USA
/s/ Rich Dealy Vice President and Chief Accounting March 29, 2001
------------------------------- Officer of Pioneer USA
Rich Dealy
27
725
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
Exhibit No. Description Page
----------- ----------- ----
3(a) Amended and Restated Certificate of Limited -
Partnership of Parker & Parsley Producing
Properties 87-B, Ltd. incorporated by reference
to Exhibit 3a of Amendment No. 1 of the
Partnership's Registration Statement on Form
S-1 (Registration No. 33-11193)
4(a) Agreement of Limited Partnership of Parker & -
Parsley Producing Properties 87-B, Ltd. incorporated
by reference to Exhibit A of Amendment No. 1
of the Partnership's Registration Statement on
Form S-1 (Registration No. 33-11193)
4(b) Subscription Agreement incorporated by -
reference to Exhibit C of Amendment No. 1
of the Partnership's Registration Statement
on Form S-1 (Registration No. 33-11193)
4(b) Power of Attorney incorporated by reference -
to Exhibit B of Amendment No. 1 of the
Partnership's Registration Statement on
Form S-1 (Registration No. 33-11193)
4(c) Specimen Certificate of Limited Partnership -
Interest incorporated by reference to Exhibit
4c of the Partnership's Registration Statement
on Form S-1 (Registration No. 33-11193)
10(b) Program Agreement incorporated by reference -
to Exhibit B of Amendment No. 1 of the
Partnership's Registration Statement on
Form S-1 (Registration No. 33-11193)
28
726
PARKER & PARSLEY PRODUCING PROPERTIES 87-B, LTD.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 263,792 $ 982,604 $ 625,861 $ 532,606 $ 846,163 $ 980,232
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ -- $ -- $ 35,017 $ 317,255 $ 42,277
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 145,081 $ 562,621 $ 163,148 $ (118,738) $ (142,439) $ 303,380
======== ========== ========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general
partner $ $ 1,451 $ 5,626 $ 1,631 $ (1,187) $ (1,424) $ 3,034
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 143,630 $ 556,995 $ 161,517 $ (117,551) $ (141,015) $ 300,346
======== ========== ========== ========== ========== ========== ==========
Limited partners' net income
(loss) per limited
partnership interest $ $ 11.78 $ 45.69 $ 13.25 $ (9.64) $ (11.57) $ 24.64
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 9.26 $ 48.07 $ 13.98 $ 16.41 $ 39.20 $ 35.59
======== ========== ========== ========== ========== ========== ==========
At year end:
Identifiable assets $ $ 930,221 $ 860,545 $ 892,550 $ 878,401 $1,241,161 $1,823,614
======== ========== ========== ========== ========== ========== ==========
727
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD., A TEXAS LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
Private Investment 87, Ltd. and supplements the proxy statement/prospectus dated
, 2001, of Pioneer Natural Resources Company and Pioneer Natural Resources
USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a special
meeting of limited partners of the partnership. The purpose of the special
meeting is for you to vote upon the merger of the partnership with and into
Pioneer USA that, if completed, will result in your receiving common stock of
Pioneer Natural Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley Private Investment 87, Ltd.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the three months ended March 31, 2001
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
728
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 10,480
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 16,114
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 2,768
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 264.10
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 4.72 times
12 Months ended March31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 144.05
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 240.57
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 256.89
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 177
(b), (c)
-----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners. Although not
required by the partnership agreement, the opinion will also state that neither
the grant nor exercise of such right will result in the loss of any limited
partner's limited liability. In addition, the counsel designated to render the
opinion must be counsel other than counsel to Pioneer USA or the partnership.
Both the designated counsel and the legal opinion must be approved by the
limited partners. Pioneer USA has retained __________ of Dallas, Texas for the
purpose of rendering this legal opinion on behalf of the limited partners to
Pioneer USA. The merger proposals include an approval of that counsel and the
form of its opinion. A copy of the opinion is attached as an exhibit to the
merger proposals.
-2-
729
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD.
(A Texas Limited Partnership)
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT
December 31, 2000 and 1999
730
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley Private Investment 87, Ltd.
(A Texas Limited Partnership):
We have audited the balance sheets of Parker & Parsley Private Investment 87,
Ltd. as of December 31, 2000 and 1999, and the related statements of operations,
partners' capital and cash flows for each of the three years in the period ended
December 31, 2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley Private
Investment 87, Ltd. as of December 31, 2000 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
2
731
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD.
(A Texas Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
---------------- ----------------
ASSETS
------
Current assets:
Cash $ 94,943 $ 134,914
Accounts receivable - oil and gas sales 169,256 89,852
------------ -------------
Total current assets 264,199 224,766
------------ -------------
Oil and gas properties - at cost, based on the
successful efforts accounting method 7,234,802 7,222,781
Accumulated depletion (5,959,961) (5,880,941)
------------ -------------
Net oil and gas properties 1,274,841 1,341,840
------------ -------------
$ 1,539,040 $ 1,566,606
============= ==============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 14,344 $ 6,764
Partners' capital:
Managing general partner 15,002 15,353
Limited partners (262 interests) 1,509,694 1,544,489
------------ -------------
1,524,696 1,559,842
------------ -------------
$ 1,539,040 $ 1,566,606
============= ==============
The accompanying notes are an integral part of these financial statements.
3
732
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD.
(A Texas Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
---------- ---------- ----------
Revenues:
Oil and gas $1,035,947 $ 674,794 $ 568,014
Interest 10,943 5,922 6,840
Gain on disposition of assets 15,201 20,924 --
Miscellaneous income -- -- 27,020
---------- ---------- ----------
1,062,091 701,640 601,874
---------- ---------- ----------
Costs and expenses:
Oil and gas production 395,308 333,765 357,125
General and administrative 31,079 20,244 17,041
Impairment of oil and gas properties -- -- 176,587
Depletion 79,020 123,063 259,349
Abandoned property -- 20,129 --
---------- ---------- ----------
505,407 497,201 810,102
---------- ---------- ----------
Net income (loss) $ 556,684 $ 204,439 $ (208,228)
========== ========== ==========
Allocation of net income (loss):
Managing general partner $ 5,567 $ 2,044 $ (2,082)
========== ========== ==========
Limited partners $ 551,117 $ 202,395 $ (206,146)
========== ========== ==========
Net income (loss) per limited partnership interest $ 2,103.50 $ 772.50 $ (786.82)
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
4
733
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD.
(A Texas Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
------------- -------------- ---------------
Partners' capital at January 1, 1998 $ 20,565 $ 2,060,412 $ 2,080,977
Distributions (2,592) (256,549) (259,141)
Net loss (2,082) (206,146) (208,228)
----------- ----------- -----------
Partners' capital at December 31, 1998 15,891 1,597,717 1,613,608
Distributions (2,582) (255,623) (258,205)
Net income 2,044 202,395 204,439
----------- ----------- -----------
Partners' capital at December 31, 1999 15,353 1,544,489 1,559,842
Distributions (5,918) (585,912) (591,830)
Net income 5,567 551,117 556,684
----------- ----------- -----------
Partners' capital at December 31, 2000 $ 15,002 $ 1,509,694 $ 1,524,696
============ ============ ============
The accompanying notes are an integral part of these financial statements.
5
734
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD.
(A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
-------------- -------------- --------------
Cash flows from operating activities:
Net income (loss) $ 556,684 $ 204,439 $ (208,228)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depletion 79,020 123,063 259,349
Impairment of oil and gas properties - - 176,587
Gain on disposition of assets (15,201) (20,924) -
Changes in assets and liabilities:
Accounts receivable (79,404) (19,909) 44,227
Accounts payable 7,580 7,671 (37,011)
----------- ----------- -----------
Net cash provided by operating activities 548,679 294,340 234,924
----------- ----------- -----------
Cash flows from investing activities:
Additions to oil and gas properties (12,021) (1,457) (6,173)
Proceeds from asset dispositions 15,201 17,049 6,923
----------- ----------- -----------
Net cash provided by investing activities 3,180 15,592 750
----------- ----------- -----------
Cash flows used in financing activities:
Cash distributions to partners (591,830) (258,205) (259,141)
----------- ----------- -----------
Net increase (decrease) in cash (39,971) 51,727 (23,467)
Cash at beginning of year 134,914 83,187 106,654
----------- ----------- -----------
Cash at end of year $ 94,943 $ 134,914 $ 83,187
============ ============ ============
The accompanying notes are an integral part of these financial statements.
6
735
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley Private Investment 87, Ltd. (the "Partnership") was
organized in 1987 as a general partnership under the laws of the State of Texas
and was converted to a Texas limited partnership in 1989. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -
Preparation of the accompanying 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 periods. Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
7
736
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated in part to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non-partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted and the timing
of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized a non-cash impairment provision of $176,587 related to
its proved oil and gas properties during 1998.
8
737
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $72,098 greater than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
-------------- -------------- --------------
Net income (loss) per statements of operations $ 556,684 $ 204,439 $ (208,228)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes 73,725 118,474 253,944
Impairment of oil and gas properties for financial
reporting purposes - - 176,587
Salvage income - - 6,923
Other, net 8,468 (6,345) 1,789
----------- ----------- -----------
Net income per Federal income tax returns $ 638,877 $ 316,568 $ 231,015
============ ============ ============
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
-------------- -------------- --------------
Development costs $ 12,021 $ 1,457 $ 6,173
=========== ============ ============
Capitalized oil and gas properties consist of the following:
2000 1999
---------------- ----------------
Proved properties:
Property acquisition costs $ 235,953 $ 235,953
Completed wells and equipment 6,998,849 6,986,828
------------- ------------
7,234,802 7,222,781
Accumulated depletion (5,959,961) (5,880,941)
------------- ------------
Net oil and gas properties $ 1,274,841 $ 1,341,840
============== =============
9
738
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
-------------- -------------- --------------
Payment of lease operating and supervision
charges in accordance with standard industry
operating agreements $ 168,618 $ 164,154 $ 169,530
Reimbursement of general and administrative
expenses $ 27,190 $ 13,954 $ 13,315
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA
and the Partnership are parties to the Program agreement.
The costs and revenues of the Program are allocated to Pioneer USA and the
Partnership as follows:
Pioneer USA (1) Partnership
--------------- -------------
Revenues:
Proceeds from disposition of depreciable
properties 9.09091% 90.90909%
All other revenues 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion
costs and all other costs 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is
allocated at the Partnership level.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
10
739
Oil and NGLs Gas
(bbls) (mcf)
-------------------- -------------------
Net proved reserves at January 1, 1998 593,108 749,623
Revisions (204,355) (192,689)
Production (42,801) (58,036)
------------ ------------
Net proved reserves at December 31, 1998 345,952 498,898
Revisions 377,937 584,604
Production (40,495) (52,874)
------------ ------------
Net proved reserves at December 31, 1999 683,394 1,030,628
Revisions 114,936 (13,239)
Production (35,242) (48,307)
------------ ------------
Net proved reserves at December 31, 2000 763,088 969,082
============ ============
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.67 per barrel of NGLs and $7.76 per mcf of gas,
discounted at 10% was approximately $5,193,000 and undiscounted was $12,461,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
-------------------------------------------------------
2000 1999 1998
---------------- ---------------- ----------------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 24,836 $ 16,945 $ 3,765
Future production costs (12,375) (9,216) (2,895)
------------- ------------ -------------
12,461 7,729 870
10% annual discount factor (7,268) (3,837) (277)
------------- ------------ -------------
Standardized measure of discounted future net cash flows $ 5,193 $ 3,892 $ 593
============== ============= ==============
11
740
For the years ended December 31,
-------------------------------------------------------
2000 1999 1998
---------------- ---------------- ----------------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (641) $ (341) $ (211)
Net changes in prices and production costs 1,940 2,019 (1,560)
Revisions of previous quantity estimates 766 2,931 (262)
Accretion of discount 389 59 244
Changes in production rates, timing and other (1,153) (1,369) (59)
------------- ------------ ------------
Change in present value of future net revenues 1,301 3,299 (1,848)
------------- ------------ -------------
Balance, beginning of year 3,892 593 2,441
------------- ------------ ------------
Balance, end of year $ 5,193 $ 3,892 $ 593
============== ============= =============
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil and
gas sales (a major customer is defined as a customer whose sales exceed 10% of
total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 42% 40% -
Genesis Crude Oil, L.P. - - 46%
Western Gas Resources, Inc. 3% 5% 23%
Phillips Petroleum Company 17% 16% 13%
NGTS LLC 10% 8% 1%
At December 31, 2000, the amounts receivable from Plains Marketing,
L.P., Phillips Petroleum Company and NGTS LLC were $34,772, $27,567 and $3,043,
respectively, which are included in the caption "Accounts receivable - oil and
gas sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the Partnership agreement:
Managing general partner - The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Program and Partnership affairs. As
managing general partner and operator of the Partnership's properties,
all production expenses are incurred by Pioneer USA and billed to the
Partnership. The majority of the Partnership's oil and gas revenues are
received directly by the Partnership, however, a portion of the oil and
gas revenue is initially received by Pioneer USA prior to being
12
741
paid to the Partnership. Under the limited partnership agreement, the
managing general partner pays 1% of the Partnership's acquisition,
drilling and completion costs and 1% of its operating and general and
administrative expenses. The managing general partner is also
responsible for 1% of the guaranty and loan commitment fees. In return,
it is allocated 1% of the Partnership's revenues.
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The partners entered into subscription
agreements for aggregate capital contributions of $10,480,000.
Contributions aggregating $2,822,500 were received directly from the
partners in cash and the remainder was made available to the limited
partners by a financial institution. Pioneer USA is required to
contribute amounts equal to 1% of initial Partnership capital less
commission and organization and offering costs allocated to the limited
partners and to contribute amounts necessary to pay costs and expenses
allocated to it under the Partnership agreement to the extent its share
of revenues does not cover such costs.
13
742
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD.
(A TEXAS LIMITED PARTNERSHIP)
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACCORDINGLY, NO ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS
AND RESULTS WILL NOT BE MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS
DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 54% to $1,035,947 for 2000 as
compared to $674,794 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decline in production. In 2000, 24,016
barrels of oil, 11,226 barrels of natural gas liquids ("NGLs") and 48,307 mcf of
gas were sold, or 43,293 barrel of oil equivalents ("BOEs"). In 1999, 27,432
barrels of oil, 13,063 barrels of NGLs and 52,874 mcf of gas were sold, or
49,307 BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.74, or 76%, from
$16.82 in 1999 to $29.56 in 2000. The average price received per barrel of NGLs
increased $6.76, or 72%, from $9.41 in 1999 to $16.17 in 2000. The average price
received per mcf of gas increased 75% from $1.71 in 1999 to $2.99 in 2000. The
market price for oil and gas has been extremely volatile in the past decade, and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
Gain on disposition of assets of $15,201 during 2000 was attributable to salvage
income received on two wells plugged and abandoned during 1999. Gain on
disposition of assets of $20,924 during 1999 was from salvage value received on
equipment from two wells plugged and abandoned during 1999. Abandoned property
costs of $20,129 were incurred during 1999 related to the plugging of these two
wells.
Total costs and expenses increased in 2000 to $505,407 as compared to $497,201
in 1999, an increase of $8,206, or 2%. The increase was primarily due to
increases in production costs and general and administrative expenses ("G&A"),
offset by declines in depletion and abandoned property costs.
Production costs were $395,308 in 2000 and $333,765 in 1999, resulting in a
$61,543 increase, or 18%. The increase was due to additional well maintenance
costs incurred to stimulate well production and higher production taxes.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
54% from $20,244 in 1999 to $31,079 in 2000, primarily due to a higher
percentage of the managing general partner's G&A being allocated (limited to 3%
of oil and gas revenues) as a result of increased oil and gas revenues. The
Partnership paid the managing general partner $27,190 in 2000 and $13,954 in
1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid
directly by the Partnership. The managing general partner determines the
allocated expenses based upon the level of activity of the Partnership relative
to the non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
Depletion was $79,020 in 2000 as compared to $123,063 in 1999, representing a
decrease of $44,043, or 36%. This decrease was primarily due to a 114,527
barrels of oil increase in proved reserves during 2000 as a result of higher
commodity prices and a decline in oil production of 3,416 barrels for the period
ended December 31, 2000 compared to the same period in 1999.
743
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 19% to $674,794 from
$568,014 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 27,432 barrels of oil,
13,063 barrels of NGLs and 52,874 mcf of gas were sold, or 49,307 BOEs. In 1998,
30,005 barrels of oil, 12,796 barrels of NGLs and 58,036 mcf of gas were sold,
or 52,474 BOEs.
The average price received per barrel of oil increased $3.77, or 29%, from
$13.05 in 1998 to $16.82 in 1999. The average price received per barrel of NGLs
increased $2.86, or 44%, from $6.55 in 1998 to $9.41 in 1999. The average price
received per mcf of gas increased 8% from $1.59 in 1998 to $1.71 in 1999.
Gain on disposition of assets of $20,924 during 1999 was from salvage value
received on equipment from two wells plugged and abandoned during 1999.
Abandoned property costs of $20,129 were incurred during 1999 related to the
plugging of these two wells.
Miscellaneous income of $27,020 during 1998 consisted of the write-off of
amounts previously recorded as accounts payable. These amounts were set aside
until the Partnership reconciled payments for the initial capital contributions.
Once these payments were reconciled, the liability was eliminated and the cash
distributed to the partners.
Total costs and expenses decreased in 1999 to $497,201 as compared to $810,102
in 1998, a decrease of $312,901, or 39%. The decrease was primarily due to
declines in the impairment of oil and gas properties, depletion and production
costs, offset by increases in abandoned property costs and G&A.
Production costs were $333,765 in 1999 and $357,125 in 1998, resulting in a
$23,360 decrease, or 7%. The decrease was due to declines in well maintenance
costs and ad valorem taxes.
During this period, G&A increased 19% from $17,041 in 1998 to $20,244 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $13,954 in
1999 and $13,315 in 1998 for G&A incurred on behalf of the Partnership.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $176,587 related to its oil and gas properties during 1998.
Depletion was $123,063 in 1999 compared to $259,349 in 1998, representing a
decrease of $136,286, or 53%. This decrease was the result of an increase in
proved reserves of 239,857 barrels of oil during 1999 as a result of higher
commodity prices and a reduction in the Partnership's net depletable basis from
charges taken in accordance with SFAS 121 during the fourth quarter of 1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
744
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $254,339 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $366,174 and a decline in abandoned property costs of
$20,129, offset by increases in production costs paid of $61,543, G&A expenses
paid of $10,835 and working capital of $59,586. The increase in oil and gas
receipts resulted from the increase in commodity prices during 2000 which
contributed an additional $510,519 to oil and gas receipts, offset by $144,345
resulting from the decline in production during 2000. The increase in production
costs was primarily due to increased production taxes associated with higher oil
and gas prices and additional well maintenance costs incurred to stimulate well
production. The increase in G&A was primarily due to higher percentage of the
managing general partner's G&A being allocated (limited to 3% of oil and gas
revenues) as a result of increased oil and gas revenues.
Net Cash Provided by Investing Activities
The Partnership's principal investing activities during 2000 and 1999 included
expenditures related to equipment upgrades on several oil and gas properties.
Proceeds from asset dispositions of $15,201 received in 2000 were related to
salvage income received on two wells plugged and abandoned during 1999. Proceeds
from asset dispositions of $17,049 received in 1999 were from equipment credits
of $10,226 received on two wells plugged and abandoned during 1999 and equipment
credits of $6,823 received on two active wells.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $591,830, of which $5,918 was
distributed to the managing general partner and $585,912 to the limited
partners. In 1999, cash distributions to the partners were $258,205, of which
$2,582 was distributed to the managing general partner and $255,623 to the
limited partners.
745
PARKER & PARSLEY PRIVATE INVESTMENT 87, LTD.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 240,933 $1,035,947 $ 674,794 $ 568,014 $ 855,114 $1,063,902
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ -- $ -- $ 176,587 $ 789,277 $ --
======== ========== ========== ========== ========== ========== ==========
Gain on litigation
settlement, net $ $ -- $ -- $ -- $ -- $ -- $ 383,911
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 124,127 $ 556,684 $ 204,439 $ (208,228) $ (548,407) $ 833,250
======== ========== ========== ========== ========== ========== ==========
Allocation of net
income (loss):
Managing general
partner $ $ 1,241 $ 5,567 $ 2,044 $ (2,082) $ (5,484) $ 8,333
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 122,886 $ 551,117 $ 202,395 $ (206,146) $ (542,923) $ 824,917
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 469.03 $ 2,103.50 $ 772.50 $ (786.82) $(2,072.23) $ 3,148.54
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 502.06 $ 2,236.31 $ 975.66 $ 979.19 $ 1,914.87 $ 3,562.66(a)
======== ========== ========== ========== ========== ========== ==========
At year end:
Total assets $ $1,572,004 $1,539,040 $1,566,606 $1,622.597 $2,126,977 $3,175,422
======== ========== ========== ========== ========== ========== ==========
----------
(a) Including litigation settlement per limited partnership interest of
$1,465.31 in 1996.
746
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 88-A CONV., L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
88-A Conv., L.P., and supplements the proxy statement/prospectus dated ,
2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA,
Inc., by which Pioneer USA is soliciting proxies to be voted at a special
meeting of limited partners of the partnership. The purpose of the special
meeting is for you to vote upon the merger of the partnership with and into
Pioneer USA that, if completed, will result in your receiving common stock of
Pioneer Natural Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 88-A Conv., L.P.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the three months ended March 31, 2001
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
747
PARKER & PARSLEY 88-A CONV., L.P.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 3,793
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 4,094
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 893
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 238.55
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.77 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 150.71
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 216.40
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 232.29
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 142
(b), (c)
-----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners. Although not
required by the partnership agreement, the opinion will also state that neither
the grant nor exercise of such right will result in the loss of any limited
partner's limited liability. In addition, the counsel designated to render the
opinion is not required to be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
748
PARKER & PARSLEY 88-A CONV., L.P.
(A Delaware Limited Partnership)
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT
December 31, 2000 and 1999
749
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 88-A Conv., L.P.
(A Delaware Limited Partnership):
We have audited the balance sheets of Parker & Parsley 88-A Conv., L.P. as of
December 31, 2000 and 1999, and the related statements of operations, partners'
capital and cash flows for each of the three years in the period ended December
31, 2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 88-A Conv.,
L.P. as of December 31, 2000 and 1999, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
2
750
PARKER & PARSLEY 88-A CONV., L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
--------------- ---------------
ASSETS
Current assets:
Cash $ 54,706 $ 66,104
Accounts receivable - oil and gas sales 65,812 47,494
------------- -------------
Total current assets 120,518 113,598
------------- -------------
Oil and gas properties - at cost, based on the
successful efforts accounting method 2,964,986 2,962,354
Accumulated depletion (2,502,477) (2,471,979)
------------- -------------
Net oil and gas properties 462,509 490,375
------------- -------------
$ 583,027 $ 603,973
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable - affiliate $ 5,544 $ 6,800
Partners' capital:
Managing general partner 5,847 6,043
Limited partners (3,793 interests) 571,636 591,130
------------- -------------
577,483 597,173
------------- -------------
$ 583,027 $ 603,973
============== ==============
The accompanying notes are an integral part of these financial statements.
3
751
PARKER & PARSLEY 88-A CONV., L.P.
(A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Revenues:
Oil and gas $ 418,514 $ 280,717 $ 227,119
Interest 4,636 2,657 2,966
Gain on disposition of assets 76 -- 1,875
Other income -- -- 29
--------- --------- ---------
423,226 283,374 231,989
--------- --------- ---------
Costs and expenses:
Oil and gas production 160,855 129,227 149,228
General and administrative 12,419 8,448 6,995
Impairment of oil and gas properties -- -- 118,823
Depletion 30,498 48,743 108,077
--------- --------- ---------
203,772 186,418 383,123
--------- --------- ---------
Net income (loss) $ 219,454 $ 96,956 $(151,134)
========= ========= =========
Allocation of net income (loss):
Managing general partner $ 2,195 $ 970 $ (1,511)
========= ========= =========
Limited partners $ 217,259 $ 95,986 $(149,623)
========= ========= =========
Net income (loss) per limited partnership interest $ 57.28 $ 25.31 $ (39.45)
========= ========= =========
The accompanying notes are an integral part of these financial statements.
4
752
PARKER & PARSLEY 88-A CONV., L.P.
(A Delaware Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
--------- --------- ---------
Partners' capital at January 1, 1998 $ 8,622 $ 846,560 $ 855,182
Distributions (1,069) (105,839) (106,908)
Net loss (1,511) (149,623) (151,134)
--------- --------- ---------
Partners' capital at December 31, 1998 6,042 591,098 597,140
Distributions (969) (95,954) (96,923)
Net income 970 95,986 96,956
--------- --------- ---------
Partners' capital at December 31, 1999 6,043 591,130 597,173
Distributions (2,391) (236,753) (239,144)
Net income 2,195 217,259 219,454
--------- --------- ---------
Partners' capital at December 31, 2000 $ 5,847 $ 571,636 $ 577,483
========= ========= =========
The accompanying notes are an integral part of these financial statements.
5
753
PARKER & PARSLEY 88-A CONV., L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ 219,454 $ 96,956 $(151,134)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties -- -- 118,823
Depletion 30,498 48,743 108,077
Gain on disposition of assets (76) -- (1,875)
Changes in assets and liabilities:
Accounts receivable (18,318) (25,396) 25,872
Accounts payable (1,256) 1,462 (4,318)
--------- --------- ---------
Net cash provided by operating activities 230,302 121,765 95,445
--------- --------- ---------
Cash flows used in investing activities:
Additions to oil and gas properties (2,632) (3,474) (5,091)
Proceeds from disposition of assets 76 -- 4,856
--------- --------- ---------
Net cash used in investing activities (2,556) (3,474) (235)
--------- --------- ---------
Cash flows used in financing activities:
Cash distributions to partners (239,144) (96,923) (106,908)
--------- --------- ---------
Net increase (decrease) in cash (11,398) 21,368 (11,698)
Cash at beginning of year 66,104 44,736 56,434
--------- --------- ---------
Cash at end of year $ 54,706 $ 66,104 $ 44,736
========= ========= =========
The accompanying notes are an integral part of these financial statements.
6
754
PARKER & PARSLEY 88-A CONV., L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 88-A Conv., L.P. (the "Partnership") was organized in
1988 as a general partnership under the laws of the State of Texas and was
converted to a Delaware limited partnership in 1989. The Partnership's managing
general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -
Preparation of the accompanying 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 periods. Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
7
755
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated in part to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non-partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized a non-cash impairment provision of $118,823 related to
its proved oil and gas properties during 1998.
8
756
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $78,614 greater than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements
of operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
-------------- -------------- --------------
Net income (loss) per statements of operations $ 219,454 $ 96,956 $ (151,134)
Depletion and depreciation amounts for tax
reporting purposes less than provisions for
financial reporting purposes 27,183 45,310 104,973
Impairment of oil and gas properties for financial
reporting purposes - - 118,823
Other, net (622) (961) 4,070
----------- ----------- -----------
Net income per Federal income tax returns $ 246,015 $ 141,305 $ 76,732
============ ============ ============
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
-------------- -------------- --------------
Development costs $ 2,632 $ 3,474 $ 5,091
============= ============ ===========
Capitalized oil and gas properties consist of the following:
2000 1999
---------------- ----------------
Proved properties:
Property acquisition costs $ 143,766 $ 143,766
Completed wells and equipment 2,821,220 2,818,588
------------- -------------
2,964,986 2,962,354
Accumulated depletion (2,502,477) (2,471,979)
------------- -------------
Net oil and gas properties $ 462,509 $ 490,375
============== ==============
9
757
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
-------------- -------------- --------------
Payment of lease operating and supervision
charges in accordance with standard industry
operating agreements $ 64,830 $ 62,056 $ 63,244
Reimbursement of general and administrative expenses $ 10,947 $ 5,872 $ 5,659
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
Parker & Parsley 88-A, L.P. and the Partnership (the "Partnerships") are parties
to the Program agreement.
The costs and revenues of the Program are allocated to Pioneer USA and
the Partnerships as follows:
Pioneer USA (1) Partnerships (2)
----------------- ----------------
Revenues:
Proceeds from disposition of depreciable
properties 9.09091% 90.90909%
All other revenues 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion
costs and all other costs 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is
allocated at the Partnership level and 50 limited partner
interests owned by Pioneer USA.
(2) The allocation between the Partnership and Parker & Parsley
88-A, L.P. is 22.674558% and 77.325442%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
Oil and NGLs Gas
(bbls) (mcf)
--------------- ----------------
Net proved reserves at January 1, 1998 245,336 365,368
Revisions (90,082) (90,310)
Production (16,899) (25,367)
-------------- --------------
Net proved reserves at December 31, 1998 138,355 249,691
Revisions 118,130 203,398
Production (17,052) (27,417)
-------------- --------------
Net proved reserves at December 31, 1999 239,433 425,672
Revisions 3,043 (86,940)
Production (14,604) (21,399)
-------------- --------------
Net proved reserves at December 31, 2000 227,872 317,333
============== ==============
10
758
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $12.95 per barrel of NGLs and $7.75 per mcf of gas,
discounted at 10% was approximately $1,723,000 and undiscounted was $3,515,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
----------------------------------
2000 1999 1998
------- ------- -------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 7,404 $ 5,900 $ 1,511
Future production costs (3,889) (3,311) (1,087)
------- ------- -------
3,515 2,589 424
10% annual discount factor (1,792) (1,238) (161)
------- ------- -------
Standardized measure of discounted future net cash flows $ 1,723 $ 1,351 $ 263
======= ======= =======
11
759
For the years ended December 31,
---------------------------------------------------
2000 1999 1998
--------------- -------------- --------------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (258) $ (151) $ (78)
Net changes in prices and production costs 694 658 (635)
Revisions of previous quantity estimates (75) 786 (131)
Accretion of discount 135 26 104
Changes in production rates, timing and other (124) (231) (37)
------------- ------------ ------------
Change in present value of future net revenues 372 1,088 (777)
------------- ------------ ------------
Balance, beginning of year 1,351 263 1,040
------------- ------------ ------------
Balance, end of year $ 1,723 $ 1,351 $ 263
============== ============= =============
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil and
gas sales (a major customer is defined as a customer whose sales exceed 10% of
total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 54% 50% -
NGTS LLC 9% 10% -
Genesis Crude Oil, L.P. - - 55%
Western Gas Resources, Inc. 3% 6% 22%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P.
was $21,731, which is included in the caption "Accounts receivable - oil and gas
sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the Partnership agreement:
Managing general partner - The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Program and Partnership affairs. As
managing general partner and operator of the Partnership's properties,
all production expenses are incurred by Pioneer USA and billed to the
Partnership. The majority of the Partnership's oil and gas revenues are
received directly by the Partnership, however, a portion of the oil and
gas revenue is initially received by Pioneer USA prior to being
12
760
paid to the Partnership. Under the limited partnership agreement, the
managing general partner pays 1% of the Partnership's acquisition,
drilling and completion costs and 1% of its operating and general and
administrative expenses. In return, it is allocated 1% of the
Partnership's revenues.
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The partners entered into subscription
agreements for aggregate capital contributions of $3,793,000. Pioneer
USA is required to contribute amounts equal to 1% of initial Partnership
capital less commission and organization and offering costs allocated to
the limited partners and to contribute amounts necessary to pay costs
and expenses allocated to it under the Partnership agreement to the
extent its share of revenues does not cover such costs.
13
761
PARKER & PARSLEY 88-A CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACCORDINGLY, NO ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS
AND RESULTS WILL NOT BE MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS
DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
2000 compared to 1999
The Partnership's oil and gas revenues increased 49% to $418,514 for 2000 as
compared to $280,717 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decline in production. In 2000, 9,403
barrels of oil, 5,201 barrels of natural gas liquids ("NGLs") and 21,399 mcf of
gas were sold, or 18,171 barrel of oil equivalents ("BOEs"). In 1999, 9,977
barrels of oil, 7,075 barrels of NGLs and 27,417 mcf of gas were sold, or 21,622
BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.37, or 73%, from
$16.91 in 1999 to $29.28 in 2000. The average price received per barrel of NGLs
increased $6.00, or 65%, from $9.30 in 1999 to $15.30 in 2000. The average price
received per mcf of gas increased 77% from $1.69 in 1999 to $2.99 in 2000. The
market price for oil and gas has been extremely volatile in the past decade, and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
A gain on disposition of assets of $76 was recognized in 2000 resulting from
equipment credits received on one fully depleted well.
Total costs and expenses increased in 2000 to $203,772 as compared to $186,418
in 1999, an increase of $17,354, or 9%. The increase was primarily due to
increases in production costs and general and administrative expenses ("G&A"),
offset by a decline in depletion.
Production costs were $160,855 in 2000 and $129,227 in 1999, resulting in a
$31,628 increase, or 24%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices and additional well maintenance
and workover costs incurred to stimulate well production.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
47% from $8,448 in 1999 to $12,419 in 2000, primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 3% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $10,947 in 2000 and $5,872 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
Depletion was $30,498 in 2000 as compared to $48,743 in 1999, representing a
decrease of $18,245, or 37%. This decrease was primarily due to a 13,403 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
prices.
762
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 24% to $280,717 from
$227,119 in 1998. The increase in revenues resulted from higher average prices
received and an increase in production. In 1999, 9,977 barrels of oil, 7,075
barrels of NGLs and 27,417 mcf of gas were sold, or 21,622 BOEs. In 1998, 10,890
barrels of oil, 6,009 barrels of NGLs and 25,367 mcf of gas were sold, or 21,127
BOEs.
The average price received per barrel of oil increased $3.32, or 24%, from
$13.59 in 1998 to $16.91 in 1999. The average price received per barrel of NGLs
increased $2.73, or 42%, from $6.57 in 1998 to $9.30 in 1999. The average price
received per mcf of gas increased 8% from $1.56 in 1998 to $1.69 in 1999.
A gain on disposition of assets of $1,875 was recognized during 1998 for credits
received from the disposal of oil and gas equipment on a fully depleted well.
Total costs and expenses decreased in 1999 to $186,418 as compared to $383,123
in 1998, a decrease of $196,705, or 51%. The decrease was primarily due to
declines in the impairment of oil and gas properties, depletion and production
costs, offset by an increase in G&A.
Production costs were $129,227 in 1999 and $149,228 in 1998, resulting in a
$20,001 decrease, or 13%. The decrease was due to declines in well maintenance
costs and ad valorem taxes, offset by an increase in production taxes due to
increased oil and gas revenues.
During this period, G&A increased 21% from $6,995 in 1998 to $8,448 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $5,872 in
1999 and $5,659 in 1998 for G&A incurred on behalf of the Partnership.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $118,823 related to its oil and gas properties during 1998.
Depletion was $48,743 in 1999 compared to $108,077 in 1998, representing a
decrease of $59,334, or 55%. This decrease was the result of an increase in
proved reserves of 72,170 barrels of oil during 1999 as a result of higher
commodity prices and a reduction in the Partnership's net depletable basis from
charges taken in accordance with SFAS 121 during the fourth quarter of 1998.
Petroleum Industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
763
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $108,537 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $139,776 and a decline in working capital of $4,360,
offset by increases in production costs paid of $31,628 and G&A expenses paid of
$3,971. The increase in oil and gas receipts resulted from the increase in
commodity prices during 2000 which contributed an additional $203,232 to oil and
gas receipts, offset by $63,456 resulting from the decline in production during
2000. The increase in production costs was primarily due to increased production
taxes associated with higher oil and gas prices and well maintenance and
workover costs incurred to stimulate well production. The increase in G&A was
primarily due to higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues.
Net Cash Used in Investing Activities
The Partnership's principal investing activities during 2000 and 1999 included
expenditures related to equipment upgrades on several oil and gas properties.
Proceeds from asset dispositions of $76 received during 2000 were due to
equipment credits received on one fully depleted well.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $239,144, of which $2,391 was
distributed to the managing general partner and $236,753 to the limited
partners. In 1999, cash distributions to the partners were $96,923, of which
$969 was distributed to the managing general partner and $95,954 to the limited
partners.
764
PARKER & PARSLEY 88-A CONV., L.P.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 89,122 $ 418,514 $ 280,717 $ 227,119 $ 339,522 $ 413,924
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ -- $ -- $ 118,823 $ 205,188 $ --
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 36,088 $ 219,454 $ 96,956 $ (151,134) $ (97,307) $ 175,901
======== ========== ========== ========== ========== ========== ==========
Allocation of net
income (loss):
Managing general
partner $ $ 361 $ 2,195 $ 970 $ (1,511) $ (973) $ 1,759
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 35,727 $ 217,259 $ 95,986 $ (149,623) $ (96,334) $ 174,142
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 9.42 $ 57.28 $ 25.31 $ (39.45) $ (25.40) $ 45.91
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 12.48 $ 62.42 $ 25.30 $ 27.90 $ 50.68 $ 57.12
======== ========== ========== ========== ========== ========== ==========
At year end:
Total assets $ $ 593,214 $ 583,027 $ 603,973 $ 602,478 $ 864,838 $1,154,160
======== ========== ========== ========== ========== ========== ==========
765
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 88-A, L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
88-A, L.P., and supplements the proxy statement/prospectus dated , 2001, of
Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by
which Pioneer USA is soliciting proxies to be voted at a special meeting of
limited partners of the partnership. The purpose of the special meeting is for
you to vote upon the merger of the partnership with and into Pioneer USA that,
if completed, will result in your receiving common stock of Pioneer Natural
Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 88-A, L.P.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's quarterly report on Form 10-Q, including
management's discussion and analysis of financial condition and
results of operations, for the three months ended March 31, 2001
o The partnership's annual report on Form 10-K, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
766
PARKER & PARSLEY 88-A, L.P.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 12,935
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 13,961
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 3,051
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 239.09
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.78 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 151.23
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 216.95
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 232.84
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 142
(b), (c)
----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners. Although not
required by the partnership agreement, the opinion will also state that neither
the grant nor exercise of such right will result in the loss of any limited
partner's limited liability. In addition, the counsel designated to render the
opinion is not required to be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
767
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 FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 33-19659-01
PARKER & PARSLEY 88-A, L.P.
(Exact name of Registrant as specified in its charter)
DELAWARE 75-2225738
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039
---------------------------------------------------------------- ------------
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
-----------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES / X / 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / X /
No market currently exists for the limited partnership interests of the
Registrant. Based on the original purchase price, the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$12,762,000.
As of March 8, 2001, the number of outstanding limited partnership
interests was 12,935.
The following documents are incorporated by reference into the indicated parts
of this Annual Report on Form 10-K: None
PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACCORDINGLY, NO
ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS AND RESULTS WILL NOT BE
MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD
LOOKING STATEMENTS. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS
THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE
ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
768
PART I
ITEM 1. BUSINESS
Parker & Parsley 88-A, L.P. (the "Partnership") is a limited partnership
organized in 1988 under the laws of the State of Delaware. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company
("Pioneer"). As of March 8, 2001, the Partnership had 12,935 limited partnership
interests outstanding.
The Partnership does not have any employees of its own. Pioneer USA employs 701
persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this Report is filed. Pioneer
USA is responsible for all management functions.
The Partnership engages in oil and gas development and production and is not
involved in any industry segments other than oil and gas. The Partnership's
production is geographically concentrated in West Texas.
The principal markets during 2000 for the oil produced by the Partnership were
refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. During 2000, Pioneer USA marketed the
Partnership's gas to a variety of purchasers, none of which accounted for 10% or
more of the Partnership's oil and gas revenues. Of the Partnership's total oil
and gas revenues for 2000, approximately 54% was attributable to sales made to
Plains Marketing, L.P. Pioneer USA is of the opinion that the loss of any one
purchaser would not have an adverse effect on its ability to sell its oil,
natural gas liquids ("NGLs") and gas production.
The Partnership's revenues, profitability, cash flow and future rate of growth
are highly dependent on the prevailing prices of oil and gas, which are affected
by numerous factors beyond the Partnership's control. Oil and gas prices
historically have been very volatile. A substantial or extended decline in the
prices of oil or gas could have a material adverse effect on the Partnership's
revenues, profitability and cash flow and could, under certain circumstances,
result in a reduction in the carrying value of the Partnership's oil and gas
properties.
Oil and gas production operations are subject to various types of regulations by
local, state and federal agencies. The Partnership's operations are also subject
to state conservation laws and regulations, including the establishment of
maximum rates of production from wells and the regulation of spacing, plugging
and abandonment of wells. Each state generally imposes a production or severance
tax with respect to production and sale of oil and gas within their respective
jurisdictions. Noncompliance with the laws and regulations may subject the
Partnership to penalties, damages or other liabilities and compliance may
increase the cost of the Partnership's operations.
The oil and gas business is also subject to environmental hazards such as oil
spills, gas leaks and
2
769
ruptures and discharges of toxic substances or gases that could expose the
Partnership to substantial liability due to pollution and other environmental
damages. Although the Partnership believes that its business operations do not
impair environmental quality and that its costs of complying with any applicable
environmental regulations are not currently significant, the Partnership cannot
predict what, if any, effect these environmental regulations may have on its
current or future operations.
Numerous uncertainties exist in estimating quantities of proved reserves and
future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the Partnership
conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist of leasehold 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 in
the Spraberry Trend area of West Texas were acquired by the Partnership,
resulting in the Partnership's participation in the drilling of 40 oil and gas
wells. At December 31, 2000, 39 wells were producing with one well plugged and
abandoned.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 2000, 1999 and 1998, and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been evaluated by Williamson Petroleum Consultants, Inc., an independent
petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer USA believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the partners during the fourth
quarter of 2000.
3
770
PART II
ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP
DISTRIBUTIONS
At March 8, 2001, the Partnership had 12,935 outstanding limited partnership
interests held of record by 981 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are not
required to meet the Partnership's obligations, are distributed to the partners
at least quarterly in accordance with the limited partnership agreement. During
the years ended December 31, 2000 and 1999, $807,385 and $327,220, respectively,
of such revenue-related distributions were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
2000 1999 1998 1997 1996
----------- ---------- ---------- ---------- ----------
Operating results:
-----------------
Oil and gas sales $ 1,428,374 $ 957,278 $ 774,533 $ 1,157,862 $ 1,411,568
========== ========= ========== ========== ==========
Impairment of oil and
gas properties $ - $ - $ 405,308 $ 699,976 $ -
========== ========= ========== ========= ==========
Net income (loss) $ 749,290 $ 331,033 $ (514,812) $ (331,171) $ 600,634
========== ========= ========== ========= ==========
Allocation of net income
(loss):
Managing general partner $ 7,493 $ 3,310 $ (5,148) $ (3,312) $ 6,006
========== ========= ========== ========= ==========
Limited partners $ 741,797 $ 327,723 $ (509,664) $ (327,859) $ 594,628
========== ========= ========== ========= ==========
Limited partners' net
income (loss) per limited
partnership interest $ 57.35 $ 25.34 $ (39.40) $ (25.35) $ 45.97
========== ========= ========== ========= ==========
Limited partners' cash
distributions per limited
partnership interest $ 62.42 $ 25.30 $ 27.90 $ 50.68 $ 57.12
========== ========= ========== ========= =========
At year end:
-----------
Identifiable assets $ 1,994,828 $ 2,065,363 $ 2,059,502 $ 2,953,618 $3,940,216
========== ========== ========== ========== =========
4
771
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 49% to $1,428,374 for 2000 as
compared to $957,278 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decrease in production. In 2000, 32,063
barrels of oil, 17,745 barrels of natural gas liquids ("NGLs") and 72,965 mcf of
gas were sold, or 61,969 barrel of oil equivalents ("BOEs"). In 1999, 34,020
barrels of oil, 24,121 barrels of NGLs and 93,498 mcf of gas were sold, or
73,724 BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.37, or 73%, from
$16.91 in 1999 to $29.28 in 2000. The average price received per barrel of NGLs
increased $6.00, or 65%, from $9.30 in 1999 to $15.30 in 2000. The average price
received per mcf of gas increased 77% from $1.69 in 1999 to $2.99 in 2000. The
market price for oil and gas has been extremely volatile in the past decade and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
Gain on disposition of assets of $259 was recognized in 2000 resulting from
equipment credits received on one fully depleted well.
Total costs and expenses increased in 2000 to $695,576 as compared to $635,628
in 1999, an increase of $59,948, or 9%. The increase was primarily due to
increases in production costs and general and administrative expenses ("G&A"),
offset by a decline in depletion.
Production costs were $548,561 in 2000 and $440,670 in 1999, resulting in an
increase of $107,891, or 24%. The increase was primarily due to additional well
maintenance costs incurred to stimulate well production and higher production
taxes associated with higher oil and gas prices.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
50% from $28,692 in 1999 to $42,987 in 2000 primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 3% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $37,340 in 2000 and $20,027 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
Depletion was $104,028 in 2000 as compared to $166,266 in 1999, representing a
decrease of $62,238, or 37%. This decrease was primarily due to a 45,809 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
prices.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 24% to $957,278 from
$774,533 in 1998.
5
772
The increase in revenues resulted from higher average prices received and an
increase in production. In 1999, 34,020 barrels of oil, 24,121 barrels of NGLs
and 93,498 mcf of gas were sold, or 73,724 BOEs. In 1998, 37,135 barrels of oil,
20,500 barrels of NGLs and 86,501 mcf of gas were sold, or 72,052 BOEs.
The average price received per barrel of oil increased $3.32, or 24%, from
$13.59 in 1998 to $16.91 in 1999. The average price received per barrel of NGLs
increased $2.73, or 42%, from $6.57 in 1998 to $9.30 in 1999. The average price
received per mcf of gas increased 8% from $1.56 in 1998 to $1.69 in 1999.
A gain on disposition of assets of $6,393 was recognized in 1998 for credits
received from the disposal of oil and gas equipment on a fully depleted well.
Total costs and expenses decreased in 1999 to $635,628 as compared to $1,306,368
in 1998, a decrease of $670,740, or 51%. The decrease was primarily due to
declines in the impairment of oil and gas properties, depletion and production
costs, offset by an increase in G&A expenses.
Production costs were $440,670 in 1999 and $508,919 in 1998, resulting in a
$68,249 decrease, or 13%. The decrease was due to reductions in well maintenance
costs and ad valorem taxes, offset by an increase in production taxes due to
increased oil and gas revenues.
During this period, G&A increased 22% from $23,611 in 1998 to $28,692 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $20,027 in
1999 and $19,297 in 1998 for G&A incurred on behalf of the Partnership.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $405,308 related to its oil and gas properties during 1998.
Depletion was $166,266 in 1999 compared to $368,530 in 1998, representing a
decrease of $202,264, or 55%. This decrease was the result of an increase in
proved reserves of 246,048 barrels of oil during 1999 as a result of higher
commodity prices and a reduction in the Partnership's net depletable basis from
charges taken in accordance with SFAS 121 during the fourth quarter of 1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but
6
773
to a lesser extent, market prices for natural gas declined. During 1999 and
2000, the Organization of Petroleum Exporting Countries ("OPEC") and certain
other crude oil exporting nations announced reductions in their planned export
volumes. Those announcements, together with the enactment of the announced
reductions in export volumes, had a positive impact on world oil prices, as have
overall natural gas supply and demand fundamentals on North American natural gas
prices. Although the favorable commodity price environment and stable field
service cost environment is expected to continue during 2001, there is no
assurance that commodity prices will not return to a less favorable level or
that field service costs will not escalate in the future, both of which could
negatively impact the Partnership's future results of operations and cash
distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $401,553 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $477,946 and a decline in working capital of $45,793,
offset by increases in production costs paid of $107,891 and G&A expenses paid
of $14,295. The increase in oil and gas receipts resulted from the increase in
commodity prices during 2000 which contributed an additional $694,183 to oil and
gas receipts, offset by $216,237 resulting from the decline in production during
2000. The increase in production costs was primarily due to increased production
taxes associated with higher oil and gas prices and well maintenance and
workover costs incurred to stimulate well production. The increase in G&A was
primarily due to higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues.
Net Cash Used in Investing Activities
The Partnership's investing activities during 2000 and 1999 were related to
expenditures for oil and gas equipment upgrades on active properties.
Proceeds from asset dispositions of $259 received in 2000 were due to equipment
credits received on one fully depleted well.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $815,540, of which $8,155 was
distributed to the managing general partner and $807,385 to the limited
partners. In 1999, cash distributions to the partners were $330,525, of which
$3,305 was distributed to the managing general partner and $327,220 to the
limited partners.
7
774
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements of Parker & Parsley 88-A, L.P.:
Independent Auditors' Report...................................................... 9
Balance Sheets as of December 31, 2000 and 1999................................... 10
Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998............................................................. 11
Statements of Partners' Capital for the Years Ended
December 31, 2000, 1999 and 1998................................................ 12
Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998............................................................. 13
Notes to Financial Statements..................................................... 14
8
775
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 88-A, L.P.
(A Delaware Limited Partnership):
We have audited the balance sheets of Parker & Parsley 88-A, L.P. as of December
31, 2000 and 1999, and the related statements of operations, partners' capital
and cash flows for each of the three years in the period ended December 31,
2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 88-A, L.P. as
of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
9
776
PARKER & PARSLEY 88-A, L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
---------- ----------
ASSETS
------
Current assets:
Cash $ 193,491 $ 215,801
Accounts receivable - oil and gas sales 224,465 177,635
---------- ----------
Total current assets 417,956 393,436
---------- ----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 10,111,281 10,102,308
Accumulated depletion (8,534,409) (8,430,381)
---------- ----------
Net oil and gas properties 1,576,872 1,671,927
---------- ----------
$ 1,994,828 $ 2,065,363
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 18,724 $ 23,009
Partners' capital:
Managing general partner 20,003 20,665
Limited partners (12,935 interests) 1,956,101 2,021,689
---------- ----------
1,976,104 2,042,354
---------- ----------
$ 1,994,828 $ 2,065,363
========== ==========
The accompanying notes are an integral part of these financial statements.
10
777
PARKER & PARSLEY 88-A, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
-------- -------- --------
Revenues:
Oil and gas $1,428,374 $ 957,278 $ 774,533
Interest 16,233 9,383 10,531
Gain on disposition of assets 259 - 6,393
Other - - 99
--------- --------- ---------
1,444,866 966,661 791,556
--------- --------- ---------
Costs and expenses:
Oil and gas production 548,561 440,670 508,919
General and administrative 42,987 28,692 23,611
Impairment of oil and gas properties - - 405,308
Depletion 104,028 166,266 368,530
--------- --------- ---------
695,576 635,628 1,306,368
--------- --------- ---------
Net income (loss) $ 749,290 $ 331,033 $ (514,812)
========= ========= =========
Allocation of net income (loss):
Managing general partner $ 7,493 $ 3,310 $ (5,148)
========= ========= =========
Limited partners $ 741,797 $ 327,723 $ (509,664)
========= ========= =========
Net income (loss) per limited partnership
interest $ 57.35 $ 25.34 $ (39.40)
========= ========= =========
The accompanying notes are an integral part of these financial statements.
11
778
PARKER & PARSLEY 88-A, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
-------- ---------- ----------
Partners' capital at January 1, 1998 $ 29,454 $ 2,891,783 $ 2,921,237
Distributions (3,646) (360,933) (364,579)
Net loss (5,148) (509,664) (514,812)
-------- ---------- ----------
Partners' capital at December 31, 1998 20,660 2,021,186 2,041,846
Distributions (3,305) (327,220) (330,525)
Net income 3,310 327,723 331,033
-------- ---------- ----------
Partners' capital at December 31, 1999 20,665 2,021,689 2,042,354
Distributions (8,155) (807,385) (815,540)
Net income 7,493 741,797 749,290
-------- ---------- ----------
Partners' capital at December 31, 2000 $ 20,003 $ 1,956,101 $ 1,976,104
======== ========== ==========
The accompanying notes are an integral part of these financial statements.
12
779
PARKER & PARSLEY 88-A, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
-------- --------- --------
Cash flows from operating activities:
Net income (loss) $ 749,290 $ 331,033 $(514,812)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties - - 405,308
Depletion 104,028 166,266 368,530
Gain on disposition of assets (259) - (6,393)
Changes in assets and liabilities:
Accounts receivable (46,830) (102,261) 78,333
Accounts payable (4,285) 5,353 (14,725)
-------- --------- --------
Net cash provided by operating activities 801,944 400,391 316,241
-------- --------- --------
Cash flows from investing activities:
Additions to oil and gas properties (8,973) (11,847) (17,362)
Proceeds from asset dispositions 259 - 16,559
-------- --------- --------
Net cash used in investing activities (8,714) (11,847) (803)
-------- --------- --------
Cash flows used in financing activities:
Cash distributions to partners (815,540) (330,525) (364,579)
-------- --------- --------
Net increase (decrease) in cash (22,310) 58,019 (49,141)
Cash at beginning of year 215,801 157,782 206,923
-------- --------- --------
Cash at end of year $ 193,491 $ 215,801 $ 157,782
======== ========= ========
The accompanying notes are an integral part of these financial statements.
13
780
PARKER & PARSLEY 88-A, L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 88-A, L.P. (the "Partnership") is a limited partnership
organized in 1988 under the laws of the State of Delaware. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in Texas
and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements - Preparation
of the accompanying 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 periods.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
14
781
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative expenses
are allocated in part to the Partnership by the managing general partner.
Allocated expenses are determined by the managing general partner based upon the
level of activity of the Partnership relative to the non-partnership activities
of the managing general partner. The method of allocation has been consistent
over the past several years with certain modifications incorporated to reflect
changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and gas
properties for impairment whenever events and circumstances indicate a decline
in the recoverability of the carrying value of the Partnership's oil and gas
properties. The Partnership has estimated the expected future cash flows of its
oil and gas properties as of December 31, 2000, 1999 and 1998, based on proved
reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized a non-cash impairment provision of $405,308 related to
its proved oil and gas properties during 1998.
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $267,761 greater than the tax basis at December 31, 2000.
15
782
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
-------- -------- ---------
Net income (loss) per statements of operations $ 749,290 $ 331,033 $ (514,812)
Depletion and depreciation for tax reporting
purposes less than provisions for financial
reporting purposes 92,722 154,558 357,942
Impairment of oil and gas properties for financial
reporting purposes - - 405,308
Other, net (2,176) (2,693) 13,320
-------- -------- ---------
Net income per Federal income tax
returns $ 839,836 $ 482,898 $ 261,758
======== ======== =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
-------- --------- --------
Development costs $ 8,973 $ 11,847 $ 17,362
======== ========= ========
Capitalized oil and gas properties consist of the following:
2000 1999
---------- ----------
Proved properties:
Property acquisition costs $ 490,279 $ 490,279
Completed wells and equipment 9,621,002 9,612,029
---------- ----------
10,111,281 10,102,308
Accumulated depletion (8,534,409) (8,430,381)
---------- ----------
Net oil and gas properties $ 1,576,872 $ 1,671,927
========== ==========
16
783
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
--------- ---------- ---------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 221,084 $ 211,623 $ 215,684
Reimbursement of general and administrative
expenses $ 37,340 $ 20,027 $ 19,297
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
Parker & Parsley 88-A Conv., L.P. and the Partnership (the "Partnerships") are
parties to the Program agreement.
The costs and revenues of the Program are allocated to Pioneer USA and the
Partnerships as follows:
Pioneer USA (1) Partnerships (2)
---------------- ----------------
Revenues:
Proceeds from disposition of depreciable properties 9.09091% 90.90909%
All other revenues 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion
costs and all other costs 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated
at the Partnership level and 173 limited partner interests owned by
Pioneer USA.
(2) The allocation between the Partnership and Parker & Parsley 88-A
Conv., L.P. is 77.325442% and 22.674558%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
17
784
Oil and NGLs Gas
(bbls) (mcf)
------------- -----------
Net proved reserves at January 1, 1998 836,39 1,245,602
Revisions (307,084) (307,863)
Production (57,635) (86,501)
------------- -----------
Net proved reserves at December 31, 1998 471,675 851,238
Revisions 402,731 693,436
Production (58,141) (93,498)
------------- -----------
Net proved reserves at December 31, 1999 816,265 1,451,176
Revisions 10,578 (296,099)
Production (49,808) (72,965)
------------- -----------
Net proved reserves at December 31, 2000 777,035 1,082,112
============= ===========
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $12.95 per barrel of NGLs and $7.75 per mcf of gas,
discounted at 10% was approximately $5,875,000 and undiscounted was $11,988,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
------------------------------------
2000 1999 1998
--------- --------- ---------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 25,247 $ 20,115 $ 5,153
Future production costs (13,258) (11,289) (3,707)
--------- --------- ---------
11,989 8,826 1,446
10% annual discount factor (6,114) (4,222) (550)
--------- --------- ---------
Standardized measure of discounted future net cash flows $ 5,875 $ 4,604 $ 896
========= ========= ========
18
785
For the years ended December 31,
------------------------------------
2000 1999 1998
--------- ---------- ---------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (880) $ (517) $ (266)
Net changes in prices and production costs 2,367 2,244 (2,296)
Revisions of estimated future development costs - - (237)
Revisions of previous quantity estimates (253) 2,680 (474)
Accretion of discount 460 89 355
Changes in production rates, timing and other (423) (788) 269
--------- ---------- ---------
Change in present value of future net revenues 1,271 3,708 (2,649)
--------- ---------- ---------
Balance, beginning of year 4,604 896 3,545
--------- ---------- ---------
Balance, end of year $ 5,875 $ 4,604 $ 896
========= ========== =========
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 54% 50% -
NGTS LLC 9% 10% 3%
Genesis Crude Oil, L.P. - - 55%
Western Gas Resources, Inc. 3% 6% 22%
At December 31, 2000, the amount receivable from Plains Marketing, L.P.
was $74,114, which is included in the caption "Accounts receivable - oil and gas
sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would not
have an adverse effect on the ability of the Partnership to sell its oil, NGLs
and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of the
limited partnership agreement:
Managing general partner - The managing general partner of the Partnership
is Pioneer USA. Pioneer USA has the power and authority to manage, control
and administer all Program and Partnership affairs. As managing general
partner and operator of the Partnership's properties, all production
expenses are incurred by Pioneer USA and billed to the Partnership. The
majority of the Partnership's oil and gas revenues are received directly
by the Partnership, however, a portion of the oil and gas revenue is
initially received by Pioneer USA prior to being paid to the Partnership.
Under the limited partnership agreement, the managing general
19
786
partner pays 1% of the Partnership's acquisition, drilling and completion
costs and 1% of its operating and general and administrative expenses. In
return, it is allocated 1% of the Partnership's revenues.
Limited partner liability - The maximum amount of liability of any limited
partner is the total contributions of such partner plus his share of any
undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of
$12,935,000. Pioneer USA is required to contribute amounts equal to 1% of
initial Partnership capital less commission and offering expenses
allocated to the limited partners and to contribute amounts necessary to
pay costs and expenses allocated to it under the Partnership agreement to
the extent its share of revenues does not cover such costs.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
20
787
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and executive
officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the
next annual meeting of stockholders or until their successors are elected and
qualified.
Age at
December 31,
Name 2000 Position
---- ---- --------
Scott D. Sheffield 48 President
Timothy L. Dove 44 Executive Vice President, Chief
Financial Officer and Director
Dennis E. Fagerstone 51 Executive Vice President and Director
Mark L. Withrow 53 Executive Vice President, General
Counsel and Director
Danny Kellum 46 Executive Vice President - Domestic
Operations and Director
Rich Dealy 34 Vice President and Chief Accounting
Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas
with a B.S. in Petroleum Engineering. Since August 1997, he has served as
President, Chief Executive Officer and a director of Pioneer and President of
Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of
Pioneer in August 1999. He served as a director of Pioneer USA from August 1997
until his resignation from the board in June 1999. Mr. Sheffield was the
President and a director of Parker & Parsley Petroleum Company ("Parker &
Parsley") from May 1990 until August 1997 and was the Chairman of the Board and
Chief Executive Officer of Parker & Parsley from October 1990 until August 1997.
He was the sole director of Parker & Parsley from May 1990 until October 1990.
Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a
predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as
Vice President - Engineering of PPDC from September 1981 until April 1985 when
he was elected President and a director. In March 1989, Mr. Sheffield was
elected Chairman of the Board and Chief Executive Officer of PPDC. Before
joining PPDC's predecessor, Mr. Sheffield was employed as a production and
reservoir engineer for Amoco Production Company.
21
788
Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from
Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981
from the University of Chicago. He became Executive Vice President - Business
Development of Pioneer and Pioneer USA in August 1997 and was also appointed a
director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief
Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr.
Dove joined Parker & Parsley in May 1994 as Vice President - International and
was promoted to Senior Vice President - Business Development in October 1996, in
which position he served until August 1997. Prior to joining Parker & Parsley,
Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus
Energy Corp, in various capacities in international exploration and production,
marketing, refining and marketing and planning and development.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997.
From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice
President and Chief Operating Officer of Mesa and from May 1991 to October 1996,
he served as Vice President - Exploration and Production of Mesa. From June 1988
to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President - General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979, was elected Executive
Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000
and Director of Pioneer USA on February 1, 2000. From January 2000 until May
2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and
Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and
Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served
as Spraberry District Manager and as Vice President of the Spraberry and Permian
Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker &
Parsley as an operations engineer in 1981 after a brief career with Mobil Oil
Corporation.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with
a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He
became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
22
789
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is performed by Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA pays approximately 10% of the Program's acquisition,
drilling and completion costs and approximately 25% of its operating and general
and administrative expenses. In return, Pioneer USA is allocated approximately
25% of the Program's revenues.
The Partnership does not directly pay any salaries of the executive officers of
Pioneer USA, but does pay a portion of Pioneer USA's general and administrative
expenses of which these salaries are a part.
See Notes 6 and 9 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" for information regarding fees and
reimbursements paid to the managing general partner by the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more of
the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 173 limited partner interests at January 1, 2001.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general
partner of the Partnership, Pioneer USA, has the exclusive right and full
authority to manage, control and administer the Partnership's business. Under
the limited partnership agreement, limited partners holding a majority of the
outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
23
790
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner
Pursuant to the limited partnership agreement, the Partnership had the following
related party transactions with the managing general partner during the years
ended December 31:
2000 1999 1998
--------- --------- ---------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 221,084 $ 211,623 $ 215,684
Reimbursement of general and administrative
expenses $ 37,340 $ 20,027 $ 19,297
Under the limited partnership agreement, the managing general partner pays 1% of
the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
24
791
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial statements
The following are filed as part of this Report:
Independent Auditors' Report
Balance sheets as of December 31, 2000 and 1999
Statements of operations for the years ended December 31,
2000, 1999 and 1998
Statements of partners' capital for the years ended December
31, 2000, 1999 and 1998
Statements of cash flows for the years ended December 31, 2000,
1999 and 1998
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this Report.
25
792
S I G N A T U R E S
Pursuant to the requirements 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.
PARKER & PARSLEY 88-A, L.P.
Dated: March 23, 2001 By: Pioneer Natural Resources USA, Inc.
Managing General Partner
By: /s/ Scott D. Sheffield
-------------------------------
Scott D. Sheffield, President
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/ Scott D. Sheffield President of Pioneer USA March 23, 2001
-------------------------------
Scott D. Sheffield
/s/ Timothy L. Dove Executive Vice President, Chief March 23, 2001
------------------------------- Financial Officer and Director of
Timothy L. Dove Pioneer USA
/s/ Dennis E. Fagerstone Executive Vice President and March 23, 2001
------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ Mark L. Withrow Executive Vice President, General March 23, 2001
------------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ Danny Kellum Executive Vice President - Domestic March 23, 2001
------------------------------- Operations and Director of Pioneer
Danny Kellum USA
/s/ Rich Dealy Vice President and Chief Accounting March 23, 2001
------------------------------- Officer of Pioneer USA
Rich Dealy
26
793
PARKER & PARSLEY 88-A, L.P.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
Exhibit No. Description Page
----------- ----------- ----
3(a) Amended and Restated Certificate and -
Agreement of Limited Partnership of
Parker & Parsley 88-A, L.P. incorporated
by reference to Exhibit A of Amendment
No. 1 of the Partnership's Registration
Statement on Form S-1 (Registration No.
33-19659)
4(b) Form of Subscription Agreement and -
Power of Attorney incorporated by reference
to Exhibit D of the Partnership's Registration
Statement on Form S-1 (Registration No.
33-19659) (hereinafter called the Partnership's
Registration Statement)
4(c) Specimen Certificate of Limited Partnership -
Interest incorporated by reference to Exhibit
D of the Partnership's Registration Statement
10(b) Exploration and Development Program -
Agreement incorporated by reference to
Exhibit C of the Partnership's Registration
Statement
27
794
PARKER & PARSLEY 88-A, L.P.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 304,068 $1,428,374 $ 957,278 $ 774,533 $1,157,862 $1,411,568
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ -- $ -- $ 405,308 $ 699,976 $ --
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 123,463 $ 749,290 $ 331,033 $ (514,812) $ (331,171) $ 600,634
======== ========== ========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general
partner $ $ 1,235 $ 7,493 $ 3,310 $ (5,148) $ (3,312) $ 6,006
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 122,228 $ 741,797 $ 327,723 $ (509,664) $ (327,859) $ 594,628
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 9.45 $ 57.35 $ 25.34 $ (39.40) $ (25.35) $ 45.97
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 12.48 $ 62.42 $ 25.30 $ 27.90 $ 50.68 $ 57.12
======== ========== ========== ========== ========== ========== ==========
At year end:
Identifiable assets $ $2,029,249 $1,994,828 $2,065,363 $2,059,502 $2,953,618 $3,940,216
======== ========== ========== ========== ========== ========== ==========
795
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 88-B CONV., L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
88-B Conv., L.P., and supplements the proxy statement/prospectus dated ,
2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA,
Inc., by which Pioneer USA is soliciting proxies to be voted at a special
meeting of limited partners of the partnership. The purpose of the special
meeting is for you to vote upon the merger of the partnership with and into
Pioneer USA that, if completed, will result in your receiving common stock of
Pioneer Natural Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 88-B Conv., L.P.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the three months ended March 31, 2001
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
796
PARKER & PARSLEY 88-B CONV., L.P.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 3,636
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 3,935
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 1,119
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 309.52
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.54 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 144.77
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 281.51
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 301.31
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 145
(b), (c)
-----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners. Although not
required by the partnership agreement, the opinion will also state that neither
the grant nor exercise of such right will result in the loss of any limited
partner's limited liability. In addition, the counsel designated to render the
opinion is not required to be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
797
PARKER & PARSLEY 88-B CONV., L.P.
(A Delaware Limited Partnership)
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT
December 31, 2000 and 1999
798
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 88-B Conv., L.P.
(A Delaware Limited Partnership):
We have audited the balance sheets of Parker & Parsley 88-B Conv., L.P. as of
December 31, 2000 and 1999, and the related statements of operations, partners'
capital and cash flows for each of the three years in the period ended December
31, 2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 88-B Conv.,
L.P. as of December 31, 2000 and 1999, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
2
799
PARKER & PARSLEY 88-B CONV., L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
-------------- --------------
ASSETS
------
Current assets:
Cash $ 58,050 $ 59,846
Accounts receivable - oil and gas sales 80,619 47,842
----------- -----------
Total current assets 138,669 107,688
----------- -----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 2,824,029 2,894,900
Accumulated depletion (2,424,313) (2,470,345)
----------- -----------
Net oil and gas properties 399,716 424,555
----------- -----------
$ 538,385 $ 532,243
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 6,684 $ 8,672
Partners' capital:
Managing general partner 5,308 5,227
Limited partners (3,636 interests) 526,393 518,344
----------- -----------
531,701 523,571
----------- -----------
$ 538,385 $ 532,243
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
800
PARKER & PARSLEY 88-B CONV., L.P.
(A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
----------- ----------- -----------
Revenues:
Oil and gas $ 535,228 $ 291,390 $ 234,942
Interest 5,043 2,697 3,084
Gain on disposition of assets 7,186 - 63
---------- ---------- ----------
547,457 294,087 238,089
---------- ---------- ----------
Costs and expenses:
Oil and gas production 174,071 146,805 158,704
General and administrative 15,875 8,615 7,091
Impairment of oil and gas properties - - 156,111
Depletion 27,450 42,399 114,895
Abandoned property 2,755 - -
---------- ---------- ----------
220,151 197,819 436,801
---------- ---------- ----------
Net income (loss) $ 327,306 $ 96,268 $ (198,712)
========== ========== ==========
Allocation of net income (loss):
Managing general partner $ 3,273 $ 963 $ (1,987)
========== ========== ==========
Limited partners $ 324,033 $ 95,305 $ (196,725)
========== ========== ==========
Net income (loss) per limited partnership interest $ 89.12 $ 26.21 $ (54.10)
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
4
801
PARKER & PARSLEY 88-B CONV., L.P.
(A Delaware Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
----------- ------------ -----------
Partners' capital at January 1, 1998 $ 8,195 $ 812,239 $ 820,434
Distributions (882) (87,329) (88,211)
Net loss (1,987) (196,725) (198,712)
---------- ----------- ----------
Partners' capital at December 31, 1998 5,326 528,185 533,511
Distributions (1,062) (105,146) (106,208)
Net income 963 95,305 96,268
---------- ----------- ----------
Partners' capital at December 31, 1999 5,227 518,344 523,571
Distributions (3,192) (315,984) (319,176)
Net income 3,273 324,033 327,306
---------- ----------- ----------
Partners' capital at December 31, 2000 $ 5,308 $ 526,393 $ 531,701
========== =========== ==========
The accompanying notes are an integral part of these financial statements.
5
802
PARKER & PARSLEY 88-B CONV., L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
------------ ----------- -----------
Cash flows from operating activities:
Net income (loss) $ 327,306 $ 96,268 $ (198,712)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties - - 156,111
Depletion 27,450 42,399 114,895
Gain on disposition of assets (7,186) - (63)
Changes in assets and liabilities:
Accounts receivable (32,777) (18,949) 10,720
Accounts payable (1,988) 1,575 (4,516)
----------- ---------- -----------
Net cash provided by operating activities 312,805 121,293 78,435
----------- ---------- -----------
Cash flows from investing activities:
Additions to oil and gas properties (2,611) (3,396) (6,118)
Proceeds from disposition of assets 7,186 4,369 63
----------- ---------- -----------
Net cash provided by (used in)
investing activities 4,575 973 (6,055)
----------- ---------- -----------
Cash flows used in financing activities:
Cash distributions to partners (319,176) (106,208) (88,211)
----------- ---------- -----------
Net increase (decrease) in cash (1,796) 16,058 (15,831)
Cash at beginning of year 59,846 43,788 59,619
----------- ---------- -----------
Cash at end of year $ 58,050 $ 59,846 $ 43,788
=========== ========== ===========
The accompanying notes are an integral part of these financial statements.
6
803
PARKER & PARSLEY 88-B CONV., L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 88-B Conv., L.P. (the "Partnership") was organized in
1988 as a general partnership under the laws of the State of Texas and was
converted to a Delaware limited partnership in 1989. The Partnership's managing
general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the unit-of-
production method on a property-by-property basis based on proved oil (dominant
mineral) reserves as evaluated by independent petroleum consultants. The
carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -
Preparation of the accompanying 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 periods. Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
7
804
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated in part to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non-partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized a non-cash impairment provision of $156,111 related to
its proved oil and gas properties during 1998.
8
805
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $30,771 greater than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
----------- ----------- -----------
Net income (loss) per statements of operations $ 327,306 $ 96,268 $ (198,712)
Depletion and depreciation provisions for tax reporting
purposes less than amounts for financial reporting
purposes 23,646 38,232 111,242
Impairment of oil and gas properties for financial
reporting purposes - - 156,111
Other, net (1,011) 3,526 477
---------- ---------- ----------
Net income per Federal income tax returns $ 349,941 $ 138,026 $ 69,118
========== ========== ==========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
----------- ----------- -----------
Development costs $ 2,611 $ 3,396 $ 6,118
========== ========== ==========
Capitalized oil and gas properties consist of the following:
2000 1999
------------- -------------
Proved properties:
Property acquisition costs $ 173,265 $ 178,368
Completed wells and equipment 2,650,764 2,716,532
------------ ------------
2,824,029 2,894,900
Accumulated depletion (2,424,313) (2,470,345)
------------ ------------
Net oil and gas properties $ 399,716 $ 424,555
============ ============
9
806
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
----------- ----------- -----------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 64,694 $ 63,771 $ 61,312
Reimbursement of general and administrative
expenses $ 13,920 $ 5,293 $ 5,608
The Partnership participates in oil and gas activities through an
income tax partnership (the "Program") pursuant to the Program agreement.
Pioneer USA, Parker & Parsley 88-B, L.P. and the Partnership (the
"Partnerships") are parties to the Program agreement.
The costs and revenues of the Program are allocated to Pioneer USA
and the Partnerships as follows:
Pioneer USA (1) Partnerships (2)
------------------- --------------------
Revenues:
Proceeds from disposition of depreciable
properties 9.09091% 90.90909%
All other revenues 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion
costs 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is
allocated at the Partnership level and 20 limited partner interests
owned by Pioneer USA.
(2) The allocation between the Partnership and Parker & Parsley 88-B,
L.P. is 28.880064% and 71.119936%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the
Partnership's reserves are proved developed and located within the United
States. The Partnership's reserves are based on an evaluation prepared by
Williamson Petroleum Consultants, Inc., an independent petroleum consultant,
using criteria established by the Securities and Exchange Commission.
Oil and NGLs Gas
(bbls) (mcf)
------------ ------------
Net proved reserves at January 1, 1998 214,797 248,651
Revisions (87,571) (74,562)
Production (17,610) (21,214)
------------ ------------
Net proved reserves at December 31, 1998 109,616 152,875
Revisions 152,579 224,938
Production (16,986) (23,221)
------------ ------------
Net proved reserves at December 31, 1999 245,209 354,592
Revisions 46,611 24,276
Production (18,572) (21,781)
------------ ------------
Net proved reserves at December 31, 2000 273,248 357,087
============ ============
10
807
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.59 per barrel of NGLs and $7.85 per mcf of gas,
discounted at 10% was approximately $2,098,000 and undiscounted was $4,398,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
---------------------------------------------
2000 1999 1998
------------ ------------ ------------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 8,963 $ 6,119 $ 1,201
Future production costs (4,565) (3,521) (930)
----------- ----------- -----------
4,398 2,598 271
10% annual discount factor (2,300) (1,240) (85)
----------- ----------- -----------
Standardized measure of discounted future net cash flows $ 2,098 $ 1,358 $ 186
=========== =========== ===========
11
808
For the years ended December 31,
---------------------------------------------
2000 1999 1998
------------ ------------- ------------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (361) $ (144) $ (76)
Net changes in prices and production costs 775 595 (519)
Revisions of previous quantity estimates 350 1,112 (114)
Accretion of discount 136 19 84
Changes in production rates, timing and other (160) (410) (31)
----------- ------------ -----------
Change in present value of future net revenues 740 1,172 (656)
----------- ------------ -----------
Balance, beginning of year 1,358 186 842
----------- ------------ -----------
Balance, end of year $ 2,098 $ 1,358 $ 186
=========== ============ ===========
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil and
gas sales (a major customer is defined as a customer whose sales exceed 10% of
total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 50% 44% -
Genesis Crude Oil, L.P. - - 49%
Western Gas Resources, Inc. 3% 5% 17%
At December 31, 2000, the amount receivable from Plains Marketing, L.P.
was $25,238 which is included in the caption "Accounts receivable - oil and gas
sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the Partnership agreement:
Managing general partner - The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Program and Partnership affairs. As
managing general partner and operator of the Partnership's properties,
all production expenses are incurred by Pioneer USA and billed to the
Partnership. The majority of the Partnership's oil and gas revenues are
received directly by the Partnership, however, a portion of the oil and
gas revenue is initially received by Pioneer USA prior to being paid to
the Partnership. Under the limited partnership agreement, the managing
general partner pays 1% of the Partnership's acquisition, drilling and
completion costs and 1% of its operating and general and administrative
expenses. In return, it is allocated 1% of the Partnership's revenues.
12
809
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The partners entered into subscription
agreements for aggregate capital contributions of $3,636,000. Pioneer
USA is required to contribute amounts equal to 1% of initial Partnership
capital less commission and organization and offering costs allocated to
the limited partners and to contribute amounts necessary to pay costs
and expenses allocated to it under the Partnership agreement to the
extent its share of revenues does not cover such costs.
13
810
PARKER & PARSLEY 88-B CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACCORDINGLY, NO ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS
AND RESULTS WILL NOT BE MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS
DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 84% to $535,228 for 2000 as
compared to $291,390 in 1999. The increase in revenues resulted from higher
average prices received and an increase in production. In 2000, 13,209 barrels
of oil, 5,363 barrels of natural gas liquids ("NGLs") and 21,781 mcf of gas were
sold, or 22,202 barrel of oil equivalents ("BOEs"). In 1999, 11,400 barrels of
oil, 5,586 barrels of NGLs and 23,221 mcf of gas were sold, or 20,856 BOEs. Due
to the decline characteristics of the Partnership's oil and gas properties,
management expects a certain amount of decline in production in the future until
the Partnership's economically recoverable reserves are fully depleted.
