SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2004
Commission File Number: P-7: 0-20265 P-8: 0-20264
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-7
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-8
---------------------------------------------------------------------
(Exact name of Registrant as specified in its Articles)
P-7 73-1367186
Oklahoma P-8 73-1378683
---------------------------- -------------------------------
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or Number)
organization)
Two West Second Street, Tulsa, Oklahoma 74103
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(918) 583-1791
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
------ ------
-1-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-7
BALANCE SHEETS
(Unaudited)
ASSETS
June 30, December 31,
2004 2003
------------- ------------
CURRENT ASSETS:
Cash and cash equivalents $1,072,467 $ 973,753
Accounts receivable:
Net Profits 55,961 -
---------- ----