The average price received per barrel of oil increased $12.12, or 71%, from
$17.17 in 1999 to $29.29 in 2000. The average price received per barrel of NGLs
increased $5.99, or 60%, from $10.03 in 1999 to $16.02 in 2000. The average
price received per mcf of gas increased 69% from $1.70 in 1999 to $2.87 in 2000.
The market price for oil and gas has been extremely volatile in the past decade,
and management expects a certain amount of volatility to continue in the
foreseeable future. The Partnership may therefore sell its future oil and gas
production at average prices lower or higher than that received in 2000.
Gain on disposition of assets of $7,186 was recognized during 2000. The gain was
comprised of $5,981 received from the sale of equipment on one well plugged and
abandoned during the current period and $1,205 from equipment credits received
on one fully depleted well.
Total costs and expenses increased in 2000 to $220,151 as compared to $197,819
in 1999, an increase of $22,332, or 11%. The increase was due to increases in
production costs, general and administrative expenses ("G&A") and abandoned
property costs, offset by a decline in depletion.
Production costs were $174,071 in 2000 and $146,805 in 1999, resulting in a
$27,266 increase, or 19%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices and additional workover and well
maintenance costs incurred to stimulate well production.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
84% from $8,615 in 1999 to $15,875 in 2000, primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 3% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $13,920 in 2000 and $5,293 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
Depletion was $27,450 in 2000 as compared to $42,399 in 1999, representing a
decrease of $14,949, or 35%. This decrease was primarily due to a 35,962 barrels
of oil increase in proved reserves during 2000 due to higher commodity prices,
offset by an increase in oil production of 1,809 barrels for the period ended
December 31, 2000 compared to the same period in 1999.
Abandoned property costs of $2,755 were incurred during 2000 due to the plugging
and abandonment of one well during
811
the current period.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 24% to $291,390 from
$234,942 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 11,400 barrels of oil,
5,586 barrels of NGLs and 23,221 mcf of gas were sold, or 20,856 BOEs. In 1998,
12,653 barrels of oil, 4,957 barrels of NGLs and 21,214 mcf of gas were sold, or
21,146 BOEs.
The average price received per barrel of oil increased $3.93, or 30%, from
$13.24 in 1998 to $17.17 in 1999. The average price received per barrel of NGLs
increased $3.12, or 45%, from $6.91 in 1998 to $10.03 in 1999. The average price
received per mcf of gas increased 9% from $1.56 in 1998 to $1.70 in 1999.
Total costs and expenses decreased in 1999 to $197,819 as compared to $436,801
in 1998, a decrease of $238,982, or 55%. The decrease was primarily due to
declines in the impairment of oil and gas properties, depletion and production
costs, offset by an increase in G&A.
Production costs were $146,805 in 1999 and $158,704 in 1998, resulting in an
$11,899 decrease, or 7%. The decrease was due to declines in well maintenance
costs, workover costs and ad valorem taxes, offset by an increase in production
taxes due to increased oil and gas revenues.
During this period, G&A increased 21% from $7,091 in 1998 to $8,615 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $5,293 in
1999 and $5,608 in 1998 for G&A incurred on behalf of the Partnership.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $156,111 related to its oil and gas properties during 1998.
Depletion was $42,399 in 1999 compared to $114,895 in 1998, representing a
decrease of $72,496, or 63%. This decrease was the result of a combination of
factors that included an increase in proved reserves of 100,955 barrels of oil
during 1999 as a result of higher commodity prices, a reduction in the
Partnership's net depletable basis from charges taken in accordance with SFAS
121 during the fourth quarter of 1998 and a decline in oil production of 1,253
barrels for the period ended December 31, 1999 compared to the same period in
1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
812
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $191,512 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $246,184, offset by increases in production costs paid
of $27,266, G&A expenses paid of $7,260 abandoned property costs paid of $2,755
and working capital of $17,391. The increase in oil and gas receipts resulted
from the increase in commodity prices during 2000 which contributed an
additional $200,923 to oil and gas receipts and an increase of $45,261 resulting
from the increase in production during 2000. The increase in production costs
was primarily due to increased production taxes associated with higher oil and
gas prices and additional well maintenance and workover costs incurred to
stimulate well production. The increase in G&A was primarily due to higher
percentage of the managing general partner's G&A being allocated (limited to 3%
of oil and gas revenues) as a result of increased oil and gas revenues.
Net Cash Provided by (Used in) Investing Activities
The Partnership's principal investing activities during 2000 and 1999 were
related to equipment upgrades on active properties.
Proceeds from disposition of assets of $7,186 were recognized during 2000. The
proceeds were comprised of $5,981 received from the sale of equipment on one
well plugged and abandoned during the current period and $1,205 from equipment
credits received on one active well. Proceeds of $4,369 during 1999 were
primarily related to equipment dispositions on one oil and gas well that is
temporarily abandoned.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $319,176, of which $3,192 was
distributed to the managing general partner and $315,984 to the limited
partners. In 1999, cash distributions to the partners were $106,208, of which
$1,062 was distributed to the managing general partner and $105,146 to the
limited partners.
813
PARKER & PARSLEY 88-B CONV., L.P.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 117,117 $ 535,228 $ 291,390 $ 234,942 $ 329,125 $ 427,360
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ -- $ -- $ 156,111 $ 222,425 $ --
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 69,710 $ 327,306 $ 96,268 $ (198,712) $ (140,168) $ 161,450
======== ========== ========== ========== ========== ========== ==========
Allocation of net
income (loss):
Managing general
partner $ $ 697 $ 3,273 $ 963 $ (1,987) $ (1,402) $ 1,615
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 69,013 $ 324,033 $ 95,305 $ (196,725) $ (138,766) $ 159,835
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 18.98 $ 89.12 $ 26.21 $ (54.10) $ (38.16) $ 43.96
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 18.22 $ 86.90 $ 28.92 $ 24.02 $ 50.67 $ 54.12
======== ========== ========== ========== ========== ========== ==========
At year end:
Total assets $ $ 536,296 $ 538,385 $ 532,243 $ 540,608 $ 832,047 $1,155,784
======== ========== ========== ========== ========== ========== ==========
814
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 88-B, L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
88-B, L.P., and supplements the proxy statement/prospectus dated , 2001, of
Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by
which Pioneer USA is soliciting proxies to be voted at a special meeting of
limited partners of the partnership. The purpose of the special meeting is for
you to vote upon the merger of the partnership with and into Pioneer USA that,
if completed, will result in your receiving common stock of Pioneer Natural
Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 88-B, L.P.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's quarterly report on Form 10-Q, including
management's discussion and analysis of financial condition and
results of operations, for the three months ended March 31, 2001
o The partnership's annual report on Form 10-K, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
815
PARKER & PARSLEY 88-B, L.P.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 8,954
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 9,690
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 2,744
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 309.73
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.53 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 145.00
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 281.71
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 301.52
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 145
(b), (c)
----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners. Although not
required by the partnership agreement, the opinion will also state that neither
the grant nor exercise of such right will result in the loss of any limited
partner's limited liability. In addition, the counsel designated to render the
opinion is not required to be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
816
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 FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 33-19659-02
PARKER & PARSLEY 88-B, L.P.
(Exact name of Registrant as specified in its charter)
DELAWARE 75-2240121
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES /X/ 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
No market currently exists for the limited partnership interests of the
Registrant. Based on the original purchase price, the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$8,860,000.
As of March 8, 2001, the number of outstanding limited partnership
interests was 8,954.
The following documents are incorporated by reference into the indicated parts
of this Annual Report on Form 10-K: None
PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACCORDINGLY, NO
ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS AND RESULTS WILL NOT BE
MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD
LOOKING STATEMENTS. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS
THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE
ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
817
PART I
ITEM 1. BUSINESS
Parker & Parsley 88-B, L.P. (the "Partnership") is a limited partnership
organized in 1988 under the laws of the State of Delaware. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company
("Pioneer"). As of March 8, 2001, the Partnership had 8,954 limited partnership
interests outstanding.
The Partnership does not have any employees of its own. Pioneer USA employs 701
persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this Report is filed. Pioneer
USA is responsible for all management functions.
The Partnership engages in oil and gas development and production and is not
involved in any industry segment other than oil and gas. The Partnership's
production is geographically concentrated in West Texas.
The principal markets during 2000 for the oil produced by the Partnership were
refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. During 2000, Pioneer USA marketed the
Partnership's gas to a variety of purchasers, none of which accounted for 10% or
more of the Partnership's oil and gas revenues. Of the Partnership's total oil
and gas revenues for 2000, approximately 50% was attributable to sales made to
Plains Marketing, L.P. Pioneer USA is of the opinion that the loss of any one
purchaser would not have an adverse effect on its ability to sell its oil,
natural gas liquids ("NGLs") and gas production.
The Partnership's revenues, profitability, cash flow and future rate of growth
are highly dependent on the prevailing prices of oil and gas, which are affected
by numerous factors beyond the Partnership's control. Oil and gas prices
historically have been very volatile. A substantial or extended decline in the
prices of oil or gas could have a material adverse effect on the Partnership's
revenues, profitability and cash flow and could, under certain circumstances,
result in a reduction in the carrying value of the Partnership's oil and gas
properties.
Oil and gas production operations are subject to various types of regulations by
local, state and federal agencies. The Partnership's operations are also subject
to state conservation laws and regulations, including the establishment of
maximum rates of production from wells and the regulation of spacing, plugging
and abandonment of wells. Each state generally imposes a production or severance
tax with respect to production and sale of oil and gas within their respective
jurisdictions. Noncompliance with the laws and regulations may subject the
Partnership to penalties, damages or other liabilities and compliance may
increase the cost of the Partnership's operations.
The oil and gas business is also subject to environmental hazards such as oil
spills, gas leaks and ruptures and discharges of toxic substances or gases that
could expose the Partnership to substantial
2
818
liability due to pollution and other environmental damages. Although the
Partnership believes that its business operations do not impair environmental
quality and that its costs of complying with any applicable environmental
regulations are not currently significant, the Partnership cannot predict what,
if any, effect these environmental regulations may have on its current or future
operations.
Numerous uncertainties exist in estimating quantities of proved reserves and
future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the Partnership
conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist of leasehold 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 in
the Spraberry Trend area of West Texas were acquired by the Partnership,
resulting in the Partnership's participation in the drilling of 43 oil and gas
wells. Two wells have been plugged and abandoned. At December 31, 2000, 41 wells
were producing.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 2000, 1999 and 1998 and changes in such quantities for
the years then ended see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been evaluated by Williamson Petroleum Consultants, Inc., an independent
petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer USA believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the partners during the fourth
quarter of 2000.
3
819
PART II
ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP
DISTRIBUTIONS
At March 8, 2001, the Partnership had 8,954 outstanding limited partnership
interests held of record by 690 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are not
required to meet the Partnership's obligations are distributed to the partners
at least quarterly in accordance with the limited partnership agreement. During
the years ended December 31, 2000 and 1999, $778,145 and $258,933, respectively,
of such revenue-related distributions were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
Operating results:
------------------
Oil and gas sales $1,318,092 $ 717,449 $ 578,573 $ 810,500 $1,052,408
========== ========== ========== ========== ==========
Impairment of oil and gas
properties $ - $ - $ 383,951 $ 547,793 $ -
========== ========== ========== ========== ==========
Net income (loss) $ 805,539 $ 236,642 $ (488,631) $ (344,997) $ 397,674
========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general partner $ 8,055 $ 2,366 $ (4,887) $ (3,450) $ 3,977
========== ========== ========== ========== ==========
Limited partners $ 797,484 $ 234,276 $ (483,744) $ (341,547) $ 393,697
========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ 89.06 $ 26.16 $ (54.03) $ (38.14) $ 43.97
========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ 86.90 $ 28.92 $ 24.02 $ 50.67 $ 54.14
========== ========== ========== ========== ==========
At year end:
------------
Identifiable assets $1,327,803 $1,313,164 $1,334,302 $2,051,284 $2,848,468
========== ========== ========== ========== ==========
4
820
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 84% to $1,318,092 for 2000 as
compared to $717,449 in 1999. The increase in revenues resulted from higher
average prices received and an increase in production. In 2000, 32,524 barrels
of oil, 13,205 barrels of natural gas liquids ("NGLs") and 53,620 mcf of gas
were sold, or 54,666 barrel of oil equivalents ("BOEs"). In 1999, 28,078 barrels
of oil, 13,752 NGLs and 57,190 mcf of gas were sold, or 51,362 BOEs. Due to the
decline characteristics of the Partnership's oil and gas properties, management
expects a certain amount of decline in production in the future until the
Partnership's economically recoverable reserves are fully depleted.
The average price received per barrel of oil increased $12.12, or 71%, from
$17.17 in 1999 to $29.29 in 2000. The average price received per barrel of NGLs
increased $5.99, or 60%, from $10.03 in 1999 to $16.02 in 2000. The average
price received per mcf of gas increased 69% from $1.70 in 1999 to $2.87 in 2000.
The market price for oil and gas has been extremely volatile in the past decade
and management expects a certain amount of volatility to continue in the
foreseeable future. The Partnership may therefore sell its future oil and gas
production at average prices lower or higher than that received in 2000.
Gain on disposition of assets of $17,697 was recognized during 2000. The gain
was comprised of $14,729 received from the sale of equipment on one well plugged
and abandoned during the current period and $2,968 from equipment credits
received on one fully depleted well.
Total costs and expenses increased in 2000 to $542,703 as compared to $487,566
in 1999, an increase of $55,137, or 11%. The increase was due to increases in
production costs, general and administrative expenses ("G&A") and abandoned
property costs, offset by a decline in depletion.
Production costs were $428,633 in 2000 and $361,482 in 1999, resulting in an
increase of $67,151, or 19%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices and additional well maintenance
and workover costs incurred to stimulate well production.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
83% from $21,650 in 1999 to $39,725 in 2000 primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 3% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $34,281 in 2000 and $13,039 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
5
821
Depletion was $67,561 in 2000 as compared to $104,434 in 1999, representing a
decrease of $36,873, or 35%. This decrease was primarily due to a 88,489 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
prices, offset by an increase in oil production of 4,446 barrels for the period
ended December 31, 2000 compared to the same period in 1999.
Abandoned property costs of $6,784 incurred in 2000 were related to the plugging
and abandonment of one well during the current year.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 24% to $717,449 from
$578,573 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 28,078 barrels of oil,
13,752 barrels of NGLs and 57,190 mcf of gas were sold, or 51,362 BOEs. In 1998,
31,155 barrels of oil, 12,210 NGLs and 52,254 mcf of gas were sold, or 52,074
BOEs.
The average price received per barrel of oil increased $3.93, or 30%, from
$13.24 in 1998 to $17.17 in 1999. The average price received per barrel of NGLs
increased $3.12, or 45%, from $6.91 in 1998 to $10.03 in 1999. The average price
received per mcf of gas increased 9% from $1.56 in 1998 to $1.70 in 1999.
Total costs and expenses decreased in 1999 to $487,566 as compared to $1,075,163
in 1998, a decrease of $587,597, or 55%. The decrease was primarily due to
declines in the impairment of oil and gas properties, depletion and production
costs, offset by an increase in G&A.
Production costs were $361,482 in 1999 and $390,835 in 1998, resulting in a
$29,353 decrease, or 8%. The decrease was primarily due to declines in well
maintenance costs, workover costs and ad valorem taxes, offset by an increase in
production taxes due to increased oil and gas revenues.
During this period, G&A increased 25% from $17,315 in 1998 to $21,650 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $13,039 in
1999 and $13,810 in 1998 for G&A incurred on behalf of the Partnership.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $383,951 related to its oil and gas properties during 1998.
Depletion was $104,434 in 1999 compared to $283,062 in 1998. This represented a
decrease of $178,628, or 63%. This decrease was the result of a combination of
factors that included an increase in proved reserves of 248,642 barrels of oil
during 1999 as a result of higher commodity prices, a reduction in the
Partnership's net depletable basis from charges taken in accordance with SFAS
121 during the fourth quarter of 1998 and a decline in oil production of 3,077
barrels for the period ended
6
822
December 31, 1999 compared to the same period in 1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $512,129 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $606,337, offset by increases in production costs paid
of $67,151, G&A expenses paid of $18,075, abandoned property costs paid of
$6,784 and working capital of $2,198. The increase in oil and gas receipts
resulted from the increase in commodity prices during 2000 which contributed an
additional $495,153 to oil and gas receipts and an increase of $111,184
resulting from the increase in production during 2000. The increase in
production costs was primarily due to increased production taxes associated with
higher oil and gas prices and additional well maintenance and workover costs
incurred to stimulate well production. The increase in G&A was primarily due to
higher percentage of the managing general partner's G&A being allocated (limited
to 3% of oil and gas revenues) as a result of increased oil and gas revenues.
Net Cash Provided by (Used in) Investing Activities
The Partnership's investing activities during 2000 and 1999 were related to the
upgrades of oil and gas equipment on active properties.
Proceeds from disposition of assets of $17,697 were recognized during 2000. The
proceeds were comprised of $14,729 received from the sale of equipment on one
well plugged and abandoned during the current period and $2,968 from equipment
credits received on active wells. Proceeds of $10,758 recognized during 1999
were related to equipment disposals on one temporarily abandoned oil and gas
well.
Net Cash Used in Financing Activities
7
823
In 2000, cash distributions to the partners were $786,005, of which $7,860 was
distributed to the managing general partner and $778,145 to the limited
partners. In 1999, cash distributions to the partners were $261,548, of which
$2,615 was distributed to the managing general partner and $258,933 to the
limited partners.
8
824
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements of Parker & Parsley 88-B, L.P.:
Independent Auditors' Report......................................................... 10
Balance Sheets as of December 31, 2000 and 1999...................................... 11
Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998................................................................ 12
Statements of Partners' Capital for the Years Ended
December 31, 2000, 1999 and 1998................................................... 13
Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998................................................................ 14
Notes to Financial Statements........................................................ 15
9
825
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 88-B, L.P.
(A Delaware Limited Partnership):
We have audited the balance sheets of Parker & Parsley 88-B, L.P. as of December
31, 2000 and 1999, and the related statements of operations, partners' capital
and cash flows for each of the three years in the period ended December 31,
2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 88-B, L.P. as
of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
10
826
PARKER & PARSLEY 88-B, L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
----------- -----------
ASSETS
------
Current assets:
Cash $ 144,763 $ 129,430
Accounts receivable - oil and gas sales 198,467 138,030
----------- -----------
Total current assets 343,230 267,460
----------- -----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 6,954,545 7,129,071
Accumulated depletion (5,969,972) (6,083,367)
----------- -----------
Net oil and gas properties 984,573 1,045,704
----------- -----------
$ 1,327,803 $ 1,313,164
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 16,350 $ 21,245
Partners' capital:
Managing general partner 13,083 12,888
Limited partners (8,954 interests) 1,298,370 1,279,031
----------- -----------
1,311,453 1,291,919
----------- -----------
$ 1,327,803 $ 1,313,164
=========== ===========
The accompanying notes are an integral part of these financial statements.
11
827
PARKER & PARSLEY 88-B, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
---------- ---------- -----------
Revenues:
Oil and gas $1,318,092 $ 717,449 $ 578,573
Interest 12,453 6,759 7,803
Other - - 156
Gain on disposition of assets 17,697 - -
---------- ---------- -----------
1,348,242 724,208 586,532
---------- ---------- -----------
Costs and expenses:
Oil and gas production 428,633 361,482 390,835
General and administrative 39,725 21,650 17,315
Impairment of oil and gas properties - - 383,951
Depletion 67,561 104,434 283,062
Abandoned property 6,784 - -
---------- ---------- -----------
542,703 487,566 1,075,163
---------- ---------- -----------
Net income (loss) $ 805,539 $ 236,642 $ (488,631)
========== ========== ===========
Allocation of net income (loss):
Managing general partner $ 8,055 $ 2,366 $ (4,887)
========== ========== ===========
Limited partners $ 797,484 $ 234,276 $ (483,744)
========== ========== ===========
Net income (loss) per limited partnership interest $ 89.06 $ 26.16 $ (54.03)
========== ========== ===========
The accompanying notes are an integral part of these financial statements.
12
828
PARKER & PARSLEY 88-B, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
--------- ----------- -----------
Partners' capital at January 1, 1998 $ 20,196 $ 2,002,489 $ 2,022,685
Distributions (2,172) (215,057) (217,229)
Net loss (4,887) (483,744) (488,631)
-------- ----------- -----------
Partners' capital at December 31, 1998 13,137 1,303,688 1,316,825
Distributions (2,615) (258,933) (261,548)
Net income 2,366 234,276 236,642
-------- ----------- -----------
Partners' capital at December 31, 1999 12,888 1,279,031 1,291,919
Distributions (7,860) (778,145) (786,005)
Net income 8,055 797,484 805,539
-------- ----------- -----------
Partners' capital at December 31, 2000 $ 13,083 $ 1,298,370 $ 1,311,453
======== =========== ===========
The accompanying notes are an integral part of these financial statements.
13
829
PARKER & PARSLEY 88-B, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ 805,539 $ 236,642 $(488,631)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties - - 383,951
Depletion 67,561 104,434 283,062
Other - - (156)
Gain on disposition of assets (17,697) - -
Changes in assets and liabilities:
Accounts receivable (60,437) (66,902) 26,411
Accounts payable (4,895) 3,768 (11,122)
--------- --------- ---------
Net cash provided by operating activities 790,071 277,942 193,515
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties (6,430) (8,363) (15,067)
Proceeds from asset dispositions 17,697 10,758 156
--------- --------- ---------
Net cash provided by (used in)
investing activities 11,267 2,395 (14,911)
--------- --------- ---------
Cash flows from financing activities:
Cash distributions to partners (786,005) (261,548) (217,229)
--------- --------- ---------
Net increase (decrease) in cash 15,333 18,789 (38,625)
Cash at beginning of year 129,430 110,641 149,266
--------- --------- ---------
Cash at end of year $ 144,763 $ 129,430 $ 110,641
========= ========= =========
The accompanying notes are an integral part of these financial statements.
14
830
PARKER & PARSLEY 88-B, L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 88-B, L.P. (the "Partnership") is a limited partnership
organized in 1988 under the laws of the State of Delaware. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in Texas
and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements - Preparation
of the accompanying 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 periods.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the
15
831
respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative expenses
are allocated in part to the Partnership by the managing general partner.
Allocated expenses are determined by the managing general partner based upon the
level of activity of the Partnership relative to the non-partnership activities
of the managing general partner. The method of allocation been consistent over
the past several years with certain modifications incorporated to reflect
changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized a non-cash impairment provision of $383,951 related to
its proved oil and gas properties during 1998.
16
832
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $77,883 greater than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
--------- -------- ---------
Net income (loss) per statements of operations $ 805,539 $236,642 $(488,631)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes 58,194 94,173 274,063
Impairment of oil and gas properties for financial
reporting purposes - - 383,951
Other (2,494) 8,701 1,161
--------- -------- ---------
Net income per Federal income tax
returns $ 861,239 $339,516 $ 170,544
========= ======== =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
-------- -------- --------
Development costs $ 6,430 $ 8,363 $ 15,067
======== ======== ========
Capitalized oil and gas properties consist of the following:
2000 1999
----------- -----------
Proved properties:
Property acquisition costs $ 426,682 $ 439,249
Completed wells and equipment 6,527,863 6,689,822
----------- -----------
6,954,545 7,129,071
Accumulated depletion (5,969,972) (6,083,367)
----------- -----------
Net oil and gas properties $ 984,573 $ 1,045,704
=========== ===========
17
833
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
-------- -------- --------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $159,314 $157,042 $150,985
Reimbursement of general and administrative
expenses $ 34,281 $ 13,039 $ 13,810
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
Parker & Parsley 88-B Conv., L.P. and the Partnership (the "Partnerships") are
parties to the Program agreement.
The costs and revenues of the Program are allocated to Pioneer USA and the
Partnerships as follows:
Pioneer USA (1) Partnerships (2)
--------------- ----------------
Revenues:
Proceeds from disposition of depreciable properties 9.09091% 90.90909%
All other revenues 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion
costs and all other costs 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated
at the Partnership level and 94 limited partner interests owned by
Pioneer USA.
(2) The allocation between the Partnership and Parker & Parsley 88-B
Conv., L.P. is 71.119936% and 28.880064%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared Williamson Petroleum
Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
18
834
Oil and NGLs Gas
(bbls) (mcf)
------------ ----------
Net proved reserves at January 1, 1998 528,956 612,323
Revisions (215,651) (183,598)
Production (43,365) (52,254)
---------- ----------
Net proved reserves at December 31, 1998 269,940 376,471
Revisions 375,777 553,985
Production (41,830) (57,190)
---------- ----------
Net proved reserves at December 31, 1999 603,887 873,266
Revisions 114,704 59,721
Production (45,729) (53,620)
---------- ----------
Net proved reserves at December 31, 2000 672,862 879,367
========== ==========
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.59 per barrel of NGLs and $7.85 per mcf of gas,
discounted at 10% was approximately $5,167,000 and undiscounted was $10,831,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
-----------------------------------
2000 1999 1998
-------- -------- -------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 22,071 $ 15,072 $ 2,957
Future production costs (11,240) (8,674) (2,289)
-------- -------- -------
10,831 6,398 668
10% annual discount factor (5,664) (3,054) (210)
-------- -------- -------
Standardized measure of discounted future net cash flows $ 5,167 $ 3,344 $ 458
======== ======== =======
19
835
For the years ended December 31,
---------------------------------
2000 1999 1998
------- ------- -------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (889) $ (356) $ (188)
Net changes in prices and production costs 1,910 1,466 (1,276)
Revisions of previous quantity estimates 862 2,739 (280)
Accretion of discount 334 46 207
Changes in production rates, timing and other (394) (1,009) (77)
------- ------- -------
Change in present value of future net revenues 1,823 2,886 (1,614)
------- ------- -------
Balance, beginning of year 3,344 458 2,072
------- ------- -------
Balance, end of year $ 5,167 $ 3,344 $ 458
======= ======= =======
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 50% 44% -
Genesis Crude Oil, L.P. - - 49%
Western Gas Resources, Inc. 3% 5% 17%
At December 31, 2000, the amount receivable from Plains Marketing, L.P.
was $62,153 which is included in the caption "Accounts receivable - oil and gas
sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would not
have an adverse effect on the ability of the Partnership to sell its oil, NGLs
and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of the
limited partnership agreement:
Managing general partner - The managing general partner of the Partnership
is Pioneer USA. Pioneer USA has the power and authority to manage, control
and administer all Program and Partnership affairs. As managing general
partner and operator of the Partnership's properties, all production
expenses are incurred by Pioneer USA and billed to the Partnership. The
majority of the Partnership's oil and gas revenues are received directly
by the Partnership, however, a portion of the oil and gas revenue is
initially received by Pioneer USA prior to being paid to the Partnership.
Under the limited partnership agreement, the managing general partner pays
1% of the Partnership's acquisition, drilling and completion costs and 1%
of its operating and general and administrative expenses. In return, it is
allocated 1% of the Partnership's revenues.
Limited partner liability - The maximum amount of liability of any limited
partner is the total contributions of such partner plus his share of any
undistributed profits.
20
836
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of $8,954,000.
Pioneer USA is required to contribute amounts equal to 1% of initial
Partnership capital less commission and offering expenses allocated to the
limited partners and to contribute amounts necessary to pay costs and
expenses allocated to it under the Partnership agreement to the extent its
share of revenues does not cover such costs.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
21
837
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and executive
officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the
next annual meeting of stockholders or until their successors are elected and
qualified.
Age at
December 31,
Name 2000 Position
---- ---- --------
Scott D. Sheffield 48 President
Timothy L. Dove 44 Executive Vice President, Chief
Financial Officer and Director
Dennis E. Fagerstone 51 Executive Vice President and Director
Mark L. Withrow 53 Executive Vice President, General
Counsel and Director
Danny Kellum 46 Executive Vice President - Domestic
Operations and Director
Rich Dealy 34 Vice President and Chief Accounting
Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas
with a B.S. in Petroleum Engineering. Since August 1997, he has served as
President, Chief Executive Officer and a director of Pioneer and President of
Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of
Pioneer in August 1999. He served as a director of Pioneer USA from August 1997
until his resignation from the board in June 1999. Mr. Sheffield was the
President and a director of Parker & Parsley Petroleum Company ("Parker &
Parsley") from May 1990 until August 1997 and was the Chairman of the Board and
Chief Executive Officer of Parker & Parsley from October 1990 until August 1997.
He was the sole director of Parker & Parsley from May 1990 until October 1990.
Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a
predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as
Vice President - Engineering of PPDC from September 1981 until April 1985 when
he was elected President and a director. In March 1989, Mr. Sheffield was
elected Chairman of the Board and Chief Executive Officer of PPDC. Before
joining PPDC's predecessor, Mr. Sheffield was employed as a production and
reservoir engineer for Amoco Production Company.
22
838
Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from
Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981
from the University of Chicago. He became Executive Vice President - Business
Development of Pioneer and Pioneer USA in August 1997 and was also appointed a
director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief
Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr.
Dove joined Parker & Parsley in May 1994 as Vice President - International and
was promoted to Senior Vice President - Business Development in October 1996, in
which position he served until August 1997. Prior to joining Parker & Parsley,
Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus
Energy Corp, in various capacities in international exploration and production,
marketing, refining and marketing and planning and development.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997.
From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice
President and Chief Operating Officer of Mesa and from May 1991 to October 1996,
he served as Vice President - Exploration and Production of Mesa. From June 1988
to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President - General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979, was elected Executive
Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000
and Director of Pioneer USA on February 1, 2000. From January 2000 until May
2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and
Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and
Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served
as Spraberry District Manager and as Vice President of the Spraberry and Permian
Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker &
Parsley as an operations engineer in 1981 after a brief career with Mobil Oil
Corporation.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with
a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He
became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
23
839
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is performed by Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA pays approximately 10% of the Program's acquisition,
drilling and completion costs and approximately 25% of its operating and general
and administrative expenses. In return, Pioneer USA is allocated approximately
25% of the Program's revenues.
The Partnership does not directly pay any salaries of the executive officers of
Pioneer USA, but does pay a portion of Pioneer USA's general and administrative
expenses of which these salaries are a part.
See Notes 6 and 9 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" for information regarding fees and
reimbursements paid to the managing general partner by the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more of
the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 94 limited partner interests at January 1, 2001.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general
partner of the Partnership, Pioneer USA, has the exclusive right and full
authority to manage, control and administer the Partnership's business. Under
the limited partnership agreement, limited partners holding a majority of the
outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner
Pursuant to the limited partnership agreement, the Partnership had the following
related party transactions with the managing general partner during the years
ended December 31:
24
840
2000 1999 1998
-------- --------- --------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreement $159,314 $ 157,042 $150,985
Reimbursement of general and administrative
expenses $ 34,281 $ 13,039 $ 13,810
Under the limited partnership agreement, the managing general partner pays 1% of
the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data"
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
25
841
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial statements
The following are filed as part of this Report:
Independent Auditors' Report
Balance sheets as of December 31, 2000 and 1999
Statements of operations for the years ended December 31,
2000, 1999 and 1998
Statements of partners' capital for the years ended December
31, 2000, 1999 and 1998
Statements of cash flows for the years ended December 31,
2000, 1999 and 1998
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the
required information is in the financial statements or notes thereto,
or is not applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this Report.
26
842
S I G N A T U R E S
Pursuant to the requirements 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.
PARKER & PARSLEY 88-B, L.P.
Dated: March 29, 2001 By: Pioneer Natural Resources USA, Inc.
Managing General Partner
By: /s/ Scott D. Sheffield
--------------------------------
Scott D. Sheffield, President
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/ Scott D. Sheffield President of Pioneer USA March 29, 2001
-------------------------------
Scott D. Sheffield
/s/ Timothy L. Dove Executive Vice President, Chief March 29, 2001
------------------------------- Financial Officer and Director of
Timothy L. Dove Pioneer USA
/s/ Dennis E. Fagerstone Executive Vice President and March 29, 2001
------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ Mark L. Withrow Executive Vice President, General March 29, 2001
------------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ Danny Kellum Executive Vice President - Domestic March 29, 2001
------------------------------- Operations and Director of Pioneer
Danny Kellum USA
/s/ Rich Dealy Vice President and Chief Accounting March 29, 2001
------------------------------- Officer of Pioneer USA
Rich Dealy
27
843
PARKER & PARSLEY 88-B, L.P.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
Exhibit No. Description Page
----------- ----------- ----
3(a) Amended and Restated Certificate and -
Agreement of Limited Partnership of
Parker & Parsley 88-B, L.P. incorporated
by reference to Exhibit A of Amendment
No. 1 of the Partnership's Registration
Statement on Form S-1 (Registration No.
33-19659)
4(b) Form of Subscription Agreement and -
Power of Attorney incorporated by reference to
Exhibit D of the Partnership's Registration Statement
on Form S-1 (Registration No. 33-19659) (hereinafter
called the Partnership's Registration Statement)
4(c) Specimen Certificate of Limited Partnership -
Interest incorporated by reference to Exhibit
D of the Partnership's Registration Statement
10(b) Exploration and Development Program -
Agreement incorporated by reference to
Exhibit C of the Partnership's Registration
Statement
28
844
PARKER & PARSLEY 88-B, L.P.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 288,612 $1,318,092 $ 717,449 $ 578,573 $ 810,500 $1,052,408
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ -- $ -- $ 383,951 $ 547,793 $ --
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 171,847 $ 805,539 $ 236,642 $ (488,631) $ (344,997) $ 397,674
======== ========== ========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general
partner $ $ 1,718 $ 8,055 $ 2,366 $ (4,887) $ (3,450) $ 3,977
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 170,129 $ 797,484 $ 234,276 $ (483,744) $ (341,547) $ 393,697
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 19.00 $ 89.06 $ 26.16 $ (54.03) $ (38.14) $ 43.97
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 18.22 $ 86.90 $ 28.92 $ 24.02 $ 50.67 $ 54.14
======== ========== ========== ========== ========== ========== ==========
At year end:
Identifiable assets $ $1,323,437 $1,327,803 $1,313,164 $1,334,302 $2,051,284 $2,848,468
======== ========== ========== ========== ========== ========== ==========
845
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 88-C CONV., L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
88-C Conv., L.P., and supplements the proxy statement/prospectus dated ,
2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA,
Inc., by which Pioneer USA is soliciting proxies to be voted at a special
meeting of limited partners of the partnership. The purpose of the special
meeting is for you to vote upon the merger of the partnership with and into
Pioneer USA that, if completed, will result in your receiving common stock of
Pioneer Natural Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 88-C Conv., L.P.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the three months ended March 31, 2001
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
846
PARKER & PARSLEY 88-C CONV., L.P.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 3,411
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 3,447
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 908
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 266.92
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.52 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 142.82
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 242.77
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 259.89
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 149
(b), (c)
-----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as any
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners. Although not
required by the partnership agreement, the opinion will also state that neither
the grant nor exercise of such right will result in the loss of any limited
partner's limited liability. In addition, the counsel designated to render the
opinion is not required to be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
847
PARKER & PARSLEY 88-C CONV., L.P.
(A Delaware Limited Partnership)
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT
December 31, 2000 and 1999
848
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 88-C Conv., L.P.
(A Delaware Limited Partnership):
We have audited the balance sheets of Parker & Parsley 88-C Conv., L.P. as of
December 31, 2000 and 1999, and the related statements of operations, partners'
capital and cash flows for each of the three years in the period ended December
31, 2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 88-C Conv.,
L.P. as of December 31, 2000 and 1999, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
2
849
PARKER & PARSLEY 88-C CONV., L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
----------- -----------
ASSETS
------
Current assets:
Cash $ 51,156 $ 56,353
Accounts receivable - oil and gas sales 66,963 40,622
----------- -----------
Total current assets 118,119 96,975
----------- -----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 2,458,118 2,513,824
Accumulated depletion (2,078,258) (2,110,906)
----------- -----------
Net oil and gas properties 379,860 402,918
----------- -----------
$ 497,979 $ 499,893
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 5,927 $ 8,955
Partners' capital:
Managing general partner 4,905 4,894
Limited partners (3,411 interests) 487,147 486,044
----------- -----------
492,052 490,938
----------- -----------
$ 497,979 $ 499,893
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
850
PARKER & PARSLEY 88-C CONV., L.P.
(A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Revenues:
Oil and gas $ 443,642 $ 246,242 200,460
Interest 4,268 2,112 2,970
Gain on disposition of assets 5,650 - 2,175
--------- --------- ---------
453,560 248,354 205,605
--------- --------- ---------
Costs and expenses:
Oil and gas production 151,650 131,165 142,438
General and administrative 13,129 7,217 5,997
Impairment of oil and gas properties - - 119,715
Depletion 25,125 40,513 97,851
Abandoned property 2,166 - -
--------- --------- ---------
192,070 178,895 366,001
--------- --------- ---------
Net income (loss) $ 261,490 $ 69,459 $(160,396)
========= ========= =========
Allocation of net income (loss):
Managing general partner $ 2,615 $ 695 $ (1,604)
========= ========= =========
Limited partners $ 258,875 $ 68,764 $(158,792)
========= ========= =========
Net income (loss) per limited partnership interest $ 75.89 $ 20.16 $ (46.55)
========= ========= =========
The accompanying notes are an integral part of these financial statements.
4
851
PARKER & PARSLEY 88-C CONV., L.P.
(A Delaware Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
--------- --------- ---------
Partners' capital at January 1, 1998 $ 7,326 $ 726,841 $ 734,167
Distributions (777) (76,894) (77,671)
Net loss (1,604) (158,792) (160,396)
--------- --------- ---------
Partners' capital at December 31, 1998 4,945 491,155 496,100
Distributions (746) (73,875) (74,621)
Net income 695 68,764 69,459
--------- --------- ---------
Partners' capital at December 31, 1999 4,894 486,044 490,938
Distributions (2,604) (257,772) (260,376)
Net income 2,615 258,875 261,490
--------- --------- ---------
Partners' capital at December 31, 2000 $ 4,905 $ 487,147 $ 492,052
========= ========= =========
The accompanying notes are an integral part of these financial statements.
5
852
PARKER & PARSLEY 88-C CONV., L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ 261,490 $ 69,459 $(160,396)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties - - 119,715
Depletion 25,125 40,513 97,851
Gain on disposition of assets (5,650) - (2,175)
Changes in assets and liabilities:
Accounts receivable (26,341) (16,186) 10,141
Accounts payable (3,028) 2,588 (7,979)
--------- --------- ---------
Net cash provided by operating activities 251,596 96,374 57,157
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties (2,067) (3,851) (5,337)
Proceeds from disposition of assets 5,650 3,435 2,175
--------- --------- ---------
Net cash provided by (used in)
investing activities 3,583 (416) (3,162)
--------- --------- ---------
Cash flows used in financing activities:
Cash distributions to partners (260,376) (74,621) (77,671)
--------- --------- ---------
Net increase (decrease) in cash (5,197) 21,337 (23,676)
Cash at beginning of year 56,353 35,016 58,692
--------- --------- ---------
Cash at end of year $ 51,156 $ 56,353 $ 35,016
========= ========= =========
The accompanying notes are an integral part of these financial statements.
6
853
PARKER & PARSLEY 88-C CONV., L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 88-C Conv., L.P. (the "Partnership") was organized in
1988 as a general partnership under the laws of the State of Texas and was
converted to a Delaware limited partnership in 1989. The Partnership's managing
general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the unit-of-
production method on a property-by-property basis based on proved oil (dominant
mineral) reserves as evaluated by independent petroleum consultants. The
carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -
Preparation of the accompanying 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 periods. Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
7
854
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated in part to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non- partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized a non-cash impairment provision of $119,715 related to
its proved oil and gas properties during 1998.
8
855
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $35,215 greater than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
--------- --------- ---------
Net income (loss) per statements of operations $ 261,490 $ 69,459 $(160,396)
Depletion and depreciation provisions for tax reporting
purposes less than amounts for financial reporting
purposes 21,929 37,157 94,995
Impairment of oil and gas properties for financial
reporting purposes - - 119,715
Other, net (822) 3,106 (4,638)
--------- --------- ---------
Net income per Federal income tax returns $ 282,597 $ 109,722 $ 49,676
========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
---------- ----------- ----------
Development costs $ 2,067 $ 3,851 $ 5,337
========== =========== ==========
Capitalized oil and gas properties consist of the following:
2000 1999
----------- -----------
Proved properties:
Property acquisition costs $ 124,434 $ 128,446
Completed wells and equipment 2,333,684 2,385,378
----------- -----------
2,458,118 2,513,824
Accumulated depletion (2,078,258) (2,110,906)
----------- -----------
Net oil and gas properties $ 379,860 $ 402,918
=========== ===========
9
856
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
-------- -------- --------
Payment of lease operating and supervision
charges in accordance with standard industry
operating agreements $ 58,509 $ 56,225 $ 54,996
Reimbursement of general and administrative expenses $ 9,514 $ 1,096 $ 2,651
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
Parker & Parsley 88-C, L.P. and the Partnership (the "Partnerships") are parties
to the Program agreement.
The costs and revenues of the Program are allocated to Pioneer USA and
the Partnerships as follows:
Pioneer USA (1) Partnerships (2)
--------------- ----------------
Revenues:
Proceeds from disposition of depreciable
properties 9.09091% 90.90909%
All other revenues 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion
costs and all other costs 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at
the Partnership level and ten limited partner interests owned by Pioneer
USA.
(2) The allocation between the Partnership and Parker & Parsley 88-C, L.P. is
58.387538% and 41.612462%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
10
857
Oil and NGLs Gas
(bbls) (mcf)
------------ ---------
Net proved reserves at January 1, 1998 181,762 227,096
Revisions (75,078) (70,056)
Production (14,859) (19,764)
--------- ---------
Net proved reserves at December 31, 1998 91,825 137,276
Revisions 124,253 193,483
Production (14,136) (21,119)
--------- ---------
Net proved reserves at December 31, 1999 201,942 309,640
Revisions 35,970 23,002
Production (15,453) (19,618)
--------- ---------
Net proved reserves at December 31, 2000 222,459 313,024
========= =========
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.56 per barrel of NGLs and $7.78 per mcf of gas,
discounted at 10% was approximately $1,724,000 and undiscounted was
approximately $3,597,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
----------------------------------------
2000 1999 1998
-------- -------- --------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 7,379 $ 5,029 $ 1,007
Future production costs (3,782) (2,920) (784)
-------- -------- --------
3,597 2,109 223
10% annual discount factor (1,873) (998) (69)
-------- -------- --------
Standardized measure of discounted future net cash flows $ 1,724 $ 1,111 $ 154
======== ======== ========
11
858
For the years ended December 31,
--------------------------------------
2000 1999 1998
------- ------- -------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (292) $ (115) $ (58)
Net changes in prices and production costs 661 496 (461)
Revisions of previous quantity estimates 275 900 (94)
Accretion of discount 111 15 72
Changes in production rates, timing and other (142) (339) (26)
------- ------- -------
Change in present value of future net revenues 613 957 (567)
------- ------- -------
Balance, beginning of year 1,111 154 721
------- ------- -------
Balance, end of year $ 1,724 $ 1,111 $ 154
======= ======= =======
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's
oil and gas sales (a major customer is defined as a customer whose sales exceed
10% of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 52% 46% -
Genesis Crude Oil, L.P. - - 51%
Western Gas Resources, Inc. 4% 6% 21%
At December 31, 2000, the amount receivable from Plains Marketing, L.P.
was $21,565 which is included in the caption "Accounts receivable - oil and gas
sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the Partnership agreement:
Managing general partner - The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Program and Partnership affairs. As
managing general partner and operator of the Partnership's properties,
all production expenses are incurred by Pioneer USA and billed to the
Partnership. The majority of the Partnership's oil and gas revenues are
received directly by the Partnership, however, a portion of the oil and
gas revenue is initially received by Pioneer USA prior to being paid to
the Partnership. Under the limited partnership agreement, the managing
general partner pays 1% of the Partnership's acquisition, drilling and
completion costs and 1% of its operating and general and administrative
expenses. In return, it is allocated 1% of the Partnership's
12
859
revenues.
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The partners entered into subscription
agreements for aggregate capital contributions of $3,411,000. Pioneer
USA is required to contribute amounts equal to 1% of initial Partnership
capital less commission and organization and offering costs allocated to
the limited partners and to contribute amounts necessary to pay costs
and expenses allocated to it under the Partnership agreement to the
extent its share of revenues does not cover such costs.
13
860
PARKER & PARSLEY 88-C CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACCORDINGLY, NO ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS
AND RESULTS WILL NOT BE MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS
DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 80% to $443,642 for 2000 as
compared to $246,242 in 1999. The increase in revenues resulted from higher
average prices received and an increase in production. In 2000, 10,646 barrels
of oil, 4,807 barrels of natural gas liquids ("NGLs") and 19,618 mcf of gas were
sold, or 18,723 barrel of oil equivalents ("BOEs"). In 1999, 9,260 barrels of
oil, 4,876 barrels of NGLs and 21,119 mcf of gas were sold, or 17,656 BOEs. Due
to the decline characteristics of the Partnership's oil and gas properties,
management expects a certain amount of decline in production in the future until
the Partnership's economically recoverable reserves are fully depleted.
The average price received per barrel of oil increased $12.09, or 70%, from
$17.24 in 1999 to $29.33 in 2000. The average price received per barrel of NGLs
increased $5.41, or 52%, from $10.42 in 1999 to $15.83 in 2000. The average
price received per mcf of gas increased 66% from $1.70 in 1999 to $2.82 in 2000.
The market price for oil and gas has been extremely volatile in the past decade,
and management expects a certain amount of volatility to continue in the
foreseeable future. The Partnership may therefore sell its future oil and gas
production at average prices lower or higher than that received in 2000.
Gain on disposition of assets of $5,650 recognized in 2000 was due to equipment
credits received from salvage income of $4,703 on one well plugged and abandoned
during the current year and $947 on one fully depleted well.
Total costs and expenses increased in 2000 to $192,070 as compared to $178,895
in 1999, an increase of $13,175, or 7%. The increase was primarily due to
increases in production costs, general and administrative expenses ("G&A") and
abandoned property costs, offset by a decline in depletion.
Production costs were $151,650 in 2000 and $131,165 in 1999, resulting in a
$20,485 increase, or 16%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices and additional well maintenance
and workover costs incurred to stimulate well production.
Abandoned property costs of $2,166 during 2000 were related to the plugging and
abandonment of one well during the current year.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
82% from $7,217 in 1999 to $13,129 in 2000, primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 3% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $9,514 in 2000 and $1,096 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
Depletion was $25,125 in 2000 as compared to $40,513 in 1999, representing a
decrease of $15,388, or 38%. This decrease was primarily due to a 26,409 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
prices, offset by an increase in oil production of 1,386 barrels for the period
ended December 31, 2000 compared to the same period in 1999.
861
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 23% to $246,242 from
$200,460 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 9,260 barrels of oil,
4,876 barrels of NGLs and 21,119 mcf of gas were sold, or 17,656 BOEs. In 1998,
10,457 barrels of oil, 4,402 barrels of NGLs and 19,764 mcf of gas were sold, or
18,153 BOEs.
The average price received per barrel of oil increased $3.94, or 30%, from
$13.30 in 1998 to $17.24 in 1999. The average price received per barrel of NGLs
increased $3.48, or 50%, from $6.94 in 1998 to $10.42 in 1999. The average price
received per mcf of gas increased 10% from $1.55 in 1998 to $1.70 in 1999.
A gain on disposition of assets of $2,175 was recognized during 1998 from
equipment credits on a well plugged and abandoned in 1997.
Total costs and expenses decreased in 1999 to $178,895 as compared to $366,001
in 1998, a decrease of $187,106, or 51%. The decrease was primarily due to
declines in the impairment of oil and gas properties, depletion and production
costs, offset by an increase in G&A.
Production costs were $131,165 in 1999 and $142,438 in 1998, resulting in an
$11,273 decrease, or 8%. The decrease was due to declines in well maintenance
costs, workover expenses and ad valorem taxes, offset by an increase in
production taxes due to increased oil and gas revenues.
During this period, G&A increased 20% from $5,997 in 1998 to $7,217 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $1,096 in
1999 and $2,651 in 1998 for G&A incurred on behalf of the Partnership.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets
to be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $119,715 related to its oil and gas properties during 1998.
Depletion was $40,513 in 1999 compared to $97,851 in 1998, representing a
decrease of $57,338, or 59%. This decrease was the result of a combination of
factors that included an increase in proved reserves of 79,930 barrels of oil
during 1999 as a result of higher commodity prices, a reduction in the
Partnership's net depletable basis from charges taken in accordance with SFAS
121 during the fourth quarter of 1998 and a decline in oil production of 1,197
barrels for the period ended December 31, 1999 compared to the same period in
1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
862
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $155,222 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $199,556, offset by increases in production costs paid
of $20,485, G&A expenses paid of $5,912, abandoned property costs paid of $2,166
and working capital of $15,771. The increase in oil and gas receipts resulted
from the increase in commodity prices during 2000 which contributed an
additional $164,214 to oil and gas receipts and an increase of $35,342 resulting
from the increase in production during 2000. The increase in production costs
was primarily due to increased production taxes associated with higher oil and
gas prices and additional well maintenance and workover costs incurred to
stimulate well production. The increase in G&A was primarily due to higher
percentage of the managing general partner's G&A being allocated (limited to 3%
of oil and gas revenues) as a result of increased oil and gas revenues.
Net Cash Provided by (Used in) Investing Activities
The Partnership's principal investing activities during 2000 and 1999 included
expenditures related to equipment upgrades on several oil and gas properties.
Proceeds from disposition of assets of $5,650 recognized in 2000 was due to
equipment credits received from salvage income of $4,703 on one well plugged and
abandoned during the current year and $947 on one fully depleted well. Proceeds
from disposition of assets of $3,435 during 1999 were received from equipment
credits on active wells.
Net Cash Used in Financing Activities
For 2000, cash distributions to the partners were $260,376, of which $2,604 was
distributed to the managing general partner and $257,772 to the limited
partners. In 1999, cash distributions to the partners were $74,621, of which
$746 was distributed to the managing general partner and $73,875 to the limited
partners.
863
PARKER & PARSLEY 88-C CONV., L.P.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 95,029 $ 443,642 $ 246,242 $ 200,460 $ 284,284 $ 372,187
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ -- $ -- $ 119,715 $ 137,839 $ 4,494
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 51,906 $ 261,490 $ 69,459 $ (160,396) $ (84,748) $ 128,417
======== ========== ========== ========== ========== ========== ==========
Allocation of net
income (loss):
Managing general
partner $ $ 519 $ 2,615 $ 695 $ (1,604) $ (847) $ 1,284
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 51,387 $ 258,875 $ 68,764 $ (158,792) $ (83,901) $ 127,133
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 15.07 $ 75.89 $ 20.16 $ (46.55) $ (24.60) $ 37.27
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 16.38 $ 75.57 $ 21.66 $ 22.54 $ 44.49 $ 47.64
======== ========== ========== ========== ========== ========== ==========
At year end:
Total assets $ $ 495,584 $ 497,979 $ 499,893 $ 502,467 $ 748,513 $ 982,497
======== ========== ========== ========== ========== ========== ==========
864
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 88-C, L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
88-C, L.P., and supplements the proxy statement/prospectus dated , 2001,
of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by
which Pioneer USA is soliciting proxies to be voted at a special meeting of
limited partners of the partnership. The purpose of the special meeting is for
you to vote upon the merger of the partnership with and into Pioneer USA that,
if completed, will result in your receiving common stock of Pioneer Natural
Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 88-C, L.P.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the three months ended March 31, 2001
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
865
PARKER & PARSLEY 88-C, L.P.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 2,431
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 2,456
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 643
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 265.04
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.50 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 140.76
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 240.89
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 258.01
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 149
(b), (c)
-----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners. Although not
required by the partnership agreement, the opinion will also state that neither
the grant nor exercise of such right will result in the loss of any limited
partner's limited liability. In addition, the counsel designated to render the
opinion is not required to be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
866
PARKER & PARSLEY 88-C, L.P.
(A Delaware Limited Partnership)
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT
December 31, 2000 and 1999
867
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 88-C, L.P.
(A Delaware Limited Partnership):
We have audited the balance sheets of Parker & Parsley 88-C, L.P. as of December
31, 2000 and 1999, and the related statements of operations, partners' capital
and cash flows for each of the three years in the period ended December 31,
2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 88-C, L.P. as
of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
2
868
PARKER & PARSLEY 88-C, L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
----------- -----------
ASSETS
Current assets:
Cash $ 31,689 $ 35,943
Accounts receivable - oil and gas sales 47,902 28,942
----------- -----------
Total current assets 79,591 64,885
----------- -----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 1,751,887 1,791,588
Accumulated depletion (1,481,594) (1,504,855)
----------- -----------
Net oil and gas properties 270,293 286,733
----------- -----------
$ 349,884 $ 351,618
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable - affiliate $ 4,246 $ 6,404
Partners' capital:
Managing general partner 3,443 3,439
Limited partners (2,431 interests) 342,195 341,775
----------- -----------
345,638 345,214
----------- -----------
$ 349,884 $ 351,618
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
869
PARKER & PARSLEY 88-C, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Revenues:
Oil and gas $ 316,382 $ 175,483 142,874
Interest 2,805 1,335 1,945
Gain on disposition of assets 4,027 -- 1,550
--------- --------- ---------
323,214 176,818 146,369
--------- --------- ---------
Costs and expenses:
Oil and gas production 108,093 93,481 101,514
General and administrative 9,672 5,434 4,303
Impairment of oil and gas properties -- -- 85,160
Depletion 17,913 28,843 69,935
Abandoned property 1,544 -- --
--------- --------- ---------
137,222 127,758 260,912
--------- --------- ---------
Net income (loss) $ 185,992 $ 49,060 $(114,543)
========= ========= =========
Allocation of net income (loss):
Managing general partner $ 1,860 $ 491 $ (1,145)
========= ========= =========
Limited partners $ 184,132 $ 48,569 $(113,398)
========= ========= =========
Net income (loss) per limited partnership interest $ 75.74 $ 19.98 $ (46.65)
========= ========= =========
The accompanying notes are an integral part of these financial statements.
4
870
PARKER & PARSLEY 88-C, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
--------- --------- ---------
Partners' capital at January 1, 1998 $ 5,179 $ 514,055 $ 519,234
Distributions (554) (54,801) (55,355)
Net loss (1,145) (113,398) (114,543)
--------- --------- ---------
Partners' capital at December 31, 1998 3,480 345,856 349,336
Distributions (532) (52,650) (53,182)
Net income 491 48,569 49,060
--------- --------- ---------
Partners' capital at December 31, 1999 3,439 341,775 345,214
Distributions (1,856) (183,712) (185,568)
Net income 1,860 184,132 185,992
--------- --------- ---------
Partners' capital at December 31, 2000 $ 3,443 $ 342,195 $ 345,638
========= ========= =========
The accompanying notes are an integral part of these financial statements.
5
871
PARKER & PARSLEY 88-C, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ 185,992 $ 49,060 $(114,543)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties -- -- 85,160
Depletion 17,913 28,843 69,935
Gain on disposition of assets (4,027) -- (1,550)
Changes in assets and liabilities:
Accounts receivable (18,960) (11,532) 7,229
Accounts payable (2,158) 1,866 (5,686)
--------- --------- ---------
Net cash provided by operating activities 178,760 68,237 40,545
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties (1,473) (2,744) (3,804)
Proceeds from disposition of assets 4,027 2,448 1,550
--------- --------- ---------
Net cash provided by (used in)
investing activities 2,554 (296) (2,254)
--------- --------- ---------
Cash flows used in financing activities:
Cash distributions to partners (185,568) (53,182) (55,355)
--------- --------- ---------
Net increase (decrease) in cash (4,254) 14,759 (17,064)
Cash at beginning of year 35,943 21,184 38,248
--------- --------- ---------
Cash at end of year $ 31,689 $ 35,943 $ 21,184
========= ========= =========
The accompanying notes are an integral part of these financial statements.
6
872
PARKER & PARSLEY 88-C, L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 88-C, L.P. (the "Partnership") is a limited partnership
organized in 1988 under the laws of the State of Delaware. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -
Preparation of the accompanying 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 periods. Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the
7
873
respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated in part to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non-partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized a non-cash impairment provision of $85,160 related to its
proved oil and gas properties during 1998.
8
874
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $24,633 greater than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
--------- --------- ---------
Net income (loss) per statements of operations $ 185,992 $ 49,060 $(114,543)
Depletion and depreciation provisions for tax reporting
purposes less than amounts for financial reporting
purposes 15,635 26,451 67,898
Impairment of oil and gas properties for financial
reporting purposes -- -- 85,160
Other, net (560) 2,209 (3,307)
--------- --------- ---------
Net income per Federal income tax returns $ 201,067 $ 77,720 $ 35,208
========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
------------- ------------- -------------
Development costs $ 1,473 $ 2,744 $ 3,804
============ ============ ============
Capitalized oil and gas properties consist of the following:
2000 1999
----------- -----------
Proved properties:
Property acquisition costs $ 88,684 $ 91,543
Completed wells and equipment 1,663,203 1,700,045
----------- -----------
1,751,887 1,791,588
Accumulated depletion (1,481,594) (1,504,855)
----------- -----------
Net oil and gas properties $ 270,293 $ 286,733
=========== ===========
9
875
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
------- ------- -------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $41,699 $40,071 $39,194
Reimbursement of general and administrative
expenses $ 6,776 $ 782 $ 1,889
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
Parker & Parsley 88-C Conv., L.P. and the Partnership (the "Partnerships") are
parties to the Program agreement.
The costs and revenues of the Program are allocated to Pioneer USA and
the Partnerships as follows:
Pioneer USA(1) Partnerships (2)
-------------- ----------------
Revenues:
Proceeds from disposition of depreciable
properties 9.09091% 90.90909%
All other revenues 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion
costs and all other costs 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is
allocated at the Partnership level and five limited partner
interests owned by Pioneer USA.
(2) The allocation between the Partnership and Parker & Parsley 88-C
Conv., L.P. is 41.612462% and 58.387538%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
10
876
Oil and NGLs Gas
(bbls) (mcf)
-------- --------
Net proved reserves at January 1, 1998 129,544 161,856
Revisions (53,503) (49,926)
Production (10,596) (14,091)
-------- --------
Net proved reserves at December 31, 1998 65,445 97,839
Revisions 88,560 137,904
Production (10,071) (15,049)
-------- --------
Net proved reserves at December 31, 1999 143,934 220,694
Revisions 25,631 16,368
Production (11,023) (13,979)
-------- --------
Net proved reserves at December 31, 2000 158,542 223,083
======== ========
As of December 31, 2000 the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.56 per barrel of NGLs and $7.78 per mcf of gas,
discounted at 10% was approximately $1,229,000 and undiscounted was $2,564,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
--------------------------------
2000 1999 1998
------- ------- -------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 5,259 $ 3,584 $ 717
Future production costs (2,695) (2,081) (558)
------- ------- -------
2,564 1,503 159
10% annual discount factor (1,335) (711) (49)
------- ------- -------
Standardized measure of discounted future net cash flows $ 1,229 $ 792 $ 110
======= ======= =======
11
877
For the years ended December 31,
--------------------------------
2000 1999 1998
------- ------- -------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (208) $ (82) $ (41)
Net changes in prices and production costs 471 354 (328)
Revisions of previous quantity estimates 196 641 (67)
Accretion of discount 79 11 51
Changes in production rates, timing and other (101) (242) (19)
------- ------- -------
Change in present value of future net revenues 437 682 (404)
------- ------- -------
Balance, beginning of year 792 110 514
------- ------- -------
Balance, end of year $ 1,229 $ 792 $ 110
======= ======= =======
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's
oil and gas sales (a major customer is defined as a customer whose sales exceed
10% of total sales) during the years ended December 31:
2000 1999 1998
------- ------- --------
Plains Marketing, L.P. 52% 45% -
Genesis Crude Oil, L.P. - - 51%
Western Gas Resources, Inc. 4% 6% 21%
At December 31, 2000, the amount receivable from Plains Marketing, L.P.
was $15,388 which is included in the caption "Accounts receivable - oil and gas
sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the limited partnership agreement:
Managing general partner - The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Program and Partnership affairs. As
managing general partner and operator of the Partnership's properties,
all production expenses are incurred by Pioneer USA and billed to the
Partnership. The majority of the Partnership's oil and gas revenues are
received directly by the Partnership, however, a portion of the oil and
gas revenue is initially received by Pioneer USA prior to being paid to
the Partnership. Under the limited partnership agreement, the managing
general partner pays 1% of the Partnership's acquisition, drilling and
completion costs and 1% of its operating and general and administrative
expenses. In return, it is allocated 1% of the Partnership's
12
878
revenues.
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of
$2,431,000. Pioneer USA is required to contribute amounts equal to 1% of
initial Partnership capital less commission and organization and
offering costs allocated to the limited partners and to contribute
amounts necessary to pay costs and expenses allocated to it under the
Partnership agreement to the extent its share of revenues does not cover
such costs.
13
879
PARKER & PARSLEY 88-C, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACCORDINGLY, NO ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS
AND RESULTS WILL NOT BE MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS
DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 80% to $316,382 for 2000 as
compared to $175,483 in 1999. The increase in revenues resulted from higher
average prices received and an increase in production. In 2000, 7,593 barrels of
oil, 3,430 barrels of natural gas liquids ("NGLs") and 13,979 mcf of gas were
sold, or 13,353 barrel of oil equivalents ("BOEs"). In 1999, 6,595 barrels of
oil, 3,476 barrels of NGLs and 15,049 mcf of gas were sold, or 12,579 BOEs. Due
to the decline characteristics of the Partnership's oil and gas properties,
management expects a certain amount of decline in production in the future until
the Partnership's economically recoverable reserves are fully depleted.
The average price received per barrel of oil increased $12.09, or 70%, from
$17.24 in 1999 to $29.33 in 2000. The average price received per barrel of NGLs
increased $5.41, or 52%, from $10.42 in 1999 to $15.83 in 2000. The average
price received per mcf of gas increased 66% from $1.70 in 1999 to $2.82 in 2000.
The market price for oil and gas has been extremely volatile in the past decade,
and management expects a certain amount of volatility to continue in the
foreseeable future. The Partnership may therefore sell its future oil and gas
production at average prices lower or higher than that received in 2000.
Gain on disposition of assets of $4,027 recognized in 2000 was due to salvage
income from equipment credits of $3,352 on one well plugged and abandoned during
the current year and $675 on one fully depleted well.
Total costs and expenses increased in 2000 to $137,222 as compared to $127,758
in 1999, an increase of $9,464, or 7%. The increase was primarily due to
increases in production costs, general and administrative expenses ("G&A") and
abandoned property costs, offset by a decline in depletion.
Production costs were $108,093 in 2000 and $93,481 in 1999, resulting in a
$14,612, or 16%, increase. The increase was primarily due to higher production
taxes associated with higher oil and gas prices, additional well maintenance and
workover costs incurred to stimulate well production.
Abandoned property costs of $1,544 during 2000 were related to the plugging and
abandonment of one well during the current year.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
78% from $5,434 in 1999 to $9,672 in 2000, primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 3% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $6,776 in 2000 and $782 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
2000 as compared to $28,843 in 1999, representing a decrease of
$10,930, or 38%. This decrease was primarily due to a 18,820
barrels of oil increase in proved reserves during 2000 as a
result of higher commodity prices, offset by an increase in oil
production of 998 barrels for the period ended December 31, 2000
compared to the same period in 1999.
880
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 23% to $175,483 from
$142,874 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 6,595 barrels of oil,
3,476 barrels of NGLs and 15,049 mcf of gas were sold, or 12,579 BOEs. In 1998,
7,453 barrels of oil, 3,143 barrels of NGLs and 14,091 mcf of gas were sold, or
12,945 BOEs.
The average price received per barrel of oil increased $3.94, or 30%, from
$13.30 in 1998 to $17.24 in 1999. The average price received per barrel of NGLs
increased $3.48, or 50%, from $6.94 in 1998 to $10.42 in 1999. The average price
received per mcf of gas increased 10% from $1.55 in 1998 to $1.70 in 1999.
A gain on disposition of assets of $1,550 was recognized during 1998 from
equipment credits on a well plugged and abandoned in 1997.
Total costs and expenses decreased in 1999 to $127,758 as compared to $260,912
in 1998, a decrease of $133,154, or 51%. The decrease was primarily due to
declines in the impairment of oil and gas properties, depletion and production
costs, offset by an increase in G&A.
Production costs were $93,481 in 1999 and $101,514 in 1998, resulting in an
$8,033, or 8%, decrease. The decrease was due to declines in well maintenance
costs, workover expenses and ad valorem taxes, offset by an increase in
production taxes due to increased oil and gas revenues.
During this period, G&A increased 26% from $4,303 in 1998 to $5,434 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $782 in 1999
and $1,889 in 1998 for G&A incurred on behalf of the Partnership.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $85,160 related to its oil and gas properties during 1998.
Depletion was $28,843 in 1999 compared to $69,935 in 1998, representing a
decrease of $41,092, or 59%. This decrease was the result of a combination of
factors that included an increase in proved reserves of 56,967 barrels of oil
during 1999 due to higher commodity prices, a reduction in the Partnership's net
depletable basis from charges taken in accordance with SFAS 121 during the
fourth quarter of 1998 and a decline in oil production of 858 barrels for the
period ended December 31, 1999 compared to the same period in 1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
881
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $110,523 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $142,369, offset by increases in production costs paid
of $14,612, G&A expenses paid of $4,238, abandoned property costs paid of $1,544
and working capital of $11,452. The increase in oil and gas receipts resulted
from the increase in commodity prices during 2000 which contributed an
additional $116,842 to oil and gas receipts and an increase of $25,527 resulting
from an increase in production during 2000. The increase in production costs was
primarily due to increased production taxes associated with higher oil and gas
prices and additional well maintenance and workover costs incurred to stimulate
well production. The increase in G&A was primarily due to higher percentage of
the managing general partner's G&A being allocated (limited to 3% of oil and gas
revenues) as a result of increased oil and gas revenues.
Net Cash Provided by (Used in) Investing Activities
The Partnership's principal investing activities during 2000 and 1999 included
expenditures related to equipment upgrades on several oil and gas properties.
Proceeds from disposition of assets of $4,027 during 2000 were due to salvage
income from equipment credits of $3,352 on one well plugged and abandoned during
the current year and $675 on one fully depleted well. Proceeds from disposition
of assets of $2,448 during 1999 were from equipment credits on active wells.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $185,568, of which $1,856 was
distributed to the managing general partner and $183,712 to the limited
partners. In 1999, cash distributions to the partners were $53,182, of which
$532 was distributed to the managing general partner and $52,650 to the limited
partners.
882
PARKER & PARSLEY 88-C, L.P.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 68,027 $ 316,382 $ 175,483 $ 142,874 $ 202,605 $ 265,257
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ -- $ -- $ 85,160 $ 98,341 $ 3,203
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 37,210 $ 185,992 $ 49,060 $ (114,543) $ (60,727) $ 91,333
======== ========== ========== ========== ========== ========== ==========
Allocation of net
income (loss):
Managing general
partner $ $ 372 $ 1,860 $ 491 $ (1,145) $ (607) $ 913
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 36,838 $ 184,132 $ 48,569 $ (113,398) $ (60,120) $ 90,420
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 15.15 $ 75.74 $ 19.98 $ (46.65) $ (24.73) $ 37.19
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 16.38 $ 75.57 $ 21.66 $ 22.54 $ 44.49 $ 47.64
======== ========== ========== ========== ========== ========== ==========
At year end:
Total assets $ $ 348,754 $ 349,884 $ 351,618 $ 353,874 $ 529,458 $ 696,541
======== ========== ========== ========== ========== ========== ==========
883
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
Producing Properties 88-A, L.P., and supplements the proxy statement/prospectus
dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural
Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a
special meeting of limited partners of the partnership. The purpose of the
special meeting is for you to vote upon the merger of the partnership with and
into Pioneer USA that, if completed, will result in your receiving common stock
of Pioneer Natural Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley Producing Properties 88-A, L.P.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's quarterly report on Form 10-Q, including
management's discussion and analysis of financial condition and
results of operations, for the three months ended March 31, 2001
o The partnership's annual report on Form 10-K, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
884
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 5,611
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 6,659
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, Excluding $ 1,927
Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 345.88
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 12 4.21 times
Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 263.74
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 317.89
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 337.40
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment(c) --
----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Not applicable. Since this partnership purchased producing properties,
there were no intangible drilling and development costs nor any related
write-off for tax purposes.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
Although not required by the partnership agreement for the partnership,
special legal counsel will render an opinion on behalf of the limited partners
to Pioneer USA that (1) neither the grant nor the exercise of the right to
approve the merger of the partnership by its limited partners will adversely
affect the federal income tax classification of the partnership or any of its
limited partners; and (2) neither the grant nor exercise of such right will
result in the loss of any limited partner's limited liability. In addition, the
counsel designated to render the opinion is not required to be counsel other
than counsel to Pioneer USA or the partnership. Both the designated counsel and
the legal opinion will be submitted for approval by the limited partners.
Pioneer USA has retained __________ of Dallas, Texas for the purpose of
rendering this legal opinion on behalf of the limited partners to Pioneer USA.
The merger proposals include an approval of that counsel and the form of its
opinion. A copy of the opinion is attached as an exhibit to the merger
proposals.
-2-
885
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 FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 33-19133-A
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
(Exact name of Registrant as specified in its charter)
DELAWARE 75-2225758
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039
---------------------------------------------------------------- -------------
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($500 PER UNIT)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES /X/ 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
No market currently exists for the limited partnership interests of the
Registrant. Based on the original purchase price, the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$5,572,000.
As of March 8, 2001, the number of outstanding limited partnership
interests was 11,222.
The following documents are incorporated by reference into the indicated parts
of this Annual Report on Form 10-K: None
PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACCORDINGLY, NO
ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS AND RESULTS WILL NOT BE
MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD
LOOKING STATEMENTS. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS
THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE
ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
886
PART I
ITEM 1. BUSINESS
Parker & Parsley Producing Properties 88-A, L.P. (the "Partnership") is a
limited partnership organized in 1988 under the laws of the State of Delaware.
The Partnership's managing general partner is Pioneer Natural Resources USA,
Inc. ("Pioneer USA"). Pioneer USA is a wholly-owned subsidiary of Pioneer
Natural Resources Company ("Pioneer"). As of March 8, 2001, the Partnership had
11,222 limited partnership interests outstanding.
The Partnership does not have any employees of its own. Pioneer USA employs 701
persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this Report is filed. Pioneer
USA supplies all management functions.
The Partnership engages in oil and gas development and production and is not
involved in any industry segment other than oil and gas. The Partnership's
production is geographically concentrated in West Texas.
The principal markets during 2000 for the oil produced by the Partnership were
refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. During 2000, Pioneer USA marketed the
Partnership's gas to a variety of purchasers, none of which accounted for 10% or
more of the Partnership's oil and gas revenues. Of the Partnership's total oil
and gas revenues for 2000, approximately 59% was attributable to sales made to
Plains Marketing, L.P. Pioneer USA is of the opinion that the loss of any one
purchaser would not have an adverse effect on its ability to sell its oil,
natural gas liquids ("NGLs") and gas production.
The Partnership's revenues, profitability, cash flow and future rate of growth
are highly dependent on the prevailing prices of oil and gas, which are affected
by numerous factors beyond the Partnership's control. Oil and gas prices
historically have been very volatile. A substantial or extended decline in the
prices of oil or gas could have a material adverse effect on the Partnership's
revenues, profitability and cash flow and could, under certain circumstances,
result in a reduction in the carrying value of the Partnership's oil and gas
properties.
Oil and gas production operations are subject to various types of regulations by
local, state and federal agencies. The Partnership's operations are also subject
to state conservation laws and regulations, including the establishment of
maximum rates of production from wells and the regulation of spacing, plugging
and abandonment of wells. Each state generally imposes a production or severance
tax with respect to production and sale of oil and gas within their respective
jurisdictions. Noncompliance with the laws and regulations may subject the
Partnership to penalties, damages or other liabilities and compliance may
increase the cost of the Partnership's operations.
The oil and gas business is also subject to environmental hazards such as oil
spills, gas leaks and ruptures and discharges of toxic substances or gases that
could expose the Partnership to substantial liability due to pollution and other
environmental damages. Although the Partnership believes that
2
887
its business operations do not impair environmental quality and that its costs
of complying with any applicable environmental regulations are not currently
significant, the Partnership cannot predict what, if any, effect these
environmental regulations may have on its current or future operations.
Numerous uncertainties exist in estimating quantities of proved reserves and
future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the Partnership
conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist of working 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.
The Partnership completed one purchase of producing properties. This acquisition
involved the purchase of working interests in 21 properties, all of which are
operated by the managing general partner. In subsequent years, the Partnership
participated in the drilling of three additional wells and one well was plugged
and abandoned. At December 31, 2000 the Partnership had 23 producing oil and gas
properties.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 2000, 1999 and 1998, and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been evaluated by Williamson Petroleum Consultants, Inc., an independent
petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer USA believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the partners during the fourth
quarter of 2000.
3
888
PART II
ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP
DISTRIBUTIONS
At March 8, 2001, the Partnership had 11,222 outstanding limited partnership
interests held of record by 507 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are not
required to meet the Partnership's obligations are distributed to the partners
at least quarterly in accordance with the limited partnership agreement. During
the years ended December 31, 2000 and 1999, $458,003 and $165,195, respectively,
of such revenue-related distributions were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
2000 1999 1998 1997 1996
----------- ---------- ----------- ---------- ----------
Operating results:
Oil and gas sales $ 742,384 $ 495,753 $ 443,496 $ 753,775 $ 938,418
=========== ========== =========== ========== ==========
Impairment of oil and gas
properties $ - $ 280,950 $ - $ 6,231 $ -
=========== ========== =========== ========== ==========
Net income (loss) $ 357,190 $ (111,304) $ (13,621) $ 255,412 $ 424,569
=========== ========== =========== ========== ==========
Allocation of net income (loss):
Managing general partner $ 3,572 $ (1,113) $ (136) $ 2,554 $ 4,246
=========== ========== =========== ========== ==========
Limited partners $ 353,618 $ (110,191) $ (13,485) $ 252,858 $ 420,323
=========== ========== =========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ 31.51 $ (9.82) $ (1.20) $ 22.53 $ 37.46
=========== ========== =========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ 40.81 $ 14.72 $ 24.99 $ 50.52 $ 45.09
=========== ========== =========== ========== ==========
At year end:
------------
Identifiable assets $ 1,505,780 $1,613,628 $ 1,884,917 $2,212,937 $2,491,855
=========== ========== =========== ========== ==========
4
889
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 50% to $742,384 for 2000 as
compared to $495,753 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decline in production. In 2000, 17,170
barrels of oil, 9,806 barrels of natural gas liquids ("NGLs") and 37,939 mcf of
gas were sold, or 33,299 barrel of oil equivalents ("BOEs"). In 1999, 19,878
barrels of oil, 10,402 barrels of NGLs and 44,467 mcf of gas were sold, or
37,691 BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.62, or 75%, from
$16.82 for 1999 to $29.44 in 2000. The average price received per barrel of NGLs
increased $5.10, or 56%, from $9.18 for 1999 to $14.28 in 2000. The average
price received per mcf of gas increased 72%, from $1.48 for 1999 to $2.55 in
2000. The market price for oil and gas has been extremely volatile in the past
decade and management expects a certain amount of volatility to continue in the
foreseeable future. The Partnership may therefore sell its future oil and gas
production at average prices lower or higher than that received in 2000.
A gain on disposition of assets of $9,859 was recognized during 2000 from
salvage income received on one fully depleted well.
Total costs and expenses decreased in 2000 to $411,959 as compared to $619,585
in 1999, a decrease of $207,626, or 34%. This decrease was primarily the result
of declines in the impairment of oil and gas properties and depletion, offset by
increases in production costs and general and administrative expenses ("G&A").
Production costs were $322,751 in 2000 and $237,875 in 1999, resulting in an
increase of $84,876, or 36%. The increase was primarily due to additional
workover expense and well maintenance costs incurred to stimulate well
production and higher production taxes associated with higher oil and gas
prices.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
50% from $14,872 in 1999 to $22,272 in 2000 primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 3% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $18,064 in 2000 and $8,371 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
5
890
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $280,950 related to its oil and gas properties during 1999.
Depletion was $66,936 in 2000 as compared to $85,888 in 1999, representing a
decrease of $18,952, or 22%. This decrease was primarily due to a reduction in
the Partnership's net depletable basis from charges taken in accordance with
SFAS 121 during the fourth quarter of 1999 and a decline in oil production of
2,708 barrels for the period ended December 31, 2000 compared to the same period
in 1999, offset by a 20,203 barrels of oil decrease in proved reserves during
2000 as a result of a significant well having lower reserves due to a revised
decline curve.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 12% to $495,753 from
$443,496 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 19,878 barrels of oil,
10,402 barrels of NGLs and 44,467 mcf of gas were sold, or 37,691 BOEs. In 1998,
22,482 barrels of oil, 12,009 barrels of NGLs and 51,099 mcf of gas were sold,
or 43,008 BOEs.
The average price received per barrel of oil increased $3.68, or 28%, from
$13.14 for 1998 to $16.82 in 1999. The average price received per barrel of NGLs
increased $2.87, or 45%, from $6.31 for 1998 to $9.18 in 1999. The average price
received per mcf of gas increased 5%, from $1.41 for 1998 to $1.48 in 1999.
Total costs and expenses increased in 1999 to $619,585 as compared to $471,884
in 1998, an increase of $147,701, or 31%. This increase was primarily the result
of increases in the impairment of oil and gas properties and G&A expenses,
offset by declines in depletion and production costs.
Production costs were $237,875 in 1999 and $252,339 in 1998, resulting in a
$14,464, or 6%, decrease. The decrease was due to less well maintenance costs
and ad valorem taxes, offset by an increase in production taxes due to the
increase in oil and gas revenues.
During this period, G&A increased 12% from $13,305 in 1998 to $14,872 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $8,371 in
1999 and $9,891 in 1998 for G&A incurred on behalf of the Partnership.
The Partnership recognized a non-cash SFAS 121 charge of $280,950 related to its
oil and gas properties during 1999.
Depletion was $85,888 in 1999 compared to $206,240 in 1998. This represented a
decrease of $120,352, or 58%. This decrease was the result of an increase in
proved reserves of 77,231 barrels of oil during 1999 as a result of higher
commodity prices and a decline in oil production of 2,604
6
891
barrels for the period ended December 31, 1999 compared to the same period in
1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $159,721 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $251,009 and a decline in working capital of $988,
offset by increases in production costs paid of $84,876 and G&A expenses paid of
$7,400. The increase in oil and gas receipts resulted from the increase in
commodity prices during 2000 which contributed an additional $355,912 to oil and
gas receipts, offset by $104,903 resulting from the decline in production during
2000. The increase in production costs was primarily due to increased production
taxes associated with higher oil and gas prices and additional workover expenses
and well maintenance costs incurred to stimulate well production. The increase
in G&A was primarily due to higher percentage of the managing general partner's
G&A being allocated (limited to 3% of oil and gas revenues) as a result of
increased oil and gas revenues.
Net Cash Provided by (Used in) Investing Activities
The Partnership's principal investing activities during 2000 and 1999 were
related to various upgrades of equipment.
Proceeds from asset dispositions of $9,859 recognized during 2000 were from
equipment credits received on one fully depleted well.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $462,629, of which $4,626 was
distributed to the managing general partner and $458,003 to the limited
partners. In 1999, cash distributions to the partners were $166,787, of which
$1,592 was distributed to the managing general partner and $165,195 to the
limited partners.
7
892
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements of Parker & Parsley Producing Properties 88-A, L.P.:
Independent Auditors' Report......................................................... 9
Balance Sheets as of December 31, 2000 and 1999....................................... 10
Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998................................................................ 11
Statements of Partners' Capital for the Years Ended
December 31, 2000, 1999 and 1998................................................... 12
Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998................................................................ 13
Notes to Financial Statements........................................................ 14
8
893
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley Producing Properties 88-A, L.P.
(A Delaware Limited Partnership):
We have audited the balance sheets of Parker & Parsley Producing Properties
88-A, L.P. as of December 31, 2000 and 1999, and the related statements of
operations, partners' capital and cash flows for each of the three years in the
period ended December 31, 2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley Producing
Properties 88-A, L.P. as of December 31, 2000 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
9
894
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
----------- -----------
ASSETS
------
Current assets:
Cash $ 253,499 $ 323,271
Accounts receivable - oil and gas sales 115,810 87,732
----------- -----------
Total current assets 369,309 411,003
----------- -----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 4,855,712 4,854,930
Accumulated depletion (3,719,241) (3,652,305)
----------- -----------
Net oil and gas properties 1,136,471 1,202,625
----------- -----------
$ 1,505,780 $ 1,613,628
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 11,054 $ 13,463
Partners' capital:
Managing general partner 14,879 15,933
Limited partners (11,222 interests) 1,479,847 1,584,232
----------- -----------
1,494,726 1,600,165
----------- -----------
$ 1,505,780 $ 1,613,628
=========== ===========
The accompanying notes are an integral part of these financial statements.
10
895
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
-------- --------- ---------
Revenues:
Oil and gas $742,384 $ 495,753 $ 443,496
Interest 16,906 12,528 14,767
Gain on disposition of assets 9,859 - -
-------- --------- ---------
769,149 508,281 458,263
-------- --------- ---------
Costs and expenses:
Oil and gas production 322,751 237,875 252,339
General and administrative 22,272 14,872 13,305
Impairment of oil and gas properties - 280,950 -
Depletion 66,936 85,888 206,240
-------- --------- ---------
411,959 619,585 471,884
-------- --------- ---------
Net income (loss) $357,190 $(111,304) $ (13,621)
======== ========= =========
Allocation of net income (loss):
Managing general partner $ 3,572 $ (1,113) $ (136)
======== ========= =========
Limited partners $353,618 $(110,191) $ (13,485)
======== ========= =========
Net income (loss) per limited partnership interest $ 31.51 $ (9.82) $ (1.20)
======== ========= =========
The accompanying notes are an integral part of these financial statements.
11
896
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
-------- ----------- -----------
Partners' capital at January 1, 1998 $ 21,564 $ 2,153,538 $ 2,175,102
Distributions (2,790) (280,435) (283,225)
Net loss (136) (13,485) (13,621)
-------- ----------- -----------
Partners' capital at December 31, 1998 18,638 1,859,618 1,878,256
Distributions (1,592) (165,195) (166,787)
Net loss (1,113) (110,191) (111,304)
-------- ----------- -----------
Partners' capital at December 31, 1999 15,933 1,584,232 1,600,165
Distributions (4,626) (458,003) (462,629)
Net income 3,572 353,618 357,190
-------- ----------- -----------
Partners' capital at December 31, 2000 $ 14,879 $ 1,479,847 $ 1,494,726
======== =========== ===========
The accompanying notes are an integral part of these financial statements.
12
897
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ 357,190 $(111,304) $ (13,621)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Impairment of oil and gas properties - 280,950 -
Depletion 66,936 85,888 206,240
Gain on disposition of assets (9,859) - -
Changes in assets and liabilities:
Accounts receivable (28,078) (38,277) 69,159
Accounts payable (2,409) 6,802 (31,174)
--------- --------- ---------
Net cash provided by operating activities 383,780 224,059 230,604
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas equipment (782) (12,230) (1,181)
Proceeds from asset dispositions 9,859 - -
--------- --------- ---------
Net cash provided by (used in)
investing activities 9,077 (12,230) (1,181)
--------- --------- ---------
Cash flows used in financing activities:
Cash distributions to partners (462,629) (166,787) (283,225)
--------- --------- ---------
Net increase (decrease) in cash (69,772) 45,042 (53,802)
Cash at beginning of year 323,271 278,229 332,031
--------- --------- ---------
Cash at end of year $ 253,499 $ 323,271 $ 278,229
========= ========= =========
The accompanying notes are an integral part of these financial statements.
13
898
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley Producing Properties 88-A, L.P. (the "Partnership") is a
limited partnership organized in 1988 under the laws of the State of Delaware.
The Partnership's managing general partner is Pioneer Natural Resources USA,
Inc. ("Pioneer USA").
The Partnership engages in oil and gas production in Texas and is not
involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements - Preparation
of the accompanying 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 periods.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
14
899
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative expenses
are allocated in part to the Partnership by the managing general partner.
Allocated expenses are determined by the managing general partner based upon the
level of activity of the Partnership relative to the non-partnership activities
of the managing general partner. The method of allocation has been consistent
over the past several years with certain modifications incorporated to reflect
changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized a non-cash impairment provision of $280,950 related to
its proved oil and gas properties during 1999.
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $949,574 less than the tax basis at December 31, 2000.
15
900
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
--------- --------- --------
Net income (loss) per statements of operations $ 357,190 $(111,304) $(13,621)
Depletion and depreciation provisions for tax
reporting purposes less than (greater than)
amounts for financial reporting purposes (55,096) 24,264 26,047
Impairment of oil and gas properties for financial
reporting purposes - 280,950 -
Other (247) (441) 441
--------- --------- --------
Net income per Federal income tax
returns $ 301,847 $ 193,469 $ 12,867
========= ========= ========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
-------- -------- ---------
Property acquisition costs $ 782 $ 12,230 $ 1,181
======== ======== =========
Capitalized oil and gas properties consist of the following:
2000 1999
----------- -----------
Proved properties:
Property acquisition costs $ 4,109,672 $ 4,108,890
Completed wells and equipment 746,040 746,040
----------- -----------
4,855,712 4,854,930
Accumulated depletion (3,719,241) (3,652,305)
----------- -----------
Net oil and gas properties $ 1,136,471 $ 1,202,625
=========== ===========
16
901
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
--------- --------- ---------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 98,073 $ 91,828 $ 99,719
Reimbursement of general and administrative
expenses $ 18,064 $ 8,371 $ 9,891
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
P&P Employees Producing Properties 88-A ("EMPL") and the Partnership are parties
to the Program agreement. EMPL is a general partnership organized for the
benefit of certain employees of Pioneer USA. EMPL was merged with Pioneer USA on
December 28, 2000.
The costs and revenues of the Program are allocated to Pioneer USA and the
Partnership as follows:
Pioneer USA (1) Partnership
--------------- -----------
Revenues:
Revenues from oil and gas production, proceeds from
sales of producing properties and all other revenues:
Before payout 4.040405% 95.959595%
After payout (2) 19.191920% 80.808080%
Costs and expenses:
Property acquisition costs, operating costs, general and
administrative expenses and other costs:
Before payout 4.040405% 95.959595%
After payout (2) 19.191920% 80.808080%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated
at the Partnership level and 78 limited partner interests owned by
Pioneer USA.
(2) The Partnership reached payout in September 1997.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
17
902
Oil and NGLs Gas
(bbls) (mcf)
------------ --------
Net proved reserves at January 1, 1998 563,684 808,875
Revisions (105,464) (18,612)
Production (34,491) (51,099)
--------- --------
Net proved reserves at December 31, 1998 423,729 739,164
Revisions 113,184 157,201
Production (30,280) (44,467)
--------- --------
Net proved reserves at December 31, 1999 506,633 851,898
Revisions (52,176) (249,428)
Production (26,976) (37,939)
--------- --------
Net proved reserves at December 31, 2000 427,481 564,531
======== ========
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $12.90 per barrel of NGLs and $7.43 per mcf of gas,
discounted at 10% was approximately $3,258,000 and undiscounted was $6,795,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
18
903
For the years ended December 31,
------------------------------------
2000 1999 1998
-------- -------- -------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 13,506 $ 12,421 $ 4,629
Future production costs (6,711) (5,947) (3,105)
-------- -------- -------
6,795 6,474 1,524
10% annual discount factor (3,537) (3,486) (609)
-------- -------- -------
Standardized measure of discounted future net cash flows $ 3,258 $ 2,988 $ 915
======== ======== =======
For the years ended December 31,
-----------------------------------
2000 1999 1998
------- ------- -------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (420) $ (258) $ (191)
Net changes in prices and production costs 906 2,308 (1,425)
Revisions of previous quantity estimates (564) 836 (152)
Accretion of discount 299 92 244
Changes in production rates, timing and other 49 (905) (5)
------- ------- -------
Change in present value of future net revenues 270 2,073 (1,529)
------- ------- -------
Balance, beginning of year 2,988 915 2,444
------- ------- -------
Balance, end of year $ 3,258 $ 2,988 $ 915
======= ======= =======
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 59% 57% -
Western Gas Resources, Inc. 4% 6% 28%
Genesis Crude Oil, L.P. - - 57%
At December 31, 2000, the amount receivable from Plains Marketing, L.P.
was $44,879 which is included in the caption "Accounts receivable - oil and gas
sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would not
have an adverse effect on the ability of the Partnership to sell its oil, NGLs
and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of the
limited partnership agreement:
Managing general partner - The managing general partner of the Partnership
is Pioneer USA. Pioneer USA has the power and authority to manage, control
and administer all Partnership affairs. As managing general partner and
operator of the Partnership's properties, all production expenses are
incurred by Pioneer USA and billed to the Partnership. The majority of the
Partnership's oil and gas revenues are received directly by the
Partnership, however, a portion of the oil and gas revenue is initially
received by Pioneer USA prior to being paid to the Partnership. Under the
limited partnership agreement, the managing general partner pays 1% of the
Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is
allocated 1% of the Partnership's revenues.
Limited partner liability - The maximum amount of liability of any limited
partner is the total
19
904
contributions of such partner plus his share of any undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of $5,611,000.
Pioneer USA is required to contribute amounts equal to 1% of initial
Partnership capital less commission and offering expenses allocated to the
limited partners and to contribute amounts necessary to pay costs and
expenses allocated to it under the Partnership agreement to the extent its
share of revenues does not cover such costs.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
20
905
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and executive
officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the
next annual meeting of stockholders or until their successors are elected and
qualified.
Age at
December 31,
Name 2000 Position
---- ---- --------
Scott D. Sheffield 48 President
Timothy L. Dove 44 Executive Vice President, Chief
Financial Officer and Director
Dennis E. Fagerstone 51 Executive Vice President and Director
Mark L. Withrow 53 Executive Vice President, General
Counsel and Director
Danny Kellum 46 Executive Vice President - Domestic
Operations and Directors
Rich Dealy 34 Vice President and Chief Accounting
Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas
with a B.S. in Petroleum Engineering. Since August 1997, he has served as
President, Chief Executive Officer and a director of Pioneer and President of
Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of
Pioneer in August 1999. He served as a director of Pioneer USA from August 1997
until his resignation from the board in June 1999. Mr. Sheffield was the
President and a director of Parker & Parsley Petroleum Company ("Parker &
Parsley") from May 1990 until August 1997 and was the Chairman of the Board and
Chief Executive Officer of Parker & Parsley from October 1990 until August 1997.
He was the sole director of Parker & Parsley from May 1990 until October 1990.
Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a
predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as
Vice President - Engineering of PPDC from September 1981 until April 1985 when
he was elected President and a director. In March 1989, Mr. Sheffield was
elected Chairman of the Board and Chief Executive Officer of PPDC. Before
joining PPDC's predecessor, Mr. Sheffield was employed as a production and
reservoir engineer for Amoco Production Company.
21
906
Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from
Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981
from the University of Chicago. He became Executive Vice President - Business
Development of Pioneer and Pioneer USA in August 1997 and was also appointed a
director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief
Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr.
Dove joined Parker & Parsley in May 1994 as Vice President - International and
was promoted to Senior Vice President - Business Development in October 1996, in
which position he served until August 1997. Prior to joining Parker & Parsley,
Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus
Energy Corp, in various capacities in international exploration and production,
marketing, refining and marketing and planning and development.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997.
From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice
President and Chief Operating Officer of Mesa and from May 1991 to October 1996,
he served as Vice President - Exploration and Production of Mesa. From June 1988
to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President - General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979, was elected Executive
Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000
and Director of Pioneer USA on February 1, 2000. From January 2000 until May
2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and
Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and
Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served
as Spraberry District Manager and as Vice President of the Spraberry and Permian
Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker &
Parsley as an operations engineer in 1981 after a brief career with Mobil Oil
Corporation.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with
a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He
became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
22
907
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is performed by Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the limited
partnership agreement, Pioneer USA pays 1% of the Program's acquisition,
drilling and completion costs and 1% of its operating, general and
administrative expenses. In return, Pioneer USA is allocated 1% of the Program's
revenues.
The Partnership does not directly pay any salaries of the executive officers of
Pioneer USA, but does pay a portion of Pioneer USA's general and administrative
expenses of which these salaries are a part.
See Notes 6 and 9 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" for information regarding fees and
reimbursements paid to the managing general partner by the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more of
the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 78 limited partner interests at January 1, 2001.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general
partner of the Partnership, Pioneer USA, has the exclusive right and full
authority to manage, control and administer the Partnership's business. Under
the limited partnership agreement, limited partners holding a majority of the
outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner
Pursuant to the limited partnership agreement, the Partnership had the following
related party transactions with the managing general partner during the years
ended December 31:
23
908
2000 1999 1998
--------- --------- ---------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 98,073 $ 91,828 $ 99,719
Reimbursement of general and administrative
expenses $ 18,064 $ 8,371 $ 9,891
Under the limited partnership agreement, the managing general partner pays 1% of
the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data"
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
24
909
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial statements
The following are filed as part of this Report:
Independent Auditors' Report
Balance sheets as of December 31, 2000 and 1999
Statements of operations for the years ended December 31, 2000,
1999 and 1998
Statements of partners' capital for the years ended December
31, 2000, 1999 and 1998
Statements of cash flows for the years ended December 31,
2000, 1999 and 1998
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the
required information is in the financial statements or notes thereto,
or is not applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this Report.
25
910
S I G N A T U R E S
Pursuant to the requirements 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.
PARKER & PARSLEY PRODUCING
PROPERTIES 88-A, L.P.
Dated: March 26, 2001 By: Pioneer Natural Resources USA, Inc.
Managing General Partner
By: /s/ Scott D. Sheffield
--------------------------------
Scott D. Sheffield, President
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/ Scott D. Sheffield President of Pioneer USA March 26, 2001
-------------------------------
Scott D. Sheffield
/s/ Timothy L. Dove Executive Vice President, Chief March 26, 2001
------------------------------- Financial Officer and Director of
Timothy L. Dove Pioneer USA
/s/ Dennis E. Fagerstone Executive Vice President and March 26, 2001
------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ Mark L. Withrow Executive Vice President, General March 26, 2001
------------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ Danny Kellum Executive Vice President - Domestic March 26, 2001
------------------------------- Operations and Director of Pioneer
Danny Kellum USA
/s/ Rich Dealy Vice President and Chief Accounting March 26, 2001
------------------------------- Officer of Pioneer USA
Rich Dealy
26
911
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
Exhibit No. Description Page
----------- ----------- ----
3(a) Agreement of Limited Partnership of -
Parker & Parsley Producing Properties
88-A, L.P. incorporated by reference to
Exhibit A of Amendment No. 1 of the
Partnership's Registration Statement on
Form S-1 (Registration No. 33-19133)
(hereinafter referred to as the Partnership's
Registration Statement)
4(b) Subscription Agreement and Power of -
Attorney incorporated by reference to
Exhibit C of the Partnership's Registration
Statement
4(d) Form of Certificate of Limited Partnership -
Interest incorporated by reference to Exhibit
4d of the Partnership's Registration
Statement
10(b) Program Agreement incorporated by reference -
to Exhibit B of the Partnership's Registration
Statement
27
912
PARKER & PARSLEY PRODUCING PROPERTIES 88-A, L.P.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 149,416 $ 742,384 $ 495,753 $ 443,496 $ 753,775 $ 938,418
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ -- $ 280,950 $ -- $ 6,231 $ --
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 71,136 $ 357,190 $ (111,304) $ (13,621) $ 255,412 $ 424,569
======== ========== ========== ========== ========== ========== ==========
Allocation of net
income (loss):
Managing general
partner $ $ 711 $ 3,572 $ (1,113) $ (136) $ 2,554 $ 4,246
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 70,425 $ 353,618 $ (110,191) $ (13,485) $ 252,858 $ 420,323
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 6.28 $ 31.51 $ (9.82) $ (1.20) $ 22.53 $ 37.46
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 10.98 $ 40.81 $ 14.72 $ 24.99 $ 50.52 $ 45.09
======== ========== ========== ========== ========== ========== ==========
At year end:
Identifiable assets $ $1,563,923 $1,505,780 $1,613,628 $1,884,917 $2,212,937 $2,491,855
======== ========== ========== ========== ========== ========== ==========
913
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
Private Investment 88, L.P., and supplements the proxy statement/prospectus
dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural
Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a
special meeting of limited partners of the partnership. The purpose of the
special meeting is for you to vote upon the merger of the partnership with and
into Pioneer USA that, if completed, will result in your receiving common stock
of Pioneer Natural Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley Private Investment 88, L.P.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the three months ended March 31, 2001
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
914
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 9,960
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 11,374
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 3,251
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 326.44
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 4.09 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 160.08
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 297.94
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 317.71
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 152
(b), (c)
-----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners. Although not
required by the partnership agreement, the opinion will also state that neither
the grant nor exercise of such right will result in the loss of any limited
partner's limited liability. In addition, the counsel designated to render the
opinion is not required to be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
915
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P.
(A Delaware Limited Partnership)
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT
December 31, 2000 and 1999
916
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley Private Investment 88, L.P.
(A Delaware Limited Partnership):
We have audited the balance sheets of Parker & Parsley Private Investment 88,
L.P. as of December 31, 2000 and 1999, and the related statements of operations,
partners' capital and cash flows for each of the three years in the period ended
December 31, 2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley Private
Investment 88, L.P. as of December 31, 2000 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
2
917
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
---- ----
ASSETS
------
Current assets:
Cash $ 174,638 $ 200,529
Accounts receivable - oil and gas sales 190,189 115,936
----------- -----------
Total current assets 364,827 316,465
----------- -----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 7,348,142 7,339,803
Accumulated depletion (6,092,889) (6,015,639)
----------- -----------
Net oil and gas properties 1,255,253 1,324,164
----------- -----------
$ 1,620,080 $ 1,640,629
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 9,440 $ 16,379
Partners' capital:
Managing general partner 16,271 16,407
Limited partners (249 interests) 1,594,369 1,607,843
----------- -----------
1,610,640 1,624,250
----------- -----------
$ 1,620,080 $ 1,640,629
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
918
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
---------- ---------- ----------
Revenues:
Oil and gas $1,311,024 $ 805,538 $ 645,636
Interest 14,327 8,390 9,025
Gain on disposition of assets -- -- 237
---------- ---------- ----------
1,325,351 813,928 654,898
---------- ---------- ----------
Costs and expenses:
Oil and gas production 425,425 361,694 390,754
General and administrative 33,284 24,166 17,997
Impairment of oil and gas properties -- -- 118,049
Depletion 77,250 140,915 327,453
---------- ---------- ----------
535,959 526,775 854,253
---------- ---------- ----------
Net income (loss) $ 789,392 $ 287,153 $ (199,355)
========== ========== ==========
Allocation of net income (loss):
Managing general partner $ 7,894 $ 2,872 $ (1,994)
========== ========== ==========
Limited partners $ 781,498 $ 284,281 $ (197,361)
========== ========== ==========
Net income (loss) per limited partnership interest $ 3,138.55 $ 1,141.69 $ (792.61)
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
4
919
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
--------- -------- --------
Partners' capital at January 1, 1998 $ 21,549 $2,116,932 $2,138,481
Distributions (2,892) (286,347) (289,239)
Net loss (1,994) (197,361) (199,355)
------ -------- --------
Partners' capital at December 31, 1998 16,663 1,633,224 1,649,887
Distributions (3,128) (309,662) (312,790)
Net income 2,872 284,281 287,153
------ -------- -------
Partners' capital at December 31, 1999 16,407 1,607,843 1,624,250
Distributions (8,030) (794,972) (803,002)
Net income 7,894 781,498 789,392
------ -------- -------
Partners' capital at December 31, 2000 $ 16,271 $1,594,369 $1,610,640
======= ========= =========
The accompanying notes are an integral part of these financial statements.
5
920
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ 789,392 $ 287,153 $(199,355)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties -- -- 118,049
Depletion 77,250 140,915 327,453
Gain on disposition of assets -- -- (237)
Changes in assets and liabilities:
Accounts receivable (74,253) (50,145) 43,119
Accounts payable (6,939) 4,823 (9,123)
--------- --------- ---------
Net cash provided by operating activities 785,450 382,746 279,906
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties (8,806) (9,360) (14,794)
Proceeds from disposition of assets 467 -- 237
--------- --------- ---------
Net cash used in investing activities (8,339) (9,360) (14,557)
--------- --------- ---------
Cash flows used in financing activities:
Cash distributions to partners (803,002) (312,790) (289,239)
--------- --------- ---------
Net increase (decrease) in cash (25,891) 60,596 (23,890)
Cash at beginning of year 200,529 139,933 163,823
--------- --------- ---------
Cash at end of year $ 174,638 $ 200,529 $ 139,933
========= ========= =========
The accompanying notes are an integral part of these financial statements.
6
921
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley Private Investment 88, L.P. (the "Partnership") was
organized in 1988 as a general partnership under the laws of the State of Texas
and was converted to a Delaware limited partnership in 1989. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements - Preparation
of the accompanying 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 periods.
Actual results could differ from those estimates.
7
922
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated in part to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non-partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentation.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
8
923
Partnership recognized a non-cash impairment provision of $118,049 related to
its proved oil and gas properties during 1998.
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $148,226 greater than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
--------- --------- -------
Net income (loss) per statements of operations $ 789,392 $ 287,153 $(199,355)
Depletion and depreciation provisions for tax reporting
purposes less than amounts for financial reporting
purposes 67,335 130,790 319,019
Impairment of oil and gas properties for financial
reporting purposes - - 118,049
Other, net (1,469) 221 78
--------- --------- -------
Net income per Federal income tax returns $ 855,258 $ 418,164 $ 237,791
========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
--------- --------- -------
Development costs $ 8,806 $ 9,360 $ 14,794
======== ======== ========
Capitalized oil and gas properties consist of the following:
2000 1999
---- ----
Proved properties:
Property acquisition costs $ 76,042 $ 76,042
Completed wells and equipment 7,272,100 7,263,761
--------- ---------
7,348,142 7,339,803
Accumulated depletion (6,092,889) (6,015,639)
----------- ----------
Net oil and gas properties $ 1,255,253 $ 1,324,164
========== ==========
9
924
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
-------- -------- -----
Payment of lease operating and supervision
charges in accordance with standard industry
operating agreements $ 164,648 $ 159,072 $ 153,460
Reimbursement of general and administrative expenses $ 29,882 $ 18,547 $ 14,864
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA
and the Partnership are parties to the Program agreement.
The costs and revenues of the Program are allocated to Pioneer USA and
the Partnership as follows:
Pioneer USA (1) Partnership
--------------- -----------
Revenues:
Proceeds from disposition of depreciable
properties 9.09091% 90.90909%
All other revenues 24.242425% 75.757575%
Costs and expenses:
Lease acquisition costs, drilling and completion
costs and all other costs 9.09091% 90.90909%
Operating costs, direct costs and general and
administrative expenses 24.242425% 75.757575%
(1) Excludes Pioneer USA's 1% general partner ownership which is
allocated at the Partnership level.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
10
925
Oil and NGLs Gas
(bbls) (mcf)
---------- ----------
Net proved reserves at January 1, 1998 642,625 841,260
Revisions (223,184) (203,072)
Production (48,933) (61,718)
---------- ----------
Net proved reserves at December 31, 1998 370,508 576,470
Revisions 353,229 566,412
Production (48,802) (66,701)
---------- ----------
Net proved reserves at December 31, 1999 674,935 1,076,181
Revisions 142,138 (79,131)
Production (46,284) (59,532)
---------- ----------
Net proved reserves at December 31, 2000 770,789 937,518
========== ==========
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.25 per barrel of NGLs and $7.86 per mcf of gas,
discounted at 10% was approximately $5,885,000 and undiscounted was $12,796,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
-----------------------------------
2000 1999 1998
-------- -------- --------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 24,468 $ 16,797 $ 4,079
Future production costs (11,672) (9,146) (2,814)
-------- -------- --------
12,796 7,651 1,265
10% annual discount factor (6,911) (3,791) (504)
-------- -------- --------
Standardized measure of discounted future net cash flows $ 5,885 $ 3,860 $ 761
======== ======== ========
11
926
For the years ended December 31,
---------------------------------------
2000 1999 1998
-------- --------- --------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (886) $ (444) $ (255)
Net changes in prices and production costs 2,139 1,723 (1,538)
Revisions of previous quantity estimates 898 2,410 (366)
Accretion of discount 386 76 273
Changes in production rates, timing and other (512) (666) (79)
-------- --------- --------
Change in present value of future net revenues 2,025 3,099 (1,965)
-------- --------- --------
Balance, beginning of year 3,860 761 2,726
-------- --------- --------
Balance, end of year $ 5,885 $ 3,860 $ 761
========= ========== =========
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's
oil and gas sales (a major customer is defined as a customer whose sales exceed
10% of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 55% 52% -
Genesis Crude Oil, L.P. - - 63%
Western Gas Resources, Inc. 4% 5% 21%
At December 31, 2000, the amount receivable from Plains Marketing, L.P.
was $52,075 which is included in the caption "Accounts receivable - oil and gas
sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the Partnership agreement:
Managing general partner - The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Program and Partnership affairs. As
managing general partner and operator of the Partnership's properties,
all production expenses are incurred by Pioneer USA and billed to the
Partnership. The majority of the Partnership's oil and gas revenues are
received directly by the Partnership, however, a portion of the oil and
gas revenue is initially received by Pioneer USA prior to being paid to
the Partnership. Under the limited partnership agreement, the managing
general partner pays 1% of the Partnership's acquisition, drilling and
completion costs and 1% of its operating and general and administrative
expenses. The managing general partner is also responsible for
12
927
1% of the guaranty and loan commitment fees. In return, it is allocated
1% of the Partnership's revenues.
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The partners entered into subscription
agreements for aggregate capital contributions of $9,960,000. Pioneer
USA is required to contribute amounts equal to 1% of initial Partnership
capital less commission and organization and offering costs allocated to
the limited partners and to contribute amounts necessary to pay costs
and expenses allocated to it under the Partnership agreement to the
extent its share of revenues does not cover such costs.
13
928
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACCORDINGLY, NO ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS
AND RESULTS WILL NOT BE MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS
DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 63% to $1,311,024 for 2000 as
compared to $805,538 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decline in production. In 2000, 30,403
barrels of oil, 15,881 barrels of natural gas liquids ("NGLs") and 59,532 mcf of
gas were sold, or 56,206 barrel of oil equivalents ("BOEs"). In 1999, 30,947
barrels of oil, 17,855 barrels of NGLs and 66,701 mcf of gas were sold, or
59,919 BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.44, or 73%, from
$17.01 in 1999 to $29.45 in 2000. The average price received per barrel of NGLs
increased $6.29, or 67%, from $9.32 in 1999 to $15.61 in 2000. The average price
received per mcf of gas increased 67% from $1.69 in 1999 to $2.82 in 2000. The
market price for oil and gas has been extremely volatile in the past decade, and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
Total costs and expenses increased in 2000 to $535,959 as compared to $526,775
in 1999, an increase of $9,184, or 2%. The increase was due to increases in
production costs and general and administrative expenses ("G&A"), offset by a
decline in depletion.
Production costs were $425,425 in 2000 and $361,694 in 1999, resulting in a
$63,731 increase, or 18%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices and additional well maintenance
costs incurred to stimulate well production.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
38% from $24,166 in 1999 to $33,284 in 2000, primarily due to a higher
percentage of the managing general partner's G&A being allocated (limited to 3%
of oil and gas revenues) as a result of increased oil and gas revenues. The
Partnership paid the managing general partner $29,882 in 2000 and $18,547 in
1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid
directly by the Partnership. The managing general partner determines the
allocated expenses based upon the level of activity of the Partnership relative
to the non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
Depletion was $77,250 in 2000 compared to $140,915 in 1999, representing a
decrease of $63,665, or 45%. This decrease was primarily due to a 111,058
barrels of oil increase in proved reserves during 2000 as a result of higher
commodity prices.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 25% to $805,538 from
$645,636 in 1998. The increase in revenues resulted from higher average prices
received. In 1999, 30,947 barrels of oil, 17,855 barrels of NGLs and 66,701 mcf
of gas
929
were sold, or 59,919 BOEs. In 1998, 33,377 barrels of oil, 15,556 barrels of
NGLs and 61,718 mcf of gas were sold, or 59,219 BOEs.
The average price received per barrel of oil increased $3.70, or 28%, from
$13.31 in 1998 to $17.01 in 1999. The average price received per barrel of NGLs
increased $2.53, or 37%, from $6.79 in 1998 to $9.32 in 1999. The average price
received per mcf of gas increased 9% from $1.55 in 1998 to $1.69 in 1999.
Total costs and expenses decreased in 1999 to $526,775 as compared to $854,253
in 1998, a decrease of $327,478, or 38%. The decrease was due to declines in
depletion, the impairment of oil and gas properties and production costs, offset
by an increase in G&A.
Production costs were $361,694 in 1999 and $390,754 in 1998, resulting in a
$29,060 decrease, or 7%. The decrease was due to declines in well maintenance
costs and ad valorem taxes, offset by an increase in production taxes due to
increased oil and gas revenues.
During this period, G&A increased 34% from $17,997 in 1998 to $24,166 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $18,547 in
1999 and $14,864 in 1998 for G&A incurred on behalf of the Partnership.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $118,049 related to its oil and gas properties during 1998.
Depletion was $140,915 in 1999 compared to $327,453 in 1998, representing a
decrease of $186,538, or 57%. This decrease was the result of an increase in
proved reserves of 220,875 barrels of oil during 1999 as a result of higher
commodity prices and a reduction in the Partnership's net depletable basis from
charges taken in accordance with SFAS 121 during the fourth quarter of 1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
930
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $402,704 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $511,423, offset by increases in production costs paid
of $63,731, G&A expenses paid of $9,118 and working capital of $35,870. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $578,466 to oil and gas receipts,
offset by $67,043 resulting from the decline in production during 2000. The
increase in production costs was primarily due to increased production taxes
associated with higher oil and gas prices and additional well maintenance costs
incurred to stimulate well production. The increase in G&A was primarily due to
higher percentage of the managing general partner's G&A being allocated (limited
to 3% of oil and gas revenues) as a result of increased oil and gas revenues.
Net Cash Used in Investing Activities
The Partnership's principal investing activities during 2000 and 1999 included
expenditures related to equipment upgrades on several oil and gas properties.
Proceeds recognized during 2000 of $467 were due to equipment credits received
on an active property.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $803,002, of which $8,030 was
distributed to the managing general partner and $794,972 to the limited
partners. In 1999, cash distributions to the partners were $312,790, of which
$3,128 was distributed to the managing general partner and $309,662 to the
limited partners.
931
PARKER & PARSLEY PRIVATE INVESTMENT 88, L.P.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 274,206 $1,311,024 $ 805,538 $ 645,636 $ 940,268 $1,151,975
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ -- $ -- $ 118,049 $ 791,857 $ --
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 136,888 $ 789,392 $ 287,153 $ (199,355) $ (485,703) $ 480,356
======== ========== ========== ========== ========== ========== ==========
Allocation of net
income (loss):
Managing general
partner $ $ 1,369 $ 7,894 $ 2,872 $ (1,994) $ (4,857) $ 4,804
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 135,519 $ 781,498 $ 284,281 $ (197,361) $ (480,846) $ 475,552
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 544.25 $ 3,138.55 $ 1,141.69 $ (792.61) $(1,931.11) $ 1,909.85
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 639.71 $ 3,192.66 $ 1,243.62 $ 1,149.99 $ 2,376.82 $ 2,312.00
======== ========== ========== ========== ========== ========== ==========
At year end:
Total assets $ $1,621,972 $1,620,080 $1,640,629 $1,661,443 $2,159,160 $3,237,747
======== ========== ========== ========== ========== ========== ==========
932
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 89-A CONV., L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
89-A Conv., L.P., and supplements the proxy statement/prospectus dated ,
2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA,
Inc., by which Pioneer USA is soliciting proxies to be voted at a special
meeting of limited partners of the partnership. The purpose of the special
meeting is for you to vote upon the merger of the partnership with and into
Pioneer USA that, if completed, will result in your receiving common stock of
Pioneer Natural Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 89-A Conv., L.P.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the three months ended March 31, 2001
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
933
PARKER & PARSLEY 89-A CONV., L.P.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 2,797
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 2,852
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 890
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 318.08
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.97 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 158.81
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 289.91
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 309.63
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 149
(b), (c)
-----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners. Although not
required by the partnership agreement, the opinion will also state that neither
the grant nor exercise of such right will result in the loss of any limited
partner's limited liability. In addition, the counsel designated to render the
opinion is not required to be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
934
PARKER & PARSLEY 89-A CONV., L.P.
(A Delaware Limited Partnership)
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT
December 31, 2000 and 1999
935
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 89-A Conv., L.P.
(A Delaware Limited Partnership):
We have audited the balance sheets of Parker & Parsley 89-A Conv., L.P. as of
December 31, 2000 and 1999, and the related statements of operations, partners'
capital and cash flows for each of the three years in the period ended December
31, 2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 89-A Conv.,
L.P. as of December 31, 2000 and 1999, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
2
936
PARKER & PARSLEY 89-A CONV., L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
----------- -----------
ASSETS
------
Current assets:
Cash $ 49,781 $ 58,311
Accounts receivable - oil and gas sales 57,620 37,719
----------- -----------
Total current assets 107,401 96,030
----------- -----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 2,205,981 2,203,522
Accumulated depletion (1,860,437) (1,832,074)
----------- -----------
Net oil and gas properties 345,544 371,448
----------- -----------
$ 452,945 $ 467,478
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 4,194 $ 5,804
Partners' capital:
Managing general partner 4,556 4,685
Limited partners (2,797 interests) 444,195 456,989
----------- -----------
448,751 461,674
----------- -----------
$ 452,945 $ 467,478
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
937
PARKER & PARSLEY 89-A CONV., L.P.
(A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Revenues:
Oil and gas $ 383,529 $ 241,781 $ 196,186
Interest 4,022 2,353 2,629
Gain on disposition of assets 1,765 1,483 648
--------- --------- ---------
389,316 245,617 199,463
--------- --------- ---------
Costs and expenses:
Oil and gas production 135,124 118,700 121,865
General and administrative 12,370 9,612 7,006
Impairment of oil and gas properties 6,198 -- 103,108
Depletion 22,165 39,348 117,246
--------- --------- ---------
175,857 167,660 349,225
--------- --------- ---------
Net income (loss) $ 213,459 $ 77,957 $(149,762)
========= ========= =========
Allocation of net income (loss):
Managing general partner $ 2,135 $ 780 $ (1,498)
========= ========= =========
Limited partners $ 211,324 $ 77,177 $(148,264)
========= ========= =========
Net income (loss) per limited partnership interest $ 75.55 $ 27.59 $ (53.01)
========= ========= =========
The accompanying notes are an integral part of these financial statements.
4
938
PARKER & PARSLEY 89-A CONV., L.P.
(A Delaware Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
--------- --------- ---------
Partners' capital at January 1, 1998 $ 7,016 $ 687,886 $ 694,902
Distributions (806) (79,919) (80,725)
Net loss (1,498) (148,264) (149,762)
--------- --------- ---------
Partners' capital at December 31, 1998 4,712 459,703 464,415
Distributions (807) (79,891) (80,698)
Net income 780 77,177 77,957
--------- --------- ---------
Partners' capital at December 31, 1999 4,685 456,989 461,674
Distributions (2,264) (224,118) (226,382)
Net income 2,135 211,324 213,459
--------- --------- ---------
Partners' capital at December 31, 2000 $ 4,556 $ 444,195 $ 448,751
========= ========= =========
The accompanying notes are an integral part of these financial statements.
5
939
PARKER & PARSLEY 89-A CONV., L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ 213,459 $ 77,957 $(149,762)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depletion 22,165 39,348 117,246
Impairment of oil and gas properties 6,198 -- 103,108
Gain on disposition of assets (1,765) (1,483) (648)
Changes in assets and liabilities:
Accounts receivable (19,901) (15,731) 6,119
Accounts payable (1,610) (17) (3,072)
--------- --------- ---------
Net cash provided by operating activities 218,546 100,074 72,991
--------- --------- ---------
Cash flows from investing activities:
(Additions) deletions to oil and gas properties (2,459) 197 (9,993)
Proceeds from disposition of assets 1,765 1,483 648
--------- --------- ---------
Net cash provided by (used in) investing
activities (694) 1,680 (9,345)
--------- --------- ---------
Cash flows used in financing activities:
Cash distributions to partners (226,382) (80,698) (80,725)
--------- --------- ---------
Net increase (decrease) in cash (8,530) 21,056 (17,079)
Cash at beginning of year 58,311 37,255 54,334
--------- --------- ---------
Cash at end of year $ 49,781 $ 58,311 $ 37,255
========= ========= =========
The accompanying notes are an integral part of these financial statements.
6
940
PARKER & PARSLEY 89-A CONV., L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 89-A Conv., L.P. (the "Partnership") was organized in
1989 as a general partnership under the laws of the State of Texas and was
converted to a Delaware limited partnership in 1990. The Partnership's managing
general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -
Preparation of the accompanying 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 periods. Actual results could differ from those estimates.
7
941
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated in part to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non-partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
8
942
Partnership recognized a non-cash impairment provision of $6,198 and $103,108
related to its proved oil and gas properties during 2000 and 1998, respectively.
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $52,175 greater than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
--------- --------- ---------
Net income (loss) per statements of operations $ 213,459 $ 77,957 $(149,762)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes 18,394 35,333 113,374
Impairment of oil and gas properties for financial
reporting purposes 6,198 -- 103,108
Other, net (560) (1,305) 1,416
--------- --------- ---------
Net income per Federal income tax returns $ 237,491 $ 111,985 $ 68,136
========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
--------- --------- ------
Development costs $ 2,459 $ 4,107 $5,690
========= ========= ======
Capitalized oil and gas properties consist of the following:
2000 1999
----------- -----------
Proved properties:
Property acquisition costs $ 93,966 $ 93,966
Completed wells and equipment 2,112,015 2,109,556
----------- -----------
2,205,981 2,203,522
Accumulated depletion (1,860,437) (1,832,074)
----------- -----------
Net oil and gas properties $ 345,544 $ 371,448
=========== ===========
9
943
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
------- ------- -------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $52,987 $52,678 $51,730
Reimbursement of general and administrative
expenses $10,994 $ 7,203 $ 5,808
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
P&P Employees 89-A Conv., Ltd. ("EMPL"), Parker & Parsley 89-A, L.P. and the
Partnership (the "Partnerships") are parties to the Program agreement. EMPL is a
limited partnership organized for the benefit of certain employees of Pioneer
USA. EMPL was merged with Pioneer USA on December 28, 2000,
The costs and revenues of the Program are allocated to Pioneer USA and
the Partnerships as follows:
Pioneer USA (1) Partnerships (2)
--------------- ----------------
Revenues:
Proceeds from disposition of depreciable and
depletable properties -
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
All other revenues -
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
Costs and expenses:
Lease acquisition costs, drilling and completion
costs and all other costs 9.090909% 90.909091%
Operating costs, reporting and legal expenses and
and general and administrative expenses -
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated
at the Partnership level.
(2) The allocation between the Partnership and Parker & Parsley 89-A, L.P.
is 25.166457% and 74.833543%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
10
944
Oil and NGLs Gas
(bbls) (mcf)
------------ --------
Net proved reserves at January 1, 1998 189,854 326,511
Revisions (83,618) (110,279)
Production (14,102) (21,106)
-------- --------
Net proved reserves at December 31, 1998 92,134 195,126
Revisions 106,866 158,479
Production (14,166) (20,484)
-------- --------
Net proved reserves at December 31, 1999 184,834 333,121
Revisions 30,916 (27,906)
Production (13,092) (20,057)
-------- --------
Net proved reserves at December 31, 2000 202,658 285,158
======== ========
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $12.34 per barrel of NGLs and $8.31 per mcf of gas,
discounted at 10% was approximately $1,685,000 and undiscounted $3,469,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
11
945
For the years ended December 31,
---------------------------------
2000 1999 1998
------- ------- -------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 6,835 $ 4,546 $ 1,057
Future production costs (3,367) (2,613) (750)
------- ------- -------
3,468 1,933 307
10% annual discount factor (1,783) (891) (101)
------- ------- -------
Standardized measure of discounted future net cash flows $ 1,685 $ 1,042 $ 206
======= ======= =======
For the years ended December 31,
---------------------------------
2000 1999 1998
------- ------- -------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (248) $ (123) $ (74)
Net changes in prices and production costs 765 461 (511)
Revisions of estimated future development costs -- -- --
Revisions of previous quantity estimates 196 720 (138)
Accretion of discount 104 20 87
Changes in production rates, timing and other (174) (242) (27)
------- ------- -------
Change in present value of future net revenues 643 836 (663)
------- ------- -------
Balance, beginning of year 1,042 206 869
------- ------- -------
Balance, end of year $ 1,685 $ 1,042 $ 206
======= ======= =======
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil and
gas sales (a major customer is defined as a customer whose sales exceed 10% of
total sales) during the years ended December 31:
2000 1999 1998
---- ---- ----
Plains Marketing, L.P. 63% 62% -
Genesis Crude Oil, L.P. - - 59%
Western Gas Resources, Inc. 3% 3% 12%
At December 31, 2000, the amount receivable from Plains Marketing, L.P.
was $22,502 which is included in the caption "Accounts receivable - oil and gas
sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the Partnership agreement:
Managing general partner - The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Program and Partnership affairs. As
managing general partner and operator of the Partnership's properties,
all production expenses are incurred by Pioneer USA and billed to the
Partnership. The
12
946
majority of the Partnership's oil and gas revenues are received directly
by the Partnership, however, a portion of the oil and gas revenue is
initially received by Pioneer USA prior to being paid to the
Partnership. Under the limited partnership agreement, the managing
general partner pays 1% of the Partnership's acquisition, drilling and
completion costs and 1% of its operating and general and administrative
expenses. In return, it is allocated 1% of the Partnership's revenues.
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The partners entered into subscription
agreements for aggregate capital contributions of $2,797,000. The
managing general partner is required to contribute amounts equal to 1%
of initial Partnership capital less commission and organization and
offering costs allocated to the limited partners and to contribute
amounts necessary to pay costs and expenses allocated to it under the
Partnership agreement to the extent its share of revenues does not cover
such costs.
13
947
PARKER & PARSLEY 89-A CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACCORDINGLY, NO ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS
AND RESULTS WILL NOT BE MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS
DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 59% to $383,529 for 2000 as
compared to $241,781 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decline in production. In 2000, 8,466
barrels of oil, 4,626 barrels of natural gas liquids ("NGLs") and 20,057 mcf of
gas were sold, or 16,435 barrel of oil equivalents ("BOEs"). In 1999, 9,190
barrels of oil, 4,976 barrels of NGLs and 20,484 mcf of gas were sold, or 17,580
BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.48, or 73%, from
$17.11 in 1999 to $29.59 in 2000. The average price received per barrel of NGLs
increased $5.88, or 62%, from $9.54 in 1999 to $15.42 in 2000. The average price
received per mcf of gas increased 70% from $1.81 in 1999 to $3.07 in 2000. The
market price for oil and gas has been extremely volatile in the past decade, and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
During 2000 and 1999, gains on disposition of assets of $1,765 and $1,483,
respectively, were attributable to credits received from equipment salvage on
one fully depleted well in each year.
Total costs and expenses increased in 2000 to $175,856 as compared to $167,660
in 1999, an increase of $8,196, or 5%. The increase was due to increases in
production costs, the impairment of oil and gas properties and general and
administrative expenses ("G&A"), offset by a decline in depletion.
Production costs were $135,124 in 2000 and $118,700 in 1999, resulting in a
$16,424 increase, or 14%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices and additional workover and well
maintenance costs incurred to stimulate well production.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
29% from $9,612 in 1999 to $12,370 in 2000, primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 3% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $10,994 in 2000 and $7,203 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $6,198 related to its oil and gas properties during 2000.
948
Depletion was $22,165 in 2000 as compared to $39,348 in 1999, representing a
decrease of $17,183, or 44%. This decrease was primarily due to a 28,723 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
prices.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 23% to $241,781 from
$196,186 in 1998. The increase in revenues resulted from higher average prices
received. In 1999, 9,190 barrels of oil, 4,976 barrels of natural gas liquids
("NGLs") and 20,484 mcf of gas were sold, or 17,580 barrel of oil equivalents
("BOEs"). In 1998, 9,782 barrels of oil, 4,320 barrels of NGLs and 21,106 mcf of
gas were sold, or 17,620 BOEs.
The average price received per barrel of oil increased $3.88, or 29%, from
$13.23 in 1998 to $17.11 in 1999. The average price received per barrel of NGLs
increased $2.59, or 37%, from $6.95 in 1998 to $9.54 in 1999. The average price
received per mcf of gas increased 4% from $1.74 in 1998 to $1.81 in 1999.
During 1999, gain on disposition of assets of $1,483 was attributable to credits
received from equipment salvage on one active well. Gain on disposition of
assets of $648 was attributable to credits received in 1998 from the disposal of
oil and gas equipment on a well that was plugged and abandoned in a prior year.
Total costs and expenses decreased in 1999 to $167,660 as compared to $349,225
in 1998, a decrease of $181,565, or 52%. The decrease was due to declines in the
impairment of oil and gas properties, depletion and production costs, offset by
an increase in G&A.
Production costs were $118,700 in 1999 and $121,865 in 1998, resulting in a
$3,165 decrease, or 3%. The decrease was due to declines in well maintenance
costs and ad valorem taxes, offset by an increase in production taxes.
During this period, G&A increased 37% from $7,006 in 1998 to $9,612 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $7,203 in
1999 and $5,808 in 1998 for G&A incurred on behalf of the Partnership.
The Partnership recognized a non-cash SFAS 121 charge of $103,108 related to its
oil and gas properties during 1998.
Depletion was $39,348 in 1999 compared to $117,246 in 1998, representing a
decrease of $77,898, or 66%. This decrease was primarily due to an increase in
proved reserves of 70,433 barrels of oil during 1999 as a result of higher
commodity prices and a reduction in the Partnership's net depletable basis from
charges taken in accordance with SFAS 121 during the fourth quarter of 1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
949
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $118,472 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $143,417, offset by increases in production costs paid
of $16,424, G&A expenses paid of $2,758 and working capital of $5,763. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $171,552 to oil and gas receipts,
offset by $28,135 resulting from the decline in production during 2000. The
increase in production costs was primarily due to increased production taxes
associated with higher oil and gas prices and workover and well maintenance
costs incurred to stimulate well production. The increase in G&A was primarily
due to higher percentage of the managing general partner's G&A being allocated
(limited to 3% of oil and gas revenues) as a result of increased oil and gas
revenues.
Net Cash Provided by (Used in) Investing Activities
The Partnership's principal investing activities during 2000 and 1999 were
related to equipment upgrades on active properties.
During 2000 and 1999, proceeds from disposition of assets of $1,765 and $1,483,
respectively, were from equipment credits received on an active well.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $226,382, of which $2,264 was
distributed to the managing general partner and $224,118 to the limited
partners. In 1999, cash distributions to the partners were $80,698, of which
$807 was distributed to the managing general partner and $79,891 to the limited
partners.
950
PARKER & PARSLEY 89-A CONV., L.P.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 81,009 $ 383,529 $ 241,781 $ 196,186 $ 288,192 $ 381,014
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ 6,198 $ -- $ 103,108 $ 178,895 $ --
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 41,603 $ 213,459 $ 77,957 $ (149,762) $ (90,749) $ 163,974
======== ========== ========== ========== ========== ========== ==========
Allocation of net
income (loss):
Managing general
partner $ $ 416 $ 2,135 $ 780 $ (1,498) $ (907) $ 1,640
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 41,187 $ 211,324 $ 77,177 $ (148,264) $ (89,842) $ 162,334
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 14.73 $ 75.55 $ 27.59 $ (53.01) $ (32.12) $ 58.04
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 17.96 $ 80.13 $ 28.56 $ 28.57 $ 62.59 $ 68.91
======== ========== ========== ========== ========== ========== ==========
At year end:
Total assets $ $ 458,988 $ 452,945 $ 467,478 $ 465,932 $ 703,794 $ 970,154
======== ========== ========== ========== ========== ========== ==========
951
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 89-A, L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
89-A, L.P., and supplements the proxy statement/prospectus dated , 2001, of
Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by
which Pioneer USA is soliciting proxies to be voted at a special meeting of
limited partners of the partnership. The purpose of the special meeting is for
you to vote upon the merger of the partnership with and into Pioneer USA that,
if completed, will result in your receiving common stock of Pioneer Natural
Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 89-A, L.P.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's quarterly report on Form 10-Q, including
management's discussion and analysis of financial condition and
results of operations, for the three months ended March 31, 2001
o The partnership's annual report on Form 10-K, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
952
PARKER & PARSLEY 89-A, L.P.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 8,317
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 8,482
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 2,618
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 318.84
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.93 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 159.61
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 290.67
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 310.39
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 149
(b), (c)
----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners. Although not
required by the partnership agreement, the opinion will also state that neither
the grant nor exercise of such right will result in the loss of any limited
partner's limited liability. In addition, the counsel designated to render the
opinion is not required to be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
953
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 FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 33-26097-01
PARKER & PARSLEY 89-A, L.P.
(Exact name of Registrant as specified in its charter)
DELAWARE 75-2297058
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039
---------------------------------------------------------------- -------------
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
-----------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES /X/ 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
No market currently exists for the limited partnership interests of the
Registrant. Based on the original purchase price, the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$8,212,000.
As of March 8, 2001, the number of outstanding limited partnership
interests was 8,317.
The following documents are incorporated by reference into the indicated parts
of this Annual Report on Form 10-K: None
PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACCORDINGLY, NO
ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS AND RESULTS WILL NOT BE
MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD
LOOKING STATEMENTS. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS
THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE
ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
954
PART I
ITEM 1. BUSINESS
Parker & Parsley 89-A, L.P. (the "Partnership") is a limited partnership
organized in 1989 under the laws of the State of Delaware. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company
("Pioneer"). As of March 8, 2001, the Partnership had 8,317 limited partnership
interests outstanding.
The Partnership does not have any employees of its own. Pioneer USA employs 701
persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this Report is filed. Pioneer
USA supplies all management functions.
The Partnership engages in oil and gas development and production and is not
involved in any industry segment other than oil and gas. The Partnership's
production is geographically concentrated in West Texas.
The principal markets during 2000 for the oil produced by the Partnership were
refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. During 2000, Pioneer USA marketed the
Partnership's gas to a variety of purchasers, none of which accounted for 10% or
more of the Partnership's oil and gas revenues. Of the Partnership's total oil
and gas revenues for 2000, approximately 63% was attributable to sales made to
Plains Marketing, L.P. Pioneer USA is of the opinion that the loss of any one
purchaser would not have an adverse effect on its ability to sell its oil,
natural gas liquids ("NGLs") and gas production.
The Partnership's revenues, profitability, cash flow and future rate of growth
are highly dependent on the prevailing prices of oil and gas, which are affected
by numerous factors beyond the Partnership's control. Oil and gas prices
historically have been very volatile. A substantial or extended decline in the
prices of oil or gas could have a material adverse effect on the Partnership's
revenues, profitability and cash flow and could, under certain circumstances,
result in a reduction in the carrying value of the Partnership's oil and gas
properties.
Oil and gas production operations are subject to various types of regulations by
local, state and federal agencies. The Partnership's operations are also subject
to state conservation laws and regulations, including the establishment of
maximum rates of production from wells and the regulation of spacing, plugging
and abandonment of wells. Each state generally imposes a production or severance
tax with respect to production and sale of oil and gas within their respective
jurisdictions. Noncompliance with the laws and regulations may subject the
Partnership to penalties, damages or other liabilities and compliance may
increase the cost of the Partnership's operations.
The oil and gas business is also subject to environmental hazards such as oil
spills, gas leaks and
2
955
ruptures and discharges of toxic substances or gases that could expose the
Partnership to substantial liability due to pollution and other environmental
damages. Although the Partnership believes that its business operations do not
impair environmental quality and that its costs of complying with any applicable
environmental regulations are not currently significant, the Partnership cannot
predict what, if any, effect these environmental regulations may have on its
current or future operations.
Numerous uncertainties exist in estimating quantities of proved reserves and
future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the Partnership
conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist of leasehold 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 in
the Spraberry Trend area of West Texas were acquired by the Partnership,
resulting in the Partnership's participation in the drilling of 33 oil and gas
wells. One well has been plugged and abandoned. At December 31, 2000, 32 wells
were producing.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 2000, 1999 and 1998 and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been evaluated by Williamson Petroleum Consultants, Inc., an independent
petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer USA believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the partners during the fourth
quarter of 2000.
3
956
PART II
ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTEREST AND LIMITED PARTNERSHIP
DISTRIBUTIONS
At March 8, 2001, the Partnership had 8,317 outstanding limited partnership
interests held of record by 609 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are not
required to meet the Partnership's obligations are distributed to the partners
at least quarterly in accordance with the limited partnership agreement. During
the years ended December 31, 2000 and 1999, $666,425 and $237,558, respectively,
of such revenue-related distributions were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
Operating results:
-----------------
Oil and gas sales $1,140,280 $ 718,969 $ 583,396 $ 856,926 $1,132,944
========== ========== ========== ========== ==========
Impairment of oil and gas
properties $ 18,391 $ - $ 306,826 $ 531,929 $ -
========== ========== ========== ========== ==========
Net income (loss) $ 634.127 $ 231,838 $ (444,718) $ (269,363) $ 488,019
========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general partner $ 6,341 $ 2,318 $ (4,447) $ (2,693) $ 4,880
========== ========== ========== ========== ==========
Limited partners $ 627,786 $ 229,520 $ (440,271) $ (266,670) $ 483,139
========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ 75.48 $ 27.60 $ (52.94) $ (32.06) $ 58.09
========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ 80.13 $ 28.56 $ 28.57 $ 62.59 $ 68.92
========== ========== ========== ========== ==========
At year end:
-----------
Identifiable assets $1,353,688 $1,397,183 $1,392,439 $2,099,131 $2,890,740
========== ========== ========== ========== ==========
4
957
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 59% to $1,140,280 for 2000 as
compared to $718,969 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decline in production. In 2000, 25,176
barrels of oil, 13,747 barrels of natural gas liquids ("NGLs") and 59,638 mcf of
gas were sold, or 48,863 barrel of oil equivalents ("BOEs"). In 1999, 27,333
barrels of oil, 14,796 barrels of NGLs and 60,905 mcf of gas were sold, or
52,280 BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.48, or 73%, from
$17.11 in 1999 to $29.59 in 2000. The average price received per barrel of NGLs
increased $5.88, or 62%, from $9.54 in 1999 to $15.42 in 2000. The average price
received per mcf of gas increased 70% from $1.81 in 1999 to $3.07 in 2000. The
market price for oil and gas has been extremely volatile in the past decade and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
Gains on disposition of assets of $5,248 and $4,410 in 2000 and 1999,
respectively, were attributable to equipment credits on one fully depleted well
in each year.
Total costs and expenses increased in 2000 to $523,646 as compared to $498,672
in 1999, an increase of $24,974, or 5%. The increase was primarily due to
increases in production costs, the impairment of oil and gas properties and
general and administrative expenses ("G&A"), offset by a decline in depletion.
Production costs were $402,118 in 2000 and $352,977 in 1999, resulting in an
increase of $49,141, or 14%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices and additional workover and well
maintenance costs incurred to stimulate well production.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
31% from $28,521 in 1999 to $37,259 in 2000 primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 3% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $32,691 in 2000 and $21,420 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
5
958
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $18,391 related to its oil and gas properties during 2000.
Depletion was $65,878 in 2000 as compared to $117,174 in 1999, representing a
decrease of $51,296, or 44%. This decrease was primarily due to a 85,285 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
prices.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 23% to $718,969 from
$583,396 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 27,333 barrels of oil,
14,796 barrels of NGLs and 60,905 mcf of gas were sold, or 52,280 BOEs. In 1998,
29,084 barrels of oil, 12,847 barrels of NGLs and 62,751 mcf of gas were sold,
or 52,390 BOEs.
The average price received per barrel of oil increased $3.88, or 29%, from
$13.23 in 1998 to $17.11 in 1999. The average price received per barrel of NGLs
increased $2.59, or 37%, from $6.95 in 1998 to $9.54 in 1999. The average price
received per mcf of gas increased 4% from $1.74 in 1998 to $1.81 in 1999.
Gain on disposition of assets of $4,410 in 1999 was attributable to equipment
credits on one fully depleted well. During 1998, gain on disposition of assets
of $1,926 was attributable to credits received from the disposal of oil and gas
equipment on a well that was plugged and abandoned in a prior year.
Total costs and expenses decreased in 1999 to $498,672 as compared to $1,038,152
in 1998, a decrease of $539,480, or 52%. The decrease was primarily due to
declines in the impairment of oil and gas properties, depletion and production
costs, offset by an increase in G&A.
Production costs were $352,977 in 1999 and $362,377 in 1998, resulting in a
$9,400 decrease, or 3%. The decrease was due to declines in ad valorem taxes and
well maintenance costs, offset by an increase in workover costs incurred to
stimulate well production and an increase in production taxes due to increased
oil and gas revenues.
During this period, G&A increased 38% from $20,635 in 1998 to $28,521 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $21,420 in
1999 and $17,270 in 1998 for G&A incurred on behalf of the Partnership.
The Partnership recognized a non-cash SFAS 121 charge of $306,826 related to its
oil and gas properties during 1998.
6
959
Depletion was $117,174 in 1999 compared to $348,314 in 1998. This represented a
decrease of $231,140, or 66%. This decrease was primarily due to an increase in
proved reserves of 209,480 barrels of oil during 1999 as a result of higher
commodity prices and a reduction in the Partnership's net depletable basis from
charges taken in accordance with SFAS 121 during the fourth quarter of 1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $351,738 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $426,425, offset by increases in production costs paid
of $49,141, G&A expenses paid of $8,738 and working capital of $16,808. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $510,320 to oil and gas receipts,
offset by $83,895 resulting from the decline in production during 2000. The
increase in production costs was primarily due to increased production taxes
associated with higher oil and gas prices and additional workover and well
maintenance costs incurred to stimulate well production. The increase in G&A was
primarily due to higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues.
Net Cash Provided by (Used in) Investing Activities
The Partnership's investing activities during 2000 and 1999 were related to
expenditures for equipment upgrades on active oil and gas properties.
Proceeds from disposition of assets of $5,248 and $4,410 recognized in 2000 and
1999, respectively, were from equipment credits received on one fully depleted
well in each year.
Net Cash Used in Financing Activities
For 2000, cash distributions to the partners were $673,157, of which $6,732 was
distributed to the managing general partner and $666,425 to the limited
partners. For 1999, cash distributions to the partners were $239,958, of which
$2,400 was distributed to the managing general partner and $237,558 to the
limited partners.
7
960
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements of Parker & Parsley 89-A, L.P.:
Independent Auditors' Report......................................................... 9
Balance Sheets as of December 31, 2000 and 1999...................................... 10
Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998................................................................ 11
Statements of Partners' Capital for the Years Ended
December 31, 2000, 1999 and 1998................................................... 12
Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998................................................................ 13
Notes to Financial Statements........................................................ 14
8
961
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 89-A, L.P.
(A Delaware Limited Partnership):
We have audited the balance sheets of Parker & Parsley 89-A, L.P. as of December
31, 2000 and 1999, and the related statements of operations, partners' capital
and cash flows for each of the three years in the period ended December 31,
2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 89-A, L.P. as
of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
9
962
PARKER & PARSLEY 89-A, L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
----------- -----------
ASSETS
------
Current assets:
Cash $ 154,704 $ 180,301
Accounts receivable - oil and gas sales 171,226 112,165
----------- -----------
Total current assets 325,930 292,466
----------- -----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 6,559,576 6,552,266
Accumulated depletion (5,531,818) (5,447,549)
----------- -----------
Net oil and gas properties 1,027,758 1,104,717
----------- -----------
$ 1,353,688 $ 1,397,183
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 12,645 $ 17,110
Partners' capital:
Managing general partner 13,602 13,993
Limited partners (8,317 interests) 1,327,441 1,366,080
----------- -----------
1,341,043 1,380,073
----------- -----------
$ 1,353,688 $ 1,397,183
=========== ===========
The accompanying notes are an integral part of these financial statements.
10
963
PARKER & PARSLEY 89-A, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
---------- ---------- -----------
Revenues:
Oil and gas $1,140,280 $ 718,969 $ 583,396
Interest 12,245 7,131 8,112
Gain on disposition of assets 5,248 4,410 1,926
---------- ---------- -----------
1,157,773 730,510 593,434
---------- ---------- -----------
Costs and expenses:
Oil and gas production 402,118 352,977 362,377
General and administrative 37,259 28,521 20,635
Impairment of oil and gas properties 18,391 - 306,826
Depletion 65,878 117,174 348,314
---------- ---------- -----------
523,646 498,672 1,038,152
---------- ---------- -----------
Net income (loss) $ 634,127 $ 231,838 $ (444,718)
========== ========== ===========
Allocation of net income (loss):
Managing general partner $ 6,341 $ 2,318 $ (4,447)
========== ========== ===========
Limited partners $ 627,786 $ 229,520 $ (440,271)
========== ========== ===========
Net income (loss) per limited
partnership interest $ 75.48 $ 27.60 $ (52.94)
========== ========== ===========
The accompanying notes are an integral part of these financial statements.
11
964
PARKER & PARSLEY 89-A, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
-------- ----------- -----------
Partners' capital at January 1, 1998 $ 20,922 $ 2,052,031 $ 2,072,953
Distributions (2,400) (237,642) (240,042)
Net loss (4,447) (440,271) (444,718)
-------- ----------- -----------
Partners' capital at December 31, 1998 14,075 1,374,118 1,388,193
Distributions (2,400) (237,558) (239,958)
Net income 2,318 229,520 231,838
-------- ----------- -----------
Partners' capital at December 31, 1999 13,993 1,366,080 1,380,073
Distributions (6,732) (666,425) (673,157)
Net income 6,341 627,786 634,127
-------- ----------- -----------
Partners' capital at December 31, 2000 $ 13,602 $ 1,327,441 $ 1,341,043
======== =========== ===========
The accompanying notes are an integral part of these statements.
12
965
PARKER & PARSLEY 89-A, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ 634,127 $ 231,838 $(444,718)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties 18,391 - 306,826
Depletion 65,878 117,174 348,314
Gain on disposition of assets (5,248) (4,410) (1,926)
Changes in assets and liabilities:
Accounts receivable (59,061) (46,785) 18,178
Accounts payable (4,465) 67 (9,135)
--------- --------- ---------
Net cash provided by operating activities 649,622 297,884 217,539
--------- --------- ---------
Cash flows from investing activities:
(Additions) deletions to oil and gas properties (7,310) 584 (29,716)
Proceeds from disposition of assets 5,248 4,410 1,926
--------- --------- ---------
Net cash provided by (used in)
investing activities (2,062) 4,994 (27,790)
--------- --------- ---------
Cash flows used in financing activities:
Cash distributions to partners (673,157) (239,958) (240,042)
--------- --------- ---------
Net increase (decrease) in cash (25,597) 62,920 (50,293)
Cash at beginning of year 180,301 117,381 167,674
--------- --------- ---------
Cash at end of year $ 154,704 $ 180,301 $ 117,381
========= ========= =========
The accompanying notes are an integral part of these financial statements.
13
966
PARKER & PARSLEY 89-A, L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 89-A, L.P. (the "Partnership") is a limited partnership
organized in 1989 under the laws of the State of Delaware. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in Texas
and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves evaluated by independent petroleum consultants. The
carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements - Preparation
of the accompanying 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 periods.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
14
967
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative expenses
are allocated in part to the Partnership by the managing general partner.
Allocated expenses are determined by the managing general partner based upon the
level of activity of the Partnership relative to the non-partnership activities
of the managing general partner. The method of allocation has been consistent
over the past several years with certain modifications incorporated to reflect
changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized non-cash impairment provisions of $18,391 and $306,826
related to its proved oil and gas properties during 2000 and 1998, respectively.
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $155,457 greater than the tax basis at December 31, 2000.
15
968
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
--------- --------- ---------
Net income (loss) per statements of operations $ 634,127 $ 231,838 $(444,718)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes 54,665 105,234 336,801
Impairment of oil and gas properties for financial
reporting purposes 18,391 - 306,826
Salvage income - - -
Other, net (1,709) (3,610) 3,948
--------- --------- ---------
Net income per Federal income tax
returns $ 705,474 $ 333,462 $ 202,857
========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the net costs incurred, whether capitalized
or expensed, related to the Partnership's oil and gas producing activities for
the years ended December 31:
2000 1999 1998
--------- -------- --------
Development costs $ 7,310 $ 12,213 $ 16,919
========= ======== ========
Capitalized oil and gas properties consist of the following:
2000 1999
----------- -----------
Proved properties:
Property acquisition costs $ 279,410 $ 279,410
Completed wells and equipment 6,280,166 6,272,856
----------- -----------
6,559,576 6,552,266
Accumulated depletion (5,531,818) (5,447,549)
----------- -----------
Net oil and gas properties $ 1,027,758 $ 1,104,717
=========== ===========
16
969
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
--------- --------- ---------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 157,560 $ 156,639 $ 153,822
Reimbursement of general and administrative
expenses $ 32,691 $ 21,420 $ 17,270
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
P&P Employees 89-A Conv., Ltd. ("EMPL"), Parker & Parsley 89-A Conv., L.P. and
the Partnership (the "Partnerships") are parties to the Program agreement. EMPL
is a limited partnership organized for the benefit of certain employees of
Pioneer USA. EMPL was merged with Pioneer USA on December 28, 2000.
The costs and revenues of the Program are allocated to Pioneer USA and the
Partnerships as follows:
Pioneer USA (1) Partnerships (2)
--------------- ----------------
Revenues:
Proceeds from disposition of depreciable and
depletable properties -
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
All other revenues -
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
Costs and expenses:
Lease acquisition costs, drilling and completion costs
and all other costs 9.090909% 90.909091%
Operating costs, reporting and legal expenses and
general and administrative expenses -
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated
at the Partnership level and 105 limited partner interests owned by
Pioneer USA.
(2) The allocation between the Partnership and Parker & Parsley 89-A Conv.,
L.P. is 74.833543% and 25.166457%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared Williamson Petroleum
Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
Oil and NGLs Gas
(bbls) (mcf)
------------ --------
Net proved reserves at January 1, 1998 564,653 971,094
Revisions (248,699) (328,006)
Production (41,931) (62,751)
-------- --------
Net proved reserves at December 31, 1998 274,023 580,337
Revisions 317,834 471,328
Production (42,129) (60,905)
-------- --------
17
970
Net proved reserves at December 31, 1999 549,728 990,760
Revisions 91,729 (83,266)
Production (38,923) (59,638)
-------- --------
Net proved reserves at December 31, 2000 602,534 847,856
======== ========
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $12.34 per barrel of NGLs and $8.31 per mcf of gas,
discounted at 10% was approximately $5,009,000 and undiscounted was $10,314,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
-----------------------------------
2000 1999 1998
-------- -------- -------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 20,322 $ 13,520 $ 3,146
Future production costs (10,008) (7,771) (2,232)
-------- -------- -------
10,314 5,749 914
10% annual discount factor (5,305) (2,649) (301)
-------- -------- -------
Standardized measure of discounted future net cash flows $ 5,009 $ 3,100 $ 613
======== ======== =======
18
971
For the years ended December 31,
----------------------------------
2000 1999 1998
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (738) $ (366) $ (221)
Net changes in prices and production costs 2,277 1,372 (1,520)
Revisions of previous quantity estimates 582 2,141 (409)
Accretion of discount 310 62 259
Changes in production rates, timing and other (522) (722) (81)
------- ------- -------
Change in present value of future net revenues 1,909 2,487 (1,972)
------- ------- -------
Balance, beginning of year 3,100 613 2,585
------- ------- -------
Balance, end of year $ 5,009 $ 3,100 $ 613
======= ======= =======
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- -------
Plains Marketing, L.P. 63% 62% -
Genesis Crude Oil, L.P. - - 59%
Western Gas Resources, Inc. 3% 3% 12%
At December 31, 2000, the amount receivable from Plains Marketing, L.P.
was $66,937 which is included in the caption "Accounts receivable - oil and gas
sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would not
have an adverse effect on the ability of the Partnership to sell its oil, NGLs
and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of the
limited partnership agreement:
Managing general partner - The managing general partner of the Partnership
is Pioneer USA. Pioneer USA has the power and authority to manage, control
and administer all Program and Partnership affairs. As managing general
partner and operator of the Partnership's properties, all production
expenses are incurred by Pioneer USA and billed to the Partnership. The
majority of the Partnership's oil and gas revenues are received directly
by the Partnership, however, a portion of the oil and gas revenue is
initially received by Pioneer USA prior to being paid to the Partnership.
Under the limited partnership agreement, the managing general partner pays
1% of the Partnership's acquisition, drilling and completion costs and 1%
of its operating and general and administrative expenses. In return, it is
allocated 1% of the Partnership's revenues.
Limited partner liability - The maximum amount of liability of any limited
partner is the total contributions of such partner plus his share of any
undistributed profits.
19
972
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of $8,317,000.
The managing general partner is required to contribute amounts equal to 1%
of initial Partnership capital less commission and offering expenses
allocated to the limited partners and to contribute amounts necessary to
pay costs and expenses allocated to it under the Partnership agreement to
the extent its share of revenues does not cover such costs.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
20
973
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and executive
officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the
next annual meeting of stockholders or until their successors are elected and
qualified.
Age at
December 31,
Name 2000 Position
---- ---- --------
Scott D. Sheffield 48 President
Timothy L. Dove 44 Executive Vice President, Chief
Financial Officer and Director
Dennis E. Fagerstone 51 Executive Vice President and Director
Mark L. Withrow 53 Executive Vice President, General
Counsel and Director
Danny Kellum 45 Executive Vice President - Domestic
Operations and Director
Rich Dealy 34 Vice President and Chief Accounting
Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas
with a B.S. in Petroleum Engineering. Since August 1997, he has served as
President, Chief Executive Officer and a director of Pioneer and President of
Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of
Pioneer in August 1999. He served as a director of Pioneer USA from August 1997
until his resignation from the board in June 1999. Mr. Sheffield was the
President and a director of Parker & Parsley Petroleum Company ("Parker &
Parsley") from May 1990 until August 1997 and was the Chairman of the Board and
Chief Executive Officer of Parker & Parsley from October 1990 until August 1997.
He was the sole director of Parker & Parsley from May 1990 until October 1990.
Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a
predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as
Vice President - Engineering of PPDC from September 1981 until April 1985 when
he was elected President and a director. In March 1989, Mr. Sheffield was
elected Chairman of the Board and Chief Executive Officer of PPDC. Before
joining PPDC's predecessor, Mr. Sheffield was employed as a production and
reservoir engineer for Amoco Production Company.
21
974
Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from
Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981
from the University of Chicago. He became Executive Vice President - Business
Development of Pioneer and Pioneer USA in August 1997 and was also appointed a
director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief
Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr.
Dove joined Parker & Parsley in May 1994 as Vice President - International and
was promoted to Senior Vice President - Business Development in October 1996, in
which position he served until August 1997. Prior to joining Parker & Parsley,
Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus
Energy Corp, in various capacities in international exploration and production,
marketing, refining and marketing and planning and development.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997.
From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice
President and Chief Operating Officer of Mesa and from May 1991 to October 1996,
he served as Vice President - Exploration and Production of Mesa. From June 1988
to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B.S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President - General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979, was elected Executive
Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000
and Director of Pioneer USA on February 1, 2000. From January 2000 until May
2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and
Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and
Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served
as Spraberry District Manager and as Vice President of the Spraberry and Permian
Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker &
Parsley as an operations engineer in 1981 after a brief career with Mobil Oil
Corporation.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with
a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He
became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
22
975
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is performed by Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA pays approximately 10% of the Program's acquisition,
drilling and completion costs and approximately 15% during the first three years
and approximately 20% after three years of its operating and general and
administrative expenses. In return, they are allocated approximately 15% during
the first three years and approximately 20% after three years of the Program's
revenues.
The Partnership does not directly pay any salaries of the executive officers of
Pioneer USA, but does pay a portion of Pioneer USA's general and administrative
expenses of which these salaries are a part.
See Notes 6 and 9 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" for information regarding fees and
reimbursements paid to the managing general partner by the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more of
the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 105 limited partner interests at January 1, 2001.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general
partner of the Partnership, Pioneer USA, has the exclusive right and full
authority to manage, control and administer the Partnership's business. Under
the limited partnership agreement, limited partners holding a majority of the
outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
23
976
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner
Pursuant to the limited partnership agreement, the Partnership had the following
related party transactions with the managing general partner during the years
ended December 31:
2000 1999 1998
-------- --------- --------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $157,560 $ 156,639 $153,822
Reimbursement of general and administrative
expenses $ 32,691 $ 21,420 $ 17,270
Under the limited partnership agreement, the managing general partner pays 1% of
the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data"
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
24
977
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial statements
The following are filed as part of this Report:
Independent Auditors' Report
Balance sheets as of December 31, 2000 and 1999
Statements of operations for the years ended December 31,
2000, 1999 and 1998
Statements of partners' capital for the years ended December
31, 2000, 1999 and 1998
Statements of cash flows for the years ended December 31, 2000,
1999 and 1998
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the required
information is in the financial statements or notes thereto, or is not
applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this Report.
25
978
S I G N A T U R E S
Pursuant to the requirements 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.
PARKER & PARSLEY 89-A, L.P.
Dated: March 27, 2001 By: Pioneer Natural Resources USA, Inc.
Managing General Partner
By: /s/ Scott D. Sheffield
-------------------------------
Scott D. Sheffield, President
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/ Scott D. Sheffield President of Pioneer USA March 27, 2001
-------------------------------
Scott D. Sheffield
/s/ Timothy L. Dove Executive Vice President, Chief March 27, 2001
------------------------------- Financial Officer and Director of
Timothy L. Dove Pioneer USA
/s/ Dennis E. Fagerstone Executive Vice President and March 27, 2001
------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ Mark L. Withrow Executive Vice President, General March 27, 2001
------------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ Danny Kellum Executive Vice President - Domestic March 27, 2001
------------------------------- Operations and Director of Pioneer
Danny Kellum USA
/s/ Rich Dealy Vice President and Chief Accounting March 27, 2001
------------------------------- Officer of Pioneer USA
Rich Dealy
26
979
PARKER & PARSLEY 89-A, L.P.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
Exhibit No. Description Page
----------- ----------- ----
3(a) Form of Agreement of Limited Partnership -
of Parker & Parsley 89-A, L.P. incorporated
by reference to Exhibit A of the Post-Effective
Amendment No. 1 of the Partnership's
Registration Statement on Form S-1
(Registration No. 33-26097)
4(b) Form of Limited Partner Subscription Agreement -
incorporated by reference to Exhibit C of the
Post-Effective Amendment No. 1 of the
Partnership's Registration Statement on Form
S-1 (Registration No. 33-26097)
4(b) Form of General Partner Subscription Agreement -
incorporated by reference to Exhibit D of the
Post-Effective Amendment No. 1 of the
Partnership's Registration Statement on Form
S-1 (Registration No. 33-26097)
4(b) Power of Attorney incorporated by reference -
to Exhibit B of Amendment No. 1 of the
Partnership's Registration Statement on Form
S-1 (Registration No. 33-26097)
4(c) Specimen Certificate of Limited Partnership -
Interest incorporated by reference to Exhibit 4c
of the Partnership's Registration Statement on
Form S-1 (Registration No. 33-26097)
10(b) Form of Development Drilling Program -
Agreement incorporated by reference to Exhibit
B of the Post-Effective Amendment No. 1 of
the Partnership's Registration Statement on
Form S-1 (Registration No. 33-26097)
27
980
PARKER & PARSLEY 89-A, L.P.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 240,830 $1,140,280 $ 718,969 $ 583,396 $ 856,926 $1,132,944
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and gas
properties $ $ -- $ 18,391 $ -- $ 306,826 $ 531,929 $ --
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 123,556 $ 634,127 $ 231,838 $ (444,718) $ (269,363) $ 488,019
======== ========== ========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general
partner $ $ 1,236 $ 6,341 $ 2,318 $ (4,447) $ (2,693) $ 4,880
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 122,320 $ 627,786 $ 229,520 $ (440,271) $ (266,670) $ 483,139
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 14.71 $ 75.48 $ 27.60 $ (52.94) $ (32.06) $ 58.09
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 17.96 $ 80.13 $ 28.56 $ 28.57 $ 62.59 $ 68.92
======== ========== ========== ========== ========== ========== ==========
At year end:
Identifiable assets $ $1,372,134 $1,353,688 $1,397,183 $1,392,439 $2,099,131 $2,890,740
======== ========== ========== ========== ========== ========== ==========
981
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 89-B CONV., L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
89-B Conv., L.P., and supplements the proxy statement/prospectus dated ,
2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA,
Inc., by which Pioneer USA is soliciting proxies to be voted at a special
meeting of limited partners of the partnership. The purpose of the special
meeting is for you to vote upon the merger of the partnership with and into
Pioneer USA that, if completed, will result in your receiving common stock of
Pioneer Natural Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 89-B Conv., L.P.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the three months ended March 31, 2001
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
982
PARKER & PARSLEY 89-B CONV., L.P.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 6,307
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 5,587
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 1,738
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 276.48
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.70 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 171.00
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 250.06
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 269.21
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 158
(b), (c)
-----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners. Although not
required by the partnership agreement, the opinion will also state that neither
the grant nor exercise of such right will result in the loss of any limited
partner's limited liability. In addition, the counsel designated to render the
opinion is not required to be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
983
PARKER & PARSLEY 89-B CONV., L.P.
(A Delaware Limited Partnership)
FINANCIAL STATEMENTS
WITH INDEPENDENT AUDITORS' REPORT
December 31, 2000 and 1999
984
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 89-B Conv., L.P.
(A Delaware Limited Partnership):
We have audited the accompanying balance sheets of Parker & Parsley 89-B Conv.,
L.P. as of December 31, 2000 and 1999, and the related statements of operations,
partners' capital and cash flows for each of the three years in the period ended
December 31, 2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 89-B Conv.,
L.P. as of December 31, 2000 and 1999, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
2
985
PARKER & PARSLEY 89-B CONV., L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
-------- ---------
ASSETS
------
Current assets:
Cash $ 94,922 $ 116,810
Accounts receivable - oil and gas sales 134,431 73,499
---------- ----------
Total current assets 229,353 190,309
---------- ----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 5,314,971 5,304,537
Accumulated depletion (4,443,011) (4,349,082)
---------- ----------
Net oil and gas properties 871,960 955,455
---------- ----------
$ 1,101,313 $ 1,145,764
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 11,787 $ 15,267
Partners' capital:
Managing general partner 11,042 11,451
Limited partners (6,307 interests) 1,078,484 1,119,046
---------- ----------
1,089,526 1,130,497
---------- ----------
$ 1,101,313 $ 1,145,764
========== ==========
The accompanying notes are an integral part of these financial statements.
3
986
PARKER & PARSLEY 89-B CONV., L.P.
(A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
------- -------- -------
Revenues:
Oil and gas $ 873,058 $ 542,232 $ 471,148
Interest 8,377 4,914 5,410
Gain on disposition of assets - 354 108
------- -------- -------
881,435 547,500 476,666
------- -------- -------
Costs and expenses:
Oil and gas production 326,082 305,897 322,354
General and administrative 28,155 20,352 16,076
Impairment of oil and gas properties 27,748 - 262,396
Depletion 66,181 99,538 241,875
------- -------- -------
448,166 425,787 842,701
------- -------- -------
Net income (loss) $ 433,269 $ 121,713 $(366,035)
======== ========= ========
Allocation of net income (loss):
Managing general partner $ 4,333 $ 1,217 $ (3,660)
======== ========= ========
Limited partners $ 428,936 $ 120,496 $(362,375)
======== ========= ========
Net income (loss) per limited partnership
interest $ 68.01 $ 19.11 $ (57.46)
======== ========= ========
The accompanying notes are an integral part of these financial statements.
4
987
PARKER & PARSLEY 89-B CONV., L.P.
(A Delaware Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
------------- -------------- -----------
Partners' capital at January 1, 1998 $ 17,202 $1,688,386 $1,705,588
Distributions (1,765) (174,700) (176,465)
Net loss (3,660) (362,375) (366,035)
------ -------- --------
Partners' capital at December 31, 1998 11,777 1,151,311 1,163,088
Distributions (1,543) (152,761) (154,304)
Net income 1,217 120,496 121,713
------ -------- -------
Partners' capital at December 31, 1999 11,451 1,119,046 1,130,497
Distributions (4,742) (469,498) (474,240)
Net income 4,333 428,936 433,269
------ -------- -------
Partners' capital at December 31, 2000 $ 11,042 $1,078,484 $1,089,526
======= ========= =========
The accompanying notes are an integral part of these financial statements.
5
988
PARKER & PARSLEY 89-B CONV., L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
------- ------- -------
Cash flows from operations:
Net income (loss) $ 433,269 $ 121,713 $(366,035)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties 27,748 - 262,396
Depletion 66,181 99,538 241,875
Gain on disposition of assets - (354) (108)
Changes in assets and liabilities:
Accounts receivable (60,932) (20,669) 43,290
Accounts payable (3,480) 2,834 (6,986)
------- ------- -------
Net cash provided by operating activities 462,786 203,062 174,432
------- ------- -------
Cash flows from investing activities:
Additions to oil and gas properties (10,434) (7,556) (10,801)
Proceeds from asset dispositions - 354 108
------- ------- -------
Net cash used in investing activities (10,434) (7,202) (10,693)
------- ------- -------
Cash flows used in financing activities:
Cash distributions to partners (474,240) (154,304) (176,465)
-------- -------- --------
Net increase (decrease) in cash (21,888) 41,556 (12,726)
Cash at beginning of year 116,810 75,254 87,980
------- ------- -------
Cash at end of year $ 94,922 $ 116,810 $ 75,254
======== ======== ========
The accompanying notes are an integral part of these financial statements.
6
989
PARKER & PARSLEY 89-B CONV., L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 89-B Conv., L.P. (the "Partnership") was organized as a
general partnership in 1989 under the laws of the State of Texas and was
converted to a Delaware limited partnership on May 30, 1990. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in Texas
and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121. "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements - Preparation
of the accompanying 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 periods.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
7
990
Income taxes - A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative expenses
are allocated in part to the Partnership by the managing general partner.
Allocated expenses are determined by the managing general partner based upon the
level of activity of the Partnership relative to the non-partnership activities
of the managing general partner. The method of allocation has been consistent
over the past several years with certain modifications incorporated to reflect
changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized non-cash impairment provisions of $27,748 and $262,396
related to its proved oil and gas properties during 2000 and 1998, respectively.
8
991
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $191,325 greater than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
------- ------- -------
Net income (loss) per statements of operations $ 433,269 $ 121,713 $(366,035)
Impairment of oil and gas properties for financial
reporting purposes 27,748 - 262,396
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes 57,991 91,381 226,609
Other, net (1,014) (2,514) 2,725
------- ------- -------
Net income per Federal income tax returns $ 517,994 $ 210,580 $ 125,695
======== ======== ========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
-------- -------- --------
Development costs $ 10,434 $ 7,556 $ 10,801
======== ======== ========
Capitalized oil and gas properties consist of the following:
2000 1999
--------- ---------
Proved properties:
Property acquisition costs $ 171,441 $ 171,441
Completed wells and equipment 5,143,530 5,133,096
---------- ----------
5,314,971 5,304,537
Accumulated depletion (4,443,011) (4,349,082)
----------- ----------
Net oil and gas properties $ 871,960 $ 955,455
========== ==========
9
992
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
--------- --------- ---------
Payment of lease operating and supervision
charges in accordance with standard industry
operating agreements $ 133,513 $ 129,059 $ 124,312
Reimbursement of general and administrative
expenses $ 25,658 $ 16,168 $ 14,082
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA
and P&P Employees 89-B Conv., L.P. ("EMPL"), Parker & Parsley 89-B, L.P. and the
Partnership (the "Partnerships") are parties to the Program agreement. EMPL is a
limited partnership organized for the benefit of certain employees of Pioneer
USA. EMPL was merged with Pioneer USA on December 28, 2000.
The costs and revenues of the Program are allocated to Pioneer USA and the
Partnerships as follows:
Pioneer USA (1) Partnerships (2)
--------------- ----------------
Revenues:
Proceeds from disposition of depreciable
and depletable properties -
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
All other revenues -
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
Costs and expenses:
Lease acquisition costs, drilling and completion
costs and all other costs 9.090909% 90.909091%
Operating costs, reporting and legal expenses
and general and administrative expenses -
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
(1) Excludes Pioneer USA's 1% general partner ownership which is
allocated at the Partnership level and 20 limited partner interests
owned by Pioneer USA.
(2) The allocation between the Partnership and Parker & Parsley 89-B,
L.P. is 47.578455% and 52.421545%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
10
993
Oil and NGLs Gas
(bbls) (mcf)
------------ ----------
Net proved reserves at January 1, 1998 471,441 734,987
Revisions (202,204) (246,962)
Production (35,481) (52,345)
---------- ----------
Net proved reserves at December 31, 1998 233,756 435,680
Revisions 267,905 413,961
Production (32,585) (46,681)
---------- ----------
Net proved reserves at December 31, 1999 469,076 802,960
Revisions 1,942 (157,459)
Production (30,959) (42,179)
---------- ----------
Net proved reserves at December 31, 2000 440,059 603,322
========== ==========
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.35 per barrel of NGLs and $7.90 per mcf of gas,
discounted at 10% was approximately $3,414,000 and undiscounted was $6,785,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
--------------------------------------
2000 1999 1998
----------- ----------- -----------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 14,354 $ 11,715 $ 2,608
Future production costs (7,569) (6,914) (1,962)
-------- -------- --------
6,785 4,801 646
10% annual discount factor (3,371) (2,230) (224)
-------- -------- --------
Standardized measure of discounted future net cash flows $ 3,414 $ 2,571 $ 422
========= ======== =========
11
994
For the years ended December 31,
--------------------------------------
2000 1999 1998
----------- ----------- -----------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (547) $ (236) $ (149)
Net changes in prices and production costs 1,522 1,145 (1,146)
Revisions of previous quantity estimates (163) 1,753 (282)
Accretion of discount 257 42 189
Changes in production rates, timing and other (226) (555) (76)
-------- --------- --------
Change in present value of future net revenues 843 2,149 (1,464)
-------- --------- --------
Balance, beginning of year 2,571 422 1,886
-------- --------- --------
Balance, end of year $ 3,414 $ 2,571 $ 422
========= ========== =========
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil and
gas sales (a major customer is defined as a customer whose sales exceed 10% of
total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 55% 51% -
Genesis Crude Oil, L.P. - - 59%
Western Gas Resources, Inc. 4% 6% 26%
At December 31, 2000, the amount receivable from Plains Marketing, L.P.
was $37,745 which is included in the caption "Accounts receivable - oil and gas
sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would not
have an adverse effect on the ability of the Partnership to sell its oil, NGLs
and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of the
Partnership agreement:
Managing general partner - The managing general partner of the Partnership
is Pioneer USA. Pioneer USA has the power and authority to manage, control
and administer all Program and Partnership affairs. As managing general
partner and operator of the Partnership's properties, all production
expenses are incurred by Pioneer USA and billed to the Partnership. The
majority of the Partnership's oil and gas revenues are received directly
by the Partnership, however, a portion of the oil and gas revenue is
initially received by Pioneer USA prior to being paid to the Partnership.
Under the limited partnership agreement, the managing general partner pays
1% of the Partnership's acquisition, drilling and completion costs and 1%
of its operating, general and administrative expenses. In return, it is
allocated 1% of the Partnership's revenues.
Limited partner liability - The maximum amount of liability of any limited
partner is the total contributions of such partner plus his share of
undistributed profits.
12
995
Initial capital contributions - The partners entered into subscription
agreements for aggregate capital contributions of $6,307,000. The managing
general partner is required to contribute amounts equal to 1% of initial
Partnership capital less commission and organization and offering costs
allocated to the limited partners and to contribute amounts necessary to
pay costs and expenses allocated to it under the Partnership agreement to
the extent its share of revenues does not cover such costs.
13
996
PARKER & PARSLEY 89-B CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACCORDINGLY, NO ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS
AND RESULTS WILL NOT BE MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS
DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 61% to $873,058 for 2000 as
compared to $542,232 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decline in production. In 2000, 19,708
barrels of oil, 11,251 barrels of natural gas liquids ("NGLs") and 42,179 mcf of
gas were sold, or 37,989 barrel of oil equivalents ("BOEs"). In 1999, 20,322
barrels of oil, 12,263 barrels of NGLs and 46,681 mcf of gas were sold, or
40,365 BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.25, or 72%, from
$16.96 in 1999 to $29.21 in 2000. The average price received per barrel of NGLs
increased $5.99, or 63%, from $9.57 in 1999 to $15.56 in 2000. The average price
received per mcf of gas increased 69% from $1.72 in 1999 to $2.90 in 2000. The
market price for oil and gas has been extremely volatile in the past decade, and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
Total costs and expenses increased in 2000 to $448,166 as compared to $425,787
in 1999, an increase of $22,379, or 5%. The increase was due to increases in the
impairment of oil and gas properties, production costs and general and
administrative expenses ("G&A"), offset by a decline in depletion.
Production costs were $326,082 in 2000 and $305,897 in 1999, resulting in a
$20,185 increase, or 7%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices, offset by a decline in well
maintenance costs.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
38% from $20,352 in 1999 to $28,155 in 2000, primarily due to a higher
percentage of the managing general partner's G&A being allocated (limited to 3%
of oil and gas revenues) as a result of increased oil and gas revenues. The
Partnership paid the managing general partner $25,658 in 2000 and $16,168 in
1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid
directly by the Partnership. The managing general partner determines the
allocated expenses based upon the level of activity of the Partnership relative
to the non-partnership activities of the managing general partners. The method
of allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $27,748 related to its oil and gas properties during 2000.
Depletion was $66,181 in 2000 as compared to $99,538 in 1999, representing a
decrease of $33,357, or 34%. This decrease was primarily due to an 8,572 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
prices.
997
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 15% to $542,232 from
$471,148 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 20,322 barrels of oil,
12,263 barrels of NGLs and 46,681 mcf of gas were sold, or 40,365 BOEs. In 1998,
22,378 barrels of oil, 13,103 barrels of NGLs and 52,345 mcf of gas were sold,
or 44,205 BOEs.
The average price received per barrel of oil increased $3.70, or 28%, from
$13.26 in 1998 to $16.96 in 1999. The average price received per barrel of NGLs
increased $2.63, or 38%, from $6.94 in 1998 to $9.57 in 1999. The average price
received per mcf of gas increased 8% from $1.60 in 1998 to $1.72 in 1999.
Total costs and expenses decreased in 1999 to $425,787 as compared to $842,701
in 1998, a decrease of $416,914, or 49%. The decrease was due to declines in the
impairment of oil and gas properties, depletion and production costs, offset by
an increase in G&A.
Production costs were $305,897 in 1999 and $322,354 in 1998, resulting in a
$16,457 decrease, or 5%. The decrease was due to declines in ad valorem taxes
and well maintenance costs.
During this period, G&A increased 27% from $16,076 in 1998 to $20,352 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $16,168 in
1999 and $14,082 in 1998 for G&A incurred on behalf of the Partnership.
The Partnership recognized a non-cash SFAS 121 charge of $262,396 related to its
oil and gas properties during 1998.
Depletion was $99,538 in 1999 compared to $241,875 in 1998, representing a
decrease of $142,337, or 59%. This decrease was the result of an increase in
proved reserves of 173,770 barrels of oil during 1999 as a result of higher
commodity prices and a reduction in the Partnership's net depletable basis from
charges taken in accordance with SFAS 121 during the fourth quarter of 1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $259,724 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $334,289, offset by increases in production costs paid
of $20,185, G&A expenses paid of $7,803 and working capital of $46,577. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $381,025 to oil and gas receipts,
offset by $46,736 resulting from the decline in production during 2000. The
increase in production costs was primarily due to increased production taxes
associated with higher oil and gas prices, offset by a decline in well
maintenance costs. The increase in G&A was primarily due to higher percentage of
the managing general partner's G&A being allocated (limited
998
to 3% of oil and gas revenues) as a result of increased oil and gas revenues.
Net Cash Used in Investing Activities
The Partnership's principal investing activities during 2000 and 1999 included
expenditures related to equipment upgrades on several oil and gas properties.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $474,240, of which $4,742 was
distributed to the managing general partner and $469,498 to the limited
partners. In 1999, cash distributions to the partners were $154,304, of which
$1,543 was distributed to the managing general partner and $152,761 to the
limited partners.
999
PARKER & PARSLEY 89-B CONV., L.P.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 198,773 $ 873,058 $ 542,232 $ 471,148 $ 718,293 $ 849,156
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ 27,748 $ -- $ 262,396 $ 330,848 $ --
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 96,835 $ 433,269 $ 121,713 $ (366,035) $ (122,936) $ 342,846
======== ========== ========== ========== ========== ========== ==========
Allocation of net
income (loss):
Managing general
partner $ $ 968 $ 4,333 $ 1,217 $ (3,660) $ (1,229) $ 3,428
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 95,867 $ 428,936 $ 120,496 $ (362,375) $ (121,707) $ 339,418
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 15.20 $ 68.01 $ 19.11 $ (57.46) $ (19.30) $ 53.82
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 14.28 $ 74.44 $ 24.22 $ 27.70 $ 62.96 $ 61.29
======== ========== ========== ========== ========== ========== ==========
At year end:
Total assets $ $1,153,965 $1,101,313 $1,145,764 $1,175,521 $1,725,007 $2,246,482
======== ========== ========== ========== ========== ========== ==========
1000
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 89-B, L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
89-B, L.P., and supplements the proxy statement/prospectus dated , 2001,
of Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by
which Pioneer USA is soliciting proxies to be voted at a special meeting of
limited partners of the partnership. The purpose of the special meeting is for
you to vote upon the merger of the partnership with and into Pioneer USA that,
if completed, will result in your receiving common stock of Pioneer Natural
Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 89-B, L.P.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the three months ended March 31 , 2001
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
1001
PARKER & PARSLEY 89-B, L.P.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 6,949
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 6,156
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 1,899
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 276.19
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.67 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 171.15
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 249.80
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 268.93
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 158
(b), (c)
-----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners. Although not
required by the partnership agreement, the opinion will also state that neither
the grant nor exercise of such right will result in the loss of any limited
partner's limited liability. In addition, the counsel designated to render the
opinion is not required to be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
1002
PARKER & PARSLEY 89-B, L.P.
(A Delaware Limited Partnership)
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT
December 31, 2000 and 1999
1003
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 89-B, L.P.
(A Delaware Limited Partnership):
We have audited the balance sheets of Parker & Parsley 89-B, L.P. as of December
31, 2000 and 1999, and the related statements of operations, partners' capital
and cash flows for each of the three years in the period ended December 31,
2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 89-B, L.P. as
of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
2
1004
PARKER & PARSLEY 89-B, L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
----------- -----------
ASSETS
------
Current assets:
Cash $ 105,641 $ 130,083
Accounts receivable - oil and gas sales 148,020 80,988
----------- -----------
Total current assets 253,661 211,071
----------- -----------
Oil and gas properties - at cost, based on
the successful efforts accounting method 5,855,803 5,844,308
Accumulated depletion (4,894,889) (4,791,400)
----------- -----------
Net oil and gas properties 960,914 1,052,908
----------- -----------
$ 1,214,575 $ 1,263,979
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 12,985 $ 16,819
Partners' capital:
Managing general partner 12,256 12,712
Limited partners (6,949 interests) 1,189,334 1,234,448
----------- -----------
1,201,590 1,247,160
----------- -----------
$ 1,214,575 $ 1,263,979
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
1005
PARKER & PARSLEY 89-B, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Revenues:
Oil and gas $ 961,197 $ 597,130 $ 518,801
Interest 9,481 5,469 6,043
Gain on disposition of assets -- 390 119
--------- --------- ---------
970,678 602,989 524,963
--------- --------- ---------
Costs and expenses:
Oil and gas production 359,243 337,025 355,148
General and administrative 31,002 22,369 17,625
Impairment of oil and gas properties 30,586 -- 289,124
Depletion 72,903 109,755 266,451
--------- --------- ---------
493,734 469,149 928,348
--------- --------- ---------
Net income (loss) $ 476,944 $ 133,840 $(403,385)
========= ========= =========
Allocation of net income (loss):
Managing general partner $ 4,769 $ 1,338 $ (4,034)
========= ========= =========
Limited partners $ 472,175 $ 132,502 $(399,351)
========= ========= =========
Net income (loss) per limited partnership interest $ 67.95 $ 19.07 $ (57.47)
========= ========= =========
The accompanying notes are an integral part of these financial statements.
4
1006
PARKER & PARSLEY 89-B, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
----------- ----------- -----------
Partners' capital at January 1, 1998 $ 19,053 $ 1,862,101 $ 1,881,154
Distributions (1,945) (192,484) (194,429)
Net loss (4,034) (399,351) (403,385)
----------- ----------- -----------
Partners' capital at December 31, 1998 13,074 1,270,266 1,283,340
Distributions (1,700) (168,320) (170,020)
Net income 1,338 132,502 133,840
----------- ----------- -----------
Partners' capital at December 31, 1999 12,712 1,234,448 1,247,160
Distributions (5,225) (517,289) (522,514)
Net income 4,769 472,175 476,944
----------- ----------- -----------
Partners' capital at December 31, 2000 $ 12,256 $ 1,189,334 $ 1,201,590
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
5
1007
PARKER & PARSLEY 89-B, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ 476,944 $ 133,840 $(403,385)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties 30,586 -- 289,124
Depletion 72,903 109,755 266,451
Gain on disposition of assets -- (390) (119)
Changes in assets and liabilities:
Accounts receivable (67,032) (22,818) 47,684
Accounts payable (3,834) 2,839 (7,697)
--------- --------- ---------
Net cash provided by operating activities 509,567 223,226 192,058
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties (11,495) (8,325) (11,900)
Proceeds from dispositions of assets -- 390 119
--------- --------- ---------
Net cash used in investing activities (11,495) (7,935) (11,781)
--------- --------- ---------
Cash flows used in financing activities:
Cash distributions to partners (522,514) (170,020) (194,429)
--------- --------- ---------
Net increase (decrease) in cash (24,442) 45,271 (14,152)
Cash at beginning of year 130,083 84,812 98,964
--------- --------- ---------
Cash at end of year $ 105,641 $ 130,083 $ 84,812
========= ========= =========
The accompanying notes are an integral part of these financial statements.
6
1008
PARKER & PARSLEY 89-B, L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 89-B, L.P. (the "Partnership") is a limited partnership
organized in 1989 under the laws of the State of Delaware. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -
Preparation of the accompanying 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 periods. Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
7
1009
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated in part to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non-partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized non-cash impairment provisions of $30,586 and $289,124
related to its proved oil and gas properties during 2000 and 1998, respectively.
8
1010
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $211,364 greater than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
--------- --------- ---------
Net income (loss) per statements of operations $ 476,944 $ 133,840 $(403,385)
Impairment of oil and gas properties for financial
reporting purposes 30,586 -- 289,124
Depletion and depreciation provisions for tax
reporting purposes less than amounts deducted
for financial reporting purposes 63,879 100,769 254,734
Other, net (1,322) (3,050) 3,282
--------- --------- ---------
Net income per Federal income tax returns $ 570,087 $ 231,559 $ 143,755
========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the net costs incurred, whether
capitalized or expensed, related to the Partnership's oil and gas producing
activities for the years ended December 31:
2000 1999 1998
--------- --------- -------
Development costs $ 11,495 $ 8,325 $11,900
========= ========= =======
Capitalized oil and gas properties consist of the following:
2000 1999
----------- -----------
Proved properties:
Property acquisition costs $ 188,868 $ 188,868
Completed wells and equipment 5,666,935 5,655,440
----------- -----------
5,855,803 5,844,308
Accumulated depletion (4,894,889) (4,791,400)
----------- -----------
Net oil and gas properties $ 960,914 $ 1,052,908
=========== ===========
9
1011
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
-------- -------- --------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $147,103 $142,197 $136,965
Reimbursement of general and administrative
expenses $ 28,269 $ 17,812 $ 15,438
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
P&P Employees 89-B Conv., L.P. ("EMPL") Parker & Parsley 89-B Conv., L.P. and
the Partnership (the "Partnerships") are parties to the Program agreement. EMPL
is a limited partnership organized for the benefit of certain employees of
Pioneer USA. EMPL was merged with Pioneer USA on December 28, 2000.
The costs and revenues of the Program are allocated to Pioneer USA and
the Partnerships as follows:
Pioneer USA (1) Partnerships (2)
--------------- ----------------
Revenues:
Proceeds from disposition of depreciable and
depletable properties -
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
All other revenues -
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
Costs and expenses:
Lease acquisition costs, drilling and completion
costs and all other costs 9.090909% 90.909091%
Operating costs, reporting and legal expenses and
general and administrative expenses -
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
(1) Excludes Pioneer USA's 1% general partner ownership which is
allocated at the Partnership level and 72 limited partner interests
owned by Pioneer USA.
(2) The allocation between the Partnership and Parker & Parsley 89-B
Conv., L.P. is 52.421545% and 47.578455%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
10
1012
Oil and NGLs Gas
(bbls) (mcf)
------------ --------
Net proved reserves at January 1, 1998 519,501 809,915
Revisions (222,853) (272,177)
Production (39,063) (57,643)
-------- --------
Net proved reserves at December 31, 1998 257,585 480,095
Revisions 295,189 456,122
Production (35,879) (51,400)
-------- --------
Net proved reserves at December 31, 1999 516,895 884,817
Revisions 1,443 (174,232)
Production (34,089) (46,454)
-------- --------
Net proved reserves at December 31, 2000 484,249 664,131
======== ========
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.35 per barrel of NGLs and $7.90 per mcf of gas,
discounted at 10% was approximately $3,756,000 and undiscounted was $7,461,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
11
1013
For the years ended December 31,
------------------------------------
2000 1999 1998
-------- -------- --------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 15,796 $ 12,909 $ 2,874
Future production costs (8,335) (7,619) (2,162)
-------- -------- --------
7,461 5,290 712
10% annual discount factor (3,705) (2,457) (247)
-------- -------- --------
Standardized measure of discounted future net cash flows $ 3,756 $ 2,833 $ 465
======== ======== ========
For the years ended December 31,
---------------------------------
2000 1999 1998
------- ------- -------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (602) $ (260) $ (163)
Net changes in prices and production costs 1,674 1,262 (1,263)
Revisions of previous quantity estimates (185) 1,931 (311)
Accretion of discount 283 47 208
Changes in production rates, timing and other (247) (612) (84)
------- ------- -------
Change in present value of future net revenues 923 2,368 (1,613)
------- ------- -------
Balance, beginning of year 2,833 465 2,078
------- ------- -------
Balance, end of year $ 3,756 $ 2,833 $ 465
======= ======= =======
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's
oil and gas sales (a major customer is defined as a customer whose sales exceed
10% of total sales) during the years ended December 31:
2000 1999 1998
---- ---- ----
Plains Marketing, L.P. 55% 51% -
Genesis Crude Oil, L.P. - - 59%
Western Gas Resources, Inc. 4% 6% 26%
At December 31, 2000, the amount receivable from Plains Marketing, L.P.
was $41,588 which is included in the caption "Accounts receivable - oil and gas
sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the limited partnership agreement:
Managing general partner - The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all
12
1014
Program and Partnership affairs. As managing general partner and
operator of the Partnership's properties, all production expenses are
incurred by Pioneer USA and billed to the Partnership. The majority of
the Partnership's oil and gas revenues are received directly by the
Partnership, however, a portion of the oil and gas revenue is
initially received by Pioneer USA prior to being paid to the
Partnership. Under the limited partnership agreement, the managing
general partner pays 1% of the Partnership's acquisition, drilling and
completion costs and 1% of its operating and general and
administrative expenses. In return, it is allocated 1% of the
Partnership's revenues.
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of
$6,949,000. The managing general partner is required to contribute
amounts equal to 1% of initial Partnership capital less commission
and offering expenses allocated to the limited partners and to
contribute amounts necessary to pay costs and expenses allocated to
it under the Partnership agreement to the extent its share of
revenues does not cover such costs.
13
1015
PARKER & PARSLEY 89-B, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACCORDINGLY, NO ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS
AND RESULTS WILL NOT BE MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS
DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 61% to $961,197 for 2000 as
compared to $597,130 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decline in production. In 2000, 21,703
barrels of oil, 12,386 barrels of natural gas liquids ("NGLs") and 46,454 mcf of
gas were sold, or 41,831 barrel of oil equivalents ("BOEs"). In 1999, 22,376
barrels of oil, 13,503 barrels of NGLs and 51,400 mcf of gas were sold, or
44,446 BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.25, or 72%, from
$16.96 in 1999 to $29.21 in 2000. The average price received per barrel of NGLs
increased $5.99, or 63%, from $9.57 in 1999 to $15.56 in 2000. The average price
received per mcf of gas increased 69% from $1.72 in 1999 to $2.90 in 2000. The
market price for oil and gas has been extremely volatile in the past decade, and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
Total costs and expenses increased in 2000 to $493,734 as compared to $469,149
in 1999, an increase of $24,585, or 5%. The increase was due to increases in the
impairment of oil and gas properties, production costs and general and
administrative expenses ("G&A"), offset by a decline in depletion.
Production costs were $359,243 in 2000 and $337,025 in 1999, resulting in a
$22,218 increase, or 7%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices, offset by a decline in well
maintenance costs.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
39% from $22,369 in 1999 to $31,002 in 2000, primarily due to a higher
percentage of the managing general partner's G&A being allocated (limited to 3%
of oil and gas revenues) as a result of increased oil and gas revenues. The
Partnership paid the managing general partner $28,269 in 2000 and $17,812 in
1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid
directly by the Partnership. The managing general partner determines the
allocated expenses based upon the level of activity of the Partnership relative
to the non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $30,586 related to its oil and gas properties during 2000.
Depletion was $72,903 in 2000 as compared to $109,755 in 1999, representing a
decrease of $36,852, or 34%. This decrease was primarily due to an 8,955 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
prices.
1016
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 15% to $597,130 from
$518,801 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 22,376 barrels of oil,
13,503 barrels of NGLs and 51,400 mcf of gas were sold, or 44,446 BOEs. In 1998,
24,633 barrels of oil, 14,430 barrels of NGLs and 57,643 mcf of gas were sold,
or 48,670 BOEs.
The average price received per barrel of oil increased $3.70, or 28%, from
$13.26 in 1998 to $16.96 in 1999. The average price received per barrel of NGLs
increased $2.63, or 38%, from $6.94 in 1998 to $9.57 in 1999. The average price
received per mcf of gas increased 8% from $1.60 in 1998 to $1.72 in 1999.
Total costs and expenses decreased in 1999 to $469,149 as compared to $928,348
in 1998, a decrease of $459,199, or 49%. The decrease was due to declines in the
impairment of oil and gas properties, depletion and production costs, offset by
an increase in G&A.
Production costs were $337,025 in 1999 and $355,148 in 1998, resulting in an
$18,123 decrease, or 5%. The decrease was due to reductions in ad valorem taxes
and well maintenance costs.
During this period, G&A increased 27% from $17,625 in 1998 to $22,369 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $17,812 in
1999 and $15,438 in 1998 for G&A incurred on behalf of the Partnership.
The Partnership recognized a non-cash SFAS 121 charge of $289,124 related to its
oil and gas properties during 1998.
Depletion was $109,755 in 1999 compared to $266,451 in 1998, representing a
decrease of $156,696, or 59%. This decrease was the result of an increase in
proved reserves of 191,467 barrels of oil during 1999 as a result of higher
commodity prices and a reduction in the Partnership's net depletable basis from
charges taken in accordance with SFAS 121 during the fourth quarter of 1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $286,341 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $368,079, offset by increases in production costs paid
of $22,218, G&A expenses paid of $8,633 and working capital of $50,887. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $419,447 to oil and gas receipts,
offset by $51,368 resulting from the decline in production during 2000. The
increase in production costs was primarily due to increased production taxes
associated with higher oil and gas prices, offset by a decline in well
maintenance costs. The increase in G&A was primarily due to higher percentage of
the managing general partner's G&A being allocated (limited
1017
to 3% of oil and gas revenues) as a result of increased oil and gas revenues.
Net Cash Used in Investing Activities
The Partnership's principal investing activities during 2000 and 1999 included
expenditures related to equipment upgrades on several oil and gas properties.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $522,514, of which $5,225 was
distributed to the managing general partner and $517,289 to the limited
partners. In 1999, cash distributions to the partners were $170,020, of which
$1,700 was distributed to the managing general partner and $168,320 to the
limited partners.
1018
PARKER & PARSLEY 89-B, L.P.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 218,705 $ 961,197 $ 597,130 $ 518,801 $ 791,004 $ 935,268
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ 30,586 $ -- $ 289,124 $ 364,625 $ --
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 106,439 $ 476,944 $ 133,840 $ (403,385) $ (135,918) $ 377,397
======== ========== ========== ========== ========== ========== ==========
Allocation of net
income (loss):
Managing general
partner $ $ 1,064 $ 4,769 $ 1,338 $ (4,034) $ (1,359) $ 3,774
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 105,375 $ 472,175 $ 132,502 $ (399,351) $ (134,559) $ 373,623
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 15.16 $ 67.95 $ 19.07 $ (57.47) $ (19.36) $ 53.77
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 14.28 $ 74.44 $ 24.22 $ 27.70 $ 62.96 $ 61.30
======== ========== ========== ========== ========== ========== ==========
At year end:
Total assets $ $1,272,753 $1,214,575 $1,263,979 $1,297,320 $1,902,831 $2,477,410
======== ========== ========== ========== ========== ========== ==========
1019
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
Private Investment 89, L.P., and supplements the proxy statement/prospectus
dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural
Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a
special meeting of limited partners of the partnership. The purpose of the
special meeting is for you to vote upon the merger of the partnership with and
into Pioneer USA that, if completed, will result in your receiving common stock
of Pioneer Natural Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley Private Investment 89, L.P.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the three months ended March 31, 2001
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
1020
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 7,060
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 5,429
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 1,825
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 259.94
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.96 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 150.75
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 236.06
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 253.01
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 165
(b), (c)
-----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners. Although not
required by the partnership agreement, the opinion will also state that neither
the grant nor exercise of such right will result in the loss of any limited
partner's limited liability. In addition, the counsel designated to render the
opinion is not required to be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
1021
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P.
(A Delaware Limited Partnership)
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT
December 31, 2000 and 1999
1022
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley Private Investment 89, L.P.
(A Delaware Limited Partnership):
We have audited the balance sheets of Parker & Parsley Private Investment 89,
L.P. as of December 31, 2000 and 1999, and the related statements of operations,
partners' capital and cash flows for each of the three years in the period ended
December 31, 2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley Private
Investment 89, L.P. as of December 31, 2000 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
2
1023
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
----------- -----------
ASSETS
------
Current assets:
Cash $ 101,600 $ 105,420
Accounts receivable - oil and gas sales 118,399 76,918
----------- -----------
Total current assets 219,999 182,338
----------- -----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 5,223,723 5,213,140
Accumulated depletion (4,351,220) (4,291,008)
----------- -----------
Net oil and gas properties 872,503 922,132
----------- -----------
$ 1,092,502 $ 1,104,470
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 15,443 $ 15,871
Partners' capital:
Managing general partner 12,767 12,882
Limited partners (176.5 interests) 1,064,292 1,075,717
----------- -----------
1,077,059 1,088,599
----------- -----------
$ 1,092,502 $ 1,104,470
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
1024
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Revenues:
Oil and gas $ 856,030 $ 487,809 $ 478,637
Interest 8,294 4,555 5,752
--------- --------- ---------
864,324 492,364 484,389
--------- --------- ---------
Costs and expenses:
Oil and gas production 321,340 311,071 300,564
General and administrative 28,583 19,470 16,898
Impairment of oil and gas properties - 44,421 18,873
Depletion 60,212 76,798 258,483
--------- --------- ---------
410,135 451,760 594,818
--------- --------- ---------
Net income (loss) $ 454,189 $ 40,604 $(110,429)
========= ========= =========
Allocation of net income (loss):
Managing general partner $ 4,542 $ 406 $ (1,104)
========= ========= =========
Limited partners $ 449,647 $ 40,198 $(109,325)
========= ========= =========
Net income (loss) per limited partnership interest $2,547.58 $ 227.75 $ (619.41)
========= ========= =========
The accompanying notes are an integral part of these financial statements.
4
1025
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
----------- ----------- -----------
Partners' capital at January 1, 1998 $ 16,634 $ 1,447,067 $ 1,463,701
Distributions (2,019) (199,798) (201,817)
Net loss (1,104) (109,325) (110,429)
----------- ----------- -----------
Partners' capital at December 31, 1998 13,511 1,137,944 1,151,455
Distributions (1,035) (102,425) (103,460)
Net income 406 40,198 40,604
----------- ----------- -----------
Partners' capital at December 31, 1999 12,882 1,075,717 1,088,599
Distributions (4,657) (461,072) (465,729)
Net income 4,542 449,647 454,189
----------- ----------- -----------
Partners' capital at December 31, 2000 $ 12,767 $ 1,064,292 $ 1,077,059
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
5
1026
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ 454,189 $ 40,604 (110,429)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties - 44,421 18,873
Depletion 60,212 76,798 258,483
Changes in assets and liabilities:
Accounts receivable (41,481) (30,189) 17,499
Accounts payable (428) 3,058 (9,920)
--------- --------- ---------
Net cash provided by operating activities 472,492 134,692 174,506
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties (10,741) (10,151) (14,992)
Proceeds from asset dispositions 158 - 6,106
--------- --------- ---------
Net cash used in investing activities (10,583) (10,151) (8,886)
--------- --------- ---------
Cash flows used in financing activities:
Cash distributions to partners (465,729) (103,460) (201,817)
--------- --------- ---------
Net increase (decrease) in cash (3,820) 21,081 (36,197)
Cash at beginning of year 105,420 84,339 120,536
--------- --------- ---------
Cash at end of year $ 101,600 $ 105,420 $ 84,339
========= ========= =========
The accompanying notes are an integral part of these financial statements.
6
1027
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley Private Investment 89, L.P. (the "Partnership") was
organized in 1989 as a general partnership under the laws of the State of Texas
and was converted to a Delaware limited partnership in 1990. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the unit-of-
production method on a property-by-property basis based on proved oil (dominant
mineral) reserves as evaluated by independent petroleum consultants. The
carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -
Preparation of the accompanying 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 periods. Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
7
1028
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated in part to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non- partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized non-cash impairment provisions of $44,421 and $18,873
related to its proved oil and gas properties during 1999 and 1998, respectively.
8
1029
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $49,559 greater than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
--------- --------- ---------
Net income (loss) per statements of operations $ 454,189 $ 40,604 $(110,429)
Impairment of oil and gas properties for financial
reporting purposes - 44,421 18,873
Depletion and depreciation for tax reporting purposes
less than amounts for financial reporting purposes 49,670 66,310 239,923
Other, net (1,023) (3,073) 9,369
--------- --------- ---------
Net income per Federal income tax returns $ 502,836 $ 148,262 $ 157,736
========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
---------- ---------- ----------
Development costs $ 10,741 $ 10,151 $ 14,992
========== ========== ==========
Capitalized oil and gas properties consist of the following:
2000 1999
----------- -----------
Proved properties:
Property acquisition costs $ 58,953 $ 58,953
Completed wells and equipment 5,164,770 5,154,187
----------- -----------
5,223,723 5,213,140
Accumulated depletion (4,351,220) (4,291,008)
----------- -----------
Net oil and gas properties $ 872,503 $ 922,132
=========== ===========
9
1030
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
--------- --------- ---------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 126,729 $ 122,574 $ 123,196
Reimbursement of general and administrative
expenses $ 25,581 $ 14,534 $ 14,259
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
P&P Employees 89 Private Conv., L.P. ("EMPL") and the Partnership are parties to
the Program agreement. EMPL is a limited partnership organized for the benefit
of certain employees of Pioneer USA. EMPL was merged with Pioneer USA on
December 28, 2000.
The costs and revenues of the Program are allocated to Pioneer USA and
the Partnership as follows:
Pioneer USA (1) Partnership
--------------- -----------
Revenues:
Proceeds from disposition of depreciable and
depletable properties -
First three years 14.141414% 85.858586%
After three years 19.191919% 80.808081%
All other revenues -
First three years 14.141414% 85.858586%
After three years 19.191919% 80.808081%
Costs and expenses:
Lease acquisition costs, drilling and completion costs 9.090909% 90.909091%
Operating costs, reporting and legal expenses and
general and administrative expenses -
First three years 14.141414% 85.858586%
After three years 19.191919% 80.808081%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at
the Partnership level.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
Oil and NGLs Gas
(bbls) (mcf)
------------ --------
Net proved reserves at January 1, 1998 480,284 559,912
Revisions (179,534) (180,570)
Production (36,741) (44,624)
-------- --------
Net proved reserves at December 31, 1998 264,009 334,718
Revisions 227,645 277,954
Production (30,310) (32,985)
-------- --------
Net proved reserves at December 31, 1999 461,344 579,687
Revisions 37,767 (55,380)
Production (30,738) (30,037)
-------- --------
Net proved reserves at December 31, 2000 468,373 494,270
======== ========
10
1031
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.18 per barrel of NGLs and $7.93 per mcf of gas,
discounted at 10% was approximately $3,336,000 and undiscounted was $6,999,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
-------------------------------------------
2000 1999 1998
--------- --------- ---------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 14,511 $ 11,459 $ 2,862
Future production costs (7,512) (6,395) (2,112)
--------- --------- ---------
6,999 5,064 750
10% annual discount factor (3,663) (2,516) (271)
--------- --------- ---------
Standardized measure of discounted future net cash flows $ 3,336 $ 2,548 $ 479
========= ========= =========
11
1032
For the years ended December 31,
----------------------------------------
2000 1999 1998
-------- -------- --------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (535) $ (177) $ (178)
Net changes in prices and production costs 1,060 1,324 (1,107)
Revisions of previous quantity estimates 183 1,588 (261)
Accretion of discount 255 48 189
Changes in production rates, timing and other (175) (714) (48)
-------- -------- --------
Change in present value of future net revenues 788 2,069 (1,405)
-------- -------- --------
Balance, beginning of year 2,548 479 1,884
-------- -------- --------
Balance, end of year $ 3,336 $ 2,548 $ 479
======== ======== ========
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's
oil and gas sales (a major customer is defined as a customer whose sales exceed
10% of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 65% 64% -
Genesis Crude Oil, L.P. - - 57%
Western Gas Resources, Inc. 1% 3% 15%
GPM Gas Corporation 3% 3% 5%
At December 31, 2000, the amount receivable from Plains Marketing, L.P.
was $48,161 which is included in the caption "Accounts receivable - oil and gas
sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the Partnership agreement:
Managing general partner - The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Program and Partnership affairs. As
managing general partner and operator of the Partnership's properties,
all production expenses are incurred by Pioneer USA and billed to the
Partnership. The majority of the Partnership's oil and gas revenues are
received directly by the Partnership, however, a portion of the oil and
gas revenue is initially received by Pioneer USA prior to being paid to
the Partnership. Under the limited partnership agreement, the managing
general partner pays 1% of the Partnership's acquisition, drilling and
completion costs and 1% of its operating and general and administrative
expenses. In return, it is allocated 1% of the Partnership's revenues.
12
1033
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The partners entered into subscription
agreements for aggregate capital contributions of $7,060,000. Pioneer
USA is required to contribute amounts equal to 1% of initial Partnership
capital less commission and organization and offering costs allocated to
the limited partners and to contribute amounts necessary to pay costs
and expenses allocated to it under the Partnership agreement to the
extent its share of revenues does not cover such costs.
13
1034
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACCORDINGLY, NO ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS
AND RESULTS WILL NOT BE MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS
DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 75% to $856,030 for 2000 as
compared to $487,809 in 1999. The increase in revenues resulted from higher
average prices received, offset by a slight decline in production. In 2000,
22,438 barrels of oil, 8,300 barrels of natural gas liquids ("NGLs") and 30,037
mcf of gas were sold, or 35,744 barrel of oil equivalents ("BOEs"). In 1999,
20,601 barrels of oil, 9,709 barrels of NGLs and 32,985 mcf of gas were sold, or
35,808 BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $11.94, or 70%, from
$17.06 in 1999 to $29.00 in 2000. The average price received per barrel of NGLs
increased $6.17, or 71%, from $8.69 in 1999 to $14.86 in 2000. The average price
received per mcf of gas increased 74% from $1.57 in 1999 to $2.73 in 2000. The
market price for oil and gas has been extremely volatile in the past decade, and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
Total costs and expenses decreased in 2000 to $410,135 as compared to $451,760
in 1999, a decrease of $41,625, or 9%. The decrease was due to a decline in
depletion and the impairment of oil and gas properties, offset by an increase in
production costs and general and administrative expenses ("G&A").
Production costs were $321,340 in 2000 and $311,071 in 1999, resulting in a
$10,269 increase, or 3%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices, offset by lower well
maintenance costs.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
47% from $19,470 in 1999 to $28,583 in 2000, primarily due to a higher
percentage of the managing general partner's G&A being allocated (limited to 3%
of oil and gas revenues) as a result of increased oil and gas revenues. The
Partnership paid the managing general partner $25,581 in 2000 and $14,534 in
1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid
directly by the Partnership. The managing general partner determines the
allocated expenses based upon the level of activity of the Partnership relative
to the non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets
to be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $44,421 related to its oil and gas properties during 1999.
Depletion was $60,212 in 2000 as compared to $76,798 in 1999, representing a
decrease of $16,586, or 22%. This decrease was primarily due to a 23,945 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
prices and a reduction in the Partnership's net depletable basis from charges
taken in accordance with SFAS 121 during the fourth quarter of 1999.
1035
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 2% to $487,809 from
$478,637 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 20,601 barrels of oil,
9,709 barrels of NGLs and 32,985 mcf of gas were sold, or 35,808 BOEs. In 1998,
25,672 barrels of oil, 11,069 barrels of NGLs and 44,624 mcf of gas were sold,
or 44,178 BOEs.
The average price received per barrel of oil increased $3.78, or 28%, from
$13.28 in 1998 to $17.06 in 1999. The average price received per barrel of NGLs
increased $2.12, or 32%, from $6.57 in 1998 to $8.69 in 1999. The average price
received per mcf of gas increased 8% from $1.46 in 1998 to $1.57 in 1999.
Total costs and expenses decreased in 1999 to $451,760 as compared to $594,818
in 1998, a decrease of $143,058, or 24%. The decrease was due to a decline in
depletion, offset by an increase in the impairment of oil and gas properties,
production costs and G&A.
Production costs were $311,071 in 1999 and $300,564 in 1998, resulting in a
$10,507 increase, or 3%. The increase was due to an increase in well maintenance
costs incurred to stimulate well production, offset by declines in ad valorem
and production taxes.
During this period, G&A increased 15% from $16,898 in 1998 to $19,470 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $14,534 in
1999 and $14,259 in 1998 for G&A incurred on behalf of the Partnership.
The Partnership recognized non-cash SFAS 121 charges of $44,421 and $18,873
related to its oil and gas properties during 1999 and 1998, respectively.
Depletion was $76,798 in 1999 compared to $258,483 in 1998, representing a
decrease of $181,685, or 70%. This decrease was the result of a combination of
factors that included an increase in proved reserves of 160,524 barrels of oil
during 1999 as a result of higher commodity prices, a decline in oil production
of 5,071 barrels for the period ended December 31, 1999 compared to the same
period in 1998 and a reduction in the Partnership's net depletable basis from
charges taken in accordance with SFAS 121 during the fourth quarter of 1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $337,800 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $371,960, offset by increases in production costs paid
of
1036
$10,269, G&A expenses paid of $9,113 and working capital of $14,778. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $347,665 to oil and gas receipts and
an increase of $24,295 resulting from the increase in oil production during
2000. The increase in production costs was primarily due to increased production
taxes associated with higher oil and gas prices, offset by lower well
maintenance costs. The increase in G&A was primarily due to higher percentage of
the managing general partner's G&A being allocated (limited to 3% of oil and gas
revenues) as a result of increased oil and gas revenues.
Net Cash Used in Investing Activities
The Partnership's principal investing activities during 2000 and 1999 included
expenditures related to equipment upgrades on active properties.
Proceeds from asset dispositions of $158 in 2000 were from equipment credits
received on one active well.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $465,729, of which $4,657 was
distributed to the managing general partner and $461,072 to the limited
partners. In 1999, cash distributions to the partners were $103,460, of which
$1,035 was distributed to the managing general partner and $102,425 to the
limited partners.
1037
PARKER & PARSLEY PRIVATE INVESTMENT 89, L.P.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 188,721 $ 856,030 $ 487,809 $ 478,637 $ 675,051 $ 800,390
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ -- $ 44,421 $ 18,873 $ 377,878 $ 79,530
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 91,345 $ 454,189 $ 40,604 $ (110,429) $ (183,640) $ 249,498
======== ========== ========== ========== ========== ========== ==========
Allocation of net
income (loss):
Managing general
partner $ $ 913 $ 4,542 $ 406 $ (1,104) $ (1,836) $ 2,495
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 90,432 $ 449,647 $ 40,198 $ (109,325) $ (181,804) $ 247,003
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 512.36 $ 2,547.58 $ 227.75 $ (619.41) $(1,030.05) $ 1,399.45
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 532.68 $ 2,612.31 $ 580.31 $ 1,132.00 $ 2,068.82 $ 1,932.01
======== ========== ========== ========== ========== ========== ==========
At year end:
Total assets $ $1,102,697 $1,092,502 $1,104,470 $1,164,268 $1,486,434 $2,033,774
======== ========== ========== ========== ========== ========== ==========
1038
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 90-A CONV., L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
90-A Conv., L.P., and supplements the proxy statement/prospectus dated ,
2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA,
Inc., by which Pioneer USA is soliciting proxies to be voted at a special
meeting of limited partners of the partnership. The purpose of the special
meeting is for you to vote upon the merger of the partnership with and into
Pioneer USA that, if completed, will result in your receiving common stock of
Pioneer Natural Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 90-A Conv., L.P.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the three months ended March 31, 2001
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
1039
PARKER & PARSLEY 90-A CONV., L.P.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 2,359
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 2,055
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 549
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 234.26
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.65 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 183.97
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 212.06
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 228.09
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 125
(b), (c)
-----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners. Although not
required by the partnership agreement, the opinion will also state that neither
the grant nor exercise of such right will result in the loss of any limited
partner's limited liability. In addition, the counsel designated to render the
opinion is not required to be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
1040
PARKER & PARSLEY 90-A CONV., L.P.
(A Delaware Limited Partnership)
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT
December 31, 2000 and 1999
1041
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 90-A Conv., L.P.
(A Delaware Limited Partnership):
We have audited the balance sheets of Parker & Parsley 90-A Conv., L.P. as of
December 31, 2000 and 1999, and the related statements of operations, partners'
capital and cash flows for each of the three years in the period ended December
31, 2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 90-A Conv.,
L.P. as of December 31, 2000 and 1999, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
2
1042
PARKER & PARSLEY 90-A CONV., L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
-------- ---------
ASSETS
------
Current assets:
Cash $ 30,771 $ 41,094
Accounts receivable - oil and gas sales 42,233 24,997
-------- --------
Total current assets 73,004 66,091
-------- --------
Oil and gas properties - at cost, based on the
successful efforts accounting method 1,761,261 1,758,206
Accumulated depletion (1,390,348) (1,363,812)
---------- -----------
Net oil and gas properties 370,913 394,394
-------- --------
$ 443,917 $ 460,485
========= =========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 5,524 $ 5,332
Partners' capital:
Managing general partner 4,412 4,579
Limited partners (2,359 interests) 433,981 450,574
-------- ---------
438,393 455,153
-------- --------
$ 443,917 $ 460,485
========= =========
The accompanying notes are an integral part of these financial statements.
3
1043
PARKER & PARSLEY 90-A CONV., L.P.
(A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
------- ------- ------
Revenues:
Oil and gas $ 279,230 $ 169,279 $152,905
Interest 3,027 1,751 2,080
Gain on disposition of assets 3,262 - -
------- ------- ------
285,519 171,030 154,985
------- ------- -------
Costs and expenses:
Oil and gas production 114,159 93,178 97,819
General and administrative 9,468 7,068 4,961
Impairment of oil and gas properties - - 11,795
Depletion 26,536 36,271 55,908
------- ------- ------
150,163 136,517 170,483
------- ------- -------
Net income (loss) $ 135,356 $ 34,513 $(15,498)
======== ======== =======
Allocation of net income (loss):
Managing general partner $ 1,354 $ 345 $ (155)
======== ======== =======
Limited partners $ 134,002 $ 34,168 $(15,343)
======== ======== =======
Net income (loss) per limited partnership interest $ 56.80 $ 14.48 $ (6.50)
======== ======== =======
The accompanying notes are an integral part of these financial statements.
3
1044
PARKER & PARSLEY 90-A CONV., L.P.
(A Delaware Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
------------- -------------- -----------
Partners' capital at January 1, 1998 $ 5,602 $ 551,772 $ 557,374
Distributions (678) (67,095) (67,773)
Net loss (155) (15,343) (15,498)
------ -------- -------
Partners' capital at December 31, 1998 4,769 469,334 474,103
Distributions (535) (52,928) (53,463)
Net income 345 34,168 34,513
------ -------- -------
Partners' capital at December 31, 1999 4,579 450,574 455,153
Distributions (1,521) (150,595) (152,116)
Net income 1,354 134,002 135,356
------ -------- -------
Partners' capital at December 31, 2000 $ 4,412 $ 433,981 $ 438,393
======= ========= ========
The accompanying notes are an integral part of these financial statements.
5
1045
PARKER & PARSLEY 90-A CONV., L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
------- ------- -------
Cash flows from operating activities:
Net income (loss) $ 135,356 $ 34,513 $ (15,498)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties - - 11,795
Depletion 26,536 36,271 55,908
Gain on disposition of assets (3,262) - -
Changes in assets and liabilities:
Accounts receivable (17,236) (7,632) 12,991
Accounts payable 192 841 (2,835)
------- ------- -------
Net cash provided by operating activities 141,586 63,993 62,361
-------- ------- -------
Cash flows from investing activities:
Additions to oil and gas properties (3,055) (2,507) (3,134)
Proceeds from asset dispositions 3,262 2,501 -
------- ------- -------
Net cash provided by (used in)
investing activities 207 (6) (3,134)
------- ------- -------
Cash flows used in financing activities:
Cash distributions to partners (152,116) (53,463) (67,773)
-------- ------- -------
Net increase (decrease) in cash (10,323) 10,524 (8,546)
Cash at beginning of year 41,094 30,570 39,116
------- ------- -------
Cash at end of year $ 30,771 $ 41,094 $ 30,570
======== ======== ========
The accompanying notes are an integral part of these financial statements.
6
1046
PARKER & PARSLEY 90-A CONV., L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 90-A Conv., L.P. (the "Partnership") was organized in
1990 as a general partnership under the laws of the State of Texas and was
converted to a Delaware limited partnership in 1991. The Partnership's managing
general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in Texas
and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements - Preparation
of the accompanying 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 periods.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
7
1047
Income taxes - A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative expenses
are allocated in part to the Partnership by the managing general partner.
Allocated expenses are determined by the managing general partner based upon the
level of activity of the Partnership relative to the non-partnership activities
of the managing general partner. The method of allocation has been consistent
over the past several years with certain modifications incorporated to reflect
changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized a non-cash impairment provision of $11,795 related to its
proved oil and gas properties during 1998.
8
1048
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $109,150 greater than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
--------- --------- ---------
Net income (loss) per statements of operations $135,356 $34,513 $(15,498)
Depletion and depreciation for tax reporting purposes
less than amounts for financial reporting purposes 23,651 33,412 51,723
Impairment of oil and gas properties for financial
reporting purposes -- -- 11,795
Other, net (403) 1,343 1,229
--------- --------- ---------
Net income per Federal income tax returns $158,604 $69,268 $49,249
========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
--------- --------- ---------
Development costs $ 3,055 $ 2,507 $ 3,134
========= ========= =========
Capitalized oil and gas properties consist of the following:
2000 1999
--------- ---------
Proved properties:
Property acquisition costs $ 69,332 $ 69,332
Completed well and equipment 1,691,929 1,688,874
--------- ---------
1,761,261 1,758,206
Accumulated depletion (1,390,348) (1,363,812)
---------- ----------
Net oil and gas properties $ 370,913 $ 394,394
========= =========
9
1049
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
--------- --------- ---------
Payment of lease operating and supervision
charges in accordance with standard industry
operating agreements $ 42,503 $ 41,777 $ 41,366
Reimbursement of general and administrative
expenses $ 8,329 $ 5,027 $ 4,007
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
P&P Employees 90-A Conv., L.P. ("EMPL"), Parker & Parsley 90-A, L.P. and the
Partnership are parties to the Program agreement. EMPL is a limited partnership
organized for the benefit of certain employees of Pioneer USA. EMPL was merged
with Pioneer USA on December 28, 2000.
The costs and revenues of the Program are allocated to Pioneer USA and the
Partnerships as follows:
Pioneer USA (1) Partnerships (2)
--------------- ----------------
Revenues:
Proceeds from disposition of depreciable and
depletable properties -
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
All other revenues -
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
Costs and expenses:
Lease acquisition costs, drilling and completion costs 9.090909% 90.909091%
Operating costs, reporting and legal expenses and
general and administrative expenses -
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
(1) Excludes Pioneer USA's 1% general partner ownership which is
allocated at the Partnership level and 14 limited partner interests
owned by Pioneer USA.
(2) The allocation between the Partnership and Parker & Parsley 90-A,
L.P. is 25.725191% and 74.274809%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
10
1050
Oil and NGLs Gas
(bbls) (mcf)
------------ ----------
Net proved reserves at January 1, 1998 137,987 205,757
Revisions (49,089) (52,907)
Production (11,399) (16,309)
---------- ----------
Net proved reserves at December 31, 1998 77,499 136,541
Revisions 71,585 121,688
Production (10,130) (14,989)
---------- ----------
Net proved reserves at December 31, 1999 138,954 243,240
Revisions 6,057 (59,715)
Production (9,876) (13,365)
---------- ----------
Net proved reserves at December 31, 2000 135,135 170,160
========== ==========
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.25 per barrel of NGLs and $7.89 per mcf of gas,
discounted at 10% was approximately $1,053,000 and undiscounted was $2,025,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
--------------------------------------
2000 1999 1998
----------- ----------- -----------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 4,309 $ 3,455 $ 854
Future production costs (2,284) (2,046) (669)
-------- -------- --------
2,025 1,409 185
10% annual discount factor (972) (653) (54)
-------- -------- --------
Standardized measure of discounted future net cash flows $ 1,053 $ 756 $ 131
========= ========= =========
11
1051
For the years ended December 31,
--------------------------------------
2000 1999 1998
----------- ----------- -----------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (165) $ (76) $ (55)
Net changes in prices and production costs 446 419 (356)
Revisions of previous quantity estimates (26) 511 (61)
Accretion of discount 76 13 56
Changes in production rates, timing and other (34) (242) (14)
-------- --------- --------
Change in present value of future net revenues 297 625 (430)
-------- --------- --------
Balance, beginning of year 756 131 561
-------- --------- --------
Balance, end of year $ 1,053 $ 756 $ 131
========= ========== =========
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil and
gas sales (a major customer is defined as a customer whose sales exceed 10% of
total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 54% 51% -
TEPPCO Crude Oil LLC 12% 11% -
NGTS LLC 10% 10% -
Genesis Crude Oil, L.P. - - 57%
Western Gas Resources, Inc. 2% 5% 22%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P.,
TEPPCO Crude Oil LLC and NGTS LLC were $13,068, $2,535 and $1,423, respectively,
which are included in the caption "Accounts receivable - oil and gas sales" in
the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would not
have an adverse effect on the ability of the Partnership to sell its oil, NGLs
and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of the
limited partnership agreement:
Managing general partner - The managing general partner of the Partnership
is Pioneer USA. Pioneer USA has the power and authority to manage, control
and administer all Program and Partnership affairs. As managing general
partner and operator of the Partnership's properties, all production
expenses are incurred by Pioneer USA and billed to the Partnership. The
majority of the Partnership's oil and gas revenues are received directly
by the Partnership, however, a portion of the oil and gas revenue is
initially received by Pioneer USA prior to being paid to the Partnership.
Under the Partnership agreement, the managing general partner pays 1% of
the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is
allocated 1% of the Partnership's revenues.
12
1052
Limited partner liability - The maximum amount of liability of any limited
partner is the total contributions of such partner plus his share of any
undistributed profits.
Initial capital contributions - The partners entered into subscription
agreements for aggregate capital contributions of $2,359,000. Pioneer USA
is required to contribute amounts equal to 1% of initial Partnership
capital less commission, organization and offering costs allocated to the
limited partners and to contribute amounts necessary to pay costs and
expenses allocated to it under the Partnership agreement to the extent its
share of revenues does not cover such costs.
13
1053
PARKER & PARSLEY 90-A CONV., L.P.
(A DELAWARE LIMITED PARTNERSHIP)
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACCORDINGLY, NO ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS
AND RESULTS WILL NOT BE MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS
DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 65% to $279,230 for 2000 as
compared to $169,279 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decline in production. In 2000, 6,255
barrels of oil, 3,621 barrels of natural gas liquids ("NGLs") and 13,365 mcf of
gas were sold, or 12,104 barrel of oil equivalents ("BOEs"). In 1999, 6,133
barrels of oil, 3,997 barrels of NGLs and 14,989 mcf of gas were sold, or 12,628
BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.26, or 72%, from
$17.06 in 1999 to $29.32 in 2000. The average price received per barrel of NGLs
increased $6.04, or 63%, from $9.58 in 1999 to $15.62 in 2000. The average price
received per mcf of gas increased 67% from $1.76 in 1999 to $2.94 in 2000. The
market price for oil and gas has been extremely volatile in the past decade, and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
Gain on disposition of assets of $3,262 was recognized during 2000 resulting
from equipment credits received on one well.
Total costs and expenses increased in 2000 to $150,163 as compared to $136,517
in 1999, an increase of $13,646, or 10%. The increase was due to increases in
production costs and general and administrative expenses ("G&A"), offset by a
decline in depletion.
Production costs were $114,159 in 2000 and $93,178 in 1999, resulting in a
$20,981 increase, or 23%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices and additional well maintenance
costs incurred to stimulate well production.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
34% from $7,068 in 1999 to $9,468 in 2000, primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 3% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $8,329 in 2000 and $5,027 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
Depletion was $26,536 in 2000 as compared to $36,271 in 1999, representing a
decrease of $9,735, or 27%. This decrease was primarily due to a 10,806 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
prices.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 11% to $169,279 from
$152,905 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 6,133 barrels of oil,
3,997 barrels
1054
of NGLs and 14,989 mcf of gas were sold, or 12,628 BOEs. In 1998, 7,476 barrels
of oil, 3,923 barrels of NGLs and 16,309 mcf of gas were sold, or 14,117 BOEs.
The average price received per barrel of oil increased $3.86, or 29%, from
$13.20 in 1998 to $17.06 in 1999. The average price received per barrel of NGLs
increased $2.56, or 36%, from $7.02 in 1998 to $9.58 in 1999. The average price
received per mcf of gas increased 7% from $1.64 in 1998 to $1.76 in 1999.
Total costs and expenses decreased in 1999 to $136,517 as compared to $170,483
in 1998, a decrease of $33,966, or 20%. The decrease was due to reductions in
depletion, the impairment of oil and gas properties and production costs, offset
by an increase in G&A.
Production costs were $93,178 in 1999 and $97,819 in 1998, resulting in a $4,641
decrease, or 5%. The decrease was due to declines in ad valorem taxes and well
maintenance costs.
During this period, G&A increased 42% from $4,961 in 1998 to $7,068 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $5,027 in
1999 and $4,007 in 1998 for G&A incurred on behalf of the Partnership.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $11,795 related to its oil and gas properties during 1998.
Depletion was $36,271 in 1999 compared to $55,908 in 1998, representing a
decrease of $19,637, or 35%. This decrease was primarily the result of an
increase in proved reserves of 43,411 barrels of oil during 1999 as a result of
higher commodity prices, a reduction in the Partnership's net depletable basis
from charges taken in accordance with SFAS 121 during the fourth quarter of 1998
and a decline in oil production of 1,343 barrels for the period ended December
31, 1999 compared to the same period in 1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $77,593 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $111,227, offset by increases in production costs paid
of
1055
$20,981, G&A expenses paid of $2,400 and working capital of $10,253. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $118,292 to oil and gas receipts,
offset by $7,065 resulting from the decline in production during 2000. The
increase in production costs was primarily due to increased production taxes
associated with higher oil and gas prices and well maintenance costs incurred to
stimulate well production. The increase in G&A was primarily due to higher
percentage of the managing general partner's G&A being allocated (limited to 3%
of oil and gas revenues) as a result of increased oil and gas revenues.
Net Cash Provided by (Used in) Investing Activities
The Partnership's principal investing activities during 2000 and 1999 included
expenditures related to equipment upgrades on active properties.
Proceeds from disposition of assets of $3,262 was recognized during 2000
resulting from equipment credits received on one well. Proceeds of $2,501 during
1999 were received from equipment credits on one active well and one temporarily
abandoned well.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $152,116, of which $1,521 was
distributed to the managing general partner and $150,595 to the limited
partners. In 1999, cash distributions to the partners were $53,463, of which
$535 was distributed to the managing general partner and $52,928 to the limited
partners.
1056
PARKER & PARSLEY 90-A CONV., L.P.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 63,489 $ 279,230 $ 169,279 $ 152,905 $ 223,014 $ 269,347
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ -- $ -- $ 11,795 $ 111,163 $ --
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 30,437 $ 135,356 $ 34,513 $ (15,498) $ (51,948) $ 90,354
======== ========== ========== ========== ========== ========== ==========
Allocation of net
income (loss):
Managing general
partner $ $ 304 $ 1,354 $ 345 $ (155) $ (520) $ 903
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 30,133 $ 134,002 $ 34,168 $ (15,343) $ (51,428) $ 89,451
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 12.77 $ 56.80 $ 14.48 $ (6.50) $ (21.80) $ 37.92
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 12.70 $ 63.84 $ 22.44 $ 28.44 $ 53.06 $ 53.75
======== ========== ========== ========== ========== ========== ==========
At year end:
Total assets $ $ 460,670 $ 443,917 $ 460,485 $ 478,594 $ 564,700 $ 742,427
======== ========== ========== ========== ========== ========== ==========
1057
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 90-A, L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
90-A, L.P., and supplements the proxy statement/prospectus dated , 2001, of
Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by
which Pioneer USA is soliciting proxies to be voted at a special meeting of
limited partners of the partnership. The purpose of the special meeting is for
you to vote upon the merger of the partnership with and into Pioneer USA that,
if completed, will result in your receiving common stock of Pioneer Natural
Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 90-A, L.P.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's quarterly report on Form 10-Q, including
management's discussion and analysis of financial condition and
results of operations, for the three months ended March 31, 2001
o The partnership's annual report on Form 10-K, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
1058
PARKER & PARSLEY 90-A, L.P.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 6,811
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 5,933
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 1,565
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 234.87
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.60 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 184.56
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 212.66
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 228.69
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 125
(b), (c)
----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners. Although not
required by the partnership agreement, the opinion will also state that neither
the grant nor exercise of such right will result in the loss of any limited
partner's limited liability. In addition, the counsel designated to render the
opinion is not required to be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
1059
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 FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 33-26097-05
PARKER & PARSLEY 90-A, L.P.
(Exact name of Registrant as specified in its charter)
DELAWARE 75-2329245
---------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039
---------------------------------------------------------------- -------------
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
-----------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES /X/ 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
No market currently exists for the limited partnership interests of the
Registrant. Based on the original purchase price, the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$6,664,000.
As of March 8, 2001, the number of outstanding limited partnership
interests was 6,811.
The following documents are incorporated by reference into the indicated parts
of this Annual Report on Form 10-K: None
PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACCORDINGLY, NO
ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS AND RESULTS WILL NOT BE
MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD
LOOKING STATEMENTS. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS
THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE
ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
1060
PART I
ITEM 1. BUSINESS
Parker & Parsley 90-A, L.P. (the "Partnership") is a limited partnership
organized in 1990 under the laws of the State of Delaware. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company
("Pioneer"). As of March 8, 2001, the Partnership had 6,811 limited partnership
interests outstanding.
The Partnership does not have any employees of its own. Pioneer USA employs 701
persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this Report is filed. Pioneer
USA is responsible for all management functions.
The Partnership engages in oil and gas development and production and is not
involved in any industry segment other than oil and gas. The Partnership's
production is geographically concentrated in West Texas.
The principal markets during 2000 for the oil produced by the Partnership were
refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. During 2000, Pioneer USA marketed the
Partnership's gas to a variety of purchasers. Of the Partnership's total oil and
gas revenues for 2000, approximately 54%, 12% and 10% were attributable to sales
made to Plains Marketing, L.P., TEPPCO Crude Oil LLC and NGTS LLC, respectively.
Pioneer USA is of the opinion that the loss of any one purchaser would not have
an adverse effect on its ability to sell its oil, natural gas liquids ("NGLs")
and gas production.
The Partnership's revenues, profitability, cash flow and future rate of growth
are highly dependent on the prevailing prices of oil and gas, which are affected
by numerous factors beyond the Partnership's control. Oil and gas prices
historically have been very volatile. A substantial or extended decline in the
prices of oil or gas could have a material adverse effect on the Partnership's
revenues, profitability and cash flow and could, under certain circumstances,
result in a reduction in the carrying value of the Partnership's oil and gas
properties.
Oil and gas production operations are subject to various types of regulations by
local, state and federal agencies. The Partnership's operations are also subject
to state conservation laws and regulations, including the establishment of
maximum rates of production from wells and the regulation of spacing, plugging
and abandonment of wells. Each state generally imposes a production or severance
tax with respect to production and sale of oil and gas within their respective
jurisdictions. Noncompliance with the laws and regulations may subject the
Partnership to penalties, damages or other liabilities and compliance may
increase the cost of the Partnership's operations.
The oil and gas business is also subject to environmental hazards such as oil
spills, gas leaks and ruptures and discharges of toxic substances or gases that
could expose the Partnership to substantial
2
1061
liability due to pollution and other environmental damages. Although the
Partnership believes that its business operations do not impair environmental
quality and that its costs of complying with any applicable environmental
regulations are not currently significant, the Partnership cannot predict what,
if any, effect these environmental regulations may have on its current or future
operations.
Numerous uncertainties exist in estimating quantities of proved reserves and
future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the Partnership
conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist of leasehold 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 Spraberry Trend Area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 27
oil and gas wells. Two wells have been sold. At December 31, 2000, 25 wells were
producing.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 2000, 1999 and 1998 and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been evaluated by Williamson Petroleum Consultants, Inc., an independent
petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer USA believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the partners during the fourth
quarter of 2000.
3
1062
PART II
ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP
DISTRIBUTIONS
At March 8, 2001, the Partnership had 6,811 outstanding limited partnership
interests held of record by 525 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are not
required to meet the Partnership's obligations are distributed to the partners
at least quarterly in accordance with the limited partnership agreement. During
the years ended December 31, 2000 and 1999, $434,802 and $152,818, respectively,
of such revenue-related distributions were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
2000 1999 1998 1997 1996
---------- ----------- ----------- ---------- -----------
Operating results:
-----------------
Oil and gas sales $ 806,344 $ 488,752 $ 441,480 $ 643,882 $ 777,677
========== =========== =========== ========== ===========
Impairment of oil and gas
properties $ - $ - $ 34,145 $ 321,019 $ -
========== =========== =========== ========== ===========
Net income (loss) $ 390,714 $ 99,965 $ (44,421) $ (149,948) $ 261,210
========== =========== =========== ========== ===========
Allocation of net
income (loss):
Managing general partner $ 3,907 $ 1,000 $ (444) $ (1,499) $ 2,612
========== =========== =========== ========== ===========
Limited partners $ 386,807 $ 98,965 $ (43,977) $ (148,449) $ 258,598
========== =========== =========== ========== ===========
Limited partners' net income
(loss) per limited
partnership interest $ 56.79 $ 14.53 $ (6.46) $ (21.80) $ 37.97
========== =========== =========== ========== ===========
Limited partners' cash
distributions per limited
partnership interest $ 63.84 $ 22.44 $ 28.44 $ 53.06 $ 53.75
========== =========== =========== ========== ===========
At year end:
-----------
Identifiable assets $1,285,569 $ 1,333,533 $ 1,385,777 $1,634,061 $ 2,146,498
========== =========== =========== ========== ===========
4
1063
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 65% to $806,344 for 2000 as
compared to $488,752 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decline in production. In 2000, 18,065
barrels of oil, 10,454 barrels of natural gas liquids ("NGLs") and 38,570 mcf of
gas were sold, or 34,947 barrel of oil equivalents ("BOEs"). In 1999, 17,702
barrels of oil, 11,546 barrels of NGLs and 43,302 mcf of gas were sold, or
36,465 BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.26, or 72% from
$17.06 in 1999 to $29.32 in 2000. The average price received per barrel of NGLs
increased $6.04, or 63% from $9.58 in 1999 to $15.62 in 2000. The average price
received per mcf of gas increased 67% in 2000 to $2.94 compared to $1.76 in
1999. The market price for oil and gas has been extremely volatile in the past
decade and management expects a certain amount of volatility to continue in the
foreseeable future. The Partnership may therefore sell its future oil and gas
production at average prices lower or higher than that received in 2000.
Gain on disposition of assets of $9,419 was recognized during 2000 resulting
from equipment credits received on one fully depleted well.
Total costs and expenses increased in 2000 to $433,960 as compared to $394,007
in 1999, an increase of $39,953, or 10%. This increase was primarily due to
increases in production costs and general and administrative expenses ("G&A"),
offset by a decline in depletion.
Production costs were $329,608 in 2000 and $269,017 in 1999, resulting in an
increase of $60,591, or 23%. The increase was primarily due to additional well
maintenance and workover costs incurred to stimulate well production and higher
production taxes associated with higher oil and gas prices.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
36% from $20,244 in 1999 to $27,629 in 2000 primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 3% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $24,038 in 2000 and $14,514 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
5
1064
Depletion was $76,723 in 2000 compared to $104,746 in 1999, representing a
decrease of $28,023, or 27%. This decrease was primarily due to a 33,982 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
prices.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 11% to $488,752 from
$441,480 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 17,702 barrels of oil,
11,546 barrels of NGLs and 43,302 mcf of gas were sold, or 36,465 BOEs. In 1998,
21,587 barrels of oil, 11,328 barrels of NGLs and 47,086 mcf of gas were sold,
or 40,763 BOEs.
The average price received per barrel of oil increased $3.86, or 29% from $13.20
in 1998 to $17.06 in 1999. The average price received per barrel of NGLs
increased $2.56, or 36% from $7.02 in 1998 to $9.58 in 1999. The average price
received per mcf of gas increased 7% in 1999 to $1.76 compared to $1.64 in 1998.
Total costs and expenses decreased in 1999 to $394,007 as compared to $492,078
in 1998, a decrease of $98,071, or 20%. This decrease was primarily due to
declines in depletion, the impairment of oil and gas properties and production
costs, offset by an increase in G&A.
Production costs were $269,017 in 1999 and $282,430 in 1998, resulting in a
$13,413 decline, or 5%. The decline includes a reduction in ad valorem taxes and
less well maintenance costs.
During this period, G&A increased 43% from $14,124 in 1998 to $20,244 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $14,514 in
1999 and $11,560 in 1998 for G&A incurred on behalf of the Partnership.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $34,145 related to its oil and gas properties during 1998.
Depletion was $104,746 in 1999 compared to $161,379 in 1998. This represented a
decrease of $56,633, or 35%. This decrease was primarily the result of an
increase in proved reserves of 125,332 barrels of oil during 1999 as a result of
higher commodity prices, a reduction in the Partnership's net depletable basis
from charges taken in accordance with SFAS 121 during the fourth quarter of 1998
and a decline in oil production of 3,885 barrels for the period ended December
31, 1999 compared to the same period in 1998.
6
1065
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $223,816 during the year
ended December 31, 2000 from 1999. This increase was due to increases in oil and
gas sales receipts of $321,283, offset by increases in production costs paid of
$60,591, G&A expenses paid of $7,385 and working capital of $29,491. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $341,604 to oil and gas receipts,
offset by $20,321 resulting from the decline in production during 2000. The
increase in production costs was primarily due to increased production taxes
associated with higher oil and gas prices and well maintenance costs incurred to
stimulate well production. The increase in G&A was primarily due to higher
percentage of the managing general partner's G&A being allocated (limited to 3%
of oil and gas revenues) as a result of increased oil and gas revenues.
Net Cash Provided by (Used in) Investing Activities
The Partnership's investing activities during 2000 and 1999 were for
expenditures related to oil and gas equipment upgrades on active properties.
Proceeds from asset dispositions of $9,419 were recognized during 2000 from
equipment credits on one fully depleted well and proceeds of $7,220 in 1999 were
from equipment credits received on one active property and one temporarily
abandoned property.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $439,194, of which $4,392 was
distributed to the managing general partner and $434,802 to the limited
partners. In 1999, cash distributions to the partners were $154,362 of which
$1,544 was distributed to the managing general partner and $152,818 to the
limited partners.
7
1066
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements of Parker & Parsley 90-A, L.P.:
Independent Auditors' Report......................................................... 9
Balance Sheets as of December 31, 2000 and 1999...................................... 10
Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998................................................................ 11
Statements of Partners' Capital for the Years Ended
December 31, 2000, 1999 and 1998................................................... 12
Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998................................................................ 13
Notes to Financial Statements........................................................ 14
8
1067
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 90-A, L.P.
(A Delaware Limited Partnership):
We have audited the balance sheets of Parker & Parsley 90-A, L.P. as of December
31, 2000 and 1999, and the related statements of operations, partners' capital
and cash flows for each of the three years in the period ended December 31,
2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 90-A, L.P. as
of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
9
1068
PARKER & PARSLEY 90-A, L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
----------- -----------
ASSETS
------
Current assets:
Cash $ 92,685 $ 122,649
Accounts receivable - oil and gas sales 122,067 72,167
----------- -----------
Total current assets 214,752 194,816
----------- -----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 5,085,185 5,076,362
Accumulated depletion (4,014,368) (3,937,645)
----------- -----------
Net oil and gas properties 1,070,817 1,138,717
----------- -----------
$ 1,285,569 $ 1,333,533
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable - affiliate $ 15,770 $ 15,254
Partners' capital:
Managing general partner 12,779 13,264
Limited partners (6,811 interests) 1,257,020 1,305,015
----------- -----------
1,269,799 1,318,279
----------- -----------
$ 1,285,569 $ 1,333,533
=========== ===========
The accompanying notes are an integral part of these financial statements.
10
1069
PARKER & PARSLEY 90-A, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
-------- -------- ---------
Revenues:
Oil and gas $806,344 $488,752 $ 441,480
Interest 8,911 5,220 6,177
Gain on disposition of assets 9,419 - -
-------- -------- ---------
824,674 493,972 447,657
-------- -------- ---------
Costs and expenses:
Oil and gas production 329,608 269,017 282,430
General and administrative 27,629 20,244 14,124
Impairment of oil and gas properties - - 34,145
Depletion 76,723 104,746 161,379
-------- -------- ---------
433,960 394,007 492,078
-------- -------- ---------
Net income (loss) $390,714 $ 99,965 $ (44,421)
======== ======== =========
Allocation of net income (loss):
Managing general partner $ 3,907 $ 1,000 $ (444)
======== ======== =========
Limited partners $386,807 $ 98,965 $ (43,977)
======== ======== =========
Net income (loss) per limited partnership
interest $ 56.79 $ 14.53 $ (6.46)
======== ======== =========
The accompanying notes are an integral part of these financial statements.
11
1070
PARKER & PARSLEY 90-A, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
--------- ------------ ------------
Partners' capital at January 1, 1998 $ 16,209 $ 1,596,562 $ 1,612,771
Distributions (1,957) (193,717) (195,674)
Net loss (444) (43,977) (44,421)
-------- ----------- -----------
Partners' capital at December 31, 1998 13,808 1,358,868 1,372,676
Distributions (1,544) (152,818) (154,362)
Net income 1,000 98,965 99,965
-------- ----------- -----------
Partners' capital at December 31, 1999 13,264 1,305,015 1,318,279
Distributions (4,392) (434,802) (439,194)
Net income 3,907 386,807 390,714
-------- ----------- -----------
Partners' capital at December 31, 2000 $ 12,779 $ 1,257,020 $ 1,269,799
======== =========== ===========
The accompanying notes are an integral part of these financial statements.
12
1071
PARKER & PARSLEY 90-A, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ 390,714 $ 99,965 $ (44,421)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties - - 34,145
Depletion 76,723 104,746 161,379
Gain on disposition of assets (9,419) - -
Changes in assets and liabilities:
Accounts receivable (49,900) (22,046) 37,507
Accounts payable 516 2,153 (8,189)
--------- --------- ---------
Net cash provided by operating activities 408,634 184,818 180,421
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties (8,823) (7,237) (9,047)
Proceeds from asset dispositions 9,419 7,220 -
--------- --------- ---------
Net cash provided by (used in)
investing activities 596 (17) (9,047)
--------- --------- ---------
Cash flows used in financing activities:
Cash distributions to partners (439,194) (154,362) (195,674)
--------- --------- ---------
Net increase (decrease) in cash (29,964) 30,439 (24,300)
Cash at beginning of year 122,649 92,210 116,510
--------- --------- ---------
Cash at end of year $ 92,685 $ 122,649 $ 92,210
========= ========= =========
The accompanying notes are an integral part of these financial statements.
13
1072
PARKER & PARSLEY 90-A, L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 90-A, L.P. (the "Partnership") is a limited partnership
organized in 1990 under the laws of the State of Delaware. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in Texas
and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements - Preparation
of the accompanying 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 periods.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
14
1073
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative expenses
are allocated in part to the Partnership by the managing general partner.
Allocated expenses are determined by the managing general partner based upon the
level of activity of the Partnership relative to the non-partnership activities
of the managing general partner. The method of allocation has been consistent
over the past several years with certain modifications incorporated to reflect
changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized a non-cash impairment provision of $34,145 related to its
proved oil and gas properties during 1998.
15
1074
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $315,080 greater than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
--------- --------- ---------
Net income (loss) per statements of operations $ 390,714 $ 99,965 $ (44,421)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes 68,390 96,496 149,296
Impairment of oil and gas properties for financial
reporting purposes - - 34,145
Other, net (1,209) 3,745 3,688
--------- --------- ---------
Net income per Federal income tax
returns $ 457,895 $ 200,206 $ 142,708
========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
--------- --------- ----------
Development costs $ 8,823 $ 7,237 $ 9,047
========= ========= ==========
Capitalized oil and gas properties consist of the following:
2000 1999
----------- ----------
Proved properties:
Property acquisition costs $ 200,177 $ 200,177
Completed wells and equipment 4,885,008 4,876,185
----------- -----------
5,085,185 5,076,362
Accumulated depletion (4,014,368) (3,937,645)
----------- -----------
Net oil and gas properties $ 1,070,817 $ 1,138,717
=========== ===========
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
--------- --------- ---------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 122,715 $ 120,620 $ 119,432
Reimbursement of general and administrative
expenses $ 24,038 $ 14,514 $ 11,560
16
1075
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA
and P&P Employees 90-A, L.P., ("EMPL"), Parker & Parsley 90-A Conv., L.P. and
the Partnership (the "Partnerships") are parties to the Program agreement. EMPL
is a limited partnership organized for the benefit of certain employees of
Pioneer USA. EMPL was merged with Pioneer USA on December 28, 2000.
The costs and revenues of the Program are allocated to Pioneer USA and the
Partnerships as follows:
Pioneer USA (1) Partnerships (2)
--------------- ----------------
Revenues:
Proceeds from disposition of depreciable and
depletable properties -
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
All other revenues -
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
Costs and expenses:
Lease acquisition costs, drilling and completion
and all other costs 9.090909% 90.909091%
Operating costs, reporting and legal expenses and
general and administrative expenses -
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated
at the Partnership level and 147 limited partner interests owned by
Pioneer USA.
(2) The allocation between the Partnership and Parker & Parsley 90-A
Conv., L.P. is 74.274809% and 25.725191%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
Oil and NGLs Gas
(bbls) (mcf)
------------ -----------
Net proved reserves at January 1, 1998 398,405 594,075
Revisions (141,729) (152,757)
Production (32,915) (47,086)
------------ -----------
Net proved reserves at December 31, 1998 223,761 394,232
Revisions 206,682 351,371
Production (29,248) (43,302)
------------ -----------
Net proved reserves at December 31, 1999 401,195 702,301
Revisions 21,424 (168,710)
Production (28,519) (38,570)
------------ -----------
Net proved reserves at December 31, 2000 394,100 495,021
========== ==========
17
1076
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.25 per barrel of NGLs and $7.89 per mcf of gas,
discounted at 10% was approximately $3,042,000 and undiscounted was $5,865,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
-----------------------------------
2000 1999 1998
-------- ------- -------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 12,560 $ 9,975 $ 2,464
Future production costs (6,695) (5,908) (1,931)
-------- ------- -------
5,865 4,067 533
10% annual discount factor (2,823) (1,884) (155)
-------- ------- -------
Standardized measure of discounted future net cash flows $ 3,042 $ 2,183 $ 378
======== ======= =======
For the years ended December 31,
------------------------------------
2000 1999 1998
-------- --------- --------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (477) $ (220) $ (159)
Net changes in prices and production costs 1,267 1,209 (1,027)
Revisions of previous quantity estimates (44) 1,476 (174)
Accretion of discount 218 38 162
Changes in production rates, timing and other (105) (698) (41)
-------- --------- --------
Change in present value of future net revenues 859 1,805 (1,239)
-------- --------- --------
Balance, beginning of year 2,183 378 1,617
-------- --------- --------
Balance, end of year $ 3,042 $ 2,183 $ 378
======== ========= ========
18
1077
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 54% 51% -
TEPPCO Crude Oil LLC 12% 11% -
NGTS LLC 10% 10% 3%
Western Gas Resources, Inc. 2% 5% 22%
Genesis Crude Oil, L.P. - - 57%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P.,
TEPPCO Crude Oil LLC and NGTS LLC were $37,832, $7,318 and $4,105, respectively,
which are included in the caption "Accounts receivable - oil and gas sales" in
the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would not
have an adverse effect on the ability of the Partnership to sell its oil, NGLs
and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of the
limited partnership agreement:
Managing general partner - The managing general partner of the Partnership
is Pioneer USA. Pioneer USA has the power and authority to manage, control
and administer all Program and Partnership affairs. As managing general
partner and operator of the Partnership's properties, all production
expenses are incurred by Pioneer USA and billed to the Partnership. The
majority of the Partnership's oil and gas revenues are received directly
by the Partnership, however, a portion of the oil and gas revenue is
initially received by Pioneer USA prior to being paid to the Partnership.
Under the limited partnership agreement, the managing general partner pays
1% of the Partnership's acquisition, drilling and completion costs and 1%
of its operating and general and administrative expenses. In return, it is
allocated 1% of the Partnership's revenues.
19
1078
Limited partner liability - The maximum amount of liability of any limited
partner is the total contributions of such partner plus his share of any
undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of $6,811,000.
Pioneer USA is required to contribute amounts equal to 1% of initial
Partnership capital less commission and organization and offering costs
allocated to the limited partners and to contribute amounts necessary to
pay costs and expenses allocated to it under the Partnership agreement to
the extent its share of revenues does not cover such costs.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
20
1079
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and executive
officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the
next annual meeting of stockholders or until their successors are elected and
qualified.
Age at
December 31,
Name 2000 Position
---- ---- --------
Scott D. Sheffield 48 President
Timothy L. Dove 44 Executive Vice President, Chief
Financial Officer and Director
Dennis E. Fagerstone 51 Executive Vice President and Director
Mark L. Withrow 53 Executive Vice President, General
Counsel and Director
Danny Kellum 46 Executive Vice President - Domestic
Operations and Director
Rich Dealy 34 Vice President and Chief Accounting
Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas
with a B.S. in Petroleum Engineering. Since August 1997, he has served as
President, Chief Executive Officer and a director of Pioneer and President of
Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of
Pioneer in August 1999. He served as a director of Pioneer USA from August 1997
until his resignation from the board in June 1999. Mr. Sheffield was the
President and a director of Parker & Parsley Petroleum Company ("Parker &
Parsley") from May 1990 until August 1997 and was the Chairman of the Board and
Chief Executive Officer of Parker & Parsley from October 1990 until August 1997.
He was the sole director of Parker & Parsley from May 1990 until October 1990.
Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a
predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as
Vice President - Engineering of PPDC from September 1981 until April 1985 when
he was elected President and a director. In March 1989, Mr. Sheffield was
elected Chairman of the Board and Chief Executive Officer of PPDC. Before
joining PPDC's predecessor, Mr. Sheffield was employed as a production and
reservoir engineer for Amoco Production Company.
21
1080
Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from
Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981
from the University of Chicago. He became Executive Vice President - Business
Development of Pioneer and Pioneer USA in August 1997 and was also appointed a
director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief
Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr.
Dove joined Parker & Parsley in May 1994 as Vice President - International and
was promoted to Senior Vice President - Business Development in October 1996, in
which position he served until August 1997. Prior to joining Parker & Parsley,
Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus
Energy Corp, in various capacities in international exploration and production,
marketing, refining and marketing and planning and development.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997.
From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice
President and Chief Operating Officer of Mesa and from May 1991 to October 1996,
he served as Vice President - Exploration and Production of Mesa. From June 1988
to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President - General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979, was elected Executive
Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000
and Director of Pioneer USA on February 1, 2000. From January 2000 until May
2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and
Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and
Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served
as Spraberry District Manager and as Vice President of the Spraberry and Permian
Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker &
Parsley as an operations engineer in 1981 after a brief career with Mobil Oil
Corporation.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with
a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He
became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
22
1081
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is performed by Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA pays approximately 10% of the Program's acquisition,
drilling and completion costs and approximately 15% during the first three years
and approximately 20% after three years of its operating and general and
administrative expenses. In return, they are allocated approximately 15% during
the first three years and approximately 20% after three years of the Program's
revenues.
The Partnership does not directly pay any salaries of the executive officers of
Pioneer USA, but does pay a portion of Pioneer USA's general and administrative
expenses of which these salaries are a part.
See Notes 6 and 9 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" for information regarding fees and
reimbursements paid to the managing general partner by the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more of
the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 147 limited partner interests at January 1, 2001.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general
partner of the Partnership, Pioneer USA, has the exclusive right and full
authority to manage, control and administer the Partnership's business. Under
the limited partnership agreement, limited partners holding a majority of the
outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner
Pursuant to the limited partnership agreement, the Partnership had the following
related party transactions with the managing general partner during the years
ended December 31:
23
1082
2000 1999 1998
--------- --------- ---------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 122,715 $ 120,620 $ 119,432
Reimbursement of general and administrative
expenses $ 24,038 $ 14,514 $ 11,560
Under the limited partnership agreement, the managing general partner pays 1% of
the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
24
1083
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial statements
The following are filed as part of this Report:
Independent Auditors' Report
Balance sheets as of December 31, 2000 and 1999
Statements of operations for the years ended December 31,
2000, 1999 and 1998
Statements of partners' capital for the years ended December
31, 2000, 1999 and 1998
Statements of cash flows for the years ended December 31,
2000, 1999 and 1998
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the
required information is in the financial statements or notes thereto,
or is not applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this Report.
25
1084
S I G N A T U R E S
Pursuant to the requirements 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.
PARKER & PARSLEY 90-A, L.P.
Dated: March 28, 2001 By: Pioneer Natural Resources USA, Inc.
Managing General Partner
By: /s/ Scott D. Sheffield
-------------------------------
Scott D. Sheffield, President
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/ Scott D. Sheffield President of Pioneer USA March 28, 2001
-------------------------------
Scott D. Sheffield
/s/ Timothy L. Dove Executive Vice President. Chief March 28, 2001
------------------------------- Financial Officer and Director of
Timothy L. Dove Pioneer USA
/s/ Dennis E. Fagerstone Executive Vice President and March 28, 2001
------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ Mark L. Withrow Executive Vice President, General March 28, 2001
------------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ Danny Kellum Executive Vice President - Domestic March 28, 2001
------------------------------- Operations and Director of Pioneer
Danny Kellum USA
/s/ Rich Dealy Vice President and Chief Accounting March 28, 2001
------------------------------- Officer of Pioneer USA
Rich Dealy
26
1085
PARKER & PARSLEY 90-A, L.P.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
Exhibit No. Description Page
----------- ----------- ----
3(a) Form of Agreement of Limited Partnership -
of Parker & Parsley 90-A, L.P. incorporated
by reference to Exhibit A of the Post-Effective
Amendment No. 1 of the Partnership's
Registration Statement on Form S-1
(Registration No. 33-26097)
4(b) Form of Limited Partner Subscription Agreement -
incorporated by reference to Exhibit C of the
Post-Effective Amendment No. 1 of the
Partnership's Registration Statement on Form
S-1 (Registration No. 33-26097)
4(b) Form of General Partner Subscription Agreement -
incorporated by reference to Exhibit D of the
Post-Effective Amendment No. 1 of the
Partnership's Registration Statement on Form S-1
(Registration No. 33-26097)
4(b) Power of Attorney incorporated by reference to -
Exhibit B of Amendment No. 1 of the
Partnership's Registration Statement on Form S-1
(Registration No. 33-26097)
4(c) Specimen Certificate of Limited Partnership -
Interest incorporated by reference to Exhibit 4c
of the Partnership's Registration Statement on
Form S-1 (Registration No. 33-26097)
10(b) Form of Development Drilling Program -
Agreement incorporated by reference to Exhibit
B of the Post-Effective Amendment No. 1 of
the Partnership's Registration Statement on
Form S-1 (Registration No. 33-26097)
27
1086
PARKER & PARSLEY 90-A, L.P.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 183,303 $ 806,344 $ 488,752 $ 441,480 $ 643,882 $ 777,677
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ -- $ -- $ 34,145 $ 321,019 $ --
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 87,757 $ 390,714 $ 99,965 $ (44,421) $ (149,948) $ 261,210
======== ========== ========== ========== ========== ========== ==========
Allocation of net
income (loss):
Managing general
partner $ $ 878 $ 3,907 $ 1,000 $ (444) $ (1,499) $ 2,612
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 86,879 $ 386,807 $ 98,965 $ (43,977) $ (148,449) $ 258,598
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 12.76 $ 56.79 $ 14.53 $ (6.46) $ (21.80) $ 37.97
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 12.70 $ 63.84 $ 22.44 $ 28.44 $ 53.06 $ 53.75
======== ========== ========== ========== ========== ========== ==========
At year end:
Identifiable assets $ $1,334,248 $1,285,569 $1,333,533 $1,385,777 $1,634,061 $2,146,498
======== ========== ========== ========== ========== ========== ==========
1087
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 90-B CONV., L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
90-B Conv., L.P., and supplements the proxy statement/prospectus dated ,
2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA,
Inc., by which Pioneer USA is soliciting proxies to be voted at a special
meeting of limited partners of the partnership. The purpose of the special
meeting is for you to vote upon the merger of the partnership with and into
Pioneer USA that, if completed, will result in your receiving common stock of
Pioneer Natural Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 90-B Conv., L.P.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's quarterly report on Form 10-Q, including
management's discussion and analysis of financial condition and
results of operations, for the three months ended March 31, 2001
o The partnership's annual report on Form 10-K, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
1088
PARKER & PARSLEY 90-B CONV., L.P.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 11,897
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 8,240
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 3,053
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 258.34
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.70 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 156.33
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 234.14
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 251.40
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 155
(b), (c)
----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners. Although not
required by the partnership agreement, the opinion will also state that neither
the grant nor exercise of such right will result in the loss of any limited
partner's limited liability. In addition, the counsel designated to render the
opinion is not required to be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
1089
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 FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 33-26097-08
PARKER & PARSLEY 90-B CONV., L.P.
(Exact name of Registrant as specified in its charter)
DELAWARE 75-2329284
------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039
---------------------------------------------------------------- -------------
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES / X / 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / X /
No market currently exists for the limited partnership interests of the
Registrant. Based on the original purchase price, the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$11,817,000.
As of March 8, 2001, the number of outstanding limited partnership
interests was 11,897.
The following documents are incorporated by reference into the indicated parts
of this Annual Report on Form 10-K: None
PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACCORDINGLY, NO
ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS AND RESULTS WILL NOT BE
MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD
LOOKING STATEMENTS. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS
THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE
ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
1090
PART I
ITEM 1. BUSINESS
Parker & Parsley 90-B Conv., L.P. (the "Partnership") was organized in 1990 as a
general partnership under the laws of the State of Texas. The Partnership
converted to a Delaware limited partnership on August 1, 1991. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company
("Pioneer"). As of March 8, 2001, the Partnership had 11,897 limited partnership
interests outstanding.
The Partnership does not have any employees of its own. Pioneer USA employs 701
persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this Report is filed. Pioneer
USA supplies all management functions.
The Partnership engages in oil and gas development and production and is not
involved in any industry segment other than oil and gas. The Partnership's
production is geographically concentrated in West Texas.
The principal markets during 2000 for the oil produced by the Partnership were
refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. During 2000, Pioneer USA marketed the
Partnership's gas to a variety of purchasers, none of which accounted for 10% or
more of the Partnership's oil and gas revenues. Of the Partnership's total oil
and gas revenues for 2000, approximately 48% was attributable to sales made to
Plains Marketing, L.P., 10% to TEPPCO Crude Oil LLC and 10% to Phillips
Petroleum Company. Pioneer USA is of the opinion that the loss of any one
purchaser would not have an adverse effect on its ability to sell its oil,
natural gas liquids ("NGLs") and gas production.
The Partnership's revenues, profitability, cash flow and future rate of growth
are highly dependent on the prevailing prices of oil and gas, which are affected
by numerous factors beyond the Partnership's control. Oil and gas prices
historically have been very volatile. A substantial or extended decline in the
prices of oil or gas could have a material adverse effect on the Partnership's
revenues, profitability and cash flow and could, under certain circumstances,
result in a reduction in the carrying value of the Partnership's oil and gas
properties.
Oil and gas production operations are subject to various types of regulations by
local, state and federal agencies. The Partnership's operations are also subject
to state conservation laws and regulations, including the establishment of
maximum rates of production from wells and the regulation of spacing, plugging
and abandonment of wells. Each state generally imposes a production or severance
tax with respect to production and sale of oil and gas within their respective
jurisdictions. Noncompliance with the laws and regulations may subject the
Partnership to penalties, damages or
2
1091
other liabilities and compliance may increase the cost of the Partnership's
operations. The oil and gas business is also subject to environmental hazards
such as oil spills, gas leaks and ruptures and discharges of toxic substances or
gases that could expose the Partnership to substantial liability due to
pollution and other environmental damages. Although the Partnership believes
that its business operations do not impair environmental quality and that its
costs of complying with any applicable environmental regulations are not
currently significant, the Partnership cannot predict what, if any, effect these
environmental regulations may have on its current or future operations.
Numerous uncertainties exist in estimating quantities of proved reserves and
future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the Partnership
conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist of leasehold 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 Spraberry Trend Area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 104
oil and gas wells. One well has been plugged and abandoned. At December 31,
2000, the Partnership had 103 producing oil and gas wells.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 2000, 1999 and 1998 and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been evaluated by Williamson Petroleum Consultants, Inc., an independent
petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer USA believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the partners during the fourth
quarter of 2000.
PART II
3
1092
ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP
DISTRIBUTIONS
At March 8, 2001, the Partnership had 11,897 outstanding limited partnership
interests held of record by 665 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are not
required to meet the Partnership's obligations are distributed to the partners
at least quarterly in accordance with the limited partnership agreement. During
the years ended December 31, 2000 and 1999, $825,165 and $271,636, respectively,
of such revenue-related distributions were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -------------
Operating results:
------------------
Oil and gas sales $ 1,513,122 $ 907,791 $ 764,787 $ 1,118,628 $ 1,382,265
=========== =========== =========== =========== =============
Impairment of oil and gas
properties $ 31,774 $ 88,497 $ 275,430 $ 328,594 $ 22,474
=========== =========== =========== =========== =============
Net income (loss) $ 787,438 $ 164,414 $ (373,956) $ (55,191) $ 544,919
=========== =========== =========== =========== =============
Allocation of net income
(loss):
Managing general partner $ 7,874 $ 1,644 $ (3,740) $ (552) $ 5,449
=========== =========== =========== =========== =============
Limited partners $ 779,564 $ 162,770 $ (370,216) $ (54,639) $ 539,470
=========== =========== =========== =========== =============
Limited partners' net income
(loss) per limited
partnership interest $ 65.53 $ 13.68 $ (31.12) $ (4.59) $ 45.35
=========== =========== =========== =========== =============
Limited partners' cash
distributions per limited
partnership interest $ 69.36 $ 22.83 $ 23.66 $ 52.38 $ 56.21
=========== =========== =========== =========== =============
At year end:
------------
Identifiable assets $ 1,894,220 $ 1,949,209 $ 2,057,408 $ 2,727,510 $ 3,402,932
=========== =========== =========== =========== =============
4
1093
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 67% to $1,513,122 for 2000 as
compared to $907,791 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decline in production. In 2000, 36,592
barrels of oil, 16,796 barrels of natural gas liquids ("NGLs") and 64,786 mcf of
gas were sold, or 64,186 barrel of oil equivalents ("BOEs"). In 1999, 36,383
barrels of oil, 17,481 barrels of NGLs and 70,803 mcf of gas were sold, or
65,665 BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.00, or 70%, from
$17.23 in 1999 to $29.23 in 2000. The average price received per barrel of NGLs
increased $5.96, or 63%, from $9.49 in 1999 to $15.45 in 2000. The average price
received per mcf of gas increased 75% from $1.62 in 1999 to $2.84 in 2000. The
market price for oil and gas has been extremely volatile in the past decade and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
A gain on disposition of assets of $2,023 recognized in 2000 was due to
equipment credits received on one fully depleted well.
Total costs and expenses decreased to $739,327 in 2000 as compared to $749,072
in 1999, a decrease of $9,745, or 1%. The decrease was due to declines in the
impairment of oil and gas properties and depletion, offset by increases in
production costs and general and administrative expenses ("G&A").
Production costs were $557,245 in 2000 and $478,183 in 1999, resulting in an
increase of $79,062, or 17%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices and additional well maintenance
and workover costs incurred to stimulate well production.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
30% from $35,038 in 1999 to $45,379 in 2000 primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 3% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $40,368 in 2000 and $27,181 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
5
1094
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized
non-cash charges of $31,774 and $88,497 related to its oil and gas properties
during 2000 and 1999, respectively.
Depletion was $104,929 in 2000 compared to $147,354 in 1999, representing a
decrease of $42,425, or 29%. The decrease was primarily due to a 27,994 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
prices and a reduction in the Partnership's net depletable basis from charges
taken in accordance with SFAS 121 during the fourth quarter of 1999.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 19% to $907,791 from
$764,787 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 36,383 barrels of oil,
17,481 barrels of NGLs and 70,803 mcf of gas were sold, or 65,665 BOEs. In 1998,
41,140 barrels of oil, 17,403 barrels of NGLs and 73,460 mcf of gas were sold,
or 70,786 BOEs.
The average price received per barrel of oil increased $4.11, or 31%, from
$13.12 in 1998 to $17.23 in 1999. The average price received per barrel of NGLs
increased $2.89, or 44%, from $6.60 in 1998 to $9.49 in 1999. The average price
received per mcf of gas increased 8% from $1.50 in 1998 to $1.62 in 1999.
Gain on disposition of assets of $1,669 for 1998 was attributable to credits
received from the disposal of oil and gas equipment on a fully depleted well and
on one well that was plugged and abandoned in a prior year.
Total costs and expenses decreased to $749,072 in 1999 as compared to $1,147,349
in 1998, a decrease of $398,277, or 35%. The decrease was due to declines in the
impairment of oil and gas properties, depletion and production costs, offset by
an increase in G&A.
Production costs were $478,183 in 1999 and $517,526 in 1998, resulting in a
$39,343 decrease, or 8%. The decrease was due to declines in well maintenance
costs, ad valorem taxes and workover costs, offset by an increase in production
taxes due to increased oil and gas sales.
During this period, G&A increased 31% from $26,722 in 1998 to $35,038 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $27,181 in
1999 and $22,923 in 1998 for G&A incurred on behalf of the Partnership.
The Partnership recognized non-cash SFAS 121 charges of $88,497 and $275,430
related to its oil and gas properties during 1999 and 1998, respectively.
6
1095
Depletion was $147,354 in 1999 compared to $327,671 in 1998. This represented a
decrease of $180,317, or 55%. The decrease was primarily due to an increase in
proved reserves of 280,631 barrels of oil during 1999 as a result of higher
commodity prices, a reduction in the Partnership's net depletable basis from
charges taken in accordance with SFAS 121 during the fourth quarter of 1998 and
a decline in oil production of 4,757 barrels for the period ended December 31,
1999 compared to the same period in 1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $504,622 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $611,256, offset by increases in production costs paid
of $79,062, G&A expenses paid of $10,341 and working capital of $17,231. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $632,790 to oil and gas receipts,
offset by $21,534 resulting from the decline in production during 2000. The
increase in production costs was primarily due to increased production taxes
associated with higher oil and gas prices and additional well maintenance and
workover costs incurred to stimulate well production. The increase in G&A was
primarily due to higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues.
Net Cash Used in Investing Activities
The Partnership's principal investing activities during 2000 and 1999 included
expenditures related to equipment upgrades on active oil and gas properties.
Proceeds from disposition of assets of $2,023 recognized in 2000 were due to
equipment credits received on one fully depleted well.
7
1096
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $833,500, of which $8,335 was
distributed to the managing general partner and $825,165 to the limited
partners. In 1999, cash distributions to the partners were $274,380, of which
$2,744 was distributed to the managing general partner and $271,636 to the
limited partners.
8
1097
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements of Parker & Parsley 90-B Conv., L.P.:
Independent Auditors' Report......................................................... 10
Balance Sheets as of December 31, 2000 and 1999...................................... 11
Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998................................................................ 12
Statements of Partners' Capital for the Years Ended
December 31, 2000, 1999 and 1998................................................... 13
Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998................................................................ 14
Notes to Financial Statements........................................................ 15
9
1098
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 90-B Conv., L.P.
(A Delaware Limited Partnership):
We have audited the balance sheets of Parker & Parsley 90-B Conv., L.P. as of
December 31, 2000 and 1999, and the related statements of operations, partners'
capital and cash flows for each of the three years in the period ended December
31, 2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 90-B Conv.,
L.P. as of December 31, 2000 and 1999, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
10
1099
PARKER & PARSLEY 90-B CONV., L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
----------- ----------
ASSETS
------
Current assets:
Cash $ 132,300 $ 132,031
Accounts receivable - oil and gas sales 209,552 143,411
--------- ---------
Total current assets 341,852 275,442
--------- ---------
Oil and gas properties - at cost, based on the
successful efforts accounting method 9,628,120 9,612,816
Accumulated depletion (8,075,752) (7,939,049)
--------- ---------
Net oil and gas properties 1,552,368 1,673,767
--------- ---------
$ 1,894,220 $ 1,949,209
========== =========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 15,580 $ 24,507
Partners' capital:
Managing general partner 18,785 19,246
Limited partners (11,897 interests) 1,859,855 1,905,456
--------- ---------
1,878,640 1,924,702
--------- ---------
$ 1,894,220 $ 1,949,209
========= =========
The accompanying notes are an integral part of these financial statements.
11
1100
PARKER & PARSLEY 90-B CONV., L.P.
(A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
----------- ----------- -----------
Revenues:
Oil and gas $ 1,513,122 $ 907,791 $ 764,787
Interest 11,620 5,695 6,937
Gain on disposition of assets 2,023 -- 1,669
----------- ----------- -----------
1,526,765 913,486 773,393
----------- ----------- -----------
Costs and expenses:
Oil and gas production 557,245 478,183 517,526
General and administrative 45,379 35,038 26,722
Impairment of oil and gas properties 31,774 88,497 275,430
Depletion 104,929 147,354 327,671
----------- ----------- -----------
739,327 749,072 1,147,349
----------- ----------- -----------
Net income (loss) $ 787,438 $ 164,414 $ (373,956)
=========== =========== ===========
Allocation of net income (loss):
Managing general partner $ 7,874 $ 1,644 $ (3,740)
=========== =========== ===========
Limited partners $ 779,564 $ 162,770 $ (370,216)
=========== =========== ===========
Net income (loss) per limited
partnership interest $ 65.53 $ 13.68 $ (31.12)
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
12
1101
PARKER & PARSLEY 90-B CONV., L.P.
(A Delaware Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
-------------- -------------- ----------------
Partners' capital at January 1, 1998 $ 26,929 $2,666,043 $2,692,972
Distributions (2,843) (281,505) (284,348)
Net loss (3,740) (370,216) (373,956)
------- -------- --------
Partners' capital at December 31, 1998 20,346 2,014,322 2,034,668
Distributions (2,744) (271,636) (274,380)
Net income 1,644 162,770 164,414
------- -------- --------
Partners' capital at December 31, 1999 19,246 1,905,456 1,924,702
Distributions (8,335) (825,165) (833,500)
Net income 7,874 779,564 787,438
------- -------- --------
Partners' capital at December 31, 2000 $ 18,785 $1,859,855 $1,878,640
======== ========= =========
The accompanying notes are an integral part of these financial statements.
13
1102
PARKER & PARSLEY 90-B CONV., L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ 787,438 $ 164,414 $(373,956)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Impairment of oil and gas properties 31,774 88,497 275,430
Depletion 104,929 147,354 327,671
Gain on disposition of assets (2,023) -- (1,669)
Changes in assets and liabilities:
Accounts receivable (66,141) (59,604) 42,963
Accounts payable (8,927) 1,767 (11,798)
--------- --------- ---------
Net cash provided by operating activities 847,050 342,428 258,641
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties (15,304) (12,347) (18,344)
Proceeds from disposition of assets 2,023 -- 1,669
--------- --------- ---------
Net cash used in investing activities (13,281) (12,347) (16,675)
--------- --------- ---------
Cash flows used in financing activities:
Cash distributions to partners (833,500) (274,380) (284,348)
--------- --------- ---------
Net increase (decrease) in cash 269 55,701 (42,382)
Cash at beginning of year 132,031 76,330 118,712
--------- --------- ---------
Cash at end of year $ 132,300 $ 132,031 $ 76,330
========= ========= =========
The accompanying notes are an integral part of these financial statements.
14
1103
PARKER & PARSLEY 90-B CONV., L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 90-B Conv., L.P. (the "Partnership") was organized as a
general partnership in 1990 under the laws of the State of Texas and was
converted to a Delaware limited partnership on August 1, 1991. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in Texas
and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements - Preparation
of the accompanying 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 periods.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
15
1104
Income taxes - A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative expenses
are allocated in part to the Partnership by the managing general partner.
Allocated expenses are determined by the managing general partner based upon the
level of activity of the Partnership relative to the non-partnership activities
of the managing general partner. The method of allocation has been consistent
over the past several years with certain modifications incorporated to reflect
changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized non-cash impairment provisions of $31,774, $88,497 and
$275,430 related to its proved oil and gas properties during 2000, 1999 and
1998, respectively.
16
1105
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $233,211 greater than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
--------- --------- ---------
Net income (loss) per statements of operations $ 787,438 $ 164,414 $(373,956)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes 90,499 132,570 175,500
Impairment of oil and gas properties for financial
reporting purposes 31,774 88,497 275,430
Other, net (1,742) (4,660) 3,987
--------- --------- ---------
Net income per Federal income tax
returns $ 907,969 $ 380,821 $ 80,961
========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
----------- -------------- --------------
Development costs $ 15,304 $ 12,347 $ 18,344
======== ======== ========
Capitalized oil and gas properties consist of the following:
2000 1999
------------ -----------
Proved properties:
Property acquisition costs $ 369,498 $ 369,498
Completed wells and equipment 9,258,622 9,243,318
--------- ---------
9,628,120 9,612,816
Accumulated depletion (8,075,752) (7,939,049)
---------- ----------
Net oil and gas properties $1,552,368 $1,673,767
========== ==========
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
---------------------------- --------------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 211,037 $ 214,306 $ 209,549
Reimbursement of general and administrative
expenses $ 40,368 $ 27,181 $ 22,923
17
1106
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
P&P Employees 90-B Conv., L.P. ("EMPL"), Parker & Parsley 90-B, L.P. and the
Partnership (the "Partnerships") are parties to the Program agreement. EMPL is a
limited partnership organized for the benefit of certain employees of Pioneer
USA. EMPL was merged with Pioneer USA on December 28, 2000.
The costs and revenues of the Program are allocated to Pioneer USA and the
Partnerships as follows:
Pioneer USA(1) Partnerships(2)
-------------- ---------------
Revenues:
Proceeds from disposition of depreciable and
depletable properties:
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
All other revenues
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
Costs and expenses:
Lease acquisition costs, drilling and completion
costs and all other costs 9.090909% 90.909091%
Operating costs, reporting and legal expenses and
general and administrative expenses:
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
(1) Excludes Pioneer USA's 1% general partner ownership which is
allocated at the Partnership level and 80 limited partner interests
owned by Pioneer USA.
(2) The allocation between the Partnership and Parker & Parsley 90-B,
L.P. is 26.94006% and 73.05994%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
Oil and NGLs Gas
(bbls) (mcf)
-------------- -----------
Net proved reserves at January 1, 1998 914,930 864,646
Revisions (446,456) (190,771)
Production (58,543) (73,460)
-------- --------
Net proved reserves at December 31, 1998 409,931 600,415
Revisions 435,645 666,249
Production (53,864) (70,803)
-------- --------
Net proved reserves at December 31, 1999 791,712 1,195,861
Revisions 15,019 (155,368)
Production (53,388) (64,786)
-------- --------
Net proved reserves at December 31, 2000 753,343 975,707
======== ========
18
1107
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.19 per barrel of NGLs and $7.66 per mcf of gas,
discounted at 10% was approximately $5,752,000 and undiscounted was $11,644,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
------------------------------------
2000 1999 1998
-------- -------- --------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 24,248 $ 19,527 $ 4,449
Future production costs (12,604) (10,978) (3,339)
-------- -------- --------
11,644 8,549 1,110
10% annual discount factor (5,892) (4,165) (375)
-------- -------- --------
Standardized measure of discounted future net cash flows $ 5,752 $ 4,384 $ 735
======== ======== ========
19
1108
For the years ended December 31,
--------------------------------------
2000 1999 1998
-------- --------- --------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (956) $ (430) $ (247)
Net changes in prices and production costs 2,152 2,137 (2,389)
Revisions of previous quantity estimates (71) 3,126 (518)
Accretion of discount 438 74 362
Changes in production rates, timing and other (195) (1,258) (94)
-------- --------- --------
Change in present value of future net revenues 1,368 3,649 (2,886)
-------- --------- --------
Balance, beginning of year 4,384 735 3,621
-------- --------- --------
Balance, end of year $ 5,752 $ 4,384 $ 735
========= ========== =========
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil and
gas sales (a major customer is defined as a customer whose sales exceed 10% of
total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 48% 46% -
TEPPCO Crude Oil LLC 10% 11% -
Genesis Crude Oil, L.P. - - 58%
Western Gas Resources, Inc. 4% 5% 21%
Phillips Petroleum Company 10% 5% 5%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P.,
TEPPCO Crude Oil LLC and Phillips Petroleum Company were $65,440, $13,643 and
$7,386, respectively, which are included in the caption "Accounts receivable -
oil and gas sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would not
have an adverse effect on the ability of the Partnership to sell its oil, NGLs
and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of the
Partnership agreement:
Managing general partner - The managing general partner of the Partnership
is Pioneer USA. Pioneer USA has the power and authority to manage, control
and administer all Program and Partnership affairs. As managing general
partner and operator of the Partnership's properties, all production
expenses are incurred by Pioneer USA and billed to the Partnership. The
20
1109
majority of the Partnership's oil and gas revenues are received directly
by the Partnership, however, a portion of the oil and gas revenue is
initially received by Pioneer USA prior to being paid to the Partnership.
Under the Partnership agreement, the managing general partner pays 1% of
the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is
allocated 1% of the Partnership's revenues.
Limited partner liability - The maximum amount of liability of any limited
partner is the total contributions of such partner plus his share of any
undistributed profits.
Initial capital contributions - The partners entered into subscription
agreements for aggregate capital contributions of $11,897,000. The
managing general partner is required to contribute amounts equal to 1% of
initial Partnership capital less commission and organization and offering
costs allocated to the limited partners and to contribute amounts
necessary to pay costs and expenses allocated to it under the Partnership
agreement to the extent its share of revenues does not cover such costs.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
21
1110
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and executive
officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the
next annual meeting of stockholders or until their successors are elected and
qualified.
Age at
December 31,
Name 2000 Position
---- ---- --------
Scott D. Sheffield 48 President
Timothy L. Dove 44 Executive Vice President, Chief
Financial Officer and Director
Dennis E. Fagerstone 51 Executive Vice President and Director
Mark L. Withrow 53 Executive Vice President, General
Counsel and Director
Danny Kellum 46 Executive Vice President - Domestic
Operations and Director
Rich Dealy 34 Vice President and Chief Accounting
Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas
with a B.S. in Petroleum Engineering. Since August 1997, he has served as
President, Chief Executive Officer and a director of Pioneer and President of
Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of
Pioneer in August 1999. He served as a director of Pioneer USA from August 1997
until his resignation from the board in June 1999. Mr. Sheffield was the
President and a director of Parker & Parsley Petroleum Company ("Parker &
Parsley") from May 1990 until August 1997 and was the Chairman of the Board and
Chief Executive Officer of Parker & Parsley from October 1990 until August 1997.
He was the sole director of Parker & Parsley from May 1990 until October 1990.
Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a
predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as
Vice President - Engineering of PPDC from September 1981 until April 1985 when
he was elected President and a director. In March 1989, Mr. Sheffield was
elected Chairman of the Board and Chief Executive Officer of PPDC. Before
joining PPDC's predecessor, Mr. Sheffield was employed as a production and
reservoir engineer for Amoco Production Company.
22
1111
Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from
Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981
from the University of Chicago. He became Executive Vice President - Business
Development of Pioneer and Pioneer USA in August 1997 and was also appointed a
director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief
Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr.
Dove joined Parker & Parsley in May 1994 as Vice President - International and
was promoted to Senior Vice President - Business Development in October 1996, in
which position he served until August 1997. Prior to joining Parker & Parsley,
Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus
Energy Corp, in various capacities in international exploration and production,
marketing, refining and marketing and planning and development.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997.
From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice
President and Chief Operating Officer of Mesa and from May 1991 to October 1996,
he served as Vice President - Exploration and Production of Mesa. From June 1988
to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President - General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979, was elected Executive
Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000
and Director of Pioneer USA on February 1, 2000. From January 2000 until May
2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and
Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and
Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served
as Spraberry District Manager and as Vice President of the Spraberry and Permian
Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker &
Parsley as an operations engineer in 1981 after a brief career with Mobil Oil
Corporation.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with
a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He
became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
23
1112
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is performed by Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA pays approximately 10% of the Program's acquisition,
drilling and completion costs and approximately 15% during the first three years
and approximately 20% after three years of its operating and general and
administrative expenses. In return, they are allocated approximately 15% during
the first three years and approximately 20% after three years of the Program's
revenues.
The Partnership does not directly pay any salaries of the executive officers of
Pioneer USA, but does pay a portion of Pioneer USA's general and administrative
expenses of which these salaries are a part.
See Notes 6 and 9 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" for information regarding fees and
reimbursements paid to the managing general partner by the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more of
the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 80 limited partnership interests at January 1, 2001.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general
partner of the Partnership, Pioneer USA, has the exclusive right and full
authority to manage, control and administer the Partnership's business. Under
the limited partnership agreement, limited partners holding a majority of the
outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner
Pursuant to the limited partnership agreement, the Partnership had the following
related party transactions with the managing general partner during the years
ended December 31:
24
1113
2000 1999 1998
---------------------------- --------------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 211,037 $ 214,306 $ 209,549
Reimbursement of general and administrative
expenses $ 40,368 $ 27,181 $ 22,923
Under the limited partnership agreement, the managing general partner pays 1% of
the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
25
1114
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial statements
The following are filed as part of this Report:
Independent Auditors' Report
Balance sheets as of December 31, 2000 and 1999
Statements of operations for the years ended December 31, 2000,
1999 and 1998
Statements of partners' capital for the years ended December 31,
2000, 1999 and 1998
Statements of cash flows for the years ended December 31, 2000,
1999 and 1998
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the
required information is in the financial statements or notes thereto,
or is not applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this Report.
26
1115
S I G N A T U R E S
Pursuant to the requirements 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.
PARKER & PARSLEY 90-B CONV., L.P.
Dated: March 28, 2001 By: Pioneer Natural Resources USA, Inc.
Managing General Partner
By: /s/ Scott D. Sheffield
---------------------------------
Scott D. Sheffield, President
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/ Scott D. Sheffield President of Pioneer USA March 28, 2001
-------------------------------
Scott D. Sheffield
/s/ Timothy L. Dove Executive Vice President, Chief March 28, 2001
------------------------------- Financial Officer and Director of
Timothy L. Dove Pioneer USA
/s/ Dennis E. Fagerstone Executive Vice President and March 28, 2001
------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ Mark L. Withrow Executive Vice President, General March 28, 2001
------------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ Danny Kellum Executive Vice President - Domestic March 28, 2001
------------------------------- Operations and Director of Pioneer
Danny Kellum USA
/s/ Rich Dealy Vice President and Chief Accounting March 28, 2001
------------------------------- Officer of Pioneer USA
Rich Dealy
27
1116
PARKER & PARSLEY 90-B CONV., L.P.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
Exhibit No. Description Page
----------- ----------- ----
3(a) Form of Agreement of Limited Partnership -
of Parker & Parsley 90-B Conv., L.P.
incorporated by reference to Exhibit A of
the Post-Effective Amendment No. 1 of
the Partnership's Registration Statement
on Form S-1 (Registration No. 33-26097)
4(b) Form of Limited Partner Subscription Agreement -
incorporated by reference to Exhibit C of the
Post-Effective Amendment No. 1 of the
Partnership's Registration Statement on Form
S-1 (Registration No. 33-26097)
4(b) Form of General Partner Subscription Agreement -
incorporated by reference to Exhibit D of the
Post-Effective Amendment No. 1 of the
Partnership's Registration Statement on Form
S-1 (Registration No. 33-26097)
4(b) Power of Attorney incorporated by reference to -
Exhibit B of Amendment No. 1 of the Partnership's
Registration Statement on Form S-1
(Registration No. 33-26097)
4(c) Specimen Certificate of Limited Partnership -
Interest incorporated by reference to Exhibit 4c
of the Partnership's Registration Statement on
Form S-1 (Registration No. 33-26097)
10(b) Form of Development Drilling Program -
Agreement incorporated by reference to Exhibit
B of the Post-Effective Amendment No. 1 of
the Partnership's Registration Statement on
Form S-1 (Registration No. 33-26097)
28
1117
PARKER & PARSLEY 90-B CONV., L.P.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 330,703 $1,513,122 $ 907,791 $ 764,787 $1,118,628 $1,382,265
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ 31,774 $ 88,497 $ 275,430 $ 328,594 $ 22,474
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 164,319 $ 787,438 $ 164,414 $ (373,956) $ (55,191) $ 544,919
======== ========== ========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general
partner $ $ 1,643 $ 7,874 $ 1,644 $ (3,740) $ (552) $ 5,449
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 162,676 $ 779,564 $ 162,770 $ (370,216) $ (54,639) $ 539,470
======== ========== ========== ========== ========== ========== ==========
Limited partners' net income
(loss) per limited
partnership interest $ $ 13.67 $ 65.53 $ 13.68 $ (31.12) $ (4.59) $ 45.35
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 14.98 $ 69.36 $ 22.83 $ 23.66 $ 52.38 $ 56.21
======== ========== ========== ========== ========== ========== ==========
At year end:
Identifiable assets $ $1,936,371 $1,894,220 $1,949,209 $2,057,408 $2,727,510 $3,402,932
======== ========== ========== ========== ========== ========== ==========
1118
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 90-B, L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
90-B, L.P., and supplements the proxy statement/prospectus dated , 2001, of
Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by
which Pioneer USA is soliciting proxies to be voted at a special meeting of
limited partners of the partnership. The purpose of the special meeting is for
you to vote upon the merger of the partnership with and into Pioneer USA that,
if completed, will result in your receiving common stock of Pioneer Natural
Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 90-B, L.P.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's quarterly report on Form 10-Q, including
management's discussion and analysis of financial condition and
results of operations, for the three months ended March 31, 2001
o The partnership's annual report on Form 10-K, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
1119
PARKER & PARSLEY 90-B, L.P.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 32,264
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 22,350
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 8,325
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 258.68
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.72 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 156.56
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 234.47
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 251.74
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 155
(b), (c)
----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners. Although not
required by the partnership agreement, the opinion will also state that neither
the grant nor exercise of such right will result in the loss of any limited
partner's limited liability. In addition, the counsel designated to render the
opinion is not required to be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
1120
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 FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 33-26097-07
PARKER & PARSLEY 90-B, L.P.
(Exact name of Registrant as specified in its charter)
DELAWARE 75-2329287
-------------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039
---------------------------------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code: (972) 444-9001
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES / X / 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / X /
No market currently exists for the limited partnership interests of the
Registrant. Based on the original purchase price, the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$32,181,000.
As of March 8, 2001, the number of outstanding limited partnership
interests was 32,264.
The following documents are incorporated by reference into the indicated parts
of this Annual Report on Form 10-K: None
PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACCORDINGLY, NO
ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS AND RESULTS WILL NOT BE
MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD
LOOKING STATEMENTS. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS
THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE
ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
1121
PART I
ITEM 1. BUSINESS
Parker & Parsley 90-B, L.P. (the "Partnership") is a limited partnership
organized in 1990 under the laws of the State of Delaware. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company
("Pioneer"). As of March 8, 2001, the Partnership had 32,264 limited partnership
interests outstanding.
The Partnership does not have any employees of its own. Pioneer USA employs 701
persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this Report is filed. Pioneer
USA supplies all management functions.
The Partnership engages in oil and gas development and production and is not
involved in any industry segment other than oil and gas. The Partnership's
production is geographically concentrated in West Texas.
The principal markets during 2000 for the oil produced by the Partnership were
refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. During 2000, Pioneer USA marketed the
Partnership's gas to a variety of purchasers, none of which accounted for 10% or
more of the Partnership's oil and gas revenues. Of the Partnership's total oil
and gas revenues for 2000, approximately 48% was attributable to sales made to
Plains Marketing, L.P., 10% to TEPPCO Crude Oil LLC and 10% to Phillips
Petroleum Company. Pioneer USA is of the opinion that the loss of any one
purchaser would not have an adverse effect on its ability to sell its oil,
natural gas liquids ("NGLs") and gas production.
The Partnership's revenues, profitability, cash flow and future rate of growth
are highly dependent on the prevailing prices of oil and gas, which are affected
by numerous factors beyond the Partnership's control. Oil and gas prices
historically have been very volatile. A substantial or extended decline in the
prices of oil or gas could have a material adverse effect on the Partnership's
revenues, profitability and cash flow and could, under certain circumstances,
result in a reduction in the carrying value of the Partnership's oil and gas
properties.
Oil and gas production operations are subject to various types of regulations by
local, state and federal agencies. The Partnership's operations are also subject
to state conservation laws and regulations, including the establishment of
maximum rates of production from wells and the regulation of spacing, plugging
and abandonment of wells. Each state generally imposes a production or severance
tax with respect to production and sale of oil and gas within their respective
jurisdictions. Noncompliance with the laws and regulations may subject the
Partnership to penalties, damages or other liabilities and compliance may
increase the cost of the Partnership's operations.
The oil and gas business is also subject to environmental hazards such as oil
spills, gas leaks and ruptures and discharges of toxic substances or gases that
could expose the Partnership to substantial
2
1122
liability due to pollution and other environmental damages. Although the
Partnership believes that its business operations do not impair environmental
quality and that its costs of complying with any applicable environmental
regulations are not currently significant, the Partnership cannot predict what,
if any, effect these environmental regulations may have on its current or future
operations.
Numerous uncertainties exist in estimating quantities of proved reserves and
future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the Partnership
conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist of leasehold 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 Spraberry Trend Area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 104
oil and gas wells. One well has been plugged and abandoned. At December 31,
2000, the Partnership had 103 producing oil and gas wells.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 2000, 1999 and 1998 and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been evaluated by Williamson Petroleum Consultants, Inc., an independent
petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer USA believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the partners during the fourth
quarter of 2000.
3
1123
PART II
ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP
DISTRIBUTIONS
At March 8, 2001, the Partnership had 32,264 outstanding limited partnership
interests held of record by 2,201 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are not
required to meet the Partnership's obligations are distributed to the partners
at least quarterly in accordance with the limited partnership agreement. During
the years ended December 31, 2000 and 1999, $2,237,802 and $736,663,
respectively, of such revenue-related distributions were made to the limited
partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
2000 1999 1998 1997 1996
------------ ----------- ---------- ----------- -----------
Operating results:
-----------------
Oil and gas sales $ 4,103,548 $ 2,461,819 $ 2,074,056 $ 3,033,675 $ 3,748,608
=========== =========== ========== =========== ===========
Impairment of oil and gas
properties $ 86,231 $ 240,063 $ 744,642 $ 891,257 $ 61,080
=========== =========== ========== =========== ===========
Net income (loss) $ 2,136,271 $ 447,469 $(1,011,459) $ (149,382) $ 1,479,052
=========== =========== ========== =========== ===========
Allocation of net income
(loss):
Managing general partner $ 21,363 $ 4,475 $ (10,115) $ (1,494) $ 14,790
=========== =========== ========== =========== ===========
Limited partners $ 2,114,908 $ 442,994 $(1,001,344) $ (147,888) $ 1,464,262
=========== =========== ========== =========== ===========
Limited partners' net income
(loss) per limited partnership
interest $ 65.55 $ 13.73 $ (31.04) $ (4.58) $ 45.38
=========== =========== ========== =========== ===========
Limited partners' cash
distributions per limited
partnership interest $ 69.36 $ 22.83 $ 23.66 $ 52.38 $ 56.25
=========== =========== ========== =========== ===========
At year end:
-----------
Identifiable assets $ 5,144,391 $ 5,292,769 $ 5,585,045 $ 7,399,664 $ 9,230,704
=========== =========== ========== =========== ===========
4
1124
ITEM 7. MANAGEMENT' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 67% to $4,103,548 for 2000 as
compared to $2,461,819 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decline in production. In 2000, 99,252
barrels of oil, 45,552 barrels of natural gas liquids ("NGLs") and 175,696 mcf
of gas were sold, or 174,087 barrel of oil equivalents ("BOEs"). In 1999, 98,658
barrels of oil, 47,406 barrels of NGLs and 192,016 mcf of gas were sold, or
178,067 BOEs. Due to the decline characteristics of the Partnership's oil and
gas properties, management expects a certain amount of decline in production in
the future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.00, or 70%, from
$17.23 in 1999 to $29.23 in 2000. The average price received per barrel of NGLs
increased $5.96, or 63%, from $9.49 in 1999 to $15.45 in 2000. The average price
received per mcf of gas increased 75% from $1.62 in 1999 to $2.84 in 2000. The
market price for oil and gas has been extremely volatile in the past decade and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
Gain on disposition of assets of $5,487 recognized in 2000 was due to equipment
credits received on one fully depleted well.
Total costs and expenses decreased in 2000 to $2,004,420 as compared to
$2,029,978 in 1999, a decrease of $25,558, or 1%. The decrease was due to
declines in the impairment of oil and gas properties and depletion, offset by
increases in production costs and general and administrative expenses ("G&A").
Production costs were $1,511,223 in 2000 and $1,296,822 in 1999, resulting in an
increase of $214,401, or 17%. The increase was primarily due to higher
production taxes associated with higher oil and gas prices and additional well
maintenance and workover costs incurred to stimulate well production.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
31% from $93,562 in 1999 to $122,731 in 2000 primarily due to a higher
percentage of the managing general partner's G&A being allocated (limited to 3%
of oil and gas revenues) as a result of increased oil and gas revenues. The
Partnership paid the managing general partner $109,474 in 2000 and $73,707 in
1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid
directly by the Partnership. The managing general partner determines the
allocated expenses based upon the level of activity of the Partnership relative
to the non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
5
1125
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized
non-cash charges of $86,231 and $240,063 related to its oil and gas properties
during 2000 and 1999, respectively.
Depletion was $284,235 in 2000 compared to $399,531 in 1999, representing a
decrease of $115,296, or 29%. This decrease was primarily due to an 81,075
barrels of oil increase in proved reserves during 2000 as a result of higher
commodity prices and a reduction in the Partnership's net depletable basis from
charges taken in accordance with SFAS 121 during the fourth quarter of 1999.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 19% to $2,461,819 from
$2,074,056 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 98,658 barrels of oil,
47,406 barrels of NGLs and 192,016 mcf of gas were sold, or 178,067 BOEs. In
1998, 111,585 barrels of oil, 47,190 barrels of NGLs and 199,215 mcf of gas were
sold, or 191,978 BOEs.
The average price received per barrel of oil increased $4.11, or 31%, from
$13.12 in 1998 to $17.23 in 1999. The average price received per barrel of NGLs
increased $2.89, or 44%, from $6.60 in 1998 to $9.49 in 1999. The average price
received per mcf of gas increased 8% from $1.50 in 1998 to $1.62 in 1999.
A gain on disposition of assets of $4,527 recognized during 1998 was due to
credits received from the disposal of oil and gas equipment on one fully
depleted well and one well that was plugged and abandoned in a prior year.
Total costs and expenses decreased in 1999 to $2,029,978 as compared to
$3,108,696 in 1998, a decrease of $1,078,718, or 35%. The decrease was due to
declines in the impairment of oil and gas properties, depletion and production
costs, offset by an increase in G&A.
Production costs were $1,296,822 in 1999 and $1,403,494 in 1998, resulting in a
$106,672 decrease, or 8%. The decrease was due to declines in well maintenance
costs, ad valorem taxes and workover costs.
During this period, G&A increased 29% from $72,284 in 1998 to $93,562 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $73,707 in
1999 and $62,152 in 1998 for G&A incurred on behalf of the Partnership.
The Partnership recognized non-cash SFAS 121 charges of $240,063 and $744,642
related to its oil and gas properties during 1999 and 1998, respectively.
6
1126
Depletion was $399,531 in 1999 compared to $888,276 in 1998. This represented a
decrease of $488,745, or 55%. This decrease was primarily due to an increase in
proved reserves of 761,146 barrels of oil during 1999 due to higher commodity
prices, a reduction in the Partnership's net depletable basis from charges taken
in accordance with SFAS 121 during the fourth quarter of 1998 and a decline in
oil production of 12,927 barrels for the period ended December 31, 1999 compared
to the same period in 1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $1,473,163 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $1,657,757 and a decline in working capital of
$58,976, offset by increases in production costs paid of $214,401 and G&A
expenses paid of $29,169. The increase in oil and gas receipts resulted from the
increase in commodity prices during 2000 which contributed an additional
$1,715,313 to oil and gas receipts, offset by $57,556 resulting from the decline
in production during 2000. The increase in production costs was primarily due to
increased production taxes associated with higher oil and gas prices and
additional well maintenance and workover costs incurred to stimulate well
production. The increase in G&A was primarily due to higher percentage of the
managing general partner's G&A being allocated (limited to 3% of oil and gas
revenues) as a result of increased oil and gas revenues.
Net Cash Used in Investing Activities
The Partnership's principal investing activities during 2000 and 1999 included
expenditures related to equipment upgrades on active oil and gas properties.
Proceeds from disposition of assets of $5,487 recognized in 2000 were due to
equipment credits received on one fully depleted well.
7
1127
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $2,260,406, of which $22,604
was distributed to the managing general partner and $2,237,802 to the limited
partners. In 1999, cash distributions to the partners were $744,104, of which
$7,441 was distributed to the managing general partner and $736,663 to the
limited partners.
8
1128
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements of Parker & Parsley 90-B, L.P.:
Independent Auditors' Report......................................................... 10
Balance Sheets as of December 31, 2000 and 1999...................................... 11
Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998................................................................ 12
Statements of Partners' Capital for the Years Ended
December 31, 2000, 1999 and 1998................................................... 13
Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998................................................................ 14
Notes to Financial Statements........................................................ 15
9
1129
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 90-B, L.P.
(A Delaware Limited Partnership):
We have audited the balance sheets of Parker & Parsley 90-B, L.P. as of December
31, 2000 and 1999, and the related statements of operations, partners' capital
and cash flows for each of the three years in the period ended December 31,
2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 90-B, L.P. as
of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
10
1130
PARKER & PARSLEY 90-B, L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
----------- ----------
ASSETS
------
Current assets:
Cash $ 364,895 $ 311,017
Accounts receivable - oil and gas sales 568,283 441,577
----------- ----------
Total current assets 933,178 752,594
----------- ----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 26,110,930 26,069,426
Accumulated depletion (21,899,717) (21,529,251)
----------- ----------
Net oil and gas properties 4,211,213 4,540,175
----------- ----------
$ 5,144,391 $ 5,292,769
=========== ==========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 42,091 $ 66,334
Partners' capital:
Managing general partner 51,027 52,268
Limited partners (32,264 interests) 5,051,273 5,174,167
----------- ----------
5,102,300 5,226,435
----------- ----------
$ 5,144,391 $ 5,292,769
=========== ==========
The accompanying notes are an integral part of these financial statements.
11
1131
PARKER & PARSLEY 90-B, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
---------- ---------- ----------
Revenues:
Oil and gas $ 4,103,548 $ 2,461,819 $ 2,074,056
Interest 31,656 15,628 18,654
Gain on disposition of assets 5,487 - 4,527
---------- ---------- ----------
4,140,691 2,477,447 2,097,237
---------- ---------- ----------
Costs and expenses:
Oil and gas production 1,511,223 1,296,822 1,403,494
General and administrative 122,731 93,562 72,284
Impairment of oil and gas properties 86,231 240,063 744,642
Depletion 284,235 399,531 888,276
---------- ---------- ----------
2,004,420 2,029,978 3,108,696
---------- ---------- ----------
Net income (loss) $ 2,136,271 $ 447,469 $(1,011,459)
========== ========== ==========
Allocation of net income (loss):
Managing general partner $ 21,363 $ 4,475 $ (10,115)
========= ========== ==========
Limited partners $ 2,114,908 $ 442,994 $(1,001,344)
========== ========== ==========
Net income (loss) per limited
partnership interest $ 65.55 $ 13.73 $ (31.04)
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
12
1132
PARKER & PARSLEY 90-B, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
--------- ---------- ----------
Partners' capital at January 1, 1998 $ 73,061 $ 7,232,631 $ 7,305,692
Distributions (7,712) (763,451) (771,163)
Net loss (10,115) (1,001,344) (1,011,459)
--------- ---------- ----------
Partners' capital at December 31, 1998 55,234 5,467,836 5,523,070
Distributions (7,441) (736,663) (744,104)
Net income 4,475 442,994 447,469
--------- ---------- ----------
Partners' capital at December 31, 1999 52,268 5,174,167 5,226,435
Distributions (22,604) (2,237,802) (2,260,406)
Net income 21,363 2,114,908 2,136,271
--------- ---------- ----------
Partners' capital at December 31, 2000 $ 51,027 $ 5,051,273 $ 5,102,300
========= ========== ==========
The accompanying notes are an integral part of these financial statements.
13
1133
PARKER & PARSLEY 90-B, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
---------- ---------- -----------
Cash flows from operating activities:
Net income (loss) $ 2,136,271 $ 447,469 $ (1,011,459)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Impairment of oil and gas properties 86,231 240,063 744,642
Depletion 284,235 399,531 888,276
Gain on disposition of assets (5,487) - (4,527)
Changes in assets and liabilities:
Accounts receivable (126,706) (214,284) 116,516
Accounts payable (24,243) 4,359 (31,997)
---------- ---------- -----------
Net cash provided by operating activities 2,350,301 877,138 701,451
---------- ---------- -----------
Cash flows from investing activities:
Additions to oil and gas properties (41,504) (33,486) (49,747)
Proceeds from disposition of assets 5,487 - 4,527
---------- ---------- -----------
Net cash used in investing activities (36,017) (33,486) (45,220)
---------- ---------- -----------
Cash flows used in financing activities:
Cash distributions to partners (2,260,406) (744,104) (771,163)
---------- ---------- -----------
Net increase (decrease) in cash 53,878 99,548 (114,932)
Cash at beginning of year 311,017 211,469 326,401
---------- ---------- -----------
Cash at end of year $ 364,895 $ 311,017 $ 211,469
========== ========== ===========
The accompanying notes are an integral part of these financial statements.
14
1134
PARKER & PARSLEY 90-B, L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 90-B, L.P. (the "Partnership") is a limited partnership
organized in 1990 under the laws of the State of Delaware. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in Texas
and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the unit-of-
production method on a property-by-property basis based on proved oil (dominant
mineral) reserves as evaluated by independent petroleum consultants. The
carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements - Preparation
of the accompanying 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 periods.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in the
financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
15
1135
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative expenses
are allocated in part to the Partnership by the managing general partner.
Allocated expenses are determined by the managing general partner based upon the
level of activity of the Partnership relative to the non-partnership activities
of the managing general partner. The method of allocation has been consistent
over the past several years with certain modifications incorporated to reflect
changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized non-cash impairment provisions of $86,231, $240,063 and
$744,642 related to its proved oil and gas properties during 2000, 1999 and
1998, respectively.
16
1136
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $632,807 greater than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
------------ ------------ -------------
Net income (loss) per statements of operations $ 2,136,271 $ 447,469 $ (1,011,459)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes 246,057 359,438 475,607
Impairment of oil and gas properties for financial
reporting purposes 86,231 240,063 744,642
Other, net (4,768) (12,935) 11,120
------------ ------------ -------------
Net income per Federal income tax
returns $ 2,463,791 $ 1,034,035 $ 219,910
============ ============ =============
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
--------- --------- ---------
Development costs $ 41,504 $ 33,486 $ 49,747
======== ======== ========
Capitalized oil and gas properties consist of the following:
2000 1999
------------ -------------
Proved properties:
Property acquisition costs $ 1,002,057 $ 1,002,057
Completed wells and equipment 25,108,873 25,067,369
------------ -------------
26,110,930 26,069,426
Accumulated depletion (21,899,717) (21,529,251)
------------ -------------
Net oil and gas properties $ 4,211,213 $ 4,540,175
============ =============
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
--------- --------- ---------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 572,323 $ 581,191 $ 568,275
--------- --------- ---------
Reimbursement of general and administrative
expenses $ 109,474 $ 73,707 $ 62,152
17
1137
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA
and P&P Employees 90-B Conv., L.P. ("EMPL"), Parker & Parsley 90-B Conv., L.P.
and the Partnership (the "Partnerships") are parties to the Program agreement.
EMPL is a limited partnership organized for the benefit of certain employees of
Pioneer USA. EMPL was merged with Pioneer USA on December 28, 2000.
The costs and revenues of the Program are allocated to Pioneer USA and the
Partnerships as follows:
Pioneer USA(1) Partnerships(2)
-------------- ---------------
Revenues:
Proceeds from disposition of depreciable and
depletable properties
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
All other revenues
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
Costs and expenses:
Lease acquisition costs, drilling and completion
costs and all other costs 9.090909% 90.909091%
Operating costs, reporting and legal expenses and
general and administrative expenses
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated
at the Partnership level and 83 limited partner interests owned by
Pioneer USA.
(2) The allocation between the Partnership and Parker & Parsley 90-B
Conv., L.P. is 73.05994% and 26.94006%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
Oil and NGLs Gas
(bbls) (mcf)
------------ ----------
Net proved reserves at January 1, 1998 2,481,201 2,344,959
Revisions (1,210,571) (517,240)
Production (158,775) (199,215)
------------ ----------
Net proved reserves at December 31, 1998 1,111,855 1,628,504
Revisions 1,181,592 1,807,095
Production (146,064) (192,016)
------------ ----------
Net proved reserves at December 31, 1999 2,147,383 3,243,583
Revisions 46,430 (419,625)
Production (144,804) (175,696)
------------ ----------
Net proved reserves at December 31, 2000 2,049,009 2,648,262
============ ==========
18
1138
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.19 per barrel of NGLs and $7.66 per mcf of gas,
discounted at 10% was approximately $15,617,000 and undiscounted was
$31,632,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
For the years ended December 31,
-------------------------------------
2000 1999 1998
---------- ---------- ----------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 65,926 $ 52,962 $ 12,063
Future production costs (34,294) (29,776) (9,053)
---------- ---------- ----------
31,632 23,186 3,010
10% annual discount factor (16,015) (11,296) (1,016)
---------- ---------- ----------
Standardized measure of discounted future net
cash flows $ 15,617 $ 11,890 $ 1,994
========== ========== ==========
For the years ended December 31,
--------------------------------------
2000 1999 1998
----------- ----------- ----------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (2,592) $ (1,165) $ (671)
Net changes in prices and production costs 5,824 5,796 (6,480)
Revisions of previous quantity estimates (153) 8,478 (1,405)
Accretion of discount 1,189 199 982
Changes in production rates, timing and other (541) (3,412) (254)
---------- ---------- ---------
Change in present value of future net revenues 3,727 9,896 (7,828)
---------- ---------- ---------
Balance, beginning of year 11,890 1,994 9,822
---------- ---------- ---------
Balance, end of year $ 15,617 $ 11,890 $ 1,994
========== ========== =========
19
1139
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 48% 46% -
TEPPCO Crude Oil LLC 10% 11% -
Genesis Crude Oil, L.P. - - 58%
Western Gas Resources, Inc. 4% 5% 22%
Phillips Petroleum Company 10% 5% 5%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P.,
TEPPCO Crude Oil LLC and Phillips Petroleum Company were $177,462, $37,001 and
$20,032, respectively, which are included in the caption "Accounts receivable -
oil and gas sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would not
have an adverse effect on the ability of the Partnership to sell its oil, NGLs
and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of the
limited partnership agreement:
Managing general partner - The managing general partner of the Partnership
is Pioneer USA. Pioneer USA has the power and authority to manage, control
and administer all Program and Partnership affairs. As managing general
partner and operator of the Partnership's properties, all production
expenses are incurred by Pioneer USA and billed to the Partnership. The
20
1140
majority of the Partnership's oil and gas revenues are received directly
by the Partnership, however, a portion of the oil and gas revenue is
initially received by Pioneer USA prior to being paid to the Partnership.
Under the Partnership agreement, the managing general partner pays 1% of
the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is
allocated 1% of the Partnership's revenues.
Limited partner liability - The maximum amount of liability of any limited
partner is the total contributions of such partner plus his share of any
undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of
$32,264,000. The managing general partner is required to contribute
amounts equal to 1% of initial Partnership capital less commission and
organization and offering costs allocated to the limited partners and to
contribute amounts necessary to pay costs and expenses allocated to it
under the Partnership agreement to the extent its share of revenues does
not cover such costs.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
21
1141
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and executive
officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the
next annual meeting of stockholders or until their successors are elected and
qualified.
Age at
December 31,
Name 2000 Position
---- ---- --------
Scott D. Sheffield 48 President
Timothy L. Dove 44 Executive Vice President, Chief
Financial Officer and Director
Dennis E. Fagerstone 51 Executive Vice President and Director
Mark L. Withrow 53 Executive Vice President, General
Counsel and Director
Danny Kellum 46 Executive Vice President - Domestic
Operations and Director
Rich Dealy 34 Vice President and Chief Accounting
Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of
Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as
President, Chief Executive Officer and a director of Pioneer and President of
Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of
Pioneer in August 1999. He served as a director of Pioneer USA from August 1997
until his resignation from the board in June 1999. Mr. Sheffield was the
President and a director of Parker & Parsley Petroleum Company ("Parker &
Parsley") from May 1990 until August 1997 and was the Chairman of the Board and
Chief Executive Officer of Parker & Parsley from October 1990 until August 1997.
He was the sole director of Parker & Parsley from May 1990 until October 1990.
Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a
predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as
Vice President - Engineering of PPDC from September 1981 until April 1985 when
he was elected President and a director. In March 1989, Mr. Sheffield was
elected Chairman of the Board and Chief Executive Officer of PPDC. Before
joining PPDC's predecessor, Mr. Sheffield was employed as a production and
reservoir engineer for Amoco Production Company.
22
1142
Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from
Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981
from the University of Chicago. He became Executive Vice President - Business
Development of Pioneer and Pioneer USA in August 1997 and was also appointed a
director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief
Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr.
Dove joined Parker & Parsley in May 1994 as Vice President - International and
was promoted to Senior Vice President - Business Development in October 1996, in
which position he served until August 1997. Prior to joining Parker & Parsley,
Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus
Energy Corp, in various capacities in international exploration and production,
marketing, refining and marketing and planning and development.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School
of Mines with a B.S. in Petroleum Engineering, became an Executive Vice
President of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. He served as Executive Vice President
and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until
August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior
Vice President and Chief Operating Officer of Mesa and from May 1991 to October
1996, he served as Vice President - Exploration and Production of Mesa. From
June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of
Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President - General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979, was elected Executive
Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000
and Director of Pioneer USA on February 1, 2000. From January 2000 until May
2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and
Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and
Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served
as Spraberry District Manager and as Vice President of the Spraberry and Permian
Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker &
Parsley as an operations engineer in 1981 after a brief career with Mobil Oil
Corporation.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with
a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He
became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
23
1143
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is performed by Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA pays approximately 10% of the Program's acquisition,
drilling and completion costs and approximately 15% during the first three years
and approximately 20% after three years of its operating and general and
administrative expenses. In return, they are allocated approximately 15% during
the first three years and approximately 20% after three years of the Program's
revenues.
The Partnership does not directly pay any salaries of the executive officers of
Pioneer USA, but does pay a portion of Pioneer USA's general and administrative
expenses of which these salaries are a part.
See Notes 6 and 9 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" for information regarding fees and
reimbursements paid to the managing general partner by the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more of
the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 83 limited partnership interests at January 1, 2001.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general
partner of the Partnership, Pioneer USA, has the exclusive right and full
authority to manage, control and administer the Partnership's business. Under
the limited partnership agreement, limited partners holding a majority of the
outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general
Pursuant to the limited partnership agreement, the Partnership had the following
related party transactions with the managing general partner during the years
ended December 31:
24
1144
2000 1999 1998
-------- --------- --------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 572,323 $ 581,191 $ 568,275
Reimbursement of general and administrative
expenses $ 109,474 $ 73,707 $ 62,152
Under the limited partnership agreement, the managing general partner pays 1% of
the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
25
1145
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial statements
The following are filed as part of this Report:
Independent Auditors' Report
Balance sheets as of December 31, 2000 and 1999
Statements of operations for the years ended December 31, 2000,
1999 and 1998
Statements of partners' capital for the years ended December
31, 2000, 1999 and 1998
Statements of cash flows for the years ended December 31, 2000,
1999 and 1998
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the
required information is in the financial statements or notes thereto,
or is not applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this Report.
26
1146
S I G N A T U R E S
Pursuant to the requirements 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.
PARKER & PARSLEY 90-B, L.P.
Dated: March 28, 2001 By: Pioneer Natural Resources USA, Inc.
Managing General Partner
By: /s/ Scott D. Sheffield
------------------------------
Scott D. Sheffield, President
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/ Scott D. Sheffield President of Pioneer USA March 28, 2001
-------------------------------
Scott D. Sheffield
/s/ Timothy L. Dove Executive Vice President, Chief March 28, 2001
------------------------------- Financial Officer and Director of
Timothy L. Dove Pioneer USA
/s/ Dennis E. Fagerstone Executive Vice President and March 28, 2001
------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ Mark L. Withrow Executive Vice President, General March 28, 2001
------------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ Danny Kellum Executive Vice President - Domestic March 28, 2001
------------------------------- Operations and Director of Pioneer
Danny Kellum USA
/s/ Rich Dealy Vice President and Chief Accounting March 28, 2001
------------------------------- Officer of Pioneer USA
Rich Dealy
27
1147
PARKER & PARSLEY 90-B, L.P.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
Exhibit No. Description Page
----------- ----------- ----
3(a) Form of Agreement of Limited Partnership -
of Parker & Parsley 90-B, L.P. incorporated
by reference to Exhibit A of the Post-Effective
Amendment No. 1 of the Partnership's
Registration Statement on Form S-1
(Registration No. 33-26097)
4(b) Form of Limited Partner Subscription Agreement -
incorporated by reference to Exhibit C of the
Post-Effective Amendment No. 1 of the
Partnership's Registration Statement on Form
S-1 (Registration No. 33-26097)
4(b) Form of General Partner Subscription Agreement -
incorporated by reference to Exhibit D of the
Post-Effective Amendment No. 1 of the
Partnership's Registration Statement on Form
S-1 (Registration No. 33-26097)
4(b) Power of Attorney incorporated by reference to -
Exhibit B of Amendment No. 1 of the
Partnership's Registration Statement on Form
S-1 (Registration No. 33-26097)
4(c) Specimen Certificate of Limited Partnership -
Interest incorporated by reference to Exhibit 4c
of the Partnership's Registration Statement on
Form S-1 (Registration No. 33-26097)
10(b) Form of Development Drilling Program -
Agreement incorporated by reference to Exhibit
B of the Post-Effective Amendment No. 1 of
the Partnership's Registration Statement on
Form S-1 (Registration No. 33-26097)
28
1148
PARKER & PARSLEY 90-B, L.P.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- ---------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ----------- ---------- ----------
Operating results:
Oil and gas sales $ $ 896,935 $4,103,548 $2,461,819 $ 2,074,056 $3,033,675 $3,748,608
======== ========== ========== ========== =========== ========== ==========
Impairment of oil and gas
properties $ $ -- $ 86,231 $ 240,063 $ 744,642 $ 891,257 $ 61,080
======== ========== ========== ========== =========== ========== ==========
Net income (loss) $ $ 445,716 $2,136,271 $ 447,469 $(1,011,459) $ (149,382) $1,479,052
======== ========== ========== ========== =========== ========== ==========
Allocation of net income
(loss):
Managing general
partner $ $ 4,457 $ 21,363 $ 4,475 $ (10,115) $ (1,494) $ 14,790
======== ========== ========== ========== =========== ========== ==========
Limited partners $ $ 441,259 $2,114,908 $ 442,994 $(1,001,344) $ (147,888) $1,464,262
======== ========== ========== ========== =========== ========== ==========
Limited partners' net
income (loss) per
limited partnership
interest $ $ 13.68 $ 65.55 $ 13.73 $ (31.04) $ (4.58) $ 45.38
======== ========== ========== ========== =========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 14.98 $ 69.36 $ 22.83 $ 23.66 $ 52.38 $ 56.25
======== ========== ========== ========== =========== ========== ==========
At year end:
Identifiable assets $ $5,258,178 $5,144,391 $5,292,769 $ 5,585,045 $7,399,664 $9,230,704
======== ========== ========== ========== =========== ========== ==========
1149
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 90-C CONV., L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
90-C Conv., L.P., and supplements the proxy statement/prospectus dated ,
2001, of Pioneer Natural Resources Company and Pioneer Natural Resources USA,
Inc., by which Pioneer USA is soliciting proxies to be voted at a special
meeting of limited partners of the partnership. The purpose of the special
meeting is for you to vote upon the merger of the partnership with and into
Pioneer USA that, if completed, will result in your receiving common stock of
Pioneer Natural Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 90-C Conv., L.P.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's quarterly report on Form 10-Q, including
management's discussion and analysis of financial condition and
results of operations, for the three months ended March 31, 2001
o The partnership's annual report on Form 10-K, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
1150
PARKER & PARSLEY 90-C CONV., L.P.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 7,531
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 4,676
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 1,792
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 238.88
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.64 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 132.75
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 216.27
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 232.55
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 149
(b), (c)
----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners. Although not
required by the partnership agreement, the opinion will also state that neither
the grant nor exercise of such right will result in the loss of any limited
partner's limited liability. In addition, the counsel designated to render the
opinion is not required to be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
1151
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 FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 33-26097-10
PARKER & PARSLEY 90-C CONV., L.P.
(Exact name of Registrant as specified in its charter)
DELAWARE 75-2347264
------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039
---------------------------------------------------------------- -------------
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code: (972) 444-9001
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section
12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
-----------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES / X / 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / X /
No market currently exists for the limited partnership interests of the
Registrant. Based on the original purchase price, the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$7,501,000.
As of March 8, 2001, the number of outstanding limited partnership
interests was 7,531.
The following documents are incorporated by reference into the indicated parts
of this Annual Report on Form 10-K: None
PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACCORDINGLY, NO
ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS AND RESULTS WILL NOT BE
MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD
LOOKING STATEMENTS. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS
THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE
ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
1152
PART I
ITEM 1. BUSINESS
Parker & Parsley 90-C Conv., L.P. (the "Partnership") is a general partnership
organized in 1990 under the laws of the State of Texas. The Partnership
converted to a Delaware limited partnership on August 1, 1991. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company
("Pioneer"). As of March 8, 2001, the Partnership had 7,531 limited partnership
interests outstanding.
The Partnership does not have any employees of its own. Pioneer USA employs 701
persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this Report is filed. Pioneer
USA is responsible for all management functions.
The Partnership engages in oil and gas development and production and is not
involved in any industry segment other than oil and gas. The Partnership's
production is geographically concentrated in West Texas.
The principal markets during 2000 for the oil produced by the Partnership were
refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. During 2000, Pioneer USA marketed the
Partnership's gas to a variety of purchasers, none of which accounted for 10% or
more of the Partnership's oil and gas revenues. Of the Partnership's total oil
and gas revenues for 2000, approximately 64% was attributable to sales made to
Plains Marketing, L.P. Pioneer USA is of the opinion that the loss of any one
purchaser would not have an adverse effect on its ability to sell its oil,
natural gas liquids ("NGLs") and gas production.
The Partnership's revenues, profitability, cash flow and future rate of growth
are highly dependent on the prevailing prices of oil and gas, which are affected
by numerous factors beyond the Partnership's control. Oil and gas prices
historically have been very volatile. A substantial or extended decline in the
prices of oil or gas could have a material adverse effect on the Partnership's
revenues, profitability and cash flow and could, under certain circumstances,
result in a reduction in the carrying value of the Partnership's oil and gas
properties.
Oil and gas production operations are subject to various types of regulations by
local, state and federal agencies. The Partnership's operations are also subject
to state conservation laws and regulations, including the establishment of
maximum rates of production from wells and the regulation of spacing, plugging
and abandonment of wells. Each state generally imposes a production or severance
tax with respect to production and sale of oil and gas within their respective
jurisdictions. Noncompliance with the laws and regulations may subject the
Partnership to penalties, damages or other liabilities and compliance may
increase the cost of the Partnership's operations.
The oil and gas business is also subject to environmental hazards such as oil
spills, gas leaks and ruptures and discharges of toxic substances or gases that
could expose the Partnership to substantial
2
1153
liability due to pollution and other environmental damages. Although the
Partnership believes that its business operations do not impair environmental
quality and that its costs of complying with any applicable environmental
regulations are not currently significant, the Partnership cannot predict what,
if any, effect these environmental regulations may have on its current or future
operations.
Numerous uncertainties exist in estimating quantities of proved reserves and
future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the Partnership
conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist of leasehold 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 Spraberry Trend Area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 44
oil and gas wells. One well was sold and one well was plugged and abandoned due
to uneconomical operations. At December 31, 2000, the Partnership had 42
producing oil and gas wells.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 2000, 1999 and 1998 and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been evaluated by Williamson Petroleum Consultants, Inc., an independent
petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer USA believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the partners during the fourth
quarter of 2000.
3
1154
PART II
ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP
DISTRIBUTIONS
At March 8, 2001, the Partnership had 7,531 outstanding limited partnership
interests held of record by 505 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are not
required to meet the Partnership's obligations are distributed to the partners
at least quarterly in accordance with the limited partnership agreement. During
the years ended December 31, 2000 and 1999, $492,300 and $135,825, respectively,
of such revenue-related distributions were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
Operating results:
-----------------
Oil and gas sales $ 917,184 $ 537,893 $ 430,499 $ 661,475 $ 837,849
=========== =========== =========== =========== ===========
Impairment of oil and gas
properties $ - $ - $ 185,784 $ 79,288 $ -
=========== =========== =========== =========== ===========
Net income (loss) $ 509,518 $ 137,106 $ (258,625) $ 105,740 $ 359,349
=========== =========== =========== =========== ===========
Allocation of net income
(loss):
Managing general partner $ 5,095 $ 1,371 $ (2,586) $ 1,057 $ 3,593
=========== =========== =========== =========== ===========
Limited partners $ 504,423 $ 135,735 $ (256,039) $ 104,683 $ 355,756
=========== =========== =========== =========== ===========
Limited partners' net income
(loss) per limited
partnership interest $ 66.98 $ 18.02 $ (34.00) $ 13.90 $ 47.24
=========== =========== =========== =========== ===========
Limited partners' cash
distributions per limited
partnership interest $ 65.37 $ 18.04 $ 17.30 $ 47.53 $ 51.98
=========== =========== =========== =========== ===========
At year end:
-----------
Identifiable assets $ 1,023,864 $ 1,014,263 $ 1,011,034 $ 1,411,804 $ 1,661,127
=========== =========== =========== =========== ===========
4
1155
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 71% to $917,184 for 2000 as
compared to $537,893 in 1999. The increase in revenues resulted from higher
average prices received and an increase in production. In 2000, 23,602 barrels
of oil, 9,171 barrels of natural gas liquids ("NGLs") and 30,423 mcf of gas were
sold, or 37,844 barrel of oil equivalents ("BOEs"). In 1999, 23,568 barrels of
oil, 9,050 barrels of NGLs and 29,399 mcf of gas were sold, or 37,518 BOEs. Due
to the decline characteristics of the Partnership's oil and gas properties,
management expects a certain amount of decline in production in the future until
the Partnership's economically recoverable reserves are fully depleted.
The average price received per barrel of oil increased $12.21, or 71%, from
$17.13 in 1999 to $29.34 in 2000. The average price received per barrel of NGLs
increased $5.60, or 60%, from $9.31 in 1999 to $14.91 in 2000. The average price
received per mcf of gas increased 70% from $1.70 in 1999 to $2.89 in 2000. The
market price for oil and gas has been extremely volatile in the past decade and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than received in 2000.
Gains on dispositions of assets of $388 and $104 recognized during 2000 and
1999, respectively, were due to equipment credits received on a fully depleted
well in each year.
Total costs and expenses increased in 2000 to $416,488 compared to $405,150 in
1999, an increase of $11,338, or 3%. This increase was due to increases in
production costs and general and administrative expenses ("G&A"), offset by a
decline in depletion.
Production costs were $334,055 in 2000 and $297,353 in 1999, resulting in an
increase of $36,702, or 12%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices and additional well maintenance
costs incurred to stimulate well production.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period G&A increased
45% from $20,987 in 1999 to $30,429 in 2000 primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 3% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $27,439 in 2000 and $16,060 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
5
1156
Depletion was $52,004 in 2000 as compared to $86,810 in 1999, representing a
decrease of $34,806, or 40%. This decrease was primarily due to a 31,374 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
prices.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 25% to $537,893 from
$430,499 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 23,568 barrels of oil,
9,050 barrels of NGLs and 29,399 mcf of gas were sold, or 37,518 BOEs. In 1998,
24,493 barrels of oil, 8,694 barrels of NGLs and 30,348 mcf of gas were sold, or
38,245 BOEs.
The average price received per barrel of oil increased $3.89, or 29%, from
$13.24 in 1998 to $17.13 in 1999. The average price received per barrel of NGLs
increased $2.51, or 37%, from $6.80 in 1998 to $9.31 in 1999. The average price
received per mcf of gas increased 10% from $1.55 in 1998 to $1.70 in 1999.
Total costs and expenses decreased in 1999 to $405,150 compared to $693,871 in
1998, a decrease of $288,721, or 42%. This decrease was due to declines in the
impairment of oil and gas properties, depletion and production costs, offset by
an increase in G&A.
Production costs were $297,353 in 1999 and $314,363 in 1998, resulting in a
decrease of $17,010, or 5%. The decrease was due to declines in well maintenance
costs and ad valorem taxes, offset by an increase in production taxes.
During this period G&A increased 39% from $15,084 in 1998 to $20,987 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $16,060 in
1999 and $12,838 in 1998 for G&A incurred on behalf of the Partnership.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $185,784 related to its oil and gas properties during 1998.
Depletion was $86,810 in 1999 compared to $178,640 in 1998. This represented a
decrease of $91,830, or 51%. This decrease was primarily the result of an
increase in proved reserves of 207,077 barrels of oil during 1999 as a result of
higher commodity prices and a reduction in the Partnership's net depletable
basis from charges taken in accordance with SFAS 121 during the fourth quarter
of 1998.
6
1157
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $330,268 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $383,466, offset by increases in production costs paid
of $36,702, G&A expenses paid of $9,442 and working capital of $7,054. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $377,706 to oil and gas receipts and
$5,760 resulting from the increase in production during 2000. The increase in
production costs was primarily due to increased production taxes associated with
higher oil and gas prices and well maintenance costs incurred to stimulate well
production. The increase in G&A was primarily due to higher percentage of the
managing general partner's G&A being allocated (limited to 3% of oil and gas
revenues) as a result of increased oil and gas revenues.
Net Cash Used in Investing Activities
The Partnership's investing activities during 2000 and 1999 included
expenditures related to equipment upgrades on active oil and gas properties.
Proceeds from dispositions of assets of $388 and $104 recognized during 2000 and
1999, respectively, were related to equipment credits received on a fully
depleted well in each year.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $497,273, of which $4,973 was
distributed to the managing general partner and $492,300 to the limited
partners. In 1999, cash distributions to the partners were $137,197, of which
$1,372 was distributed to the managing general partner and $135,825 to the
limited partners.
7
1158
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements of Parker & Parsley 90-C Conv., L.P:
Independent Auditors' Report.......................................... 9
Balance Sheets as of December 31, 2000 and 1999....................... 10
Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998................................................. 11
Statements of Partners' Capital for the Years Ended
December 31, 2000, 1999 and 1998.................................... 12
Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998................................................. 13
Notes to Financial Statements......................................... 14
8
1159
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 90-C Conv., L.P.
(A Delaware Limited Partnership):
We have audited the balance sheets of Parker & Parsley 90-C Conv., L.P. as of
December 31, 2000 and 1999, and the related statements of operations, partners'
capital and cash flows for each of the three years in the period ended December
31, 2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 90-C Conv.,
L.P. as of December 31, 2000 and 1999, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
9
1160
PARKER & PARSLEY 90-C CONV., L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
------------- ------------
ASSETS
------
Current assets:
Cash $ 106,593 $ 107,295
Accounts receivable - oil and gas sales 119,396 79,853
------------- ------------
Total current assets 225,989 187,148
------------- ------------
Oil and gas properties - at cost, based on the
successful efforts accounting method 5,798,493 5,775,729
Accumulated depletion (5,000,618) (4,948,614)
------------- ------------
Net oil and gas properties 797,875 827,115
------------- ------------
$ 1,023,864 $ 1,014,263
============= ============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 14,074 $ 16,718
Partners' capital:
Managing general partner 10,067 9,945
Limited partners (7,531 interests) 999,723 987,600
------------- ------------
1,009,790 997,545
------------- ------------
$ 1,023,864 $ 1,014,263
============= ============
The accompanying notes are an integral part of these financial statements.
10
1161
PARKER & PARSLEY 90-C CONV., L.P.
(A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
----------- ----------- -----------
Revenues:
Oil and gas $ 917,184 $ 537,893 $ 430,499
Interest 8,434 4,259 4,747
Gain on disposition of assets 388 104 -
---------- ---------- ----------
926,006 542,256 435,246
---------- ---------- ----------
Costs and expenses:
Oil and gas production 334,055 297,353 314,363
General and administrative 30,429 20,987 15,084
Impairment of oil and gas properties - - 185,784
Depletion 52,004 86,810 178,640
---------- ---------- ----------
416,488 405,150 693,871
---------- ---------- ----------
Net income (loss) $ 509,518 $ 137,106 $ (258,625)
========== ========== ==========
Allocation of net income (loss):
Managing general partner $ 5,095 $ 1,371 $ (2,586)
========== ========== ==========
Limited partners $ 504,423 $ 135,735 $ (256,039)
========== ========== ==========
Net income (loss) per limited partnership interest $ 66.98 $ 18.02 $ (34.00)
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
11
1162
PARKER & PARSLEY 90-C CONV., L.P.
(A Delaware Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
------------- ------------- -------------
Partners' capital at January 1, 1998 $ 13,848 $ 1,374,010 $ 1,387,858
Distributions (1,316) (130,281) (131,597)
Net loss (2,586) (256,039) (258,625)
----------- ------------ ------------
Partners' capital at December 31, 1998 9,946 987,690 997,636
Distributions (1,372) (135,825) (137,197)
Net income 1,371 135,735 137,106
----------- ------------ ------------
Partners' capital at December 31, 1999 9,945 987,600 997,545
Distributions (4,973) (492,300) (497,273)
Net income 5,095 504,423 509,518
----------- ------------ ------------
Partners' capital at December 31, 2000 $ 10,067 $ 999,723 $ 1,009,790
=========== ============ ============
The accompanying notes are an integral part of these financial statements.
12
1163
PARKER & PARSLEY 90-C CONV., L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
------------ ------------- -------------
Cash flows from operating activities:
Net income (loss) $ 509,518 $ 137,106 $ (258,625)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Impairment of oil and gas properties - - 185,784
Depletion 52,004 86,810 178,640
Gain on disposition of assets (388) (104) -
Changes in assets and liabilities:
Accounts receivable (39,543) (38,453) 28,491
Accounts payable (2,644) 3,320 (10,548)
----------- ------------ ------------
Net cash provided by operating
activities 518,947 188,679 123,742
----------- ------------ ------------
Cash flows from investing activities:
Additions to oil and gas properties (22,764) (10,512) (13,347)
Proceeds from disposition of assets 388 104 -
----------- ------------ ------------
Net cash used in investing activities (22,376) (10,408) (13,347)
----------- ------------ ------------
Cash flows used in financing activities:
Cash distributions to partners (497,273) (137,197) (131,597)
----------- ------------ ------------
Net increase (decrease) in cash (702) 41,074 (21,202)
Cash at beginning of year 107,295 66,221 87,423
----------- ------------ ------------
Cash at end of year $ 106,593 $ 107,295 $ 66,221
=========== ============ ============
The accompanying notes are an integral part of these financial statements.
13
1164
PARKER & PARSLEY 90-C CONV., L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 90-C Conv., L.P. (the "Partnership") is a general
partnership organized in 1990 under the laws of the State of Texas. The
Partnership converted to a Delaware limited partnership on August 1, 1991. The
Partnership's managing general partner is Pioneer Natural Resources USA, Inc.
("Pioneer USA").
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied
in the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful
efforts method of accounting for its oil and gas properties and equipment. Under
this method, all costs associated with productive wells and nonproductive
development wells are capitalized while nonproductive exploration costs are
expensed. Capitalized costs relating to proved properties are depleted using the
unit-of- production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -
Preparation of the accompanying 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 periods. Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income (loss) of the Partnership is included in
the individual Federal income tax returns of the respective partners.
14
1165
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated in part to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non-partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized a non-cash impairment provision of $185,784 related to
its proved oil and gas properties during 1998.
15
1166
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $49,618 less than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income (loss) per Federal income tax returns for the
years ended December 31:
2000 1999 1998
-------------- --------------- -------------
Net income (loss) per statements of operations $ 509,518 $ 137,106 $ (258,625)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes 40,369 76,676 50,997
Impairment of oil and gas properties
for financial reporting purposes - - 185,784
Intangible development costs capitalized for
financial reporting purposes and expensed for
tax reporting purposes (385) - -
Other, net (1,143) (1,786) 1,870
------------- -------------- ------------
Net income (loss) per Federal
income tax returns $ 548,359 $ 211,996 $ (19,974)
============= ============== ============
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
------------- ------------ ------------
Development costs $ 22,764 $ 10,512 $ 13,347
============ =========== ===========
Capitalized oil and gas properties consist of the following:
2000 1999
------------ ------------
Proved properties:
Property acquisition costs $ 226,701 $ 226,701
Completed wells and equipment 5,571,792 5,549,028
----------- -----------
5,798,493 5,775,729
Accumulated depletion (5,000,618) (4,948,614)
----------- -----------
Net oil and gas properties $ 797,875 $ 827,115
=========== ===========
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
16
1167
2000 1999 1998
-------------- -------------- --------------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 130,806 $ 126,701 $ 124,074
Reimbursement of general and administrative
expenses $ 27,439 $ 16,060 $ 12,838
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
P&P Employees 90-C Conv., L.P. ("EMPL"), Parker & Parsley 90-C, L.P. and the
Partnership (the "Partnerships") are parties to the Program agreement. EMPL is a
limited partnership organized for the benefit of certain employees of Pioneer
USA. EMPL was merged with Pioneer USA on December 28, 2000.
The costs and revenues of the Program are allocated to Pioneer USA and
the Partnerships as follows:
Pioneer USA (1) Partnerships (2)
--------------- ----------------
Revenues:
Proceeds from disposition of depreciable and depletable
properties -
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
All other revenues -
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
Costs and expenses:
Lease acquisition costs, drilling and completion costs
and all other costs 9.090909% 90.909091%
Operating costs, reporting and legal expenses and
general and administrative expenses -
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated
at the Partnership level and 30 limited partner interests owned by
Pioneer USA.
(2) The allocation between the Partnership and Parker & Parsley 90-C, L.P.
is 38.349119% and 61.650881%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table represents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
17
1168
Oil and NGLs Gas
(bbls) (mcf)
------------ ----------
Net proved reserves at January 1, 1998 424,601 426,720
Revisions (204,124) (171,338)
Production (33,187) (30,348)
---------- ----------
Net proved reserves at December 31, 1998 187,290 225,034
Revisions 293,912 357,964
Production (32,618) (29,399)
---------- ----------
Net proved reserves at December 31, 1999 448,584 553,599
Revisions 50,848 (55,441)
Production (32,773) (30,423)
---------- ----------
Net proved reserves at December 31, 2000 466,659 467,735
========== ==========
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.22 per barrel of NGLs and $7.80 per mcf of gas,
discounted at 10% was approximately $3,245,000 and undiscounted was $6,366,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
---------------------------------------------
2000 1999 1998
------------ ------------ ------------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 14,206 $ 11,167 $ 2,041
Future production costs (7,840) (6,472) (1,624)
------------ ------------ ------------
6,366 4,695 417
10% annual discount factor (3,121) (2,211) (116)
------------ ------------ ------------
Standardized measure of discounted future net cash flows $ 3,245 $ 2,484 $ 301
============ ============ ============
18
1169
For the years ended December 31,
---------------------------------------------
2000 1999 1998
------------ ------------ ------------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (583) $ (241) $ (116)
Net changes in prices and production costs 932 1,084 (1,115)
Revisions of previous quantity estimates 257 2,216 (238)
Accretion of discount 248 30 167
Changes in production rates, timing and other (93) (906) (65)
------------ ------------ ------------
Change in present value of future net revenues 761 2,183 (1,367)
------------ ------------ ------------
Balance, beginning of year 2,484 301 1,668
------------ ------------ ------------
Balance, end of year $ 3,245 $ 2,484 $ 301
============ ============ ============
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 64% 62% -
Genesis Crude Oil, L.P. - - 69%
Western Gas Resources, Inc. 2% 3% 13%
At December 31, 2000, the amount receivable from Plains Marketing, L.P.
was $48,722 which is included in the caption "Accounts receivable - oil and gas
sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the limited partnership agreement:
Managing general partner - The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Program and Partnership affairs. As
managing general partner and operator of the Partnership's properties,
all production expenses are incurred by Pioneer USA and billed to the
Partnership. The majority of the Partnership's oil and gas revenues are
received directly by the Partnership, however, a portion of the oil and
gas revenue is initially received by Pioneer USA prior to being paid to
the Partnership. Under the Partnership agreement, the managing general
partner pays
19
1170
1% of the Partnership's acquisition, drilling and completion costs and 1%
of its operating and general and administrative expenses. In return, it
is allocated 1% of the Partnership's revenues.
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his share
of any undistributed profits.
Initial capital contributions - The partners entered into subscription
agreements for aggregate capital contributions of $7,531,000. Pioneer USA
is required to contribute amounts equal to 1% of initial Partnership
capital less commission and organization and offering costs allocated to
the limited partners and to contribute amounts necessary to pay costs and
expenses allocated to it under the Partnership agreement to the extent
its share of revenues does not cover such costs.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
20
1171
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and executive
officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the
next annual meeting of stockholders or until their successors are elected and
qualified.
Age at
December 31,
Name 2000 Position
---- ---- --------
Scott D. Sheffield 48 President
Timothy L. Dove 44 Executive Vice President, Chief
Financial Officer and Director
Dennis E. Fagerstone 51 Executive Vice President and Director
Mark L. Withrow 53 Executive Vice President, General
Counsel and Director
Danny Kellum 46 Executive Vice President - Domestic
Operations and Director
Rich Dealy 34 Vice President and Chief Accounting
Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of
Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as
President, Chief Executive Officer and a director of Pioneer and President of
Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of
Pioneer in August 1999. He served as a director of Pioneer USA from August 1997
until his resignation from the board in June 1999. Mr. Sheffield was the
President and a director of Parker & Parsley Petroleum Company ("Parker &
Parsley") from May 1990 until August 1997 and was the Chairman of the Board and
Chief Executive Officer of Parker & Parsley from October 1990 until August 1997.
He was the sole director of Parker & Parsley from May 1990 until October 1990.
Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a
predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as
Vice President - Engineering of PPDC from September 1981 until April 1985 when
he was elected President and a director. In March 1989, Mr. Sheffield was
elected Chairman of the Board and Chief Executive Officer of PPDC. Before
joining PPDC's predecessor, Mr. Sheffield was employed as a production and
reservoir engineer for Amoco Production Company.
21
1172
Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from
Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981
from the University of Chicago. He became Executive Vice President - Business
Development of Pioneer and Pioneer USA in August 1997 and was also appointed a
director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief
Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr.
Dove joined Parker & Parsley in May 1994 as Vice President - International and
was promoted to Senior Vice President - Business Development in October 1996, in
which position he served until August 1997. Prior to joining Parker & Parsley,
Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus
Energy Corp, in various capacities in international exploration and production,
marketing, refining and marketing and planning and development.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School
of Mines with a B.S. in Petroleum Engineering, became an Executive Vice
President of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. He served as Executive Vice President
and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until
August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior
Vice President and Chief Operating Officer of Mesa and from May 1991 to October
1996, he served as Vice President - Exploration and Production of Mesa. From
June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of
Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President - General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979, was elected Executive
Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000
and Director of Pioneer USA on February 1, 2000. From January 2000 until May
2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and
Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and
Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served
as Spraberry District Manager and as Vice President of the Spraberry and Permian
Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker &
Parsley as an operations engineer in 1981 after a brief career with Mobil Oil
Corporation.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University
with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He
became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
22
1173
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is performed by Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA pays approximately 10% of the Program's acquisition,
drilling and completion costs and approximately 15% during the first three years
and approximately 20% after three years of its operating and general and
administrative expenses. In return, they are allocated approximately 15% during
the first three years and approximately 20% after three years of the Program's
revenues.
The Partnership does not directly pay any salaries of the executive officers of
Pioneer USA, but does pay a portion of Pioneer USA's general and administrative
expenses of which these salaries are a part.
See Notes 6 and 9 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" for information regarding fees and
reimbursements paid to the managing general partner by the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more of
the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 30 limited partner interests at January 1, 2001.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general
partner of the Partnership, Pioneer USA, has the exclusive right and full
authority to manage, control and administer the Partnership's business. Under
the limited partnership agreement, limited partners holding a majority of the
outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner
Pursuant to the limited partnership agreement, the Partnership had the following
related party transactions with the managing general partner during the years
ended December 31:
23
1174
2000 1999 1998
------------- ------------- -------------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 130,806 $ 126,701 $ 124,074
Reimbursement of general and administrative
expenses $ 27,439 $ 16,060 $ 12,838
Under the limited partnership agreement, the managing general partner pays 1% of
the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
24
1175
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial statements
The following are filed as part of this Report:
Independent Auditors' Report
Balance sheets as of December 31, 2000 and 1999
Statements of operations for the years ended December 31,
2000, 1999 and 1998
Statements of partners' capital for the years ended December
31, 2000, 1999 and 1998
Statements of cash flows for the years ended December 31,
2000, 1999 and 1998
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the
required information is in the financial statements or notes
thereto, or is not applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this Report.
25
1176
S I G N A T U R E S
Pursuant to the requirements 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.
PARKER & PARSLEY 90-C CONV., L.P.
Dated: March 26, 2001 By: Pioneer Natural Resources USA, Inc.
Managing General Partner
By: /s/ Scott D. Sheffield
------------------------------
Scott D. Sheffield, President
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/ Scott D. Sheffield President of Pioneer USA March 26, 2001
--------------------------------------
Scott D. Sheffield
/s/ Timothy L. Dove Executive Vice President, Chief March 26, 2001
-------------------------------------- Financial Officer and Director of
Timothy L. Dove Pioneer USA
/s/ Dennis E. Fagerstone Executive Vice President and March 26, 2001
-------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ Mark L. Withrow Executive Vice President, General March 26, 2001
-------------------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ Danny Kellum Executive Vice President - Domestic March 26, 2001
-------------------------------------- Operations and Director of Pioneer
Danny Kellum USA
/s/ Rich Dealy Vice President and Chief Accounting March 26, 2001
-------------------------------------- Officer of Pioneer USA
Rich Dealy
26
1177
PARKER & PARSLEY 90-C CONV., L.P.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
Exhibit No. Description Page
----------- ----------- ----
3(a) Form of Agreement of Limited Partnership -
of Parker & Parsley 90-C Conv., L.P.
incorporated by reference to Exhibit A of
the Post-Effective Amendment No. 1 of
the Partnership's Registration Statement
on Form S-1 (Registration No. 33-26097)
4(b) Form of Limited Partner Subscription Agreement -
incorporated by reference to Exhibit C of the
Post-Effective Amendment No. 1 of the
Partnership's Registration Statement on Form
S-1 (Registration No. 33-26097)
4(b) Form of General Partner Subscription Agreement -
incorporated by reference to Exhibit D of the
Post-Effective Amendment No. 1 of the
Partnership's Registration Statement on Form
S-1 (Registration No. 33-26097)
4(b) Power of Attorney incorporated by reference to -
Exhibit B of Amendment No. 1 of the Partnership's
Registration Statement on Form S-1
(Registration No. 33-26097)
4(c) Specimen Certificate of Limited Partnership -
Interest incorporated by reference to Exhibit 4c
of the Partnership's Registration Statement on
Form S-1 (Registration No. 33-26097)
10(b) Form of Development Drilling Program -
Agreement incorporated by reference to Exhibit
B of the Post-Effective Amendment No. 1 of
the Partnership's Registration Statement on
Form S-1 (Registration No. 33-26097)
27
1178
PARKER & PARSLEY 90-C CONV., L.P.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 193,711 $ 917,184 $ 537,893 $ 430,499 $ 661,475 $ 837,849
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ -- $ -- $ 185,784 $ 79,288 $ --
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 91,821 $ 509,518 $ 137,106 $ (258,625) $ 105,740 $ 359,349
======== ========== ========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general
partner $ $ 918 $ 5,095 $ 1,371 $ (2,586) $ 1,057 $ 3,593
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 90,903 $ 504,423 $ 135,735 $ (256,039) $ 104,683 $ 355,756
======== ========== ========== ========== ========== ========== ==========
Limited partners' net income
(loss) per limited
partnership interest $ $ 12.07 $ 66.98 $ 18.02 $ (34.00) $ 13.90 $ 47.24
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 13.62 $ 65.37 $ 18.04 $ 17.30 $ 47.53 $ 51.98
======== ========== ========== ========== ========== ========== ==========
At year end:
Identifiable assets $ $1,004,603 $1,023,864 $1,014,263 $1,011,034 $1,411,804 $1,661,127
======== ========== ========== ========== ========== ========== ==========
1179
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 90-C, L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
90-C, L.P., and supplements the proxy statement/prospectus dated , 2001, of
Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by
which Pioneer USA is soliciting proxies to be voted at a special meeting of
limited partners of the partnership. The purpose of the special meeting is for
you to vote upon the merger of the partnership with and into Pioneer USA that,
if completed, will result in your receiving common stock of Pioneer Natural
Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 90-C, L.P.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's quarterly report on Form 10-Q, including
management's discussion and analysis of financial condition and
results of operations, for the three months ended March 31, 2001
o The partnership's annual report on Form 10-K, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
1180
PARKER & PARSLEY 90-C, L.P.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 12,107
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 7,518
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 2,877
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 238.17
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.64 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 131.96
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 215.56
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 231.84
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 149
(b), (c)
----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners. Although not
required by the partnership agreement, the opinion will also state that neither
the grant nor exercise of such right will result in the loss of any limited
partner's limited liability. In addition, the counsel designated to render the
opinion is not required to be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
1181
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 FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 33-26097-09
PARKER & PARSLEY 90-C, L.P.
(Exact name of Registrant as specified in its charter)
DELAWARE 75-2347262
-------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039
---------------------------------------------------------------- ------------
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES / X / 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / X /
No market currently exists for the limited partnership interests of the
Registrant. Based on the original purchase price, the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$12,080,000.
As of March 8, 2001, the number of outstanding limited partnership
interests was 12,107.
The following documents are incorporated by reference into the indicated parts
of this Annual Report on Form 10-K: None
Parts I and II of this annual report on Form 10-K (the "Report") contain forward
looking statements that involve risks and uncertainties. Accordingly, no
assurances can be given that the actual events and results will not be
materially different than the anticipated results described in the forward
looking statements. See "Item 1. Business" for a description of various factors
that could materially affect the ability of the Partnership to achieve the
anticipated results described in the forward looking statements.
1182
PART I
ITEM 1. BUSINESS
Parker & Parsley 90-C, L.P. (the "Partnership") is a limited partnership
organized in 1990 under the laws of the State of Delaware. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company
("Pioneer"). As of March 8, 2001, the Partnership had 12,107 limited partnership
interests outstanding.
The Partnership does not have any employees of its own. Pioneer USA employs 701
persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this Report is filed. Pioneer
USA is responsible for all management functions.
The Partnership engages in oil and gas development and production and is not
involved in any industry segment other than oil and gas. The Partnership's
production is geographically concentrated in West Texas.
The principal markets during 2000 for the oil produced by the Partnership were
refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. During 2000, Pioneer USA marketed the
Partnership's gas to a variety of purchasers, none of which accounted for 10% or
more of the Partnership's oil and gas revenues. Of the Partnership's total oil
and gas revenues for 2000, approximately 64% was attributable to sales made to
Plains Marketing, L.P. Pioneer USA is of the opinion that the loss of any one
purchaser would not have an adverse effect on its ability to sell its oil,
natural gas liquids ("NGLs") and gas production.
The Partnership's revenues, profitability, cash flow and future rate of growth
are highly dependent on the prevailing prices of oil and gas, which are affected
by numerous factors beyond the Partnership's control. Oil and gas prices
historically have been very volatile. A substantial or extended decline in the
prices of oil or gas could have a material adverse effect on the Partnership's
revenues, profitability and cash flow and could, under certain circumstances,
result in a reduction in the carrying value of the Partnership's oil and gas
properties.
Oil and gas production operations are subject to various types of regulations by
local, state and federal agencies. The Partnership's operations are also subject
to state conservation laws and regulations, including the establishment of
maximum rates of production from wells and the regulation of spacing, plugging
and abandonment of wells. Each state generally imposes a production or severance
tax with respect to production and sale of oil and gas within their respective
jurisdictions. Noncompliance with the laws and regulations may subject the
Partnership to penalties, damages or other liabilities and compliance may
increase the cost of the Partnership's operations.
The oil and gas business is also subject to environmental hazards such as oil
spills, gas leaks and ruptures and discharges of toxic substances or gases that
could expose the Partnership to substantial liability due to pollution and other
environmental damages. Although the Partnership believes that
2
1183
its business operations do not impair environmental quality and that its costs
of complying with any applicable environmental regulations are not currently
significant, the Partnership cannot predict what, if any, effect these
environmental regulations may have on its current or future operations.
Numerous uncertainties exist in estimating quantities of proved reserves and
future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the Partnership
conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist of leasehold interests in properties on
which oil and gas 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 Spraberry Trend Area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 44
oil and gas wells. One well was sold and one well was plugged and abandoned due
to uneconomical operations. At December 31, 2000, the Partnership had 42
producing oil and gas wells.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 2000, 1999 and 1998 and changes in such quantities for
the years then ended, see Note 7 of Notes to Financial Statements included in
"Item 8. Financial Statements and Supplementary Data" below. Such reserves have
been evaluated by Williamson Petroleum Consultants, Inc., an independent
petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer USA believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the partners during the fourth
quarter of 2000.
3
1184
PART II
ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP
DISTRIBUTIONS
At March 8, 2001, the Partnership had 12,107 outstanding limited partnership
interests held of record by 901 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are not
required to meet the Partnership's obligations are distributed to the partners
at least quarterly in accordance with the limited partnership agreement. During
the years ended December 31, 2000 and 1999, $791,434 and $218,354, respectively,
of such revenue-related distributions were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- -----------
Operating results:
-----------------
Oil and gas sales $1,474,499 $ 864,722 $ 692,090 $1,063,396 $ 1,346,937
========== ========== ========== ========== ===========
Impairment of oil and gas
properties $ -- $ -- $ 298,622 $ 127,213 $ --
========== ========== ========== ========== ===========
Net income (loss) $ 818,778 $ 220,855 $ (416,064) $ 168,261 $ 577,803
========== ========== ========== ========== ===========
Allocation of net income
(loss):
Managing general partner $ 8,188 $ 2,209 $ (4,161) $ 1,683 $ 5,778
========== ========== ========== ========== ===========
Limited partners $ 810,590 $ 218,646 $ (411,903) $ 166,578 $ 572,025
========== ========== ========== ========== ===========
Limited partners' net income
(loss) per limited
partnership interest $ 66.95 $ 18.06 $ (34.02) $ 13.76 $ 47.25
========== ========== ========== ========== ===========
Limited partners' cash
distributions per limited
partnership interest $ 65.37 $ 18.04 $ 17.30 $ 47.53 $ 51.98
========== ========== ========== ========== ===========
At year end:
-------------
Identifiable assets $1,636,242 $1,621,156 $1,617,114 $2,261,689 $ 2,664,141
========== ========== ========== ========== ===========
4
1185
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 71% to $1,474,499 for 2000 as
compared to $864,722 in 1999. The increase in revenues resulted from higher
average prices received and an increase in production. In 2000, 37,944 barrels
of oil, 14,742 barrels of natural gas liquids ("NGLs") and 48,907 mcf of gas
were sold, or 60,837 barrel of oil equivalents ("BOEs"). In 1999, 37,886 barrels
of oil, 14,547 barrels of NGLs and 47,265 mcf of gas were sold, or 60,311 BOEs.
Due to the decline characteristics of the Partnership's oil and gas properties,
management expects a certain amount of decline in production in the future until
the Partnership's economically recoverable reserves are fully depleted.
The average price received per barrel of oil increased $12.21, or 71%, from
$17.13 in 1999 to $29.34 in 2000. The average price received per barrel of NGLs
increased $5.60, or 60%, from $9.31 in 1999 to $14.91 in 2000. The average price
received per mcf of gas increased 70% from $1.70 in 1999 to $2.89 in 2000. The
market price for oil and gas has been extremely volatile in the past decade and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
Gains on disposition of assets of $624 and $167 recognized during 2000 and 1999,
respectively, were due to equipment credits received on a fully depleted well in
each year.
Total costs and expenses increased in 2000 to $669,449 as compared to $650,544
in 1999, an increase of $18,905, or 3%. This increase was due to increases in
production costs and general and administrative expenses ("G&A"), offset by a
decline in depletion.
Production costs were $537,048 in 2000 and $477,835 in 1999, resulting in an
increase of $59,213, or 12%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices and additional well maintenance
costs incurred to stimulate well production
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period G&A increased
47% from $33,223 in 1999 to $48,801 in 2000 primarily due to a higher percentage
of the managing general partner's G&A being allocated (limited to 3% of oil and
gas revenues) as a result of increased oil and gas revenues. The Partnership
paid the managing general partner $44,112 in 2000 and $25,818 in 1999 for G&A
incurred on behalf of the Partnership. The remaining G&A was paid directly by
the Partnership. The managing general partner determines the allocated expenses
based upon the level of activity of the Partnership relative to the
non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
5
1186
Depletion was $83,600 in 2000 compared to $139,486 in 1999, representing a
decrease of $55,886, or 40%. This decrease was primarily due to a 50,718 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
prices.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 25% to $864,722 from
$692,090 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 37,886 barrels of oil,
14,547 barrels of NGLs and 47,265 mcf of gas were sold, or 60,311 BOEs. In 1998,
39,380 barrels of oil, 13,978 barrels of NGLs and 48,787 mcf of gas were sold,
or 61,489 BOEs.
The average price received per barrel of oil increased $3.89, or 29%, from
$13.24 in 1998 to $17.13 in 1999. The average price received per barrel of NGLs
increased $2.51, or 37%, from $6.80 in 1998 to $9.31 in 1999. The average price
received per mcf of gas increased 10% from $1.55 in 1998 to $1.70 in 1999.
Total costs and expenses decreased in 1999 to $650,544 as compared to $1,115,454
in 1998, a decrease of $464,910, or 42%. This decrease was due to declines in
the impairment of oil and gas properties, depletion and production costs, offset
by an increase in G&A.
Production costs were $477,835 in 1999 and $505,571 in 1998, resulting in a
$27,736 decrease, or 5%. The decrease was due to declines in well maintenance
costs and ad valorem taxes, offset by an increase in production taxes
During this period G&A increased 37% from $24,190 in 1998 to $33,223 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $25,818 in
1999 and $20,639 in 1998 for G&A incurred on behalf of the Partnership.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $298,622 related to its oil and gas properties during 1998.
Depletion was $139,486 in 1999 compared to $287,071 in 1998. This represented a
decrease of $147,585, or 51%. This decrease was primarily the result of an
increase in proved reserves of 332,733 barrels of oil during 1999 as a result of
higher commodity prices and a reduction in the Partnership's net depletable
basis from charges taken in accordance with SFAS 121 during the fourth quarter
of 1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998,
6
1187
weather patterns, regional economic recessions and political matters combined to
cause worldwide oil supplies to exceed demand resulting in a substantial decline
in oil prices. Also during 1998, but to a lesser extent, market prices for
natural gas declined. During 1999 and 2000, the Organization of Petroleum
Exporting Countries ("OPEC") and certain other crude oil exporting nations
announced reductions in their planned export volumes. Those announcements,
together with the enactment of the announced reductions in export volumes, had a
positive impact on world oil prices, as have overall natural gas supply and
demand fundamentals on North American natural gas prices. Although the favorable
commodity price environment and stable field service cost environment is
expected to continue during 2001, there is no assurance that commodity prices
will not return to a less favorable level or that field service costs will not
escalate in the future, both of which could negatively impact the Partnership's
future results of operations and cash distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $532,008 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $616,371, offset by increases in production costs paid
of $59,213, G&A expenses paid of $15,578 and working capital of $9,572. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $607,017 to oil and gas receipts and
an increase of $9,354 resulting from the increase in production during 2000. The
increase in production costs was primarily due to increased production taxes
associated with higher oil and gas prices and well maintenance costs incurred to
stimulate well production. The increase in G&A was primarily due to higher
percentage of the managing general partner's G&A being allocated (limited to 3%
of oil and gas revenues) as a result of increased oil and gas revenues.
Net Cash Used in Investing Activities
The Partnership's investing activities during 2000 and 1999 included
expenditures related to equipment upgrades on active oil and gas properties.
Proceeds from disposition of assets of $624 and $167 recognized during 2000 and
1999, respectively, were related to equipment credits received on a fully
depleted well in each year.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $799,428, of which $7,994 was
distributed to the managing general partner and $791,434 to the limited
partners. In 1999, cash distributions to the partners were $220,560, of which
$2,206 was distributed to the managing general partner and $218,354 to the
limited partners.
7
1188
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements of Parker & Parsley 90-C, L.P.:
Independent Auditors' Report......................................................... 9
Balance Sheets as of December 31, 2000 and 1999...................................... 10
Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998................................................................ 11
Statements of Partners' Capital for the Years Ended
December 31, 2000, 1999 and 1998................................................... 12
Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998................................................................ 13
Notes to Financial Statements........................................................ 14
8
1189
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 90-C, L.P.
(A Delaware Limited Partnership):
We have audited the balance sheets of Parker & Parsley 90-C, L.P. as of December
31, 2000 and 1999, and the related statements of operations, partners' capital
and cash flows for each of the three years in the period ended December 31,
2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 90-C, L.P. as
of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
9
1190
PARKER & PARSLEY 90-C, L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
---------------- ----------------
ASSETS
------
Current assets:
Cash $ 162,620 $ 164,100
Accounts receivable - oil and gas sales 191,950 128,379
--------- ---------
Total current assets 354,570 292,479
--------- ---------
Oil and gas properties - at cost, based on the
successful efforts accounting method 9,321,783 9,285,188
Accumulated depletion (8,040,111) (7,956,511)
--------- ---------
Net oil and gas properties 1,281,672 1,328,677
--------- ---------
$ 1,636,242 $ 1,621,156
========= =========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 22,567 $ 26,831
Partners' capital:
Managing general partner 16,087 15,893
Limited partners (12,107 interests) 1,597,588 1,578,432
--------- ---------
1,613,675 1,594,325
$ 1,636,242 $ 1,621,156
========= =========
The accompanying notes are an integral part of these financial statements.
10
1191
PARKER & PARSLEY 90-C, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
----------- ----------- -----------
Revenues:
Oil and gas $ 1,474,499 $ 864,722 $ 692,090
Interest 13,104 6,510 7,300
Gain on disposition of assets 624 167 --
----------- ----------- -----------
1,488,227 871,399 699,390
----------- ----------- -----------
Costs and expenses:
Oil and gas production 537,048 477,835 505,571
General and administrative 48,801 33,223 24,190
Impairment of oil and gas properties -- -- 298,622
Depletion 83,600 139,486 287,071
----------- ----------- -----------
669,449 650,544 1,115,454
----------- ----------- -----------
Net income (loss) $ 818,778 $ 220,855 $ (416,064)
=========== =========== ===========
Allocation of net income (loss):
Managing general partner $ 8,188 $ 2,209 $ (4,161)
=========== =========== ===========
Limited partners $ 810,590 $ 218,646 $ (411,903)
=========== =========== ===========
Net income (loss) per limited partnership interest $ 66.95 $ 18.06 $ (34.02)
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
11
1192
PARKER & PARSLEY 90-C, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
-------------- -------------- ----------------
Partners' capital at January 1, 1998 $ 22,166 $2,199,485 $2,221,651
Distributions (2,115) (209,442) (211,557)
Net loss (4,161) (411,903) (416,064)
------- -------- --------
Partners' capital at December 31, 1998 15,890 1,578,140 1,594,030
Distributions (2,206) (218,354) (220,560)
Net income 2,209 218,646 220,855
------- -------- --------
Partners' capital at December 31, 1999 15,893 1,578,432 1,594,325
Distributions (7,994) (791,434) (799,428)
Net income 8,188 810,590 818,778
------- -------- --------
Partners' capital at December 31, 2000 $ 16,087 $1,597,588 $1,613,675
======== ========= =========
The accompanying notes are an integral part of these financial statements.
12
1193
PARKER & PARSLEY 90-C, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
------------ -------------- ---------------
Cash flows from operating activities:
Net income (loss) $ 818,778 $ 220,855 $(416,064)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Impairment of oil and gas properties - - 298,622
Depletion 83,600 139,486 287,071
Gain on disposition of assets (624) (167) -
Changes in assets and liabilities:
Accounts receivable (63,571) (62,010) 45,989
Accounts payable (4,264) 3,747 (16,954)
------- ------- -------
Net cash provided by operating
activities 833,919 301,911 198,664
------- ------- -------
Cash flows from investing activities:
Additions to oil and gas properties (36,595) (16,900) (21,456)
Proceeds from disposition of assets 624 167 -
------- ------- -------
Net cash used in investing activities (35,971) (16,733) (21,456)
------- ------- -------
Cash flows used in financing activities:
Cash distributions to partners (799,428) (220,560) (211,557)
-------- -------- --------
Net increase (decrease) in cash (1,480) 64,618 (34,349)
Cash at beginning of year 164,100 99,482 133,831
------- ------- -------
Cash at end of year $ 162,620 $ 164,100 $ 99,482
======== ======== ========
The accompanying notes are an integral part of these financial statements.
13
1194
PARKER & PARSLEY 90-C, L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 90-C, L.P. (the "Partnership") is a limited partnership
organized in 1990 under the laws of the State of Delaware. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in Texas
and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements - Preparation
of the accompanying 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 periods.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income (loss)
per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in the
financial statements as the income (loss) of the Partnership is included in the
individual Federal income tax returns of the respective partners.
14
1195
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative expenses
are allocated in part to the Partnership by the managing general partner.
Allocated expenses are determined by the managing general partner based upon the
level of activity of the Partnership relative to the non-partnership activities
of the managing general partner. The method of allocation has been consistent
over the past several years with certain modifications incorporated to reflect
changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state and
local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized a non-cash impairment provision of $298,622 related to
its proved oil and gas properties during 1998.
15
1196
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $81,171 less than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income (loss) per Federal income tax returns for the
years ended December 31:
2000 1999 1998
--------- --------- ---------
Net income (loss) per statements of operations $ 818,778 $ 220,855 $(416,064)
Depletion and depreciation provisions for tax
reporting purposes less than amounts for
financial reporting purposes 64,630 123,267 81,152
Impairment of oil and gas properties for financial
reporting purposes -- -- 298,622
Intangible development costs capitalized for
financial reporting purposes and expensed for
tax reporting purposes (619) -- --
Other, net (1,775) (4,424) 4,552
--------- --------- ---------
Net income (loss) per Federal income
tax return $ 881,014 $ 339,698 $ (31,738)
========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
----------- ------------- --------------
Development costs $ 36,595 $ 16,900 $ 21,456
======== ======== ========
Capitalized oil and gas properties consist of the following:
2000 1999
----------- -----------
Proved properties:
Property acquisition costs $ 364,450 $ 364,450
Completed wells and equipment 8,957,333 8,920,738
----------- -----------
9,321,783 9,285,188
Accumulated depletion (8,040,111) (7,956,511)
----------- -----------
Net oil and gas properties $ 1,281,672 $ 1,328,677
=========== ===========
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
------------ -------------- --------------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 210,287 $ 203,686 $ 199,461
Reimbursement of general and administrative
expenses $ 44,112 $ 25,818 $ 20,639
16
1197
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA
and P&P Employees 90-C Conv., L.P. ("EMPL") (the "Entities"), Parker & Parsley
90-C Conv., L.P. and the Partnership (the "Partnerships") are parties to the
Program agreement. EMPL is a limited partnership organized for the benefit of
certain employees of Pioneer USA. EMPL was merged with Pioneer USA on December
28, 2000.
The costs and revenues of the Program are allocated to Pioneer USA and the
Partnerships as follows:
Pioneer USA (1) Partnerships(2)
--------------- ---------------
Revenues:
Proceeds from disposition of depreciable and depletable
properties:
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
All other revenues:
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
Costs and expenses:
Lease acquisition costs, drilling and completion costs
and all other costs 9.090909% 90.909091%
Operating costs, reporting and legal expenses and
general and administrative expenses:
First three years 14.141414% 85.858586%
After first three years 19.191919% 80.808081%
(1) Excludes Pioneer USA's 1% general partner ownership which is
allocated at the Partnership level and 27 limited partner interests
owned by Pioneer USA.
(2) The allocation between the Partnership and Parker & Parsley 90-C
Conv., L.P. is 61.650881% and 38.349119%, respectively.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
Oil and NGLs Gas
(bbls) (mcf)
------------- ------------
Net proved reserves at January 1, 1998 682,212 685,617
Revisions (327,935) (275,264)
Production (53,358) (48,787)
-------- --------
Net proved reserves at December 31, 1998 300,919 361,566
Revisions 472,259 575,173
Production (52,433) (47,265)
-------- --------
Net proved reserves at December 31, 1999 720,745 889,474
Revisions 82,135 (88,650)
Production (52,686) (48,907)
-------- --------
Net proved reserves at December 31, 2000 750,194 751,917
======== ========
17
1198
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.22 per barrel of NGLs and $7.80 per mcf of gas,
discounted at 10% was approximately $5,217,000 and undiscounted was $10,234,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed by
applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
----------------------------------
2000 1999 1998
-------- -------- --------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 22,838 $ 17,942 $ 3,279
Future production costs (12,604) (10,399) (2,609)
-------- -------- --------
10,234 7,543 670
10% annual discount factor (5,017) (3,552) (187)
-------- -------- --------
Standardized measure of discounted future net cash flows $ 5,217 $ 3,991 $ 483
======== ======== ========
18
1199
For the years ended December 31,
----------------------------------------
2000 1999 1998
-------- --------- --------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (937) $ (387) $ (187)
Net changes in prices and production costs 1,497 1,742 (1,792)
Revisions of previous quantity estimates 417 3,560 (381)
Accretion of discount 399 48 268
Changes in production rates, timing and other (150) (1,455) (105)
-------- --------- --------
Change in present value of future net revenues 1,226 3,508 (2,197)
-------- --------- --------
Balance, beginning of year 3,991 483 2,680
-------- --------- --------
Balance, end of year $ 5,217 $ 3,991 $ 483
========= ========== =========
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 64% 62% -
Genesis Crude Oil, L.P. - - 69%
Western Gas Resources, Inc. 2% 3% 13%
At December 31, 2000, the amount receivable from Plains Marketing, L.P.
was $78,327 which is included in the caption "Accounts receivable - oil and gas
sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would not
have an adverse effect on the ability of the Partnership to sell its oil, NGLs
and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of the
limited partnership agreement:
Managing general partner - The managing general partner of the Partnership
is Pioneer USA. Pioneer USA has the power and authority to manage, control
and administer all Program and Partnership affairs. As managing general
partner and operator of the Partnership's properties, all production
expenses are incurred by Pioneer USA and billed to the Partnership. The
majority of the Partnership's oil and gas revenues are received directly
by the Partnership, however, a portion of the oil and gas revenue is
initially received by Pioneer USA prior to being paid to the Partnership.
Under the Partnership agreement, the managing general partner pays 1% of
the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is
allocated 1% of the Partnership's revenues.
19
1200
Limited partner liability - The maximum amount of liability of any limited
partner is the total contributions of such partner plus his share of any
undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of
$12,107,000. The managing general partner is required to contribute
amounts equal to 1% of initial Partnership capital less commission and
organization and offering costs allocated to the limited partners and to
contribute amounts necessary to pay costs and expenses allocated to it
under the Partnership agreement to the extent its share of revenues does
not cover such costs.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
20
1201
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and executive
officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the
next annual meeting of stockholders or until their successors are elected and
qualified.
Age at
December 31,
Name 2000 Position
---- ---- --------
Scott D. Sheffield 48 President
Timothy L. Dove 44 Executive Vice President, Chief
Financial Officer and Director
Dennis E. Fagerstone 51 Executive Vice President and Director
Mark L. Withrow 53 Executive Vice President, General
Counsel and Director
Danny Kellum 46 Executive Vice President - Domestic
Operations and Director
Rich Dealy 34 Vice President and Chief Accounting
Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of Texas
with a B.S. in Petroleum Engineering. Since August 1997, he has served as
President, Chief Executive Officer and a director of Pioneer and President of
Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of
Pioneer in August 1999. He served as a director of Pioneer USA from August 1997
until his resignation from the board in June 1999. Mr. Sheffield was the
President and a director of Parker & Parsley Petroleum Company ("Parker &
Parsley") from May 1990 until August 1997 and was the Chairman of the Board and
Chief Executive Officer of Parker & Parsley from October 1990 until August 1997.
He was the sole director of Parker & Parsley from May 1990 until October 1990.
Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a
predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as
Vice President - Engineering of PPDC from September 1981 until April 1985 when
he was elected President and a director. In March 1989, Mr. Sheffield was
elected Chairman of the Board and Chief Executive Officer of PPDC. Before
joining PPDC's predecessor, Mr. Sheffield was employed as a production and
reservoir engineer for Amoco Production Company.
21
1202
Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from
Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981
from the University of Chicago. He became Executive Vice President - Business
Development of Pioneer and Pioneer USA in August 1997 and was also appointed a
director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief
Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr.
Dove joined Parker & Parsley in May 1994 as Vice President - International and
was promoted to Senior Vice President - Business Development in October 1996, in
which position he served until August 1997. Prior to joining Parker & Parsley,
Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus
Energy Corp, in various capacities in international exploration and production,
marketing, refining and marketing and planning and development.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School of
Mines with a B.S. in Petroleum Engineering, became an Executive Vice President
of Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. He served as Executive Vice President and Chief
Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until August 1997.
From October 1996 to February 1997, Mr. Fagerstone served as Senior Vice
President and Chief Operating Officer of Mesa and from May 1991 to October 1996,
he served as Vice President - Exploration and Production of Mesa. From June 1988
to May 1991, Mr. Fagerstone served as Vice President - Operations of Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President - General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979, was elected Executive
Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000
and Director of Pioneer USA on February 1, 2000. From January 2000 until May
2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and
Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and
Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served
as Spraberry District Manager and as Vice President of the Spraberry and Permian
Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker &
Parsley as an operations engineer in 1981 after a brief career with Mobil Oil
Corporation.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University with
a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He
became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
22
1203
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is performed by Pioneer USA, the managing general partner. The
Partnership participates in oil and gas activities through an income tax
partnership (the "Program") pursuant to the Program agreement. Under the Program
agreement, Pioneer USA pays approximately 10% of the Program's acquisition,
drilling and completion costs and approximately 15% during the first three years
and approximately 20% after three years of its operating and general and
administrative expenses. In return, they are allocated approximately 15% during
the first three years and approximately 20% after three years of the Program's
revenues.
The Partnership does not directly pay any salaries of the executive officers or
employees of Pioneer USA, but does pay a portion of Pioneer USA's general and
administrative expenses of which these salaries are a part.
See Notes 6 and 9 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" for information regarding fees and
reimbursements paid to the managing general partner by the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more of
the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 27 limited partner interests at January 1, 2001.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general
partner of the Partnership, Pioneer USA, has the exclusive right and full
authority to manage, control and administer the Partnership's business. Under
the limited partnership agreement, limited partners holding a majority of the
outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner
Pursuant to the limited partnership agreement, the Partnership had the following
related party transactions with the managing general partner during the years
ended December 31:
23
1204
2000 1999 1998
------------- ------------- -------------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 210,287 $ 203,686 $199,461
Reimbursement of general and administrative
expenses $ 44,112 $ 25,818 $ 20,639
Under the limited partnership agreement, the managing general partner pays 1% of
the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
24
1205
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial statements
The following are filed as part of this Report:
Independent Auditors' Report
Balance sheets as of December 31, 2000 and 1999
Statements of operations for the years ended December 31, 2000,
1999 and 1998
Statements of partners' capital for the years ended December 31,
2000, 1999 and 1998
Statements of cash flows for the years ended December 31, 2000,
1999 and 1998
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the
required information is in the financial statements or notes thereto,
or is not applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this Report.
25
1206
S I G N A T U R E S
Pursuant to the requirements 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.
PARKER & PARSLEY 90-C, L.P.
Dated: March 26, 2001 By: Pioneer Natural Resources USA, Inc.
Managing General Partner
By: /s/ Scott D. Sheffield
-------------------------------
Scott D. Sheffield, President
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/ Scott D. Sheffield President of Pioneer USA March 26, 2001
-------------------------------
Scott D. Sheffield
/s/ Timothy L. Dove Executive Vice President, Chief March 26, 2001
------------------------------- Financial Officer and Director of
Timothy L. Dove Pioneer USA
/s/ Dennis E. Fagerstone Executive Vice President and March 26, 2001
------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ Mark L. Withrow Executive Vice President, General March 26, 2001
------------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ Danny Kellum Executive Vice President - Domestic March 26, 2001
------------------------------- Operations and Director of Pioneer
Danny Kellum USA
/s/ Rich Dealy Vice President and Chief Accounting March 26, 2001
------------------------------- Officer of Pioneer USA
Rich Dealy
26
1207
PARKER & PARSLEY 90-C, L.P.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
Exhibit No. Description Page
----------- ----------- ----
3(a) Form of Agreement of Limited Partnership -
of Parker & Parsley 90-C, L.P. incorporated
by reference to Exhibit A of the Post-Effective
Amendment No. 1 of the Partnership's
Registration Statement on Form S-1
(Registration No. 33-26097)
4(b) Form of Limited Partner Subscription Agreement -
incorporated by reference to Exhibit C of the
Post-Effective Amendment No. 1 of the
Partnership's Registration Statement on Form
S-1 (Registration No. 33-26097)
4(b) Form of General Partner Subscription Agreement -
incorporated by reference to Exhibit D of the
Post-Effective Amendment No. 1 of the
Partnership's Registration Statement on Form
S-1 (Registration No. 33-26097)
4(b) Power of Attorney incorporated by reference to -
Exhibit B of Amendment No. 1 of the Partnership's
Registration Statement on Form S-1
(Registration No. 33-26097)
4(c) Specimen Certificate of Limited Partnership -
Interest incorporated by reference to Exhibit 4c
of the Partnership's Registration Statement on
Form S-1 (Registration No. 33-26097)
10(b) Form of Development Drilling Program -
Agreement incorporated by reference to Exhibit
B of the Post-Effective Amendment No. 1 of
the Partnership's Registration Statement on
Form S-1 (Registration No. 33-26097)
27
1208
PARKER & PARSLEY 90-C, L.P.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 311,387 $1,474,499 $ 864,722 $ 692,090 $1,063,396 $1,346,937
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ -- $ -- $ 298,622 $ 127,213 $ --
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 147,498 $ 818,778 $ 220,855 $ (416,064) $ 168,261 $ 577,803
======== ========== ========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general
partner $ $ 1,475 $ 8,188 $ 2,209 $ (4,161) $ 1,683 $ 5,778
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 146,023 $ 810,590 $ 218,646 $ (411,903) $ 166,578 $ 572,025
======== ========== ========== ========== ========== ========== ==========
Limited partners' net income
(loss) per limited
partnership interest $ $ 12.06 $ 66.95 $ 18.06 $ (34.02) $ 13.76 $ 47.25
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 13.62 $ 65.37 $ 18.04 $ 17.30 $ 47.53 $ 51.98
======== ========== ========== ========== ========== ========== ==========
At year end:
Identifiable assets $ $1,605,556 $1,636,242 $1,621,156 $1,617,114 $2,261,689 $2,664,141
======== ========== ========== ========== ========== ========== ==========
1209
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
Private Investment 90, L.P., and supplements the proxy statement/prospectus
dated , 2001, of Pioneer Natural Resources Company and Pioneer Natural
Resources USA, Inc., by which Pioneer USA is soliciting proxies to be voted at a
special meeting of limited partners of the partnership. The purpose of the
special meeting is for you to vote upon the merger of the partnership with and
into Pioneer USA that, if completed, will result in your receiving common stock
of Pioneer Natural Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley Private Investment 90, L.P.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the three months ended March 31, 2001
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
1210
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 10,970
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 8,504
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 3,262
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 299.03
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.79 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 156.96
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 272.79
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 291.01
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 165
(b), (c)
-----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners. Although not
required by the partnership agreement, the opinion will also state that neither
the grant nor exercise of such right will result in the loss of any limited
partner's limited liability. In addition, the counsel designated to render the
opinion is not required to be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
1211
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P.
(A Delaware Limited Partnership)
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT
December 31, 2000 and 1999
1212
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley Private Investment 90, L.P.
(A Delaware Limited Partnership):
We have audited the balance sheets of Parker & Parsley Private Investment 90,
L.P. as of December 31, 2000 and 1999, and the related statements of operations,
partners' capital and cash flows for each of the three years in the period ended
December 31, 2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley Private
Investment 90, L.P. as of December 31, 2000 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
2
1213
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
----------- -----------
ASSETS
------
Current assets:
Cash $ 168,054 $ 174,341
Accounts receivable - oil and gas sales 197,750 117,410
----------- -----------
Total current assets 365,804 291,751
----------- -----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 8,464,366 8,438,988
Accumulated depletion (7,073,249) (6,916,963)
----------- -----------
Net oil and gas properties 1,391,117 1,522,025
----------- -----------
$ 1,756,921 $ 1,813,776
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 13,453 $ 24,649
Partners' capital:
Managing general partner 21,649 22,105
Limited partners (274.25 interests) 1,721,819 1,767,022
----------- -----------
1,743,468 1,789,127
----------- -----------
$ 1,756,921 $ 1,813,776
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
1214
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
----------- ----------- -----------
Revenues:
Oil and gas $ 1,508,541 $ 776,849 $ 648,378
Interest 14,348 7,221 9,116
Gain on disposition of assets 2,385 - -
----------- ----------- -----------
1,525,274 784,070 657,494
----------- ----------- -----------
Costs and expenses:
Oil and gas production 502,676 379,923 481,924
General and administrative 41,729 29,997 20,196
Impairment of oil and gas properties 49,757 - 373,422
Depletion 106,529 143,268 224,780
----------- ----------- -----------
700,691 553,188 1,100,322
----------- ----------- -----------
Net income (loss) $ 824,583 $ 230,882 $ (442,828)
=========== =========== ===========
Allocation of net income (loss):
Managing general partner $ 8,246 $ 2,309 $ (4,428)
=========== =========== ===========
Limited partners $ 816,337 $ 228,573 $ (438,400)
=========== =========== ===========
Net income (loss) per limited partnership interest $ 2,976.62 $ 833.45 $ (1,598.54)
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
4
1215
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
----------- ----------- -----------
Partners' capital at January 1, 1998 $ 29,418 $ 2,491,033 $ 2,520,451
Distributions (2,635) (260,830) (263,465)
Net loss (4,428) (438,400) (442,828)
----------- ----------- -----------
Partners' capital at December 31, 1998 22,355 1,791,803 1,814,158
Distributions (2,559) (253,354) (255,913)
Net income 2,309 228,573 230,882
----------- ----------- -----------
Partners' capital at December 31, 1999 22,105 1,767,022 1,789,127
Distributions (8,702) (861,540) (870,242)
Net income 8,246 816,337 824,583
----------- ----------- -----------
Partners' capital at December 31, 2000 $ 21,649 $ 1,721,819 $ 1,743,468
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
5
1216
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ 824,583 $ 230,882 $(442,828)
Adjustments to reconcile net income (loss)to
net cash provided by operating activities:
Impairment of oil and gas properties 49,757 - 373,422
Depletion 106,529 143,268 224,780
Gain on disposition of assets (2,385) - -
Changes in assets and liabilities:
Accounts receivable (80,340) (50,462) 48,403
Accounts payable (11,196) 4,017 (8,903)
--------- --------- ---------
Net cash provided by operating activities 886,948 327,705 194,874
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties (25,378) (14,048) (11,793)
Proceeds from asset dispositions 2,385 2,124 11,927
--------- --------- ---------
Net cash provided by (used in) investing
activities (22,993) (11,924) 134
--------- --------- ---------
Cash flows used in financing activities:
Cash distributions to partners (870,242) (255,913) (263,465)
--------- --------- ---------
Net increase (decrease) in cash (6,287) 59,868 (68,457)
Cash at beginning of year 174,341 114,473 182,930
--------- --------- ---------
Cash at end of year $ 168,054 $ 174,341 $ 114,473
========= ========= =========
The accompanying notes are an integral part of these financial statements.
6
1217
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley Private Investment 90, L.P. (the "Partnership") was
organized in 1990 as a general partnership under the laws of the State of Texas
and was converted to a Delaware limited partnership in 1991. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the unit-of-
production method on a property-by-property basis based on proved oil (dominant
mineral) reserves as evaluated by independent petroleum consultants. The
carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -
Preparation of the accompanying 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 periods. Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
7
1218
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated in part to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non- partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally discounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized non-cash impairment provisions of $49,757 and $373,422
related to its proved oil and gas properties during 2000 and 1998, respectively.
8
1219
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $139,996 greater than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
--------- --------- ---------
Net income (loss) per statements of operations $ 824,583 $ 230,882 $(442,828)
Depletion and depreciation for tax reporting purposes
less than amounts for financial reporting purposes 93,056 131,771 204,399
Impairment of oil and gas properties for financial
reporting purposes 49,757 - 373,422
Other, net (1,853) 432 13,939
--------- --------- ---------
Net income per Federal income tax returns $ 965,543 $ 363,085 $ 148,932
========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
---------- --------- ----------
Development costs $ 25,378 $ 14,048 $ 11,793
========== ========= ==========
Capitalized oil and gas properties consist of the following:
2000 1999
----------- -----------
Proved properties:
Property acquisition costs $ 98,110 $ 98,110
Completed wells and equipment 8,366,256 8,340,878
----------- -----------
8,464,366 8,438,988
Accumulated depletion (7,073,249) (6,916,963)
----------- -----------
Net oil and gas properties $ 1,391,117 $ 1,522,025
=========== ===========
9
1220
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
--------- --------- ---------
Payment of lease operating and supervision
charges in accordance with standard industry
operating agreements $ 186,568 $ 174,796 $ 187,435
Reimbursement of general and administrative
expenses $ 37,554 $ 23,205 $ 16,483
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
P&P Employees 90 Private Conv., L.P. ("EMPL") and the Partnership are parties to
the Program agreement. EMPL is a limited partnership organized for the benefit
of certain employees of Pioneer USA. EMPL was merged with Pioneer USA on
December 28, 2000.
The costs and revenues of the Program are allocated to Pioneer USA and
the Partnership as follows:
Pioneer USA (1) Partnership
--------------- ---------------
Revenues:
Proceeds from disposition of depreciable and
depletable properties -
First three years 14.141414% 85.858586%
After three years 19.191919% 80.808081%
All other revenues -
First three years 14.141414% 85.858586%
After three years 19.191919% 80.808081%
Costs and expenses:
Lease acquisition costs, drilling and completion costs 9.090909% 90.909091%
Operating costs, reporting and legal expenses and
general and administrative expenses -
First three years 14.141414% 85.858586%
After three years 19.191919% 80.808081%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated at
the Partnership level.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
Oil and NGLs Gas
(bbls) (mcf)
------------ ---------
Net proved reserves at January 1, 1998 745,340 883,417
Revisions (342,345) (365,103)
Production (49,468) (54,218)
--------- ---------
Net proved reserves at December 31, 1998 353,527 464,096
Revisions 394,885 538,864
Production (46,335) (47,331)
--------- ---------
Net proved reserves at December 31, 1999 702,077 955,629
Revisions 172,617 (96,553)
Production (52,913) (49,484)
--------- ---------
Net proved reserves at December 31, 2000 821,781 809,592
========= =========
10
1221
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.49 per barrel of NGLs and $7.81 per mcf of gas,
discounted at 10% was approximately $5,749,000 and undiscounted was $12,495,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
-------------------------------------------
2000 1999 1998
--------- --------- ---------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 25,174 $ 17,513 $ 3,860
Future production costs (12,679) (9,819) (3,004)
--------- --------- ---------
12,495 7,694 856
10% annual discount factor (6,746) (3,770) (271)
--------- --------- ---------
Standardized measure of discounted future net cash flows $ 5,749 $ 3,924 $ 585
========= ========= =========
11
1222
For the years ended December 31,
----------------------------------------
2000 1999 1998
-------- -------- --------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (1,006) $ (397) $ (166)
Net changes in prices and production costs 1,905 2,019 (1,974)
Revisions of previous quantity estimates 1,043 2,961 (437)
Accretion of discount 392 58 299
Changes in production rates, timing and other (509) (1,302) (128)
-------- -------- --------
Change in present value of future net revenues 1,825 3,339 (2,406)
-------- -------- --------
Balance, beginning of year 3,924 585 2,991
-------- -------- --------
Balance, end of year $ 5,749 $ 3,924 $ 585
======== ======== ========
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's
oil and gas sales (a major customer is defined as a customer whose sales exceed
10% of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 71% 69% -
Genesis Crude Oil, L.P. - - 64%
Western Gas Resources, Inc. 3% 4% 17%
At December 31, 2000, the amount receivable from Plains Marketing, L.P.
was $93,082 which is included in the caption "Accounts receivable - oil and gas
sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the Partnership agreement:
Managing general partner - The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Program and Partnership affairs. As
managing general partner and operator of the Partnership's properties,
all production expenses are incurred by Pioneer USA and billed to the
Partnership. The majority of the Partnership's oil and gas revenues are
received directly by the Partnership, however, a portion of the oil and
gas revenue is initially received by Pioneer USA prior to being paid to
the Partnership. Under the Partnership agreement, the managing general
partner pays 1% of the Partnership's acquisition, drilling and
completion costs and 1% of its operating and general and administrative
expenses. The managing general partner is also responsible for 1% of
guaranty and loan commitment fees. In return, it is allocated 1% of the
Partnership's revenues.
12
1223
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The partners entered into subscription
agreements for aggregate capital contributions of $10,970,000. The
managing general partner is required to contribute amounts equal to 1%
of initial Partnership capital less commission, organization and
offering costs allocated to the limited partners and to contribute
amounts necessary to pay costs and expenses allocated to it under the
Partnership agreement to the extent that its share of revenues does not
cover such costs.
13
1224
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACCORDINGLY, NO ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS
AND RESULTS WILL NOT BE MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS
DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 94% to $1,508,541 for 2000 as
compared to $776,849 in 1999. The increase in revenues resulted from higher
average prices received and an increase in production. In 2000, 39,040 barrels
of oil, 13,873 barrels of natural gas liquids ("NGLs") and 49,484 mcf of gas
were sold, or 61,160 barrel of oil equivalents ("BOEs"). In 1999, 32,789 barrels
of oil, 13,546 barrels of NGLs and 47,331 mcf of gas were sold, or 54,224 BOEs.
Due to the decline characteristics of the Partnership's oil and gas properties,
management expects a certain amount of decline in production in the future until
the Partnership's economically recoverable reserves are fully depleted.
The average price received per barrel of oil increased $12.05, or 70%, from
$17.30 in 1999 to $29.35 in 2000. The average price received per barrel of NGLs
increased $6.36, or 67%, from $9.46 in 1999 to $15.82 in 2000. The average price
received per mcf of gas increased 69% from $1.72 in 1999 to $2.90 in 2000. The
market price for oil and gas has been extremely volatile in the past decade, and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
Total costs and expenses increased in 2000 to $700,691 as compared to $553,188
in 1999, an increase of $147,503, or 27%. The increase was primarily due to
increases in the impairment of oil and gas properties, production costs and
general and administrative expenses ("G&A"), offset by a decline in depletion.
Production costs were $502,676 in 2000 and $379,923 in 1999, resulting in a
$122,753 increase, or 32%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices and additional well maintenance
costs incurred to stimulate well production.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
39% from $29,997 in 1999 to $41,729 in 2000, primarily due to a higher
percentage of the managing general partner's G&A being allocated (limited to 3%
of oil and gas revenues) as a result of increased oil and gas revenues. The
Partnership paid the managing general partner $37,554 in 2000 and $23,205 in
1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid
directly by the Partnership. The managing general partner determines the
allocated expenses based upon the level of activity of the Partnership relative
to the non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets
to be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $49,757 related to its oil and gas properties during 2000.
Depletion was $106,529 in 2000 as compared to $143,268 in 1999, representing a
decrease of $36,739, or 26%. This decrease was primarily due to a 148,753
barrels of oil increase in proved reserves during 2000 as a result of higher
commodity prices, offset by an increase in oil production of 6,251 barrels for
the period ended December 31, 2000 compared to the same period in 1999.
1225
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 20% to $776,849 from
$648,378 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 32,789 barrels of oil,
13,546 barrels of NGLs and 47,331 mcf of gas were sold, or 54,224 BOEs. In 1998,
35,555 barrels of oil, 13,913 barrels of NGLs and 54,218 mcf of gas were sold,
or 58,504 BOEs.
The average price received per barrel of oil increased $4.11, or 31%, from
$13.19 in 1998 to $17.30 in 1999. The average price received per barrel of NGLs
increased $2.69, or 40%, from $6.77 in 1998 to $9.46 in 1999. The average price
received per mcf of gas increased 10% from $1.57 in 1998 to $1.72 in 1999.
Total costs and expenses decreased in 1999 to $553,188 as compared to $1,100,322
in 1998, a decrease of $547,134, or 50%. The decrease was primarily due to
declines in the impairment of oil and gas properties, production costs and
depletion, offset by an increase in G&A.
Production costs were $379,923 in 1999 and $481,924 in 1998, resulting in a
$102,001 decrease, or 21%. The decrease was due to declines in well maintenance
costs and ad valorem taxes.
During this period, G&A increased 49% from $20,196 in 1998 to $29,997 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $23,205 in
1999 and $16,483 in 1998 for G&A incurred on behalf of the Partnership.
The Partnership recognized a non-cash SFAS 121 charge of $373,422 related to its
oil and gas properties during 1998.
Depletion was $143,268 in 1999 compared to $224,780 in 1998, representing a
decrease of $81,512, or 36%. This decrease was the result of an increase in
proved reserves of 266,736 barrels of oil during 1999 as a result of higher
commodity prices and a reduction in the Partnership's net depletable basis from
charges taken in accordance with SFAS 121 during the fourth quarter of 1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
1226
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $559,243 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $738,819, offset by increases in production costs paid
of $122,753, G&A expenses paid of $11,732 and working capital of $45,091. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $543,958 to oil and gas receipts and
an increase of $194,861 resulting from the increase in production during 2000.
The increase in production costs was primarily due to increased production taxes
associated with higher oil and gas prices and well maintenance costs incurred to
stimulate well production. The increase in G&A was primarily due to higher
percentage of the managing general partner's G&A being allocated (limited to 3%
of oil and gas revenues) as a result of increased oil and gas revenues.
Net Cash Provided by (Used in) Investing Activities
The Partnership's principal investing activities during 2000 and 1999 included
expenditures related to equipment upgrades on active properties.
Proceeds from asset dispositions of $2,385 and $2,124 recognized during 2000 and
1999, respectively, were due to equipment credits received on active properties.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $870,242, of which $8,702 was
distributed to the managing general partner and $861,540 to the limited
partners. In 1999, cash distributions to the partners were $255,913, of which
$2,559 was distributed to the managing general partner and $253,354 to the
limited partners.
1227
PARKER & PARSLEY PRIVATE INVESTMENT 90, L.P.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 337,608 $1,508,541 $ 776,849 $ 648,378 $1,043,119 $1,237,784
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ 49,757 $ -- $ 373,422 $ -- $ --
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 185,526 $ 824,583 $ 230,882 $ (442,828) $ 403,823 $ 571,998
======== ========== ========== ========== ========== ========== ==========
Allocation of net
income (loss):
Managing general
partner $ $ 1,855 $ 8,246 $ 2,309 $ (4,428) $ 4,038 $ 5,720
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 183,671 $ 816,337 $ 228,573 $ (438,400) $ 399,785 $ 566,278
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 669.72 $ 2,976.62 $ 833.45 $(1,598.54) $ 1,457.74 $ 2,064.82
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 601.81 $ 3,141.44 $ 923.81 $ 951.07 $ 2,289.37 $ 2,184.00
======== ========== ========== ========== ========== ========== ==========
At year end:
Total assets $ $1,833,220 $1,756,921 $1,813,776 $1,834,790 $2,549,986 $2,769,711
======== ========== ========== ========== ========== ========== ==========
1228
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEVELOPMENT, L.P.,
A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
90 Spraberry Private Development, L.P., and supplements the proxy
statement/prospectus dated , 2001, of Pioneer Natural Resources Company
and Pioneer Natural Resources USA, Inc., by which Pioneer USA is soliciting
proxies to be voted at a special meeting of limited partners of the partnership.
The purpose of the special meeting is for you to vote upon the merger of the
partnership with and into Pioneer USA that, if completed, will result in your
receiving common stock of Pioneer Natural Resources Company and cash for your
partnership interests.
This document contains the following information concerning Parker &
Parsley 90 Spraberry Private Development, L.P.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the three months ended March 31, 2001
o The partnership's financial statements, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
1229
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEVELOPMENT, L.P.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 5,200
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 3,731
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 1,426
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 274.15
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 4.68 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 141.88
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 249.16
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 266.65
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 168
(b), (c)
-----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners. Although not
required by the partnership agreement, the opinion will also state that neither
the grant nor exercise of such right will result in the loss of any limited
partner's limited liability. In addition, the counsel designated to render the
opinion is not required to be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
1230
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEVELOPMENT, L.P.
(A Delaware Limited Partnership)
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITORS' REPORT
December 31, 2000 and 1999
1231
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 90 Spraberry Private Development, L.P.
(A Delaware Limited Partnership):
We have audited the balance sheets of Parker & Parsley 90 Spraberry Private
Development, L.P. as of December 31, 2000 and 1999, and the related statements
of operations, partners' capital and cash flows for each of the three years in
the period ended December 31, 2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 90 Spraberry
Private Development, L.P. as of December 31, 2000 and 1999, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
2
1232
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEVELOPMENT, L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
----------- -----------
ASSETS
------
Current assets:
Cash $ 47,337 $ 84,843
Accounts receivable - oil and gas sales 91,915 49,977
----------- -----------
Total current assets 139,252 134,820
----------- -----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 3,666,171 3,660,488
Accumulated depletion (3,046,352) (3,005,158)
----------- -----------
Net oil and gas properties 619,819 655,330
----------- -----------
$ 759,071 $ 790,150
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 12,584 $ 81,557
Partners' capital:
Managing general partner 8,737 8,358
Limited partners (130 interests) 737,750 700,235
----------- -----------
746,487 708,593
----------- -----------
$ 759,071 $ 790,150
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
1233
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEVELOPMENT, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
--------- --------- ----------
Revenues:
Oil and gas $ 638,385 $ 345,743 $ 275,856
Interest 5,441 3,213 3,779
Gain on disposition of assets -- -- 213
--------- --------- ----------
643,826 348,956 279,848
--------- --------- ----------
Costs and expenses:
Oil and gas production 235,823 177,422 184,952
General and administrative 20,910 14,767 10,935
Impairment of oil and gas properties -- -- 90,823
Depletion 41,194 84,045 126,372
--------- --------- ----------
297,927 276,234 413,082
--------- --------- ----------
Net income (loss) $ 345,899 $ 72,722 $ (133,234)
========= ========= ==========
Allocation of net income (loss):
Managing general partner $ 3,459 $ 727 $ (1,332)
========= ========= ==========
Limited partners $ 342,440 $ 71,995 $ (131,902)
========= ========= ==========
Net income (loss) per limited partnership interest $2,634.15 $ 553.81 $(1,014.63)
========= ========= ==========
The accompanying notes are an integral part of these financial statements.
4
1234
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEVELOPMENT, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
----------- ----------- -----------
Partners' capital at January 1, 1998 $ 11,813 $ 1,042,323 $ 1,054,136
Distributions (1,443) (142,847) (144,290)
Net loss (1,332) (131,902) (133,234)
----------- ----------- -----------
Partners' capital at December 31, 1998 9,038 767,574 776,612
Distributions (1,407) (139,334) (140,741)
Net income 727 71,995 72,722
----------- ----------- -----------
Partners' capital at December 31, 1999 8,358 700,235 708,593
Distributions (3,080) (304,925) (308,005)
Net income 3,459 342,440 345,899
----------- ----------- -----------
Partners' capital at December 31, 2000 $ 8,737 $ 737,750 $ 746,487
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
5
1235
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEVELOPMENT, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
--------- --------- ---------
Cash flows from operating activities:
Net income (loss) $ 345,899 $ 72,722 $(133,234)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Impairment of oil and gas properties -- -- 90,823
Depletion 41,194 84,045 126,372
Gain on disposition of assets -- -- (213)
Changes in assets and liabilities:
Accounts receivable (41,938) (22,812) 21,422
Accounts payable (68,973) 39,718 31,154
--------- --------- ---------
Net cash provided by operating activities 276,182 173,673 136,324
--------- --------- ---------
Cash flows from investing activities:
Additions to oil and gas properties (5,683) (2,042) (7,821)
Proceeds from asset dispositions -- 3,269 213
--------- --------- ---------
Net cash provided by (used in)
investing activities (5,683) 1,227 (7,608)
--------- --------- ---------
Cash flows used in financing activities:
Cash distributions to partners (308,005) (140,741) (144,290)
--------- --------- ---------
Net increase (decrease) in cash (37,506) 34,159 (15,574)
Cash at beginning of year 84,843 50,684 66,258
--------- --------- ---------
Cash at end of year $ 47,337 $ 84,843 $ 50,684
========= ========= =========
The accompanying notes are an integral part of these financial statements.
6
1236
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEVELOPMENT, L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 90 Spraberry Private Development, L.P. (the
"Partnership") was organized in 1990 as a general partnership under the laws of
the State of Texas and was converted to a Delaware limited partnership in 1991.
The Partnership's managing general partner is Pioneer Natural Resources USA,
Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements -
Preparation of the accompanying 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 periods. Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
7
1237
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated in part to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non-partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized a non-cash impairment provision of $90,823 related to its
proved oil and gas properties during 1998.
8
1238
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $43,760 greater than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
--------- --------- ---------
Net income (loss) per statements of operations $ 345,899 $ 72,722 $(133,234)
Impairment of oil and gas properties for financial
reporting purposes - - 90,823
Depletion, depreciation and amortization for tax
reporting purposes less than amounts for
financial reporting purposes 36,539 79,135 110,651
Other, net (76,555) 39,044 36,173
--------- --------- ---------
Net income per Federal income tax returns $ 305,883 $ 190,901 $ 104,413
========= ========= =========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the net costs incurred, whether
capitalized or expensed, related to the Partnership's oil and gas producing
activities for the years ended December 31:
2000 1999 1998
--------- --------- ------
Development costs $ 5,683 $ 2,042 $7,821
========= ========= ======
Capitalized oil and gas properties consist of the following:
2000 1999
----------- -----------
Proved properties:
Property acquisition costs $ 19,608 $ 19,608
Completed wells and equipment 3,646,563 3,640,880
----------- -----------
3,666,171 3,660,488
Accumulated depletion (3,046,352) (3,005,158)
----------- -----------
Net oil and gas properties $ 619,819 $ 655,330
=========== ===========
9
1239
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
------- ------- -------
Payment of lease operating and supervision
charges in accordance with standard industry
operating agreements $88,496 $85,512 $81,995
Reimbursement of general and administrative expenses $18,935 $11,455 $ 9,241
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
P&P Employees 90 Spraberry Private Conv., L.P. ("EMPL") and the Partnership are
parties to the Program agreement. EMPL is a limited partnership organized for
the benefit of certain employees of Pioneer USA. EMPL was merged with Pioneer
USA on December 28, 2000.
The costs and revenues of the Program are allocated to Pioneer USA and
the Partnership as follows:
Pioneer USA (1) Partnership
--------------- -----------
Revenues:
Proceeds from disposition of depreciable and
depletable properties -
First three years 14.141414% 85.858586%
After three years 19.191919% 80.808081%
All other revenues -
First three years 14.141414% 85.858586%
After three years 19.191919% 80.808081%
Costs and expenses:
Lease acquisition costs, drilling and completion costs 9.090909% 90.909091%
Operating costs, reporting and legal expenses and
general and administrative expenses -
First three years 14.141414% 85.858586%
After three years 19.191919% 80.808081%
(1) Excludes Pioneer USA's 1% general partner ownership which is allocated
at the Partnership level.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
10
1240
Oil and NGLs Gas
(bbls) (mcf)
------------ --------
Net proved reserves at January 1, 1998 270,590 306,642
Revisions (126,717) (142,535)
Production (20,835) (24,095)
-------- --------
Net proved reserves at December 31, 1998 123,038 140,012
Revisions 214,995 265,098
Production (20,688) (19,579)
-------- --------
Net proved reserves at December 31, 1999 317,345 385,531
Revisions 122,969 18,001
Production (22,593) (22,121)
-------- --------
Net proved reserves at December 31, 2000 417,721 381,411
======== ========
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.12 per barrel of NGLs and $7.64 per mcf of gas,
discounted at 10% was approximately $2,575,000 and undiscounted was $5,966,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
------------------------------------------
2000 1999 1998
-------- -------- --------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 12,670 $ 7,807 $ 1,314
Future production costs (6,704) (4,572) (1,058)
-------- -------- --------
5,966 3,235 256
10% annual discount factor (3,391) (1,487) (67)
-------- -------- --------
Standardized measure of discounted future net cash flows $ 2,575 $ 1,748 $ 189
======== ======== ========
11
1241
For the years ended December 31,
---------------------------------
2000 1999 1998
------- ------- -------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (403) $ (168) $ (91)
Net changes in prices and production costs 840 719 (692)
Revisions of previous quantity estimates 844 1,623 (150)
Accretion of discount 175 19 106
Changes in production rates, timing and other (629) (634) (48)
------- ------- -------
Change in present value of future net revenues 827 1,559 (875)
------- ------- -------
Balance, beginning of year 1,748 189 1,064
------- ------- -------
Balance, end of year $ 2,575 $ 1,748 $ 189
======= ======= =======
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's
oil and gas sales (a major customer is defined as a customer whose sales exceed
10% of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 56% 50% -
TEPPCO Crude Oil LLC 10% 10% -
Genesis Crude Oil, L.P. - - 47%
Phillips Petroleum Company 17% 14% 12%
Western Gas Resources, Inc. 2% 3% 9%
At December 31, 2000, the amounts receivable from Plains Marketing,
L.P., Phillips Petroleum Company and TEPPCO Crude Oil LLC were $29,695, $12,633
and $4,023, respectively, which are included in the caption "Accounts receivable
- oil and gas sales" in the accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the Partnership agreement:
Managing general partner - The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Program and Partnership affairs. As
managing general partner and operator of the Partnership's properties,
all production expenses are incurred by Pioneer USA and billed to the
Partnership. The majority of the Partnership's oil and gas revenues are
received directly by the Partnership, however, a portion of the oil and
gas revenue is initially received by Pioneer USA prior to being
12
1242
paid to the Partnership. Under the Partnership agreement, the managing
general partner pays 1% of the Partnership's acquisition, drilling and
completion costs and 1% of its operating, general and administrative
expenses. The managing general partner is also responsible for 1% of
guaranty and loan commitment fees. In return, it is allocated 1% of the
Partnership's revenues.
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The partners entered into subscription
agreements for aggregate capital contributions of $5,200,000. Pioneer
USA is required to contribute amounts equal to 1% of initial Partnership
capital less commission and organization and offering costs allocated to
the limited partners and to contribute amounts necessary to pay costs
and expenses allocated to it under the Partnership agreement to the
extent that its share of revenues does not cover such costs.
13
1243
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEVELOPMENT, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
THIS REPORT CONTAINS FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACCORDINGLY, NO ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS
AND RESULTS WILL NOT BE MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS
DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In September 2000, restated financial statements for 1999 and 1998 were issued
to the partners to correct a revenue allocation error for one well in the
Partnership. The 1999 and 1998 amounts contained in the following discussion of
financial condition and the results of operation are based on the restated
amounts.
Results of operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 85% to $638,385 from 2000 as
compared to $345,743 in 1999. The increase in revenues resulted from higher
average prices received and an increase in production. In 2000, 16,344 barrels
of oil, 6,249 barrels of natural gas liquids ("NGLs") and 22,121 mcf of gas were
sold, or 26,280 barrel of oil equivalents ("BOEs"). In 1999, 15,384 barrels of
oil, 5,304 barrels of NGLs and 19,579 mcf of gas were sold, or 23,951 BOEs. Due
to the decline characteristics of the Partnership's oil and gas properties,
management expects a certain amount of decline in production in the future until
the Partnership's economically recoverable reserves are fully depleted.
The average price received per barrel of oil increased $12.13, or 71%, from
$17.04 in 1999 to $29.17 in 2000. The average price received per barrel of NGLs
increased $5.86, or 60%, from $9.70 in 1999 to $15.56 in 2000. The average price
received per mcf of gas increased 76% from $1.65 in 1999 to $2.91 in 2000. The
market price for oil and gas has been extremely volatile in the past decade, and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
Total costs and expenses increased in 2000 to $297,927 as compared to $276,234
in 1999, an increase of $21,693, or 8%. The increase was due to increases in
production costs and general and administrative expenses ("G&A"), offset by a
decline in depletion.
Production costs were $235,823 in 2000 and $177,422 in 1999, resulting in a
$58,401 increase, or 33%. The increase was primarily due to higher production
taxes associated with higher oil and gas prices and additional well maintenance
costs incurred to stimulate well production.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A increased
42% from $14,767 in 1999 to $20,910 in 2000, primarily due to a higher
percentage of the managing general partner's G&A being allocated (limited to 3%
of oil and gas revenues) as a result of increased oil and gas revenues. The
Partnership paid the managing general partner $18,935 in 2000 and $11,455 in
1999 for G&A incurred on behalf of the Partnership. The remaining G&A was paid
directly by the Partnership. The managing general partner determines the
allocated expenses based upon the level of activity of the Partnership relative
to the non-partnership activities of the managing general partner. The method of
allocation has been consistent over the past several years with certain
modifications incorporated to reflect changes in Pioneer USA's overall business
activities.
Depletion was $41,194 in 2000 as compared to $84,045 in 1999, representing a
decrease of $42,851, or 51%. This decrease was primarily due to a 106,156
barrels of oil increase in proved reserves during 2000 as a result of higher
commodity prices.
1244
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 25% to $345,743 from
$275,856 in 1998. The increase in revenues resulted from higher average prices
received and an increase in production. In 1999, 15,384 barrels of oil, 5,304
barrels of NGLs and 19,579 mcf of gas were sold, or 23,951 BOEs. In 1998, 15,196
barrels of oil, 5,639 barrels of NGLs and 24,095 mcf of gas were sold, or 24,851
BOEs.
The average price received per barrel of oil increased $3.98, or 30%, from
$13.06 in 1998 to $17.04 in 1999. The average price received per barrel of NGLs
increased $2.81, or 41%, from $6.89 in 1998 to $9.70 in 1999. The average price
received per mcf of gas increased 3% from $1.60 in 1998 to $1.65 in 1999.
Gain on disposition of assets of $213 recognized during 1998 was related to
equipment salvage received on a well plugged and abandoned in a prior year.
Total costs and expenses decreased in 1999 to $276,234 as compared to $413,082
in 1998, a decrease of $136,848, or 33%. The decrease was due to reductions in
the impairment of oil and gas properties, depletion and production costs, offset
by an increase in G&A.
Production costs were $177,422 in 1999 and $184,952 in 1998, resulting in a
$7,530 decrease, or 4%. The decrease was due to reductions in well maintenance
costs and ad valorem taxes.
During this period, G&A increased 35% from $10,935 in 1998 to $14,767 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $11,455 in
1999 and $9,241 in 1998 for G&A incurred on behalf of the Partnership.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $90,823 related to its oil and gas properties during 1998.
Depletion was $84,045 in 1999 compared to $126,372 in 1998, representing a
decrease of $42,327, or 33%. This decrease was primarily due to an increase in
proved reserves of 151,444 barrels of oil during 1999 as a result of higher
commodity prices and a reduction in the Partnership's net depletable basis from
charges taken in accordance with SFAS 121 during the fourth quarter of 1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
1245
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $102,509 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $294,870, offset by increases in production costs paid
of $58,401, G&A expenses paid of $6,143 and working capital of $127,817. The
increase in oil and gas receipts resulted from the increase in commodity prices
during 2000 which contributed an additional $244,760 to oil and gas receipts and
an increase of $50,110 resulting from the increase in production during 2000.
The increase in production costs was primarily due to increased production taxes
associated with higher oil and gas prices and additional well maintenance costs
incurred to stimulate well production. The increase in G&A was primarily due to
higher percentage of the managing general partner's G&A being allocated (limited
to 3% of oil and gas revenues) as a result of increased oil and gas revenues.
Net Cash Provided by (Used in) Investing Activities
The Partnership's principal investing activities during 2000 and 1999 included
expenditures related to equipment upgrades on active properties.
Proceeds from asset dispositions of $3,269 in 1999 were due to equipment credits
received on active wells.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $308,005, of which $3,080 was
distributed to the managing general partner and $304,925 to the limited
partners. In 1999, cash distributions to the partners were $140,741, of which
$1,407 was distributed to the managing general partner and $139,334 to the
limited partners.
1246
PARKER & PARSLEY 90 SPRABERRY PRIVATE DEVELOPMENT, L.P.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
(Restated) (Restated)
Operating results:
Oil and gas sales $ $ 144,982 $ 638,385 $ 345,743 $ 275,856 $ 432,783 $ 522,399
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ -- $ -- $ 90,823 $ 257,009 $ --
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 69,372 $ 345,899 $ 72,722 $ (133,234) $ (152,931) $ 203,213
======== ========== ========== ========== ========== ========== ==========
Allocation of net
income (loss):
Managing general
partner $ $ 694 $ 3,459 $ 727 $ (1,332) $ (1,529) $ 2,032
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 68,678 $ 342,440 $ 71,995 $ (131,902) $ (151,402) $ 201,181
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 528.29 $ 2,634.15 $ 553.81 $(1,014.63) $(1,164.63) $ 1,547.55
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 667.21 $ 2,345.58 $ 1,071.80 $ 1,098.82 $ 1,762.53 $ 1,836.00
======== ========== ========== ========== ========== ========== ==========
At year end:
Total assets $ $ 770,965 $ 759,071 $ 790,150 $ 818,273 $1,064,821 $1,450,363
======== ========== ========== ========== ========== ========== ==========
1247
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 91-A, L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
91-A, L.P., and supplements the proxy statement/prospectus dated , 2001, of
Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by
which Pioneer USA is soliciting proxies to be voted at a special meeting of
limited partners of the partnership. The purpose of the special meeting is for
you to vote upon the merger of the partnership with and into Pioneer USA that,
if completed, will result in your receiving common stock of Pioneer Natural
Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 91-A, L.P.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's quarterly report on Form 10-Q, including
management's discussion and analysis of financial condition and
results of operations, for the three months ended March 31, 2001
o The partnership's annual report on Form 10-K, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
1248
PARKER & PARSLEY 91-A, L.P.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 11,620
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 9,304
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 4,442
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 383.74
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.82 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 206.61
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 350.67
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 373.35
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 158
(b), (c)
----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners. Although not
required by the partnership agreement, the opinion will also state that neither
the grant nor exercise of such right will result in the loss of any limited
partner's limited liability. In addition, the counsel designated to render the
opinion is not required to be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
1249
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 FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 33-38582-01
PARKER & PARSLEY 91-A, L.P.
(Exact name of Registrant as specified in its charter)
DELAWARE 75-2387572
------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039
---------------------------------------------------------------- -------------
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code: (972) 444-9001
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section
12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
-----------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES / X / 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / X /
No market currently exists for the limited partnership interests of the
Registrant. Based on the original purchase price, the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$11,575,000.
As of March 8, 2001, the number of outstanding limited partnership
interests was 11,620.
The following documents are incorporated by reference into the indicated parts
of this Annual Report on Form 10-K: None
PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACCORDINGLY, NO
ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS AND RESULTS WILL NOT BE
MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD
LOOKING STATEMENTS. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS
THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE
ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
1250
PART I
ITEM 1. BUSINESS
Parker & Parsley 91-A, L.P. (the "Partnership") is a limited partnership
organized in 1991 under the laws of the State of Delaware. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company
("Pioneer"). As of March 8, 2001, the Partnership had 11,620 limited partnership
interests outstanding.
The Partnership does not have any employees of its own. Pioneer USA employs 701
persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this Report is filed. Pioneer
USA is responsible for all management functions.
The Partnership engages in oil and gas development and production and is not
involved in any industry segment other than oil and gas. The Partnership's
production is geographically concentrated in West Texas.
The principal markets during 2000 for the oil produced by the Partnership were
refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. During 2000, Pioneer USA marketed the
Partnership's gas to a variety of purchasers, none of which accounted for 10% or
more of the Partnership's oil and gas revenues. Of the Partnership's total oil
and gas revenues for 2000, approximately 38% and 16% were attributable to sales
made to Plains Marketing, L.P. and TEPPCO Crude Oil LLC, respectively. Pioneer
USA is of the opinion that the loss of any one purchaser would not have an
adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and
gas production.
The Partnership's revenues, profitability, cash flow and future rate of growth
are highly dependent on the prevailing prices of oil and gas, which are affected
by numerous factors beyond the Partnership's control. Oil and gas prices
historically have been very volatile. A substantial or extended decline in the
prices of oil or gas could have a material adverse effect on the Partnership's
revenues, profitability and cash flow and could, under certain circumstances,
result in a reduction in the carrying value of the Partnership's oil and gas
properties.
Oil and gas production operations are subject to various types of regulations by
local, state and federal agencies. The Partnership's operations are also subject
to state conservation laws and regulations, including the establishment of
maximum rates of production from wells and the regulation of spacing, plugging
and abandonment of wells. Each state generally imposes a production or severance
tax with respect to production and sale of oil and gas within their respective
jurisdictions. Noncompliance with the laws and regulations may subject the
Partnership to penalties, damages or other liabilities and compliance may
increase the cost of the Partnership's operations.
The oil and gas business is also subject to environmental hazards such as oil
spills, gas leaks and ruptures and discharges of toxic substances or gases that
could expose the Partnership to substantial
2
1251
liability due to pollution and other environmental damages. Although the
Partnership believes that its business operations do not impair environmental
quality and that its costs of complying with any applicable environmental
regulations are not currently significant, the Partnership cannot predict what,
if any, effect these environmental regulations may have on its current or future
operations.
Numerous uncertainties exist in estimating quantities of proved reserves and
future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the Partnership
conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist of leasehold 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 Spraberry Trend Area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 48
oil and gas wells. One well has been plugged and abandoned. At December 31,
2000, the Partnership had 47 wells producing.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 2000, 1999 and 1998, see Note 7 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data"
below. Such reserves have been evaluated by Williamson Petroleum Consultants,
Inc., an independent petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer USA believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the partners during the fourth
quarter of 2000.
3
1252
PART II
ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP
DISTRIBUTIONS
At March 8, 2001, the Partnership had 11,620 outstanding limited partnership
interests held of record by 724 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are not
required to meet the Partnership's obligations are distributed to the partners
at least quarterly in accordance with the limited partnership agreement. During
the years ended December 31, 2000 and 1999, distributions of $1,162,365 and
$432,629, respectively, were made to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
2000 1999 1998 1997 1996
------------- ------------- ------------ ------------- -------------
Operating results:
-----------------
Oil and gas sales $ 1,899,948 $ 1,140,335 $ 955,645 $ 1,411,247 $ 1,629,975
============ ============ =========== ============ ============
Impairment of oil and gas
properties $ 12,824 $ 66,898 $ 306,043 $ 485,158 $ -
============ ============ =========== ============ ============
Net income (loss) $ 1,115,704 $ 266,803 $ (280,631) $ (7,029) $ 654,054
============ ============ =========== ============ ============
Allocation of net income
(loss):
Managing general partner $ 11,157 $ 2,668 $ (2,806) $ (70) $ 6,540
============ ============ =========== ============ ============
Limited partners $ 1,104,547 $ 264,135 $ (277,825) $ (6,959) $ 647,514
============ ============ =========== ============ ============
Limited partners' net income
(loss) per limited
partnership interest $ 95.06 $ 22.73 $ (23.91) $ (.60) $ 55.72
============ ============ =========== ============ ============
Limited partners' cash
distributions per limited
partnership interest $ 100.03 $ 37.23 $ 36.77 $ 75.11 $ 70.97
============ ============ =========== ============ ============
At year end:
-----------
Identifiable assets $ 2,457,656 $ 2,531,606 $ 2,667,803 $ 3,402,546 $ 4,289,878
============ ============ =========== ============ ============
4
1253
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 67% to $1,899,948 for 2000 as
compared to $1,140,335 in 1999. The increase in revenues resulted from higher
average prices received, offset by a decline in production. In 2000, 43,704
barrels of oil, 20,425 barrels of natural gas liquids ("NGLs") and 94,315 mcf of
gas were sold, or 79,848 barrel of oil equivalents ("BOEs"). In 1999, 44,203
barrels of oil, 20,617 barrels of NGLs and 100,615 mcf of gas were sold, or
81,589 BOEs. Due to the decline characteristics of the Partnership's oil and gas
properties, management expects a certain amount of decline in production in the
future until the Partnership's economically recoverable reserves are fully
depleted.
The average price received per barrel of oil increased $12.33, or 70%, from
$17.57 in 1999 to $29.90 in 2000. The average price received per barrel of NGLs
increased $5.60, or 60%, from $9.34 in 1999 to $14.94 in 2000. The average price
received per mcf of gas increased 80% from $1.70 in 1999 to $3.06 in 2000. The
market price for oil and gas has been extremely volatile in the past decade and
management expects a certain amount of volatility to continue in the foreseeable
future. The Partnership may therefore sell its future oil and gas production at
average prices lower or higher than that received in 2000.
A gain on disposition of assets of $1,096 recognized during 1999 was from
equipment credits received on one temporarily abandoned property.
Total costs and expenses decreased in 2000 to $802,130 as compared to $884,937
in 1999, a decrease of $82,807, or 9%. The decrease was due to declines in
depletion, the impairment of oil and gas properties and general and
administrative expenses ("G&A"), offset by an increase in production costs.
Production costs were $589,344 in 2000 and $514,994 in 1999, resulting in an
increase of $74,350, or 14%. This increase was primarily due to higher
production taxes associated with higher oil and gas prices and additional well
maintenance costs incurred to stimulate well production.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A decreased
21% from $75,454 in 1999 to $59,962 in 2000. The Partnership paid the managing
general partner $41,213 in 2000 and $34,110 in 1999 for G&A incurred on behalf
of the Partnership. The remaining G&A was paid directly by the Partnership. The
managing general partner determines the allocated expenses based upon the level
of activity of the Partnership relative to the non-partnership activities of the
managing general partner. The method of allocation has been consistent over the
past several years with certain modifications incorporated to reflect changes in
Pioneer USA's overall business activities.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized
non-cash charges of $12,824 and $66,898 related to its oil and gas properties
during 2000 and 1999, respectively.
5
1254
Depletion decreased in 2000 to $140,000 as compared to $227,591 in 1999,
representing a decrease of $87,591, or 38%. This decrease was primarily due to a
127,977 barrels of oil increase in proved reserves during 2000 as a result of
higher commodity prices and a reduction in the Partnership's net depletable
basis from charges taken in accordance with SFAS 121 during the fourth quarter
of 1999.
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 19% to $1,140,335 from
$955,645 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 44,203 barrels of oil,
20,617 barrels of NGLs and 100,615 mcf of gas were sold, or 81,589 BOEs. In
1998, 49,403 barrels of oil, 21,220 barrels of NGLs and 108,617 mcf of gas were
sold, or 88,726 BOEs.
The average price received per barrel of oil increased $4.42, or 34%, from
$13.15 in 1998 to $17.57 in 1999. The average price received per barrel of NGLs
increased $2.90, or 45%, from $6.44 in 1998 to $9.34 in 1999. The average price
received per mcf of gas increased 9% from $1.56 in 1998 to $1.70 in 1999.
A gain on disposition of assets of $1,096 recognized during 1999 was from
equipment credits received on one temporarily abandoned property.
Total costs and expenses decreased in 1999 to $884,937 as compared to $1,247,302
in 1998, a decrease of $362,365, or 29%. The decrease was due to declines in the
impairment of oil and gas properties, depletion and production costs, offset by
an increase in G&A.
Production costs were $514,994 in 1999 and $535,948 in 1998, resulting in a
decrease of $20,954, or 4%. This decrease resulted from declines in ad valorem
taxes, well maintenance costs and workover costs, offset by an increase in
production taxes due to increased oil and gas revenues.
During this period, G&A increased 72% from $43,977 in 1998 to $75,454 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $34,110 in
1999 and $24,415 in 1998 for G&A incurred on behalf of the Partnership.
The Partnership recognized non-cash SFAS 121 charges of $66,898 and $306,043
related to its oil and gas properties during 1999 and 1998, respectively.
Depletion decreased in 1999 to $227,591 as compared to $361,334 in 1998. This
represented a decrease of $133,743, or 37%. This decrease was the result of an
increase in proved reserves of 281,767 barrels of oil during 1999 as a result of
higher commodity prices, a reduction in the Partnership's net depletable basis
from charges taken in accordance with SFAS 121 during the fourth quarter of 1998
and a decline in oil production of 5,200 barrels for the period ended December
31, 1999 compared to the same period in 1998.
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998,
6
1255
weather patterns, regional economic recessions and political matters combined to
cause worldwide oil supplies to exceed demand resulting in a substantial decline
in oil prices. Also during 1998, but to a lesser extent, market prices for
natural gas declined. During 1999 and 2000, the Organization of Petroleum
Exporting Countries ("OPEC") and certain other crude oil exporting nations
announced reductions in their planned export volumes. Those announcements,
together with the enactment of the announced reductions in export volumes, had a
positive impact on world oil prices, as have overall natural gas supply and
demand fundamentals on North American natural gas prices. Although the favorable
commodity price environment and stable field service cost environment is
expected to continue during 2001, there is no assurance that commodity prices
will not return to a less favorable level or that field service costs will not
escalate in the future, both of which could negatively impact the Partnership's
future results of operations and cash distributions.
Liquidity and Capital Resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $647,967 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $767,190 and a decline in G&A expenses paid of
$15,492, offset by an increase in production costs paid of $74,350 and working
capital of $60,365. The increase in oil and gas receipts resulted from the
increase in commodity prices during 2000 which contributed an additional
$804,227 to oil and gas receipts, offset by $37,037 resulting from the decline
in production during 2000. The increase in production costs was primarily due to
increased production taxes associated with higher oil and gas prices and
additional well maintenance costs incurred to stimulate well production.
Net Cash Used in Investing Activities
The Partnership's investing activities during 2000 and 1999 included
expenditures related to equipment upgrades on various oil and gas properties.
Proceeds from asset dispositions of $11,549 and $1,096 recognized during 2000
and 1999, respectively, were from the disposition of oil and gas equipment on
active wells.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $1,174,106, of which $11,741
was distributed to the managing general partner and $1,162,365 to the limited
partners. In 1999, cash distributions to the partners were $436,999, of which
$4,370 was distributed to the managing general partner and $432,629 to the
limited partners.
7
1256
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements of Parker & Parsley 91-A, L.P.:
Independent Auditors' Report............................................. 9
Balance Sheets as of December 31, 2000 and 1999.......................... 10
Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998.................................................... 11
Statements of Partners' Capital for the Years Ended
December 31, 2000, 1999 and 1998....................................... 12
Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998.................................................... 13
Notes to Financial Statements............................................ 14
8
1257
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 91-A, L.P.
(A Delaware Limited Partnership):
We have audited the balance sheets of Parker & Parsley 91-A, L.P. as of December
31, 2000 and 1999, and the related statements of operations, partners' capital
and cash flows for each of the three years in the period ended December 31,
2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 91-A, L.P. as
of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
9
1258
PARKER & PARSLEY 91-A, L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
-------------- -------------
ASSETS
------
Current assets:
Cash $ 219,827 $ 226,846
Accounts receivable - oil and gas sales 255,270 177,988
------------- ------------
Total current assets 475,097 404,834
------------- ------------
Oil and gas properties - at cost, based on the
successful efforts accounting method 9,710,132 9,701,521
Accumulated depletion (7,727,573) (7,574,749)
------------- ------------
Net oil and gas properties 1,982,559 2,126,772
------------- ------------
$ 2,457,656 $ 2,531,606
============= ============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Current liabilities:
Accounts payable - affiliate $ 32,513 $ 48,061
Partners' capital:
Managing general partner 24,295 24,879
Limited partners (11,620 interests) 2,400,848 2,458,666
------------- ------------
2,425,143 2,483,545
------------- ------------
$ 2,457,656 $ 2,531,606
============= ============
The accompanying notes are an integral part of these financial statements.
10
1259
PARKER & PARSLEY 91-A, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
------------- ------------ -------------
Revenues:
Oil and gas $ 1,899,948 $ 1,140,335 $ 955,645
Interest 17,886 10,309 11,026
Gain on disposition of assets - 1,096 -
------------ ----------- ------------
1,917,834 1,151,740 966,671
------------ ----------- ------------
Costs and expenses:
Oil and gas production 589,344 514,994 535,948
General and administrative 59,962 75,454 43,977
Impairment of oil and gas properties 12,824 66,898 306,043
Depletion 140,000 227,591 361,334
------------ ----------- ------------
802,130 884,937 1,247,302
------------ ----------- ------------
Net income (loss) $ 1,115,704 $ 266,803 $ (280,631)
============ =========== ============
Allocation of net income (loss):
Managing general partner $ 11,157 $ 2,668 $ (2,806)
============ =========== ============
Limited partners $ 1,104,547 $ 264,135 $ (277,825)
============ =========== ============
Net income (loss) per limited partners' interest $ 95.06 $ 22.73 $ (23.91)
============ =========== ============
The accompanying notes are an integral part of these financial statements.
11
1260
PARKER & PARSLEY 91-A, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
----------- ----------- ------------
Partners' capital at January 1, 1998 $ 33,702 $ 3,332,223 $ 3,365,925
Distributions (4,315) (427,238) (431,553)
Net loss (2,806) (277,825) (280,631)
----------- ----------- ------------
Partners' capital at December 31, 1998 26,581 2,627,160 2,653,741
Distributions (4,370) (432,629) (436,999)
Net income 2,668 264,135 266,803
----------- ----------- ------------
Partners' capital at December 31, 1999 24,879 2,458,666 2,483,545
Distributions (11,741) (1,162,365) (1,174,106)
Net income 11,157 1,104,547 1,115,704
----------- ----------- ------------
Partners' capital at December 31, 2000 $ 24,295 $ 2,400,848 $ 2,425,143
=========== =========== ============
The accompanying notes are an integral part of these financial statements.
12
1261
PARKER & PARSLEY 91-A, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
------------ ------------ ------------
Cash flows from operations:
Net income (loss) $ 1,115,704 $ 266,803 $ (280,631)
Adjustment to reconcile net income (loss) to net
cash provided by operating activities:
Impairment of oil and gas properties 12,824 66,898 306,043
Depletion 140,000 227,591 361,334
Gain on disposition of assets - (1,096) -
Changes in assets and liabilities:
Accounts receivable (77,282) (66,464) 54,318
Accounts payable (15,548) 33,999 (22,559)
----------- ----------- -----------
Net cash provided by operating
activities 1,175,698 527,731 418,505
----------- ----------- -----------
Cash flows from investing activities:
Additions to oil and gas properties (20,160) (23,360) (15,294)
Proceeds from asset disposition 11,549 1,096 5,617
----------- ----------- -----------
Net cash used in investing activities (8,611) (22,264) (9,677)
----------- ----------- -----------
Cash flows used in financing activities:
Cash distributions to partners (1,174,106) (436,999) (431,553)
----------- ----------- -----------
Net increase (decrease) in cash (7,019) 68,468 (22,725)
Cash at beginning of year 226,846 158,378 181,103
----------- ----------- -----------
Cash at end of year $ 219,827 $ 226,846 $ 158,378
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
13
1262
PARKER & PARSLEY 91-A, L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 91-A, L.P. (the "Partnership") is a limited partnership
organized in 1991 under the laws of the State of Delaware. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the unit-of-
production method on a property-by-property basis based on proved oil (dominant
mineral) reserves as evaluated by independent petroleum consultants. The
carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements - Preparation
of the accompanying 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 periods.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
14
1263
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative expenses
are allocated, in part, to the Partnership by the managing general partner.
Allocated expenses are determined by the managing general partner based upon the
level of activity of the Partnership relative to the non-partnership activities
of the managing general partner. The method of allocation has been consistent
over the past several years with certain modifications incorporated to reflect
changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized non-cash impairment provisions of $12,824, $66,898 and
$306,043 related to its proved oil and gas properties during 2000, 1999 and
1998, respectively.
15
1264
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $946,627 greater than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income per Federal income tax returns for the years
ended December 31:
2000 1999 1998
------------- ------------- ------------
Net income (loss) per statements of operations $ 1,115,704 $ 266,803 $ (280,631)
Depletion and depreciation provisions for tax
reporting purposes (greater than) less than
amounts for financial reporting purposes 120,160 106,971 (11,376)
Impairment of oil and gas properties for financial
reporting purposes 12,824 66,898 306,043
Other, net 8,901 (4,139) 8,462
------------ ------------ -----------
Net income per Federal income tax
returns $ 1,257,589 $ 436,533 $ 22,498
============ ============ ===========
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the costs incurred, whether capitalized or
expensed, related to the Partnership's oil and gas producing activities for the
years ended December 31:
2000 1999 1998
------------- ------------- ------------
Development costs $ 20,160 $ 23,360 $ 15,294
============ ============ ===========
Capitalized oil and gas properties consist of the following:
2000 1999
-------------- -------------
Property acquisition costs $ 343,666 $ 343,666
Completed wells and equipment 9,366,466 9,357,855
------------- ------------
9,710,132 9,701,521
Accumulated depletion (7,727,573) (7,574,749)
------------- ------------
Net oil and gas properties $ 1,982,559 $ 2,126,772
============= ============
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
2000 1999 1998
-------------- -------------- --------------
Payment of lease operating and supervision
charges in accordance with standard industry
operating agreements $ 202,739 $ 213,969 $ 210,197
Reimbursement of general and administrative
expenses $ 41,213 $ 34,110 $ 24,415
16
1265
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
P&P Employees 91-A GP ("EMPL") and the Partnership are parties to the Program
agreement. EMPL is a general partnership organized for the benefit of certain
employees of Pioneer USA. EMPL was merged with Pioneer USA on December 28, 2000.
The costs and revenues of the Program are allocated to Pioneer USA and
the Partnership as follows:
Pioneer USA (1) Partnership (1)
--------------- ---------------
Revenues:
Proceeds from disposition of depreciable and depletable
properties 34.3434343% 65.6565657%
All other revenues 34.3434343% 65.6565657%
Costs and expenses:
Lease acquisition costs, drilling and completion costs
and all other costs 24.2424242% 75.7575758%
Operating costs, reporting and legal expenses and
general and administrative expenses 34.3434343% 65.6565657%
(1) Includes Pioneer USA's 1% general partner ownership which is
allocated at the Partnership level and 45 limited partner interests
owned by Pioneer USA.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
Oil and NGLs Gas
(bbls) (mcf)
------------- ------------
Net proved reserves at January 1, 1998 909,941 1,063,660
Revisions (333,709) (228,660)
Production (70,623) (108,617)
------------- ------------
Net proved reserves at December 31, 1998 505,609 726,383
Revisions 430,559 692,465
Production (64,820) (100,615)
------------- ------------
Net proved reserves at December 31, 1999 871,348 1,318,233
Revisions 171,624 199,837
Production (64,129) (94,315)
------------- ------------
Net proved reserves at December 31, 2000 978,843 1,423,755
============= ============
17
1266
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.72
per barrel of oil, $12.21 per barrel of NGLs and $7.85 per mcf of gas,
discounted at 10% was approximately $8,217,000 and undiscounted was $17,966,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider probable reserves, anticipated
future oil and gas prices, interest rates, changes in development and production
costs and risks associated with future production. Because of these and other
considerations, any estimate of fair value is necessarily subjective and
imprecise.
For the years ended December 31,
----------------------------------------------
2000 1999 1998
------------- ------------- -------------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 32,836 $ 21,453 $ 5,509
Future production costs (14,870) (11,854) (4,104)
------------ ------------ ------------
17,966 9,599 1,405
10% annual discount factor (9,749) (4,661) (456)
------------ ------------ ------------
Standardized measure of discounted future net cash flows $ 8,217 $ 4,938 $ 949
============ ============ ============
18
1267
For the years ended December 31,
----------------------------------------------
2000 1999 1998
------------- ------------- -------------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (1,311) $ (625) $ (420)
Net changes in prices and production costs 3,414 2,743 (2,438)
Revisions of previous quantity estimates 1,558 3,245 (441)
Accretion of discount 494 95 391
Changes in production rates, timing and other (876) (1,469) (48)
------------ ------------ ------------
Change in present value of future net revenues 3,279 3,989 (2,956)
------------ ------------ ------------
Balance, beginning of year 4,938 949 3,905
------------ ------------ ------------
Balance, end of year $ 8,217 $ 4,938 $ 949
============ ============ ============
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership`s oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the years ended December 31:
2000 1999 1998
-------- -------- --------
Plains Marketing, L.P. 38% 36% -
TEPPCO Crude Oil LLC 16% 17% -
Genesis Crude Oil, L.P. - - 52%
Western Gas Resources, Inc. 3% 5% 19%
At December 31, 2000, the amounts receivable from Plains Marketing, L.P.
and TEPPCO Crude Oil LLC were $64,973 and $19,274, respectively, which are
included in the caption "Accounts receivable - oil and gas sales" in the
accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the limited partnership agreement:
Managing general partner - The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Partnership affairs. As managing
general partner and operator of the Partnership's properties, all
production expenses are incurred by Pioneer USA and billed to the
Partnership. The majority of the Partnership's oil and gas revenues are
received directly by the Partnership, however, a portion of the oil and
gas revenue is initially received by Pioneer USA prior to being paid to
the Partnership. Under the limited partnership agreement, the managing
general partner pays 1%
19
1268
of the Partnership's acquisition, drilling and completion costs, and 1%
of its operating and general and administrative expenses. In return it
is allocated 1% of the Partnership's revenues.
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of
$11,620,000. The managing general partner is required to contribute
amounts equal to 1% of initial Partnership capital less sales
commission costs allocated to the limited partners and to contribute
amounts necessary to pay costs and expenses allocated to it under the
partnership agreement to the extent its share of revenues does not
cover such costs.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
20
1269
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and executive
officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the
next annual meeting of stockholders or until their successors are elected and
qualified.
Age at
December 31,
Name 2000 Position
---- ---- --------
Scott D. Sheffield 48 President
Timothy L. Dove 44 Executive Vice President, Chief
Financial Officer and Director
Dennis E. Fagerstone 51 Executive Vice President and Director
Mark L. Withrow 53 Executive Vice President, General
Counsel and Director
Danny Kellum 46 Executive Vice President - Domestic
Operations and Director
Rich Dealy 34 Vice President and Chief Accounting
Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of
Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as
President, Chief Executive Officer and a director of Pioneer and President of
Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of
Pioneer in August 1999. He served as a director of Pioneer USA from August 1997
until his resignation from the board in June 1999. Mr. Sheffield was the
President and a director of Parker & Parsley Petroleum Company ("Parker &
Parsley") from May 1990 until August 1997 and was the Chairman of the Board and
Chief Executive Officer of Parker & Parsley from October 1990 until August 1997.
He was the sole director of Parker & Parsley from May 1990 until October 1990.
Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a
predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as
Vice President - Engineering of PPDC from September 1981 until April 1985 when
he was elected President and a director. In March 1989, Mr. Sheffield was
elected Chairman of the Board and Chief Executive Officer of PPDC. Before
joining PPDC's predecessor, Mr. Sheffield was employed as a production and
reservoir engineer for Amoco Production Company.
21
1270
Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from
Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981
from the University of Chicago. He became Executive Vice President - Business
Development of Pioneer and Pioneer USA in August 1997 and was also appointed a
director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief
Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr.
Dove joined Parker & Parsley in May 1994 as Vice President - International and
was promoted to Senior Vice President - Business Development in October 1996, in
which position he served until August 1997. Prior to joining Parker & Parsley,
Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus
Energy Corp, in various capacities in international exploration and production,
marketing, refining and marketing and planning and development.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School
of Mines with a B.S. in Petroleum Engineering, became an Executive Vice
President of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. He served as Executive Vice President
and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until
August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior
Vice President and Chief Operating Officer of Mesa and from May 1991 to October
1996, he served as Vice President - Exploration and Production of Mesa. From
June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of
Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President - General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979, was elected Executive
Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000
and Director of Pioneer USA on February 1, 2000. From January 2000 until May
2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and
Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and
Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served
as Spraberry District Manager and as Vice President of the Spraberry and Permian
Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker &
Parsley as an operations engineer in 1981 after a brief career with Mobil Oil
Corporation.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University
with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He
became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
22
1271
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is performed by the managing general partner. The Partnership
participates in oil and gas activities through an income tax partnership (the
"Program") pursuant to the Program agreement. Under the Program agreement,
Pioneer USA pays approximately 25% of the Program's acquisition, drilling and
completion costs and approximately 35% of its operating and general and
administrative expenses. In return, they are allocated approximately 35% of the
Program's revenues.
The Partnership does not directly pay any salaries of the executive officers or
employees of Pioneer USA, but does pay a portion of Pioneer USA's general and
administrative expenses of which these salaries are a part.
See Notes 6 and 9 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" for information regarding fees and
reimbursements paid to the managing general partner by the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more of
the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 45 limited partner interests at January 1, 2001.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general
partner of the Partnership, Pioneer USA, has the exclusive right and full
authority to manage, control and administer the Partnership's business. Under
the limited partnership agreement, limited partners holding a majority of the
outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner
Pursuant to the limited partnership agreement, the Partnership had the following
related party transactions with the managing general partner during the years
ended December 31:
23
1272
2000 1999 1998
----------- ----------- -----------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 202,739 $ 213,969 $ 210,197
Reimbursement of general and administrative
expenses $ 41,213 $ 34,110 $ 24,415
Under the limited partnership agreement, the managing general partner pays 1% of
the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation in oil and gas activities of the
Program.
24
1273
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial statements
The following are filed as part of this Report:
Independent Auditors' Report
Balance sheets as of December 31, 2000 and 1999
Statements of operations for the years ended December 31,
2000, 1999 and 1998
Statements of partners' capital for the years ended December
31, 2000, 1999 and 1998
Statements of cash flows for the years ended December 31,
2000, 1999 and 1998
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the
required information is in the financial statements or notes
thereto, or is not applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this Report.
25
1274
S I G N A T U R E S
Pursuant to the requirements 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.
PARKER & PARSLEY 91-A, L.P.
Dated: March 26, 2001 By: Pioneer Natural Resources USA, Inc.
Managing General Partner
By: /s/ Scott D. Sheffield
------------------------------
Scott D. Sheffield, President
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/ Scott D. Sheffield President of Pioneer USA March 26, 2001
-------------------------------------
Scott D. Sheffield
/s/ Timothy L. Dove Executive Vice President, Chief March 26, 2001
------------------------------------- Financial Officer and Director of
Timothy L. Dove Pioneer USA
/s/ Dennis E. Fagerstone Executive Vice President and March 26, 2001
------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ Mark L. Withrow Executive Vice President, General March 26, 2001
------------------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ Danny Kellum Executive Vice President - Domestic March 26, 2001
------------------------------------- Operations and Director of Pioneer
Danny Kellum USA
/s/ Rich Dealy Vice President and Chief Accounting March 26, 2001
------------------------------------- Officer of Pioneer USA
Rich Dealy
26
1275
PARKER & PARSLEY 91-A, L.P.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to Item
14(c):
Exhibit No. Description Page
----------- ----------- ----
3(a) Form of Agreement of Limited Partnership -
of Parker & Parsley 91-A, L.P. incorporated
by reference to Exhibit A of the Partnership's
Registration Statement on Form S-1
(Registration No. 33-38582) (hereinafter
called the Partnership's Registration Statement)
4(b) Form of Limited Partner Subscription Agreement -
incorporated by reference to Exhibit C of the
Partnership's Registration Statement
4(b) Form of General Partner Subscription Agreement -
incorporated by reference to Exhibit D of the
Partnership's Registration Statement
4(b) Power of Attorney incorporated by reference to -
Exhibit B of the Partnership's Registration
Statement
4(c) Specimen Certificate of Limited Partnership -
Interest incorporated by reference to Exhibit 4.3
of Amendment No. 2 of the Partnership's
Registration Statement
10(b) Development Drilling Program Agreement -
incorporated by reference to Exhibit B of the
Partnership's Registration Statement
27
1276
PARKER & PARSLEY 91-A, L.P.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 424,423 $1,899,948 $1,140,335 $ 955,645 $1,411,247 $1,629,975
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ 12,824 $ 66,898 $ 306,043 $ 485,158 $ --
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 221,345 $1,115,704 $ 266,803 $ (280,631) $ (7,029) $ 654,054
======== ========== ========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general
partner $ $ 2,213 $ 11,157 $ 2,668 $ (2,806) $ (70) $ 6,540
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 219,132 $1,104,547 $ 264,135 $ (277,825) $ (6,959) $ 647,514
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per
limited partnership
interest $ $ 18.86 $ 95.06 $ 22.73 $ (23.91) $ (.60) $ 55.72
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 20.76 $ 100.03 $ 37.23 $ 36.77 $ 75.11 $ 70.97
======== ========== ========== ========== ========== ========== ==========
At year end:
Identifiable assets $ $2,496,184 $2,457,656 $2,531,606 $2,667,803 $3,402,546 $4,289,878
======== ========== ========== ========== ========== ========== ==========
1277
PIONEER NATURAL RESOURCES COMPANY
PIONEER NATURAL RESOURCES USA, INC.
1400 WILLIAMS SQUARE WEST
5205 NORTH O'CONNOR BLVD.
IRVING, TEXAS 75039
SUPPLEMENTAL INFORMATION
OF
PARKER & PARSLEY 91-B, L.P., A DELAWARE LIMITED PARTNERSHIP
TO
PROXY STATEMENT/PROSPECTUS DATED , 2001
----------
THE DATE OF THIS SUPPLEMENT IS , 2001
----------
This document contains important information specific to Parker & Parsley
91-B, L.P., and supplements the proxy statement/prospectus dated , 2001, of
Pioneer Natural Resources Company and Pioneer Natural Resources USA, Inc., by
which Pioneer USA is soliciting proxies to be voted at a special meeting of
limited partners of the partnership. The purpose of the special meeting is for
you to vote upon the merger of the partnership with and into Pioneer USA that,
if completed, will result in your receiving common stock of Pioneer Natural
Resources Company and cash for your partnership interests.
This document contains the following information concerning Parker &
Parsley 91-B, L.P.:
o A table containing:
-- the aggregate initial investment by the limited partners
-- the aggregate historical limited partner distributions through
March 31, 2001
-- the aggregate merger value attributable to partnership interests
of limited partners, excluding Pioneer USA
-- the merger value per $1,000 limited partner investment as of
March 31, 2001
-- the merger value per $1,000 limited partner investment as a
multiple of distributions for the 12 months ended March 31, 2001
-- the book value per $1,000 limited partner investment as of March
31, 2001 and as of December 31, 2000
-- the going concern value per $1,000 limited partner investment as
of March 31, 2001
-- the liquidation value per $1,000 limited partner investment as of
March 31, 2001
-- the ordinary tax loss per $1,000 limited partner investment in
year of initial investment
o Information about the legal opinion for the limited partners
o The partnership's quarterly report on Form 10-Q, including
management's discussion and analysis of financial condition and
results of operations, for the three months ended March 31, 2001
o The partnership's annual report on Form 10-K, including management's
discussion and analysis of financial condition and results of
operations, for the year ended December 31, 2000
o Selected historical financial data for the partnership for the three
months ended March 31, 2001 and 2000 and the five years ended December
31, 2000
-1-
1278
PARKER & PARSLEY 91-B, L.P.
SUPPLEMENTAL INFORMATION TABLE
Aggregate Initial Investment by the Limited Partners(a) $ 11,249
Aggregate Historical Limited Partner Distributions through March 31, 2001(a) $ 7,734
Aggregate Merger Value Attributable to Partnership Interests of Limited Partners, $ 4,754
Excluding Pioneer USA(a)
Merger Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 422.99
Merger Value per $1,000 Limited Partner Investment as a Multiple of Distributions for the 3.59 times
12 Months ended March 31, 2001(b)
Book Value per $1,000 Limited Partner Investment:
-- as of March 31, 2001(b) $
-- as of December 31, 2000(b) $ 160.69
Going Concern Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 386.20
Liquidation Value per $1,000 Limited Partner Investment as of March 31, 2001(b) $ 411.52
Ordinary Tax Loss per $1,000 Limited Partner Investment in Year of Initial Investment $ 142
(b), (c)
----------
(a) Stated in thousands.
(b) Interests in some partnerships were sold in units at prices other than
$1,000. We have presented this information based on a $1,000 initial
investment for ease of use and comparison among partnerships. You should
not assume that the amount shown per $1,000 investment is the same as the
value or amount attributable to a single unit investment.
(c) Your ability to use your distributive share of the partnership's loss to
offset your other income may have been subject to certain limitations at
your level as a partner, and you may therefore wish to consult your tax
advisor to determine the additional value, if any, actually realized by you
in your particular circumstances.
INFORMATION ABOUT THE LEGAL OPINION FOR THE LIMITED PARTNERS
The partnership agreement for the partnership requires that special legal
counsel render an opinion on behalf of the limited partners to Pioneer USA that
neither the grant nor the exercise of the right to approve the merger of the
partnership by its limited partners will adversely affect the federal income tax
classification of the partnership or any of its limited partners. Although not
required by the partnership agreement, the opinion will also state that neither
the grant nor exercise of such right will result in the loss of any limited
partner's limited liability. In addition, the counsel designated to render the
opinion is not required to be counsel other than counsel to Pioneer USA or the
partnership. Both the designated counsel and the legal opinion must be approved
by the limited partners. Pioneer USA has retained __________ of Dallas, Texas
for the purpose of rendering this legal opinion on behalf of the limited
partners to Pioneer USA. The merger proposals include an approval of that
counsel and the form of its opinion. A copy of the opinion is attached as an
exhibit to the merger proposals.
-2-
1279
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 FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NO. 33-38582-02
PARKER & PARSLEY 91-B, L.P.
(Exact name of Registrant as specified in its charter)
DELAWARE 75-2397335
-------------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1400 WILLIAMS SQUARE WEST, 5205 N. O'CONNOR BLVD., IRVING, TEXAS 75039
---------------------------------------------------------------- -------------
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (972) 444-9001
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS ($1,000 PER UNIT)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES / X / 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / X /
No market currently exists for the limited partnership interests of the
Registrant. Based on the original purchase price, the aggregate market value of
limited partnership interests owned by non-affiliates of the Registrant is
$11,239,000.
As of March 8, 2001, the number of outstanding limited partnership
interests was 11,249.
The following documents are incorporated by reference into the indicated parts
of this Annual Report on Form 10-K: None
PARTS I AND II OF THIS ANNUAL REPORT ON FORM 10-K (THE "REPORT") CONTAIN FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACCORDINGLY, NO
ASSURANCES CAN BE GIVEN THAT THE ACTUAL EVENTS AND RESULTS WILL NOT BE
MATERIALLY DIFFERENT THAN THE ANTICIPATED RESULTS DESCRIBED IN THE FORWARD
LOOKING STATEMENTS. SEE "ITEM 1. BUSINESS" FOR A DESCRIPTION OF VARIOUS FACTORS
THAT COULD MATERIALLY AFFECT THE ABILITY OF THE PARTNERSHIP TO ACHIEVE THE
ANTICIPATED RESULTS DESCRIBED IN THE FORWARD LOOKING STATEMENTS.
1280
PART I
ITEM 1. BUSINESS
Parker & Parsley 91-B, L.P. (the "Partnership") is a limited partnership
organized in 1991 under the laws of the State of Delaware. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
Pioneer USA is a wholly-owned subsidiary of Pioneer Natural Resources Company
("Pioneer"). As of March 8, 2001, the Partnership had 11,249 limited partnership
interests outstanding.
The Partnership does not have any employees of its own. Pioneer USA employs 701
persons, many of whom dedicated a part of their time to the conduct of the
Partnership's business during the period for which this Report is filed. Pioneer
USA is responsible for all management functions.
The Partnership engages in oil and gas development and production and is not
involved in any industry segment other than oil and gas. The Partnership's
production is geographically concentrated in West Texas.
The principal markets during 2000 for the oil produced by the Partnership were
refineries and oil transmission companies that have facilities near the
Partnership's oil producing properties. During 2000, Pioneer USA marketed the
Partnership's gas to a variety of purchasers, none of which accounted for 10% or
more of the Partnership's oil and gas revenues. Of the Partnership's total oil
and gas revenues for 2000, approximately 48% and 22% were attributable to sales
made to Mobil Oil Corporation and Plains Marketing, L.P., respectively. Pioneer
USA is of the opinion that the loss of any one purchaser would not have an
adverse effect on its ability to sell its oil, natural gas liquids ("NGLs") and
gas production.
The Partnership's revenues, profitability, cash flow and future rate of growth
are highly dependent on the prevailing prices of oil and gas, which are affected
by numerous factors beyond the Partnership's control. Oil and gas prices
historically have been very volatile. A substantial or extended decline in the
prices of oil or gas could have a material adverse effect on the Partnership's
revenues, profitability and cash flow and could, under certain circumstances,
result in a reduction in the carrying value of the Partnership's oil and gas
properties.
Oil and gas production operations are subject to various types of regulations by
local, state and federal agencies. The Partnership's operations are also subject
to state conservation laws and regulations, including the establishment of
maximum rates of production from wells and the regulation of spacing, plugging
and abandonment of wells. Each state generally imposes a production or severance
tax with respect to production and sale of oil and gas within their respective
jurisdictions. Noncompliance with the laws and regulations may subject the
Partnership to penalties, damages or other liabilities and compliance may
increase the cost of the Partnership's operations.
The oil and gas business is also subject to environmental hazards such as oil
spills, gas leaks and ruptures and discharges of toxic substances or gases that
could expose the Partnership to substantial
2
1281
liability due to pollution and other environmental damages. Although the
Partnership believes that its business operations do not impair environmental
quality and that its costs of complying with any applicable environmental
regulations are not currently significant, the Partnership cannot predict what,
if any, effect these environmental regulations may have on its current or future
operations.
Numerous uncertainties exist in estimating quantities of proved reserves and
future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves.
No material part of the Partnership's business is seasonal and the Partnership
conducts no foreign operations.
ITEM 2. PROPERTIES
The Partnership's properties consist of leasehold 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 Spraberry Trend Area of West Texas were acquired by the
Partnership, resulting in the Partnership's participation in the drilling of 29
oil and gas wells. At December 31, 2000, the Partnership had 29 producing oil
and gas wells.
For information relating to the Partnership's estimated proved oil and gas
reserves at December 31, 2000, 1999 and 1998, see Note 7 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data"
below. Such reserves have been evaluated by Williamson Petroleum Consultants,
Inc., an independent petroleum consultant.
ITEM 3. LEGAL PROCEEDINGS
The Partnership from time to time is a party to various legal proceedings
incidental to its business involving claims in oil and gas leases or interests,
other claims for damages in amounts not in excess of 10% of its current assets
and other matters, none of which Pioneer USA believes to be material to the
Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the partners during the fourth
quarter of 2000.
3
1282
PART II
ITEM 5. MARKET FOR LIMITED PARTNERSHIP INTERESTS AND LIMITED PARTNERSHIP
DISTRIBUTIONS
At March 8, 2001, the Partnership had 11,249 outstanding limited partnership
interests held of record by 677 subscribers. There is no established public
trading market for the limited partnership interests. Under the limited
partnership agreement, Pioneer USA has made certain commitments to purchase
partnership interests at a computed value.
Revenues which, in the sole judgement of the managing general partner, are not
required to meet the Partnership's obligations will be distributed to the
partners at least quarterly in accordance with the limited partnership
agreement. During the years ended December 31, 2000 and 1999, $1,324,583 and
$481,274, respectively, of such revenue-related distributions were made to the
limited partners.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the years ended
December 31:
2000 1999 1998 1997 1996
-------------- ------------- -------------- -------------- ----------
Operating results:
-------------------
Oil and gas sales $ 2,046,224 $ 1,136,073 $ 873,012 $ 1,273,373 $1,632,595
============== ============= ============== ============== ==========
Impairment of oil and gas
properties $ -- $ -- $ 295,542 $ 323,078 $ --
============== ============= ============== ============== ==========
Net income (loss) $ 1,354,094 $ 490,669 $ (177,905) $ 222,730 $ 924,002
============== ============= ============== ============== ==========
Allocation of net income
(loss):
Managing general partner $ 13,541 $ 4,907 $ (1,779) $ 2,227 $ 9,240
============== ============= ============== ============== ==========
Limited partners $ 1,340,553 $ 485,762 $ (176,126) $ 220,503 $ 914,762
============== ============= ============== ============== ==========
Limited partners' net
income (loss) per limited
partnership interest $ 119.17 $ 43.18 $ (15.66) $ 19.60 $ 81.32
============== ============= ============== ============== ==========
Limited partners' cash
distributions per limited
partnership interest $ 117.75 $ 42.78 $ 36.76 $ 75.32 $ 84.40
============== ============= ============== ============== ==========
At year end:
-------------
Identifiable assets $ 1,829,460 $ 1,843,803 $ 1,820,336 $ 2,424,808 $3,051,464
============== ============= ============== ============== ==========
4
1283
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
2000 compared to 1999
The Partnership's oil and gas revenues increased 80% to $2,046,224 for 2000 as
compared to $1,136,073 in 1999. The increase in revenues resulted from higher
average prices received and an increase in production. In 2000, 47,684 barrels
of oil, 21,866 barrels of natural gas liquids ("NGLs") and 85,556 mcf of gas
were sold, or 83,809 barrel of oil equivalents ("BOEs"). In 1999, 46,030 barrels
of oil, 19,026 barrels of NGLs and 74,025 mcf of gas were sold, or 77,394 BOEs.
Due to the decline characteristics of the Partnership's oil and gas properties,
management expects a certain amount of decline in production in the future until
the Partnership's economically recoverable reserves are fully depleted.
The average price received per barrel of oil increased $12.19, or 68%, from
$17.90 in 1999 to $30.09 in 2000. The average price received per barrel of NGLs
increased $6.35, or 63%, from $10.15 in 1999 to $16.50 in 2000. The average
price received per mcf of gas increased 82% from $1.61 in 1999 to $2.93 in 2000.
The market price for oil and gas has been extremely volatile in the past decade
and management expects a certain amount of volatility to continue in the
foreseeable future. The Partnership may therefore sell its future oil and gas
production at average prices lower or higher than that received in 2000.
Gain on disposition of assets of $2,273 was recognized during 2000 from
equipment credits received on one fully depleted well.
Total costs and expenses increased in 2000 to $713,527 as compared to $655,625
in 1999, an increase of $57,902, or 9%. The increase was due to an increase in
production costs, offset by decreases in depletion and general and
administrative expenses ("G&A").
Production costs were $576,561 in 2000 and $442,342 in 1999, resulting in an
increase of $134,219, or 30%. This increase was primarily due to higher
production taxes associated with higher oil and gas prices and additional well
maintenance and workover costs incurred to stimulate well production.
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A decreased
22% from $68,860 in 1999 to $53,623 in 2000. The Partnership paid the managing
general partner $38,999 in 2000 and $33,982 in 1999 for G&A incurred on behalf
of the Partnership. The remaining G&A was paid directly by the Partnership. The
managing general partner determines the allocated expenses based upon the level
of activity of the Partnership relative to the non-partnership activities of the
managing general partner. The method of allocation has been consistent over the
past several years with certain modifications incorporated to reflect changes in
Pioneer USA's overall business activities.
Depletion was $83,343 in 2000 as compared to $144,423 in 1999, representing a
decrease of $61,080, or 42%. This decrease was primarily due to a 82,084 barrels
of oil increase in proved reserves during 2000 as a result of higher commodity
prices.
5
1284
1999 compared to 1998
The Partnership's 1999 oil and gas revenues increased 30% to $1,136,073 from
$873,012 in 1998. The increase in revenues resulted from higher average prices
received, offset by a decline in production. In 1999, 46,030 barrels of oil,
19,026 barrels of NGLs and 74,025 mcf of gas were sold, or 77,394 BOEs. In 1998,
49,100 barrels of oil, 17,427 barrels of NGLs and 68,244 mcf of gas were sold,
or 77,901 BOEs.
The average price received per barrel of oil increased $4.57, or 34%, from
$13.33 in 1998 to $17.90 in 1999. The average price received per barrel of NGLs
increased $3.36, or 49%, from $6.79 in 1998 to $10.15 in 1999. The average price
received per mcf of gas increased 10% from $1.47 in 1998 to $1.61 in 1999.
Gain on disposition of assets of $197 recognized in 1998 was attributable to
credits received from the disposal of oil and gas equipment on a saltwater
disposal well that was plugged and abandoned in a prior year.
Total costs and expenses decreased in 1999 to $655,625 as compared to $1,062,299
in 1998, a decrease of $406,674, or 38%. The decrease was due to declines in the
impairment of oil and gas properties, depletion and production costs, offset by
an increase in G&A.
Production costs were $442,342 in 1999 and $464,489 in 1998, resulting in a
$22,147 decrease, or 5%. This decrease was due to lower ad valorem taxes and
well maintenance costs, offset by an increase in production taxes due to
increased oil and gas revenues.
During this period, G&A increased 58% from $43,606 in 1998 to $68,860 in 1999
primarily due to a higher percentage of the managing general partner's G&A being
allocated (limited to 3% of oil and gas revenues) as a result of increased oil
and gas revenues. The Partnership paid the managing general partner $33,982 in
1999 and $27,503 in 1998 for G&A incurred on behalf of the Partnership.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" ("SFAS 121"), the managing general partner reviews the
Partnership's oil and gas properties for impairment whenever events or
circumstances indicate a decline in the recoverability of the carrying value of
the Partnership's assets may have occurred. As a result of the review and
evaluation of its long-lived assets for impairment, the Partnership recognized a
non-cash charge of $295,542 related to its oil and gas properties during 1998.
Depletion was $144,423 in 1999 compared to $258,662 in 1998. This represented a
decrease of $114,239, or 44%. This decrease was primarily the result of an
increase in proved reserves of 362,706 barrels of oil during 1999 as a result of
higher commodity prices, a reduction in the Partnership's net depletable basis
from charges taken in accordance with SFAS 121 during the fourth quarter of
1998.
6
1285
Petroleum industry
The petroleum industry has been characterized by volatile oil, NGL and natural
gas commodity prices and relatively stable supplier costs during the three years
ended December 31, 2000. During 1998, weather patterns, regional economic
recessions and political matters combined to cause worldwide oil supplies to
exceed demand resulting in a substantial decline in oil prices. Also during
1998, but to a lesser extent, market prices for natural gas declined. During
1999 and 2000, the Organization of Petroleum Exporting Countries ("OPEC") and
certain other crude oil exporting nations announced reductions in their planned
export volumes. Those announcements, together with the enactment of the
announced reductions in export volumes, had a positive impact on world oil
prices, as have overall natural gas supply and demand fundamentals on North
American natural gas prices. Although the favorable commodity price environment
and stable field service cost environment is expected to continue during 2001,
there is no assurance that commodity prices will not return to a less favorable
level or that field service costs will not escalate in the future, both of which
could negatively impact the Partnership's future results of operations and cash
distributions.
Liquidity and capital resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $766,498 during the year
ended December 31, 2000 from 1999. This increase was due to an increase in oil
and gas sales receipts of $919,054 and a decline in G&A expenses paid of
$15,237, offset by increases in production costs paid of $134,219 and working
capital of $33,574. The increase in oil and gas receipts resulted from the
increase in commodity prices during 2000 which contributed an additional
$788,626 to oil and gas receipts and $130,428 resulting from the increase in
production during 2000. The increase in production costs was primarily due to
increased production taxes associated with higher oil and gas prices and
additional well maintenance and workover costs incurred to stimulate well
production.
Net Cash Used in Investing Activities
The Partnership's principal investing activities during 2000 and 1999 were
related to the addition of equipment on various oil and gas properties.
Proceeds from asset dispositions of $2,372 recognized during 2000 were related
to equipment credits on two active wells.
Net Cash Used in Financing Activities
In 2000, cash distributions to the partners were $1,337,963, of which $13,380
was distributed to the managing general partner and $1,324,583 to the limited
partners. In 1999, cash distributions to the partners were $486,135, of which
$4,861 was distributed to the managing general partner and $481,274 to the
limited partners.
7
1286
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
----
Financial Statements of Parker & Parsley 91-B, L.P.:
Independent Auditors' Report........................................................................ 9
Balance Sheets as of December 31, 2000 and 1999..................................................... 10
Statements of Operations for the Years Ended December 31,
2000, 1999 and 1998............................................................................... 11
Statements of Partners' Capital for the Years Ended
December 31, 2000, 1999 and 1998.................................................................. 12
Statements of Cash Flows for the Years Ended December 31,
2000, 1999 and 1998............................................................................... 13
Notes to Financial Statements....................................................................... 14
8
1287
INDEPENDENT AUDITORS' REPORT
The Partners
Parker & Parsley 91-B, L.P.
(A Delaware Limited Partnership):
We have audited the balance sheets of Parker & Parsley 91-B, L.P. as of December
31, 2000 and 1999, and the related statements of operations, partners' capital
and cash flows for each of the three years in the period ended December 31,
2000. 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 auditing standards generally accepted
in the 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. 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 Parker & Parsley 91-B, L.P. as
of December 31, 2000 and 1999, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
Ernst & Young LLP
Dallas, Texas
March 9, 2001
9
1288
PARKER & PARSLEY 91-B, L.P.
(A Delaware Limited Partnership)
BALANCE SHEETS
December 31
2000 1999
---------------- ----------------
ASSETS
Current assets:
Cash $ 185,644 $ 213,165
Accounts receivable - oil and gas sales 281,416 197,204
------------- -------------
Total current assets 467,060 410,369
------------- -------------
Oil and gas properties - at cost, based on the
successful efforts accounting method 9,761,207 9,748,898
Accumulated depletion (8,398,807) (8,315,464)
------------- -------------
Net oil and gas properties 1,362,400 1,433,434
------------- -------------
$ 1,829,460 $ 1,843,803
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable - affiliate $ 6,714 $ 37,188
Partners' capital:
Managing general partner 15,195 15,034
Limited partners (11,249 interests) 1,807,551 1,791,581
------------- -------------
1,822,746 1,806,615
------------- -------------
$ 1,829,460 $ 1,843,803
============== ==============
The accompanying notes are an integral part of these financial statements.
10
1289
PARKER & PARSLEY 91-B, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31
2000 1999 1998
----------- ----------- -----------
Revenues:
Oil and gas $ 2,046,224 $ 1,136,073 $ 873,012
Interest 19,124 10,221 11,185
Gain on disposition of assets 2,273 -- 197
----------- ----------- -----------
2,067,621 1,146,294 884,394
----------- ----------- -----------
Costs and expenses:
Oil and gas production 576,561 442,342 464,489
General and administrative 53,623 68,860 43,606
Impairment of oil and gas properties -- -- 295,542
Depletion 83,343 144,423 258,662
----------- ----------- -----------
713,527 655,625 1,062,299
----------- ----------- -----------
Net income (loss) $ 1,354,094 $ 490,669 $ (177,905)
=========== =========== ===========
Allocation of net income (loss):
Managing general partner $ 13,541 $ 4,907 $ (1,779)
=========== =========== ===========
Limited partners $ 1,340,553 $ 485,762 $ (176,126)
=========== =========== ===========
Net income (loss) per limited partnership interest $ 119.17 $ 43.18 $ (15.66)
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
11
1290
PARKER & PARSLEY 91-B, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Managing
general Limited
partner partners Total
-------------- -------------- ----------------
Partners' capital at January 1, 1998 $ 20,944 $ 2,376,754 $ 2,397,698
Distributions (4,177) (413,535) (417,712)
Net loss (1,779) (176,126) (177,905)
----------- ----------- ------------
Partners' capital at December 31, 1998 14,988 1,787,093 1,802,081
Distributions (4,861) (481,274) (486,135)
Net income 4,907 485,762 490,669
----------- ----------- ------------
Partners' capital at December 31, 1999 15,034 1,791,581 1,806,615
Distributions (13,380) (1,324,583) (1,337,963)
Net income 13,541 1,340,553 1,354,094
----------- ----------- ------------
Partners' capital at December 31, 2000 $ 15,195 $ 1,807,551 $ 1,822,746
============ ============ =============
The accompanying notes are an integral part of these financial statements.
12
1291
PARKER & PARSLEY 91-B, L.P.
(A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31
2000 1999 1998
-------------- -------------- --------------
Cash flows from operations:
Net income (loss) $ 1,354,094 $ 490,669 $ (177,905)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Impairment of oil and gas properties - - 295,542
Depletion 83,343 144,423 258,662
Gain on disposition of assets (2,273) - (197)
Changes in assets and liabilities:
Accounts receivable (84,212) (100,045) 39,758
Accounts payable (30,474) 18,933 (8,855)
----------- ----------- -----------
Net cash provided by operating activities 1,320,478 553,980 407,005
----------- ----------- -----------
Cash flows from investing activities:
Additions to oil and gas properties (12,408) (19,911) (24,381)
Proceeds from asset dispositions 2,372 - 197
----------- ----------- -----------
Net cash used in investing activities (10,036) (19,911) (24,184)
----------- ----------- -----------
Cash flows used in financing activities:
Cash distributions to partners (1,337,963) (486,135) (417,712)
----------- ----------- -----------
Net increase (decrease) in cash (27,521) 47,934 (34,891)
Cash at beginning of year 213,165 165,231 200,122
----------- ----------- -----------
Cash at end of year $ 185,644 $ 213,165 $ 165,231
============ ============ ============
The accompanying notes are an integral part of these financial statements.
13
1292
PARKER & PARSLEY 91-B, L.P.
(A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 2000, 1999 and 1998
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
Parker & Parsley 91-B, L.P. (the "Partnership") is a limited partnership
organized in 1991 under the laws of the State of Delaware. The Partnership's
managing general partner is Pioneer Natural Resources USA, Inc. ("Pioneer USA").
The Partnership engages in oil and gas development and production in Texas
and is not involved in any industry segment other than oil and gas.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
Oil and gas properties - The Partnership utilizes the successful efforts
method of accounting for its oil and gas properties and equipment. Under this
method, all costs associated with productive wells and nonproductive development
wells are capitalized while nonproductive exploration costs are expensed.
Capitalized costs relating to proved properties are depleted using the
unit-of-production method on a property-by-property basis based on proved oil
(dominant mineral) reserves as evaluated by independent petroleum consultants.
The carrying amounts of properties sold or otherwise disposed of and the related
allowances for depletion are eliminated from the accounts and any gain or loss
is included in results of operations.
Impairment of long-lived assets - In accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"), the
Partnership reviews its long-lived assets to be held and used on an individual
property basis, including oil and gas properties accounted for under the
successful efforts method of accounting, whenever events or circumstances
indicate that the carrying value of those assets may not be recoverable. An
impairment loss is indicated if the sum of the expected future cash flows is
less than the carrying amount of the assets. In this circumstance, the
Partnership recognizes an impairment loss for the amount by which the carrying
amount of the asset exceeds the estimated fair value of the asset.
Use of estimates in the preparation of financial statements - Preparation
of the accompanying 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 periods.
Actual results could differ from those estimates.
Net income (loss) per limited partnership interest - The net income
(loss) per limited partnership interest is calculated by using the number of
outstanding limited partnership interests.
Income taxes - A Federal income tax provision has not been included in
the financial statements as the income of the Partnership is included in the
individual Federal income tax returns of the respective partners.
14
1293
Statements of cash flows - For purposes of reporting cash flows, cash
includes depository accounts held by banks.
General and administrative expenses - General and administrative
expenses are allocated in part to the Partnership by the managing general
partner. Allocated expenses are determined by the managing general partner based
upon the level of activity of the Partnership relative to the non-partnership
activities of the managing general partner. The method of allocation has been
consistent over the past several years with certain modifications incorporated
to reflect changes in Pioneer USA's overall business activities.
Reclassifications - Certain reclassifications may have been made to the
1999 and 1998 financial statements to conform to the 2000 financial statement
presentations.
Environmental - The Partnership is subject to extensive federal, state
and local environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and may
require the Partnership to remove or mitigate the environmental effects of the
disposal or release of petroleum or chemical substances at various sites.
Environmental expenditures are expensed or capitalized depending on their future
economic benefit. Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefits are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessment and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component are fixed or reliably
determinable. No such liabilities have been accrued as of December 31, 2000.
Revenue recognition - The Partnership uses the entitlements method of
accounting for oil, natural gas liquids ("NGLs") and natural gas revenues.
NOTE 3. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS 121, the Partnership reviews its proved oil and
gas properties for impairment whenever events and circumstances indicate a
decline in the recoverability of the carrying value of the Partnership's oil and
gas properties. The Partnership has estimated the expected future cash flows of
its oil and gas properties as of December 31, 2000, 1999 and 1998, based on
proved reserves, and compared such estimated future cash flows to the respective
carrying amount of the oil and gas properties to determine if the carrying
amounts were likely to be recoverable. For those proved oil and gas properties
for which the carrying amount exceeded the estimated future cash flows, an
impairment was determined to exist; therefore, the Partnership adjusted the
carrying amount of those oil and gas properties to their fair value as
determined by discounting their expected future cash flows at a discount rate
commensurate with the risks involved in the industry. As a result, the
Partnership recognized a non-cash impairment provision of $295,542 related to
its proved oil and gas properties during 1998.
15
1294
NOTE 4. INCOME TAXES
The financial statement basis of the Partnership's net assets and
liabilities was $367,378 greater than the tax basis at December 31, 2000.
The following is a reconciliation of net income (loss) per statements of
operations with the net income (loss) per Federal income tax returns for the
years ended December 31:
2000 1999 1998
-------------- -------------- --------------
Net income (loss) per statements of operations $ 1,354,094 $ 490,669 $ (177,905)
Depletion and depreciation provisions for tax
reporting purposes greater than amounts for
financial reporting purposes (27,307) (115,006) (139,323)
Impairment of oil and gas properties for financial
reporting purposes - - 295,542
Salvage income - -
Intangible development costs capitalized for
financial reporting purposes and expensed
for tax reporting purposes (328) - -
Other, net (2,832) (4,142) 4,532
------------ ----------- -----------
Net income (loss) per Federal income
tax returns $ 1,323,627 $ 371,521 $ (17,154)
============= ============ ============
NOTE 5. OIL AND GAS PRODUCING ACTIVITIES
The following is a summary of the net costs incurred, whether
capitalized or expensed, related to the Partnership's oil and gas producing
activities for the years ended December 31:
2000 1999 1998
-------------- -------------- --------------
Development costs $ 12,408 $ 19,911 $ 24,381
============= ============ ============
Capitalized oil and gas properties consist of the following:
2000 1999
---------------- ----------------
Property acquisition costs $ 949,486 $ 949,486
Completed wells and equipment 8,811,721 8,799,412
------------- -------------
9,761,207 9,748,898
Accumulated depletion (8,398,807) (8,315,464)
------------- -------------
Net oil and gas properties $ 1,362,400 $ 1,433,434
============== ==============
NOTE 6. RELATED PARTY TRANSACTIONS
Pursuant to the limited partnership agreement, the Partnership had the
following related party transactions with the managing general partner during
the years ended December 31:
16
1295
2000 1999 1998
-------------- -------------- --------------
Payment of lease operating and supervision
charges in accordance with standard
industry operating agreements $ 196,507 $ 189,784 $ 182,097
Reimbursement of general and administrative
expenses $ 38,999 $ 33,982 $ 27,503
The Partnership participates in oil and gas activities through an income
tax partnership (the "Program") pursuant to the Program agreement. Pioneer USA,
P&P Employees 91-B GP ("EMPL") and the Partnership are parties to the Program
agreement. EMPL is a general partnership organized for the benefit of certain
employees of Pioneer USA. EMPL was merged with Pioneer USA on December 28, 2000.
The costs and revenues of the Program are allocated to Pioneer USA and
the Partnership as follows:
Pioneer USA (1) Partnership (1)
--------------- ---------------
Revenues:
Proceeds from disposition of depreciable and
depletable properties 34.3434343% 65.6565657%
All other revenues 34.3434343% 65.6565657%
Costs and expenses:
Lease acquisition costs, drilling and completion
costs and all other costs 24.2424242% 75.7575758%
Operating costs, reporting and legal expenses and
general and administrative expenses 34.3434343% 65.6565657%
(1) Includes Pioneer USA's 1% general partner ownership which is
allocated at the Partnership level and 10 limited partner interests
owned by Pioneer USA.
NOTE 7. OIL AND GAS INFORMATION (UNAUDITED)
The following table presents information relating to the Partnership's
estimated proved oil and gas reserves at December 31, 2000, 1999 and 1998 and
changes in such quantities during the years then ended. All of the Partnership's
reserves are proved developed and located within the United States. The
Partnership's reserves are based on an evaluation prepared by Williamson
Petroleum Consultants, Inc., an independent petroleum consultant, using criteria
established by the Securities and Exchange Commission.
Oil and NGLs Gas
(bbls) (mcf)
---------- ----------
Net proved reserves at January 1, 1998 803,868 767,367
Revisions (224,362) (91,817)
Production (66,527) (68,244)
---------- ----------
Net proved reserves at December 31, 1998 512,979 607,306
Revisions 550,155 821,693
Production (65,056) (74,025)
---------- ----------
Net proved reserves at December 31, 1999 998,078 1,354,974
Revisions 113,248 (43,847)
Production (69,550) (85,556)
---------- ----------
Net proved reserves at December 31, 2000 1,041,776 1,225,571
========== ==========
17
1296
As of December 31, 2000, the estimated present value of future net
revenues of proved reserves, calculated using December 31, 2000 prices of $26.64
per barrel of oil, $13.59 per barrel of NGLs and $7.73 per mcf of gas,
discounted at 10% was approximately $8,364,000 and undiscounted was $17,283,000.
Numerous uncertainties exist in estimating quantities of proved reserves
and future net revenues therefrom. The estimates of proved reserves and related
future net revenues set forth in this Report are based on various assumptions,
which may ultimately prove to be inaccurate. Therefore, such estimates should
not be construed as estimates of the current market value of the Partnership's
proved reserves. The Partnership emphasizes that reserve estimates are
inherently imprecise and, accordingly, the estimates are expected to change as
future information becomes available.
Disclosures about Oil & Gas Producing Activities
Standardized Measure of Discounted Future Net Cash Flows
The standardized measure of discounted future net cash flows is computed
by applying year-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil and gas reserves less estimated future expenditures
(based on year-end costs) to be incurred in developing and producing the proved
reserves, discounted using a rate of 10% per year to reflect the estimated
timing of the future cash flows. A Federal income tax provision has not been
calculated as the income of the Partnership is included in the individual
Federal income tax returns of the respective partners.
Discounted future cash flow estimates like those shown below are not
intended to represent estimates of the fair value of oil and gas properties.
Estimates of fair value should also consider anticipated future oil and gas
prices, interest rates, changes in development and production costs and risks
associated with future production. Because of these and other considerations,
any estimate of fair value is necessarily subjective and imprecise.
For the years ended December 31,
-------------------------------------------------------
2000 1999 1998
---------------- ---------------- ----------------
(in thousands)
Oil and gas producing activities:
Future cash inflows $ 33,121 $ 24,943 $ 5,585
Future production costs (15,838) (13,003) (4,101)
------------- ------------ -------------
17,283 11,940 1,484
10% annual discount factor (8,919) (6,088) (509)
------------- ------------ -------------
Standardized measure of discounted future net cash flows $ 8,364 $ 5,852 $ 975
============== ============= ==============
18
1297
For the years ended December 31,
-------------------------------------------------------
2000 1999 1998
---------------- ---------------- ----------------
(in thousands)
Oil and Gas Producing Activities:
Oil and gas sales, net of production costs $ (1,470) $ (694) $ (409)
Net changes in prices and production costs 2,610 2,945 (1,842)
Revisions of previous quantity estimates 721 4,406 (324)
Accretion of discount 585 97 327
Changes in production rates, timing and other 66 (1,877) (45)
------------- ------------ ------------
Change in present value of future net revenues 2,512 4,877 (2,293)
------------- ------------ ------------
Balance, beginning of year 5,852 975 3,268
------------- ------------ ------------
Balance, end of year $ 8,364 $ 5,852 $ 975
============== ============= =============
NOTE 8. MAJOR CUSTOMERS
The following table reflects the major customers of the Partnership's oil
and gas sales (a major customer is defined as a customer whose sales exceed 10%
of total sales) during the periods ended December 31:
2000 1999 1998
-------- -------- --------
Mobil Oil Corporation 48% 48% 48%
Plains Marketing, L.P. 22% 23% -
Genesis Crude Oil, L.P. - - 26%
Western Gas Resources, Inc. 4% 6% 22%
At December 31, 2000, the amounts receivable from Mobil Oil Corporation
and Plains Marketing, L.P. were $64,224 and $32,862, respectively, which are
included in the caption "Accounts receivable - oil and gas sales" in the
accompanying Balance Sheet.
Pioneer USA is of the opinion that the loss of any one purchaser would
not have an adverse effect on the ability of the Partnership to sell its oil,
NGLs and gas production.
NOTE 9. PARTNERSHIP AGREEMENT
The following is a brief summary of the more significant provisions of
the limited partnership agreement:
Managing general partner - The managing general partner of the
Partnership is Pioneer USA. Pioneer USA has the power and authority to
manage, control and administer all Partnership affairs. As managing
general partner and operator of the Partnership's properties, all
production expenses are incurred by Pioneer USA and billed to the
Partnership. The majority of the Partnership's oil and gas revenues are
received directly by the Partnership, however, a
19
1298
portion of the oil and gas revenue is initially received by Pioneer USA
prior to being paid to the Partnership. Under the limited partnership
agreement, the managing general partner pays 1% of the Partnership's
acquisition, drilling and completion costs, and 1% of its operating and
general and administrative expenses. In return it is allocated 1% of the
Partnership's revenues.
Limited partner liability - The maximum amount of liability of any
limited partner is the total contributions of such partner plus his
share of any undistributed profits.
Initial capital contributions - The limited partners entered into
subscription agreements for aggregate capital contributions of
$11,249,000. The managing general partner is required to contribute
amounts equal to 1% of initial Partnership capital less sales commission
costs allocated to the limited partners and to contribute amounts
necessary to pay costs and expenses allocated to it under the
Partnership agreement to the extent its share of revenues does not cover
such costs.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
20
1299
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP
The Partnership does not have any officers or directors. Under the limited
partnership agreement, the Partnership's managing general partner, Pioneer USA,
is granted the exclusive right and full authority to manage, control and
administer the Partnership's business.
Set forth below are the names, ages and positions of the directors and executive
officers of Pioneer USA. Directors of Pioneer USA are elected to serve until the
next annual meeting of stockholders or until their successors are elected and
qualified.
Age at
December 31,
Name 2000 Position
---- ---- --------
Scott D. Sheffield 48 President
Timothy L. Dove 44 Executive Vice President, Chief
Financial Officer and Director
Dennis E. Fagerstone 51 Executive Vice President and Director
Mark L. Withrow 53 Executive Vice President, General
Counsel and Director
Danny Kellum 46 Executive Vice President - Domestic
Operations and Director
Rich Dealy 34 Vice President and Chief Accounting
Officer
Scott D. Sheffield. Mr. Sheffield is a graduate of The University of
Texas with a B.S. in Petroleum Engineering. Since August 1997, he has served as
President, Chief Executive Officer and a director of Pioneer and President of
Pioneer USA. Mr. Sheffield assumed the position of Chairman of the Board of
Pioneer in August 1999. He served as a director of Pioneer USA from August 1997
until his resignation from the board in June 1999. Mr. Sheffield was the
President and a director of Parker & Parsley Petroleum Company ("Parker &
Parsley") from May 1990 until August 1997 and was the Chairman of the Board and
Chief Executive Officer of Parker & Parsley from October 1990 until August 1997.
He was the sole director of Parker & Parsley from May 1990 until October 1990.
Mr. Sheffield joined Parker & Parsley Development Company ("PPDC"), a
predecessor of Parker & Parsley, as a petroleum engineer in 1979. He served as
Vice President - Engineering of PPDC from September 1981 until April 1985 when
he was elected President and a director. In March 1989, Mr. Sheffield was
elected Chairman of the Board and Chief Executive Officer of PPDC. Before
joining PPDC's predecessor, Mr. Sheffield was employed as a production and
reservoir engineer for Amoco Production Company.
21
1300
Timothy L. Dove. Mr. Dove earned a B.S. in Mechanical Engineering from
Massachusetts Institute of Technology in 1979 and received his M.B.A. in 1981
from the University of Chicago. He became Executive Vice President - Business
Development of Pioneer and Pioneer USA in August 1997 and was also appointed a
director of Pioneer USA in August 1997. Mr. Dove assumed the position of Chief
Financial Officer of Pioneer and Pioneer USA effective February 1, 2000. Mr.
Dove joined Parker & Parsley in May 1994 as Vice President - International and
was promoted to Senior Vice President - Business Development in October 1996, in
which position he served until August 1997. Prior to joining Parker & Parsley,
Mr. Dove was employed with Diamond Shamrock Corp., and its successor, Maxus
Energy Corp, in various capacities in international exploration and production,
marketing, refining and marketing and planning and development.
Dennis E. Fagerstone. Mr. Fagerstone, a graduate of the Colorado School
of Mines with a B.S. in Petroleum Engineering, became an Executive Vice
President of Pioneer and Pioneer USA in August 1997. He was also appointed a
director of Pioneer USA in August 1997. He served as Executive Vice President
and Chief Operating Officer of MESA Inc. ("Mesa") from March 1, 1997 until
August 1997. From October 1996 to February 1997, Mr. Fagerstone served as Senior
Vice President and Chief Operating Officer of Mesa and from May 1991 to October
1996, he served as Vice President - Exploration and Production of Mesa. From
June 1988 to May 1991, Mr. Fagerstone served as Vice President - Operations of
Mesa.
Mark L. Withrow. Mr. Withrow, a graduate of Abilene Christian University
with a B. S. in Accounting and Texas Tech University with a Juris Doctorate
degree, became Executive Vice President, General Counsel and Secretary of
Pioneer and Pioneer USA in August 1997. He was also appointed a director of
Pioneer USA in August 1997. Mr. Withrow was Vice President - General Counsel of
Parker & Parsley from January 1991, when he joined Parker & Parsley, to January
1995, when he was appointed Senior Vice President - General Counsel. He was
Parker & Parsley's Secretary from August 1992 until August 1997. Prior to
joining Parker & Parsley, Mr. Withrow was the managing partner of the law firm
of Turpin, Smith, Dyer, Saxe & MacDonald, Midland, Texas.
Danny Kellum. Mr. Kellum, who received a Bachelor of Science degree in
Petroleum Engineering from Texas Tech University in 1979, was elected Executive
Vice President - Domestic Operations of Pioneer and Pioneer USA on May 18, 2000
and Director of Pioneer USA on February 1, 2000. From January 2000 until May
2000, Mr. Kellum served as Vice President - Domestic Operations of Pioneer and
Pioneer USA. Mr. Kellum served as Vice President Permian Division of Pioneer and
Pioneer USA from April 1998 until December 1999. From 1989 until 1994 he served
as Spraberry District Manager and as Vice President of the Spraberry and Permian
Division for Parker & Parsley until August of 1997. Mr. Kellum joined Parker &
Parsley as an operations engineer in 1981 after a brief career with Mobil Oil
Corporation.
Rich Dealy. Mr. Dealy is a graduate of Eastern New Mexico University
with a B.B.A. in Accounting and Finance and is a Certified Public Accountant. He
became Vice President and Chief Accounting Officer of Pioneer and Pioneer USA in
February 1998. Mr. Dealy served as Controller of Pioneer USA from August 1997 to
February 1998. He served as Controller of Parker & Parsley from August 1995 to
August 1997. Mr. Dealy joined Parker & Parsley as an Accounting Manager in July,
1992. He was previously employed with KPMG Peat Marwick as an Audit Senior, in
charge of Parker & Parsley's audit.
22
1301
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have any directors or officers. Management of the
Partnership is performed by the managing general partner. The Partnership
participates in oil and gas activities through an income tax partnership (the
"Program") pursuant to the Program agreement. Under the Program agreement,
Pioneer USA pays approximately 25% of the Program's acquisition, drilling and
completion costs and approximately 35% of its operating and general and
administrative expenses. In return, they are allocated approximately 35% of the
Program's revenues.
The Partnership does not directly pay any salaries of the executive officers or
employees of Pioneer USA, but does pay a portion of Pioneer USA's general and
administrative expenses of which these salaries are a part.
See Notes 6 and 9 of Notes to Financial Statements included in "Item 8.
Financial Statements and Supplementary Data" for information regarding fees and
reimbursements paid to the managing general partner by the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Beneficial owners of more than five percent
The Partnership is not aware of any person who beneficially owns 5% or more of
the outstanding limited partnership interests of the Partnership. Pioneer USA
owned 10 limited partner interests at January 1, 2001.
(b) Security ownership of management
The Partnership does not have any officers or directors. The managing general
partner of the Partnership, Pioneer USA, has the exclusive right and full
authority to manage, control and administer the Partnership's business. Under
the limited partnership agreement, limited partners holding a majority of the
outstanding limited partnership interests have the right to take certain
actions, including the removal of the managing general partner or any other
general partner. The Partnership is not aware of any current arrangement or
activity which may lead to such removal. The Partnership is not aware of any
officer or director of Pioneer USA who beneficially owns limited partnership
interests in the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the managing general partner
Pursuant to the limited partnership agreement, the Partnership had the following
related party transactions with the managing general partner during the years
ended December 31:
23
1302
2000 1999 1998
------------- ------------- -------------
Payment of lease operating and supervision
charges in accordance with standard industry
operating agreements $ 196,507 $ 189,784 $ 182,097
Reimbursement of general and administrative
expenses $ 38,999 $ 33,982 $ 27,503
Under the limited partnership agreement, the managing general partner pays 1% of
the Partnership's acquisition, drilling and completion costs and 1% of its
operating and general and administrative expenses. In return, it is allocated 1%
of the Partnership's revenues. Also, see Notes 6 and 9 of Notes to Financial
Statements included in "Item 8. Financial Statements and Supplementary Data",
regarding the Partnership's participation with the managing general partner in
oil and gas activities of the Program.
24
1303
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial statements
The following are filed as part of this Report:
Independent Auditors' Report
Balance sheets as of December 31, 2000 and 1999
Statements of operations for the years ended December 31, 2000,
1999 and 1998
Statements of partners' capital for the years ended December
31, 2000, 1999 and 1998
Statements of cash flows for the years ended December 31, 2000,
1999 and 1998
Notes to financial statements
2. Financial statement schedules
All financial statement schedules have been omitted since the
required information is in the financial statements or notes
thereto, or is not applicable nor required.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits listed on the accompanying index to exhibits are filed or
incorporated by reference as part of this Report.
25
1304
S I G N A T U R E S
Pursuant to the requirements 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.
PARKER & PARSLEY 91-B, L.P.
Dated: March 27, 2001 By: Pioneer Natural Resources USA, Inc.
Managing General Partner
By: /s/ Scott D. Sheffield
--------------------------------
Scott D. Sheffield, President
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/ Scott D. Sheffield President of Pioneer USA March 27, 2001
--------------------------------------------
Scott D. Sheffield
/s/ Timothy L. Dove Executive Vice President, Chief March 27, 2001
-------------------------------------------- Financial Officer and Director of
Timothy L. Dove Pioneer USA
/s/ Dennis E. Fagerstone Executive Vice President and March 27, 2001
-------------------------------------------- Director of Pioneer USA
Dennis E. Fagerstone
/s/ Mark L. Withrow Executive Vice President, General March 27, 2001
-------------------------------------------- Counsel and Director of Pioneer USA
Mark L. Withrow
/s/ Danny Kellum Executive Vice President - Domestic March 27, 2001
-------------------------------------------- Operations and Director of Pioneer
Danny Kellum USA
/s/ Rich Dealy Vice President and Chief Accounting March 27, 2001
-------------------------------------------- Officer of Pioneer USA
Rich Dealy
26
1305
PARKER & PARSLEY 91-B, L.P.
INDEX TO EXHIBITS
The following documents are incorporated by reference in response to
Item 14(c):
Exhibit No. Description Page
----------- ----------- ----
3(a) Form of Agreement of Limited Partnership -
of Parker & Parsley 91-B, L.P. incorporated
by reference to Exhibit A of the Partnership's
Registration Statement on Form S-1
(Registration No. 33-38582) (hereinafter
called the Partnership's Registration Statement)
4(b) Form of Limited Partner Subscription Agreement -
incorporated by reference to Exhibit C of the
Partnership's Registration Statement
4(b) Form of General Partner Subscription Agreement -
incorporated by reference to Exhibit D of the
Partnership's Registration Statement
4(b) Power of Attorney incorporated by reference to -
Exhibit B of the Partnership's Registration
Statement
4(c) Specimen Certificate of Limited Partnership -
Interest incorporated by reference to Exhibit 4.3
of Amendment No. 2 of the Partnership's
Registration Statement
10(b) Development Drilling Program Agreement -
incorporated by reference to Exhibit B of the
Partnership's Registration Statement
27
1306
PARKER & PARSLEY 91-B, L.P.
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership should be read in
connection with Management's Discussion and Analysis of Financial Condition and
Results of Operations and the financial statements included in the attached
supplemental information.
Three months
ended
March 31, Years ended December 31,
--------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- ---------- ---------- ---------- ---------- ---------- ----------
Operating results:
Oil and gas sales $ $ 453,588 $2,046,224 $1,136,073 $ 873,012 $1,273,373 $1,632,595
======== ========== ========== ========== ========== ========== ==========
Impairment of oil and
gas properties $ $ -- $ -- $ -- $ 295,542 $ 323,078 $ --
======== ========== ========== ========== ========== ========== ==========
Net income (loss) $ $ 277,672 $1,354,094 $ 490,669 $ (177,905) $ 222,730 $ 924,002
======== ========== ========== ========== ========== ========== ==========
Allocation of net income
(loss):
Managing general
partner $ $ 2,777 $ 13,541 $ 4,907 $ (1,779) $ 2,227 $ 9,240
======== ========== ========== ========== ========== ========== ==========
Limited partners $ $ 274,895 $1,340,553 $ 485,762 $ (176,126) $ 220,503 $ 914,762
======== ========== ========== ========== ========== ========== ==========
Limited partners' net
income (loss) per limited
partnership interest $ $ 24.44 $ 119.17 $ 43.18 $ (15.66) $ 19.60 $ 81.32
======== ========== ========== ========== ========== ========== ==========
Limited partners' cash
distributions per limited
partnership interest $ $ 21.87 $ 117.75 $ 42.78 $ 36.76 $ 75.32 $ 84.40
======== ========== ========== ========== ========== ========== ==========
At year end:
Identifiable assets $ $1,863,707 $1,829,460 $1,843,803 $1,820,336 $2,424,808 $3,051,464
======== ========== ========== ========== ========== ========== ==========
1307
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Article Twelfth of the Amended and Restated Certificate of Incorporation of
Pioneer provides that Pioneer must indemnify its officers and directors to the
extent allowed by the Delaware General Corporation Law. Pursuant to Section 145
of the Delaware General Corporation Law, Pioneer generally has the power to
indemnify its present and former directors and officers against expenses and
liabilities incurred by them in connection with any suit to which they are, or
are threatened to be made, a party by reason of their serving in those positions
so long as they acted in good faith and in a manner they reasonably believed to
be in, or not opposed to, the best interests of Pioneer, and with respect to any
criminal action, they had no reasonable cause to believe their conduct was
unlawful. With respect to suits by or in the right of Pioneer, however,
indemnification is generally limited to attorneys' fees and other expenses and
is not available if the person is adjudged to be liable to Pioneer unless the
court determines that indemnification is appropriate. The statute expressly
provides that the power to indemnify authorized thereby is not exclusive of any
rights granted under any by-law, agreement, vote of stockholders or
disinterested directors, or otherwise. Pioneer also has the power to purchase
and maintain insurance for its directors and officers. Additionally, Article
Twelfth of the Amended and Restated Certificate of Incorporation of Pioneer
provides that, in the event that an officer or director files suit against
Pioneer seeking indemnification of liabilities or expenses incurred, the burden
will be on Pioneer to prove that the indemnification would not be permitted
under the Delaware General Corporation Law.
Pioneer has entered into indemnification agreements with each of its
directors and officers. These agreements provide that Pioneer must, within 30
days of a request, indemnify an officer or director for liabilities incurred to
the fullest extent permitted by the Delaware General Corporation Law. Pioneer
must, within two days of a request, indemnify an officer or director for
expenses incurred in the defense of a claim or other proceeding. The obligation
of Pioneer to provide the indemnification does not apply if, before the date on
which Pioneer must provide the indemnification, Pioneer's board of directors, or
a representative chosen by the board of directors, concludes that
indemnification would be improper under the Delaware General Corporation Law.
The preceding discussion of Pioneer's Amended and Restated Certificate of
Incorporation, Section 145 of the Delaware General Corporation Law, and the
indemnification agreements is not intended to be exhaustive and is qualified in
its entirety by such Amended and Restated Certificate of Incorporation, Section
145 of the Delaware General Corporation Law, and such indemnification
agreements.
II-1
1308
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following exhibits are filed with the registration statement:
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 Agreement and Plan of Merger dated as of , 2001, among
Pioneer, Pioneer USA and the partnerships named therein
(included as Appendix E to the proxy statement/prospectus
forming a part of this Registration Statement).
3.1 Amended and Restated Certificate of Incorporation of Pioneer
(incorporated by reference to Exhibit 3.1 to Pioneer's
Registration Statement on Form S-4 dated June 27, 1997,
Registration No. 333-26951).
3.2 Restated Bylaws of Pioneer (incorporated by reference to
Exhibit 3.2 to Pioneer's Registration Statement on Form S-4
dated June 27, 1997, Registration No. 333-26951).
3.3 Certificate of Designations of Special Preferred Voting Stock
(incorporated by reference to Exhibit 3.3 of Pioneer's
Registration Statement on Form S-3, Registration No.
333-42315, filed with the SEC on December 17, 1997).
3.4 Terms and Conditions of Exchangeable Shares (incorporated by
reference to Annex F to the Definitive Joint Management
Information Circular and Proxy Statement of Pioneer and
Chauvco, File No. 001-13245, filed with the SEC on November
17, 1997).
4.1 Form of Certificate of Common Stock, par value $.01 per share,
of Pioneer (incorporated by reference to Exhibit 4.1 to
Pioneer's Registration Statement on Form S-4 dated June 27,
1997, Registration No. 333-26951).
4.2 Form of Certificate of Special Preferred Voting Stock
(incorporated by reference to Exhibit 4.1 to Pioneer's Current
Report on Form 8-K, File No. 001-13245, filed with the SEC on
January 2, 1998).
4.3 Form of Certificate of Exchangeable Shares (incorporated by
reference to Exhibit 4.2 to Pioneer's Current Report on Form
8-K, File No. 001-13245, filed with the SEC on January 2,
1998).
5.1* Form of opinion of Vinson & Elkins L.L.P. as to the legality
of the securities to be registered.
8.1 Form of opinion of , as special legal counsel to the
limited partners, regarding tax matters as required by the
partnership agreement of each partnership (included as Exhibit
A to Appendix D to the proxy statement/prospectus forming a
part of this Registration Statement).
9.1 Voting and Exchange Trust Agreement dated as of December 18,
1997, among Pioneer, Pioneer Natural Resources (Canada) Ltd.
("Pioneer Canada"), and Montreal Trust Company of Canada, as
trustee (incorporated by reference to Exhibit 2.4 to Pioneer's
Current Report on Form 8-K, File No. 001-13245, filed with the
SEC on January 2, 1998).
10.1 Indenture dated July 2, 1996, among Pioneer USA (formerly Mesa
Operating Co. ("MOC")), as issuer, Pioneer, as guarantor, and
Harris Trust and Savings Bank, as trustee, relating to the
11 5/8% Senior Subordinated Discount Notes Due 2006
(incorporated by reference to Exhibit 4.17 to MESA Inc.'s
Quarterly Report on Form 10-Q for the period ended June 30,
1996).
II-2
1309
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.2 First Supplemental Indenture dated as of April 15, 1997, among
Pioneer USA (formerly MOC), as issuer, MESA Inc. ("Mesa"), the
subsidiary guarantors named therein, Pioneer and Harris Trust
and Savings Bank, as trustee, with respect to the indenture
identified above as Exhibit 10.1 (incorporated by reference to
Exhibit 10.1 to Pioneer's Quarterly Report on Form 10-Q for
the period ended September 30, 1997, File No. 001-13245).
10.3 Second Supplemental Indenture dated as of August 7, 1997,
among Pioneer USA (formerly MOC), as issuer, Mesa, the
subsidiary guarantors named therein, Pioneer and Harris Trust
and Savings Bank, as trustee, with respect to the indenture
identified above as Exhibit 10.1 (incorporated by reference to
Exhibit 10.2 to Pioneer's Quarterly Report on Form 10-Q for
the period ended September 30, 1997, File No. 001-13245).
10.4 Third Supplemental Indenture dated as of December 18, 1997,
among Pioneer USA, the subsidiary guarantors named therein,
Pioneer and Harris Trust and Savings Bank, as trustee, with
respect to the indenture identified above as Exhibit 10.1
(incorporated by reference to Exhibit 10.12 to Pioneer's
Current Report on Form 8-K, File No. 001-13245, filed with the
SEC on January 2, 1998).
10.5 Fourth Supplemental Indenture dated as of December 30, 1997,
among Pioneer USA (formerly MOC), Pioneer, Pioneer NewSub1,
Inc. and Harris Trust and Savings Bank, as trustee, with
respect to the indenture identified above as Exhibit 10.1
(incorporated by reference to Exhibit 10.13 to Pioneer's
Current Report on Form 8-K, File No. 001-13245, filed with the
SEC on January 2, 1998).
10.6 Fifth Supplemental Indenture dated as of December 30, 1997,
among Pioneer NewSub1, Inc. (as successor to Pioneer USA),
Pioneer, Pioneer DebtCo., Inc. and Harris Trust and Savings
Bank, as trustee, with respect to the indenture identified
above as Exhibit 10.1 (incorporated by reference to Exhibit
10.14 to Pioneer's Current Report on Form 8-K, File No.
001-13245, filed with the SEC on January 2, 1998).
10.7 Sixth Supplemental Indenture dated as of December 30, 1997,
among Pioneer DebtCo. Inc. (as successor to Pioneer NewSub1,
Inc.), Pioneer, and Harris Trust and Savings Bank, as trustee,
with respect to the indenture identified above as Exhibit 10.1
(incorporated by reference to Exhibit 10.15 to Pioneer's
Current Report on Form 8-K, File No. 001-13245, filed with the
SEC on January 2, 1998).
10.8 Indenture dated July 2, 1996, among Pioneer USA (formerly
MOC), as issuer, Pioneer (as Mesa's successor), as guarantor,
and Harris Trust and Savings Bank, as trustee, relating to the
10 5/8% Senior Subordinated Notes Due 2006 (incorporated by
reference to Exhibit 4.18 to Mesa's Quarterly Report on Form
10-Q for the period ended June 30, 1996).
10.9 First Supplemental Indenture dated as of April 15, 1997, among
Pioneer USA (formerly MOC), as issuer, Mesa, the subsidiary
guarantors named therein, Pioneer and Harris Trust and Savings
Bank, as trustee, with respect to the indenture identified
above as Exhibit 10.8 (incorporated by reference to Exhibit
10.3 to Pioneer's Quarterly Report on Form 10-Q for the period
ended September 30, 1997, File No. 001-13245).
10.10 Second Supplemental Indenture dated as of August 7, 1997,
among Pioneer USA (formerly MOC), as issuer, Mesa, the
subsidiary guarantors named therein, Pioneer and Harris Trust
and Savings Bank, as trustee, with respect to the indenture
identified above as Exhibit 10.8 (incorporated by reference to
Exhibit 10.4 to Pioneer's Quarterly Report on Form 10-Q for
the period ended September 30, 1997, File No. 001-13245).
II-3
1310
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.11 Third Supplemental Indenture dated as of December 18, 1997,
among Pioneer USA, the subsidiary guarantors named therein,
Pioneer and Harris Trust and Savings Bank, as trustee, with
respect to the indenture identified above as Exhibit 10.8
(incorporated by reference to Exhibit 10.6 to Pioneer's
Current Report on Form 8-K, File No. 001-13245, filed with the
SEC on January 2, 1998).
10.12 Fourth Supplemental Indenture dated as of December 30, 1997,
among Pioneer USA, Pioneer, Pioneer NewSub1, Inc. and Harris
Trust and Savings Bank, as trustee, with respect to the
indenture identified above as Exhibit 10.8 (incorporated by
reference to Exhibit 10.7 to Pioneer's Current Report on Form
8-K, File No. 001-13245, filed with the SEC on January 2,
1998).
10.13 Fifth Supplemental Indenture dated as of December 30, 1997,
among Pioneer NewSub1, Inc. (as successor to Pioneer USA),
Pioneer, Pioneer DebtCo, Inc. and Harris Trust and Savings
Bank, as trustee, with respect to the indenture identified
above as Exhibit 10.8 (incorporated by reference to Exhibit
10.8 to Pioneer's Current Report on Form 8-K, File No.
001-13245, filed with the SEC on January 2, 1998).
10.14 Sixth Supplemental Indenture dated as of December 30, 1997,
among Pioneer DebtCo, Inc. (as successor to Pioneer NewSub1,
Inc.), Pioneer and Harris Trust and Savings Bank, as trustee,
with respect to the indenture identified above as Exhibit 10.8
(incorporated by reference to Exhibit 10.9 to Pioneer's
Current Report on Form 8-K, File No. 001- 13245, filed with
the SEC on January 2, 1998).
10.15 Indenture dated April 12, 1995, between Pioneer USA (successor
to Parker & Parsley Petroleum Company ("Parker & Parsley"))
and The Chase Manhattan Bank (National Association), as
trustee (incorporated by reference to Exhibit 4.1 to Parker &
Parsley's Current Report on Form 8-K dated April 12, 1995,
File No. 1-10695).
10.16 First Supplemental Indenture dated as of August 7, 1997, among
Parker & Parsley, The Chase Manhattan Bank, as trustee, and
Pioneer USA, with respect to the indenture identified above as
Exhibit 10.15 (incorporated by reference to Exhibit 10.5 to
Pioneer's Quarterly Report on Form 10-Q for the period ended
September 30, 1997, File No. 001-13245).
10.17 Second Supplemental Indenture dated as of December 30, 1997,
among Pioneer USA, Pioneer NewSub1, Inc. and The Chase
Manhattan Bank, as trustee, with respect to the indenture
identified above as Exhibit 10.15 (incorporated by reference
to Exhibit 10.17 to Pioneer's Current Report on Form 8-K, File
No. 001-13245, filed with the SEC on January 2, 1998).
10.18 Third Supplemental Indenture dated as of December 30, 1997,
among Pioneer NewSub1, Inc. (as successor to Pioneer USA),
Pioneer DebtCo, Inc. and The Chase Manhattan Bank, as trustee,
with respect to the indenture identified above as Exhibit
10.15 (incorporated by reference to Exhibit 10.18 to Pioneer's
Current Report on Form 8-K, File No. 001-13245, filed with the
SEC on January 2, 1998).
10.19 Fourth Supplemental Indenture dated as of December 30, 1997,
among Pioneer DebtCo, Inc. (as successor to Pioneer NewSub1,
Inc., as successor to Pioneer USA), Pioneer, Pioneer USA and
The Chase Manhattan Bank, as trustee, with respect to the
indenture identified above as Exhibit 10.15 (incorporated by
reference to Exhibit 10.19 to Pioneer's Current Report on Form
8-K, File No. 001- 13245, filed with the SEC on January 2,
1998).
II-4
1311
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.20 Guarantee dated as of December 30, 1997, by Pioneer USA
relating to $150,000,000 in aggregate principal amount of
8 7/8% Senior Notes due 2005 and $150,000,000 in aggregate
principal amount of 8 1/4% Senior Notes due 2007 issued under
the indenture identified above as Exhibit 10.15 (incorporated
by reference to Exhibit 10.20 to Pioneer's Current Report on
Form 8-K, File No. 001-13245, filed with the SEC on January 2,
1998).
10.21 Form of 8 7/8% Senior Notes Due 2005 dated as of April 12,
1995, in the aggregate principal amount of $150,000,000,
together with Officers' Certificate dated April 12, 1995,
establishing the terms of the 8 7/8% Senior Notes Due 2005
pursuant to the indenture identified above as Exhibit 10.15
(incorporated by reference to Exhibit 4.2 to Parker &
Parsley's Quarterly Report on Form 10-Q for the period ended
June 30, 1995, File No. 001-10695).
10.22 Form of 8 1/4% Senior Notes due 2007 dated as of August 22,
1995, in the aggregate principal amount of $150,000,000,
together with Officers' Certificate dated August 22, 1995,
establishing the terms of the 8 1/4% Senior Notes due 2007
pursuant to the indenture identified above as Exhibit 10.15
(incorporated by reference to Exhibit 1.2 to Parker &
Parsley's Current Report on Form 8-K dated August 17, 1995,
File No. 001-10695).
10.23 Indenture dated January 13, 1998, between Pioneer and The Bank
of New York, as trustee (incorporated by reference to Exhibit
99.1 to Pioneer's and Pioneer USA's Current Report on Form
8-K, File No. 001-13245, filed with the SEC on January 14,
1998).
10.24 First Supplemental Indenture dated as of January 13, 1998,
among Pioneer, Pioneer USA, as the subsidiary guarantor, and
The Bank of New York, as trustee, with respect to the
indenture identified above as Exhibit 10.23 (incorporated by
reference to Exhibit 99.2 to Pioneer's and Pioneer USA's
Current Report on Form 8-K, File No. 001-13245, filed with the
SEC on January 14, 1998).
10.25 Form of 6.50% Senior Notes Due 2008 of Pioneer (incorporated
by reference to Exhibit 99.3 to Pioneer's and Pioneer USA's
Current Report on Form 8-K, File No. 001-13245, filed with the
SEC on January 14, 1998).
10.26 Form of 7.20% Senior Notes Due 2028 of Pioneer (incorporated
by reference to Exhibit 99.4 to Pioneer's and Pioneer USA's
Current Report on Form 8-K, File No. 001-13245, filed with the
SEC on January 14, 1998).
10.27 Guarantee (2008 Notes) dated as of January 13, 1998, entered
into by Pioneer USA (incorporated by reference to Exhibit 99.5
to Pioneer's and Pioneer USA's Current Report on Form 8-K,
File No. 001-13245, filed with the SEC on January 14, 1998).
10.28 Guarantee (2028 Notes) dated as of January 13, 1998, entered
into by Pioneer USA (incorporated by reference to Exhibit 99.6
to Pioneer's and Pioneer USA's Current Report on Form 8-K,
File No. 001-13245, filed with the SEC on January 14, 1998).
10.29 1991 Stock Option Plan of Mesa (incorporated by reference to
Exhibit 10(v) to Mesa's Annual Report on Form 10-K for the
period ended December 31, 1991).
10.30 1996 Incentive Plan of Mesa (incorporated by reference to
Exhibit 10.28 to Pioneer's Registration Statement on Form S-4
dated June 27, 1997, Registration No. 333-26951).
10.31 Parker & Parsley Long-Term Incentive Plan dated February 19,
1991 (incorporated by reference to Exhibit 4.1 to Parker &
Parsley's Registration Statement on Form S-8, Registration No.
33-38971).
II-5
1312
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.32 First Amendment to the Parker & Parsley Long-Term Incentive
Plan dated August 23, 1991 (incorporated by reference to
Exhibit 10.2 to Parker & Parsley's Registration Statement on
Form S-1 dated February 28, 1992, Registration No. 33-46082).
10.33 Pioneer's Long-Term Incentive Plan (incorporated by reference
to Exhibit 4.1 to Pioneer's Registration Statement on Form
S-8, Registration No. 333-35087).
10.34 First Amendment to Pioneer's Long-Term Incentive Plan,
effective as of November 23, 1998 (incorporated by reference
to Exhibit 10.72 to Pioneer's Annual Report on Form 10-K for
the period ended December 31, 1999, File No. 001-13245.
10.35 Amendment No. 2 to Pioneer's Long-Term Incentive Plan,
effective as of May 20, 1998 (incorporated by reference to
Exhibit 10.73 to Pioneer's Annual Report on Form 10-K for the
period ended December 31, 1999, File No. 001-13245).
10.36 Amendment No. 3 to Pioneer's Long-Term Incentive Plan,
effective as of February 17, 2000 (incorporated by reference
to Exhibit 10.76 to Pioneer's Annual Report on Form 10-K for
the period ended December 31, 1999, File No. 001-13245).
10.37 Pioneer's Employee Stock Purchase Plan (incorporated by
reference to Exhibit 4.1 to Pioneer's Registration Statement
on Form S-8, Registration No. 333-35165).
10.38 Amendment No. 1 to Pioneer's Employee Stock Purchase Plan
dated December 9, 1998 (incorporated by reference to Pioneer's
Annual Report on Form 10-K for the year ended December 31,
1998, File No. 001-13245).
10.39 Amendment No. 2 to Pioneer's Employee Stock Purchase Plan
dated December 14, 1999 (incorporated by reference to Exhibit
10.74 to Pioneer's Annual Report on Form 10-K for the period
ended December 31, 1999, File No. 001-13245).
10.40 Pioneer's Deferred Compensation Retirement Plan (incorporated
by reference to Exhibit 4.1 to Pioneer's Registration
Statement on Form S-8, Registration No. 333-39153).
10.41 Pioneer USA 401(k) Plan (incorporated by reference to Exhibit
4.1 to Pioneer's Registration Statement on Form S-8,
Registration No. 333-39249).
10.42 Pioneer USA Matching Plan (incorporated by reference to
Exhibit 10.42 to Pioneer's Annual Report on Form 10-K for the
year ended December 31, 1997, File No. 001-13245).
10.43 Omnibus Amendment to Nonstatutory Stock Option Agreements,
included as part of the Parker & Parsley Long-Term Incentive
Plan dated as of November 16, 1995, between Parker & Parsley
and named executive officers identified on Schedule 1 thereto,
setting forth additional details relating to the Parker &
Parsley Long-Term Incentive Plan (incorporated by reference to
Parker & Parsley's Annual Report on Form 10-K for the period
ended December 31, 1995, File No. 001-10695).
10.44 Severance Agreement dated as of August 8, 1997, between
Pioneer and Scott D. Sheffield, together with a schedule
identifying substantially identical agreements between Pioneer
and each of the other named executive officers identified on
Schedule I, for the purpose of defining the payment of certain
benefits upon the termination of the officer's employment
under certain circumstances (incorporated by reference to
Exhibit 10.7 to Pioneer's Quarterly Report on Form 10-Q for
the period ended September 30, 1997, File No. 001-13245).
II-6
1313
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.45 Indemnification Agreement dated as of August 8, 1997, between
Pioneer and Scott D. Sheffield, together with a schedule
identifying substantially identical agreements between Pioneer
and each of Pioneer's other directors and named executive
officers identified on Schedule I thereto (incorporated by
reference to Exhibit 10.8 to Pioneer's Quarterly Report on
Form 10-Q for the period ended September 30, 1997, File No.
001-13245).
10.46 "B" Contract Production Allocation Agreement dated July 29,
1991, and effective as of January 1, 1991, between Colorado
Interstate Gas Company and Mesa Operating Limited Partnership
(incorporated by reference to Exhibit 10(r) to Mesa's Annual
Report on Form 10-K for the period ended December 31, 1991).
10.47 Amendment to "B" Contract Production Allocation Agreement
effective as of January 1, 1993, between Colorado Interstate
Gas Company and Mesa Operating Limited Partnership
(incorporated by reference to Exhibit 10.24 to Mesa's
Registration Statement on Form S-1, Registration No.
33-51909).
10.48 Voting and Shareholders Agreement dated as of February 8,
2000, among Prize Energy Corp. and its stockholders
(incorporated by reference to Exhibit 10.1 to Pioneer's
statement on Schedule 13D relating to common stock of Prize
Energy Corp., filed with the SEC on February 18, 2000, File
No. 005-54797).
10.49 Second Supplemental Indenture dated as of April 11, 2000,
among Pioneer, Pioneer USA, as the subsidiary guarantor, and
the Bank of New York, as trustee, with respect to the
Indenture dated January 13, 1998, between Pioneer and The Bank
of New York, as trustee (incorporated by reference to Exhibit
10.1 to Pioneer's Quarterly Report on Form 10-Q, filed with
the SEC on May 11, 2000).
10.50 Form of 9 5/8% Senior Notes Due April 1, 2010 dated as of
April 11, 2000, in the aggregate principal amount of
$425,000,000, together with Trustee's Certificate of
Authentication dated April 11, 2000, establishing the terms of
the 9 5/8% Senior Notes Due April 1, 2010 pursuant to the
Second Supplemental Indenture identified above as Exhibit
10.49 (incorporated by reference to Exhibit 10.2 to Pioneer's
Quarterly Report on Form 10-Q, filed with the SEC on May 11,
2000).
10.51 Guarantee, dated as of April 11, 2000, by Pioneer USA, as the
subsidiary guarantor, relating to the $425,000,000 aggregate
principal amount of 9 5/8% Senior Notes Due April 1, 2010
issued under the Second Supplemental Indenture identified
above as Exhibit 10.49 (incorporated by reference to Exhibit
10.3 to Pioneer's Quarterly Report on Form 10-Q, filed with
the SEC on May 11, 2000).
10.52 $575,000,000 Credit Agreement dated as of May 31, 2000, among
Pioneer, as the borrower, Bank of America, N.A., as the
administrative agent, Credit Suisse First Boston, as the
documentation agent, The Chase Manhattan Bank, as the
syndication agent, and certain lenders (incorporated by
reference to Exhibit 10.4 to Pioneer's Quarterly Report on
Form 10-Q, filed with the SEC on August 9, 2000).
10.53 Agreement and Plan of Merger dated as of November 28, 2000,
among Pioneer, Pioneer USA, Parker & Parsley Employees
Producing Properties 87-A, Ltd., Parker & Parsley Employees
Producing Properties 87-B Ltd., P&P Employees Producing
Properties 88-A, L.P., P&P Employees 89-A Conv., L.P., P&P
Employees 89-B Conv., L.P., P&P Employees Private 89, L.P.,
P&P Employees 90-A Conv., L.P., P& P Employees 90-B Conv.,
L.P., P&P Employees 90-C Conv., L.P., P&P Employees Private
90, L.P., P&P Employees 90 Spraberry Private Development,
L.P., P&P Employees 91-A Conv., L.P. and P&P Employees 91-B
Conv., L.P. (incorporated by reference to Exhibit 10.53 to
Pioneer's Annual Report on Form 10-K, filed with the SEC on
February 27, 2001).
II-7
1314
EXHIBIT
NUMBER DESCRIPTION
------- -----------
23.1 Consent of Vinson & Elkins L.L.P. (included in the opinion
filed as Exhibit 5.1 to this Registration Statement).
23.2 Consent of ______________ (included in the opinion filed as
Exhibit 8.1 to this Registration Statement).
23.3* Consent of Ernst & Young LLP.
23.4* Consent of Williamson Petroleum Consultants, Inc.
24.1 Powers of Attorney of directors and officers of Pioneer
(included on page II-10 to this Registration Statement).
99.1 Form of opinion of Robert A. Stanger & Co, Inc. (included as
Appendix C to the proxy statement/prospectus forming a part of
this Registration Statement).
99.2* Consent of Robert A. Stanger & Co., Inc.
99.3* Form of Certification of Non-Foreign Status for Individual
Partners.
99.4* Form of Certification of Non-Foreign Status for Individual
Partners that are Entities.
99.5* Form of Proxy for Special Meeting of Limited Partners of Each
of 46 Parker & Parsley Limited Partnerships.
--------------------
* Filed herewith.
II-8
1315
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
Pioneer pursuant to the foregoing provisions, or otherwise, Pioneer has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities, other than the payment by Pioneer of
expenses incurred or paid by a director, officer or controlling person of
Pioneer in the successful defense of any action, suit or proceeding, is asserted
by such director, officer or controlling person in connection with the
securities being registered, Pioneer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
Pioneer hereby undertakes:
(1) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of Pioneer's annual report pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof;
(2) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), Pioneer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form;
(3) That every prospectus: (a) that is filed pursuant to paragraph (3)
immediately preceding, or (b) that purports to meet the requirements of Section
10(a)(3) of the Securities Exchange Act of 1934 and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof;
(4) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of Form S-4,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request; and
(5) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
II-9
1316
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Pioneer Natural
Resources Company has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Irving,
State of Texas, on April 17, 2001.
PIONEER NATURAL RESOURCES COMPANY
By: /s/ SCOTT D. SHEFFIELD
------------------------------------
Scott D. Sheffield
Chairman of the Board of Directors,
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Scott D.
Sheffield, Timothy L. Dove and Mark L. Withrow, or any of them, as his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to execute in the name of each such person who is then an officer or
director of Pioneer Natural Resources Company and to file any amendments
(including post-effective amendments) to this registration statement and any
registration statement for the same offering filed pursuant to Rule 462 under
the Securities Act of 1933, and to file the same, with all exhibits thereto and
all other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing appropriate or
necessary to be done, as fully and for all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or their substitute or substitutes may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
Chairman of the Board of Directors, President
and Chief Executive Officer (principal executive
/s/ SCOTT D. SHEFFIELD officer) April 17, 2001
------------------------------------
Scott D. Sheffield
Executive Vice President and Chief Financial
/s/ TIMOTHY L. DOVE Officer (principal financial officer) April 17, 2001
------------------------------------
Timothy L. Dove
Vice President and Chief Accounting Officer
/s/ RICHARD P. DEALY (principal accounting officer) April 17, 2001
------------------------------------
Richard P. Dealy
/s/ JAMES R. BAROFFIO Director April 17, 2001
------------------------------------
James R. Baroffio
/s/ R. HARTWELL GARDNER Director April 17, 2001
------------------------------------
R. Hartwell Gardner
/s/ JAMES L. HOUGHTON Director April 17, 2001
------------------------------------
James L. Houghton
/s/ JERRY P. JONES Director April 17, 2001
------------------------------------
Jerry P. Jones
/s/ CHARLES E. RAMSEY, JR. Director April 17, 2001
------------------------------------
Charles E. Ramsey, Jr.
/s/ ROBERT L. STILLWELL Director April 17, 2001
------------------------------------
Robert L. Stillwell
II-10
1317
EXHIBIT
NUMBER DESCRIPTION
------ -----------
2.1 Agreement and Plan of Merger dated as of , 2001, among
Pioneer, Pioneer USA and the partnerships named therein
(included as Appendix E to the proxy statement/prospectus
forming a part of this Registration Statement).
3.1 Amended and Restated Certificate of Incorporation of Pioneer
(incorporated by reference to Exhibit 3.1 to Pioneer's
Registration Statement on Form S-4 dated June 27, 1997,
Registration No. 333-26951).
3.2 Restated Bylaws of Pioneer (incorporated by reference to
Exhibit 3.2 to Pioneer's Registration Statement on Form S-4
dated June 27, 1997, Registration No. 333-26951).
3.3 Certificate of Designations of Special Preferred Voting Stock
(incorporated by reference to Exhibit 3.3 of Pioneer's
Registration Statement on Form S-3, Registration No.
333-42315, filed with the SEC on December 17, 1997).
3.4 Terms and Conditions of Exchangeable Shares (incorporated by
reference to Annex F to the Definitive Joint Management
Information Circular and Proxy Statement of Pioneer and
Chauvco, File No. 001-13245, filed with the SEC on November
17, 1997).
4.1 Form of Certificate of Common Stock, par value $.01 per share,
of Pioneer (incorporated by reference to Exhibit 4.1 to
Pioneer's Registration Statement on Form S-4 dated June 27,
1997, Registration No. 333-26951).
4.2 Form of Certificate of Special Preferred Voting Stock
(incorporated by reference to Exhibit 4.1 to Pioneer's Current
Report on Form 8-K, File No. 001-13245, filed with the SEC on
January 2, 1998).
4.3 Form of Certificate of Exchangeable Shares (incorporated by
reference to Exhibit 4.2 to Pioneer's Current Report on Form
8-K, File No. 001-13245, filed with the SEC on January 2,
1998).
5.1* Form of opinion of Vinson & Elkins L.L.P. as to the legality
of the securities to be registered.
8.1 Form of opinion of , as special legal counsel to the
limited partners, regarding tax matters as required by the
partnership agreement of each partnership (included as
Exhibit A to Appendix D to the proxy statement/prospectus
forming a part of this Registration Statement).
9.1 Voting and Exchange Trust Agreement dated as of December 18,
1997, among Pioneer, Pioneer Natural Resources (Canada) Ltd.
("Pioneer Canada"), and Montreal Trust Company of Canada, as
trustee (incorporated by reference to Exhibit 2.4 to Pioneer's
Current Report on Form 8-K, File No. 001-13245, filed with the
SEC on January 2, 1998).
10.1 Indenture dated July 2, 1996, among Pioneer USA (formerly Mesa
Operating Co. ("MOC")), as issuer, Pioneer, as guarantor, and
Harris Trust and Savings Bank, as trustee, relating to the
11 5/8% Senior Subordinated Discount Notes Due 2006
(incorporated by reference to Exhibit 4.17 to MESA Inc.'s
Quarterly Report on Form 10-Q for the period ended June 30,
1996).
10.2 First Supplemental Indenture dated as of April 15, 1997, among
Pioneer USA (formerly MOC), as issuer, MESA Inc. ("Mesa"), the
subsidiary guarantors named therein, Pioneer and Harris Trust
and Savings Bank, as trustee, with respect to the indenture
identified above as Exhibit 10.1 (incorporated by reference to
Exhibit 10.1 to Pioneer's Quarterly Report on Form 10-Q for
the period ended September 30, 1997, File No. 001-13245).
1318
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10.3 Second Supplemental Indenture dated as of August 7, 1997,
among Pioneer USA (formerly MOC), as issuer, Mesa, the
subsidiary guarantors named therein, Pioneer and Harris Trust
and Savings Bank, as trustee, with respect to the indenture
identified above as Exhibit 10.1 (incorporated by reference to
Exhibit 10.2 to Pioneer's Quarterly Report on Form 10-Q for
the period ended September 30, 1997, File No. 001-13245).
10.4 Third Supplemental Indenture dated as of December 18, 1997,
among Pioneer USA, the subsidiary guarantors named therein,
Pioneer and Harris Trust and Savings Bank, as trustee, with
respect to the indenture identified above as Exhibit 10.1
(incorporated by reference to Exhibit 10.12 to Pioneer's
Current Report on Form 8-K, File No. 001-13245, filed with the
SEC on January 2, 1998).
10.5 Fourth Supplemental Indenture dated as of December 30, 1997,
among Pioneer USA (formerly MOC), Pioneer, Pioneer NewSub1,
Inc. and Harris Trust and Savings Bank, as trustee, with
respect to the indenture identified above as Exhibit 10.1
(incorporated by reference to Exhibit 10.13 to Pioneer's
Current Report on Form 8-K, File No. 001-13245, filed with the
SEC on January 2, 1998).
10.6 Fifth Supplemental Indenture dated as of December 30, 1997,
among Pioneer NewSub1, Inc. (as successor to Pioneer USA),
Pioneer, Pioneer DebtCo., Inc. and Harris Trust and Savings
Bank, as trustee, with respect to the indenture identified
above as Exhibit 10.1 (incorporated by reference to Exhibit
10.14 to Pioneer's Current Report on Form 8-K, File No.
001-13245, filed with the SEC on January 2, 1998).
10.7 Sixth Supplemental Indenture dated as of December 30, 1997,
among Pioneer DebtCo. Inc. (as successor to Pioneer NewSub1,
Inc.), Pioneer, and Harris Trust and Savings Bank, as trustee,
with respect to the indenture identified above as Exhibit 10.1
(incorporated by reference to Exhibit 10.15 to Pioneer's
Current Report on Form 8-K, File No. 001-13245, filed with the
SEC on January 2, 1998).
10.8 Indenture dated July 2, 1996, among Pioneer USA (formerly
MOC), as issuer, Pioneer (as Mesa's successor), as guarantor,
and Harris Trust and Savings Bank, as trustee, relating to the
10 5/8% Senior Subordinated Notes Due 2006 (incorporated by
reference to Exhibit 4.18 to Mesa's Quarterly Report on Form
10-Q for the period ended June 30, 1996).
10.9 First Supplemental Indenture dated as of April 15, 1997, among
Pioneer USA (formerly MOC), as issuer, Mesa, the subsidiary
guarantors named therein, Pioneer and Harris Trust and Savings
Bank, as trustee, with respect to the indenture identified
above as Exhibit 10.8 (incorporated by reference to Exhibit
10.3 to Pioneer's Quarterly Report on Form 10-Q for the period
ended September 30, 1997, File No. 001-13245).
10.10 Second Supplemental Indenture dated as of August 7, 1997,
among Pioneer USA (formerly MOC), as issuer, Mesa, the
subsidiary guarantors named therein, Pioneer and Harris Trust
and Savings Bank, as trustee, with respect to the indenture
identified above as Exhibit 10.8 (incorporated by reference to
Exhibit 10.4 to Pioneer's Quarterly Report on Form 10-Q for
the period ended September 30, 1997, File No. 001-13245).
10.11 Third Supplemental Indenture dated as of December 18, 1997,
among Pioneer USA, the subsidiary guarantors named therein,
Pioneer and Harris Trust and Savings Bank, as trustee, with
respect to the indenture identified above as Exhibit 10.8
(incorporated by reference to Exhibit 10.6 to Pioneer's
Current Report on Form 8-K, File No. 001-13245, filed with the
SEC on January 2, 1998).
1319
EXHIBIT
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10.12 Fourth Supplemental Indenture dated as of December 30, 1997,
among Pioneer USA, Pioneer, Pioneer NewSub1, Inc. and Harris
Trust and Savings Bank, as trustee, with respect to the
indenture identified above as Exhibit 10.8 (incorporated by
reference to Exhibit 10.7 to Pioneer's Current Report on Form
8-K, File No. 001-13245, filed with the SEC on January 2,
1998).
10.13 Fifth Supplemental Indenture dated as of December 30, 1997,
among Pioneer NewSub1, Inc. (as successor to Pioneer USA),
Pioneer, Pioneer DebtCo, Inc. and Harris Trust and Savings
Bank, as trustee, with respect to the indenture identified
above as Exhibit 10.8 (incorporated by reference to Exhibit
10.8 to Pioneer's Current Report on Form 8-K, File No.
001-13245, filed with the SEC on January 2, 1998).
10.14 Sixth Supplemental Indenture dated as of December 30, 1997,
among Pioneer DebtCo, Inc. (as successor to Pioneer NewSub1,
Inc.), Pioneer and Harris Trust and Savings Bank, as trustee,
with respect to the indenture identified above as Exhibit 10.8
(incorporated by reference to Exhibit 10.9 to Pioneer's
Current Report on Form 8-K, File No. 001- 13245, filed with
the SEC on January 2, 1998).
10.15 Indenture dated April 12, 1995, between Pioneer USA (successor
to Parker & Parsley Petroleum Company ("Parker & Parsley"))
and The Chase Manhattan Bank (National Association), as
trustee (incorporated by reference to Exhibit 4.1 to Parker &
Parsley's Current Report on Form 8-K dated April 12, 1995,
File No. 1-10695).
10.16 First Supplemental Indenture dated as of August 7, 1997, among
Parker & Parsley, The Chase Manhattan Bank, as trustee, and
Pioneer USA, with respect to the indenture identified above as
Exhibit 10.15 (incorporated by reference to Exhibit 10.5 to
Pioneer's Quarterly Report on Form 10-Q for the period ended
September 30, 1997, File No. 001-13245).
10.17 Second Supplemental Indenture dated as of December 30, 1997,
among Pioneer USA, Pioneer NewSub1, Inc. and The Chase
Manhattan Bank, as trustee, with respect to the indenture
identified above as Exhibit 10.15 (incorporated by reference
to Exhibit 10.17 to Pioneer's Current Report on Form 8-K, File
No. 001-13245, filed with the SEC on January 2, 1998).
10.18 Third Supplemental Indenture dated as of December 30, 1997,
among Pioneer NewSub1, Inc. (as successor to Pioneer USA),
Pioneer DebtCo, Inc. and The Chase Manhattan Bank, as trustee,
with respect to the indenture identified above as Exhibit
10.15 (incorporated by reference to Exhibit 10.18 to Pioneer's
Current Report on Form 8-K, File No. 001-13245, filed with the
SEC on January 2, 1998).
10.19 Fourth Supplemental Indenture dated as of December 30, 1997,
among Pioneer DebtCo, Inc. (as successor to Pioneer NewSub1,
Inc., as successor to Pioneer USA), Pioneer, Pioneer USA and
The Chase Manhattan Bank, as trustee, with respect to the
indenture identified above as Exhibit 10.15 (incorporated by
reference to Exhibit 10.19 to Pioneer's Current Report on Form
8-K, File No. 001- 13245, filed with the SEC on January 2,
1998).
10.20 Guarantee dated as of December 30, 1997, by Pioneer USA
relating to $150,000,000 in aggregate principal amount of
8 7/8% Senior Notes due 2005 and $150,000,000 in aggregate
principal amount of 8 1/4% Senior Notes due 2007 issued under
the indenture identified above as Exhibit 10.15 (incorporated
by reference to Exhibit 10.20 to Pioneer's Current Report on
Form 8-K, File No. 001-13245, filed with the SEC on January 2,
1998).
1320
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10.21 Form of 8 7/8% Senior Notes Due 2005 dated as of April 12,
1995, in the aggregate principal amount of $150,000,000,
together with Officers' Certificate dated April 12, 1995,
establishing the terms of the 8 7/8% Senior Notes Due 2005
pursuant to the indenture identified above as Exhibit 10.15
(incorporated by reference to Exhibit 4.2 to Parker &
Parsley's Quarterly Report on Form 10-Q for the period ended
June 30, 1995, File No. 001-10695).
10.22 Form of 8 1/4% Senior Notes due 2007 dated as of August 22,
1995, in the aggregate principal amount of $150,000,000,
together with Officers' Certificate dated August 22, 1995,
establishing the terms of the 8 1/4% Senior Notes due 2007
pursuant to the indenture identified above as Exhibit 10.15
(incorporated by reference to Exhibit 1.2 to Parker &
Parsley's Current Report on Form 8-K dated August 17, 1995,
File No. 001-10695).
10.23 Indenture dated January 13, 1998, between Pioneer and The Bank
of New York, as trustee (incorporated by reference to Exhibit
99.1 to Pioneer's and Pioneer USA's Current Report on Form
8-K, File No. 001-13245, filed with the SEC on January 14,
1998).
10.24 First Supplemental Indenture dated as of January 13, 1998,
among Pioneer, Pioneer USA, as the subsidiary guarantor, and
The Bank of New York, as trustee, with respect to the
indenture identified above as Exhibit 10.23 (incorporated by
reference to Exhibit 99.2 to Pioneer's and Pioneer USA's
Current Report on Form 8-K, File No. 001-13245, filed with the
SEC on January 14, 1998).
10.25 Form of 6.50% Senior Notes Due 2008 of Pioneer (incorporated
by reference to Exhibit 99.3 to Pioneer's and Pioneer USA's
Current Report on Form 8-K, File No. 001-13245, filed with the
SEC on January 14, 1998).
10.26 Form of 7.20% Senior Notes Due 2028 of Pioneer (incorporated
by reference to Exhibit 99.4 to Pioneer's and Pioneer USA's
Current Report on Form 8-K, File No. 001-13245, filed with the
SEC on January 14, 1998).
10.27 Guarantee (2008 Notes) dated as of January 13, 1998, entered
into by Pioneer USA (incorporated by reference to Exhibit 99.5
to Pioneer's and Pioneer USA's Current Report on Form 8-K,
File No. 001-13245, filed with the SEC on January 14, 1998).
10.28 Guarantee (2028 Notes) dated as of January 13, 1998, entered
into by Pioneer USA (incorporated by reference to Exhibit 99.6
to Pioneer's and Pioneer USA's Current Report on Form 8-K,
File No. 001-13245, filed with the SEC on January 14, 1998).
10.29 1991 Stock Option Plan of Mesa (incorporated by reference to
Exhibit 10(v) to Mesa's Annual Report on Form 10-K for the
period ended December 31, 1991).
10.30 1996 Incentive Plan of Mesa (incorporated by reference to
Exhibit 10.28 to Pioneer's Registration Statement on Form S-4
dated June 27, 1997, Registration No. 333-26951).
10.31 Parker & Parsley Long-Term Incentive Plan dated February 19,
1991 (incorporated by reference to Exhibit 4.1 to Parker &
Parsley's Registration Statement on Form S-8, Registration No.
33-38971).
10.32 First Amendment to the Parker & Parsley Long-Term Incentive
Plan dated August 23, 1991 (incorporated by reference to
Exhibit 10.2 to Parker & Parsley's Registration Statement on
Form S-1 dated February 28, 1992, Registration No. 33-46082).
10.33 Pioneer's Long-Term Incentive Plan (incorporated by reference
to Exhibit 4.1 to Pioneer's Registration Statement on Form
S-8, Registration No. 333-35087).
1321
EXHIBIT
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10.34 First Amendment to Pioneer's Long-Term Incentive Plan,
effective as of November 23, 1998 (incorporated by reference
to Exhibit 10.72 to Pioneer's Annual Report on Form 10-K for
the period ended December 31, 1999, File No. 001-13245.
10.35 Amendment No. 2 to Pioneer's Long-Term Incentive Plan,
effective as of May 20, 1998 (incorporated by reference to
Exhibit 10.73 to Pioneer's Annual Report on Form 10-K for the
period ended December 31, 1999, File No. 001-13245).
10.36 Amendment No. 3 to Pioneer's Long-Term Incentive Plan,
effective as of February 17, 2000 (incorporated by reference
to Exhibit 10.76 to Pioneer's Annual Report on Form 10-K for
the period ended December 31, 1999, File No. 001-13245).
10.37 Pioneer's Employee Stock Purchase Plan (incorporated by
reference to Exhibit 4.1 to Pioneer's Registration Statement
on Form S-8, Registration No. 333-35165).
10.38 Amendment No. 1 to Pioneer's Employee Stock Purchase Plan
dated December 9, 1998 (incorporated by reference to Pioneer's
Annual Report on Form 10-K for the year ended December 31,
1998, File No. 001-13245).
10.39 Amendment No. 2 to Pioneer's Employee Stock Purchase Plan
dated December 14, 1999 (incorporated by reference to Exhibit
10.74 to Pioneer's Annual Report on Form 10-K for the period
ended December 31, 1999, File No. 001-13245).
10.40 Pioneer's Deferred Compensation Retirement Plan (incorporated
by reference to Exhibit 4.1 to Pioneer's Registration
Statement on Form S-8, Registration No. 333- 39153).
10.41 Pioneer USA 401(k) Plan (incorporated by reference to Exhibit
4.1 to Pioneer's Registration Statement on Form S-8,
Registration No. 333-39249).
10.42 Pioneer USA Matching Plan (incorporated by reference to
Exhibit 10.42 to Pioneer's Annual Report on Form 10-K for the
year ended December 31, 1997, File No. 001-13245).
10.43 Omnibus Amendment to Nonstatutory Stock Option Agreements,
included as part of the Parker & Parsley Long-Term Incentive
Plan dated as of November 16, 1995, between Parker & Parsley
and named executive officers identified on Schedule 1 thereto,
setting forth additional details relating to the Parker &
Parsley Long-Term Incentive Plan (incorporated by reference to
Parker & Parsley's Annual Report on Form 10-K for the period
ended December 31, 1995, File No. 001-10695).
10.44 Severance Agreement dated as of August 8, 1997, between
Pioneer and Scott D. Sheffield, together with a schedule
identifying substantially identical agreements between Pioneer
and each of the other named executive officers identified on
Schedule I, for the purpose of defining the payment of certain
benefits upon the termination of the officer's employment
under certain circumstances (incorporated by reference to
Exhibit 10.7 to Pioneer's Quarterly Report on Form 10-Q for
the period ended September 30, 1997, File No. 001-13245).
10.45 Indemnification Agreement dated as of August 8, 1997, between
Pioneer and Scott D. Sheffield, together with a schedule
identifying substantially identical agreements between Pioneer
and each of Pioneer's other directors and named executive
officers identified on Schedule I thereto (incorporated by
reference to Exhibit 10.8 to Pioneer's Quarterly Report on
Form 10-Q for the period ended September 30, 1997, File No.
001-13245).
1322
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10.46 "B" Contract Production Allocation Agreement dated July 29,
1991, and effective as of January 1, 1991, between Colorado
Interstate Gas Company and Mesa Operating Limited Partnership
(incorporated by reference to Exhibit 10(r) to Mesa's Annual
Report on Form 10-K for the period ended December 31, 1991).
10.47 Amendment to "B" Contract Production Allocation Agreement
effective as of January 1, 1993, between Colorado Interstate
Gas Company and Mesa Operating Limited Partnership
(incorporated by reference to Exhibit 10.24 to Mesa's
Registration Statement on Form S-1, Registration No.
33-51909).
10.48 Voting and Shareholders Agreement dated as of February 8,
2000, among Prize Energy Corp. and its stockholders
(incorporated by reference to Exhibit 10.1 to Pioneer's
statement on Schedule 13D relating to common stock of Prize
Energy Corp., filed with the SEC on February 18, 2000, File
No. 005-54797).
10.49 Second Supplemental Indenture dated as of April 11, 2000,
among Pioneer, Pioneer USA, as the subsidiary guarantor, and
the Bank of New York, as trustee, with respect to the
Indenture dated January 13, 1998, between Pioneer and The Bank
of New York, as trustee (incorporated by reference to Exhibit
10.1 to Pioneer's Quarterly Report on Form 10-Q, filed with
the SEC on May 11, 2000).
10.50 Form of 9 5/8% Senior Notes Due April 1, 2010 dated as of
April 11, 2000, in the aggregate principal amount of
$425,000,000, together with Trustee's Certificate of
Authentication dated April 11, 2000, establishing the terms of
the 9 5/8% Senior Notes Due April 1, 2010 pursuant to the
Second Supplemental Indenture identified above as
Exhibit 10.49 (incorporated by reference to Exhibit 10.2 to
Pioneer's Quarterly Report on Form 10-Q, filed with the SEC on
May 11, 2000).
10.51 Guarantee, dated as of April 11, 2000, by Pioneer USA, as the
subsidiary guarantor, relating to the $425,000,000 aggregate
principal amount of 9 5/8% Senior Notes Due April 1, 2010
issued under the Second Supplemental Indenture identified
above as Exhibit 10.49 (incorporated by reference to
Exhibit 10.3 to Pioneer's Quarterly Report on Form 10-Q, filed
with the SEC on May 11, 2000).
10.52 $575,000,000 Credit Agreement dated as of May 31, 2000, among
Pioneer, as the borrower, Bank of America, N.A., as the
administrative agent, Credit Suisse First Boston, as the
documentation agent, The Chase Manhattan Bank, as the
syndication agent, and certain lenders (incorporated by
reference to Exhibit 10.4 to Pioneer's Quarterly Report on
Form 10-Q, filed with the SEC on August 9, 2000).
10.53 Agreement and Plan of Merger dated as of November 28, 2000,
among Pioneer, Pioneer USA, Parker & Parsley Employees
Producing Properties 87-A, Ltd., Parker & Parsley Employees
Producing Properties 87-B Ltd., P&P Employees Producing
Properties 88-A, L.P., P&P Employees 89-A Conv., L.P., P&P
Employees 89-B Conv., L.P., P&P Employees Private 89, L.P.,
P&P Employees 90-A Conv., L.P., P& P Employees 90-B Conv.,
L.P., P&P Employees 90-C Conv., L.P., P&P Employees Private
90, L.P., P&P Employees 90 Spraberry Private Development,
L.P., P&P Employees 91-A Conv., L.P. and P&P Employees 91-B
Conv., L.P. (incorporated by reference to Exhibit 10.53 to
Pioneer's Annual Report on Form 10-K, filed with the SEC on
February 27, 2001).
23.1 Consent of Vinson & Elkins L.L.P. (included in the opinion
filed as Exhibit 5.1 to this Registration Statement).
23.2 Consent of ______________ (included in the opinion filed as
Exhibit 8.1 to this Registration Statement).
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EXHIBIT
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23.3* Consent of Ernst & Young LLP.
23.4* Consent of Williamson Petroleum Consultants, Inc.
24.1 Powers of Attorney of directors and officers of Pioneer
(included on page II-10 to this Registration Statement).
99.1 Form of opinion of Robert A. Stanger & Co, Inc. (included as
Appendix C to the proxy statement/prospectus forming a part of
this Registration Statement).
99.2* Consent of Robert A. Stanger & Co., Inc.
99.3* Form of Certification of Non-Foreign Status for Individual
Partners.
99.4* Form of Certification of Non-Foreign Status for Individual
Partners that are Entities.
99.5* Form of Proxy for Special Meeting of Limited Partners of Each
of 46 Parker & Parsley Limited Partnerships.
--------------------
* Filed herewith.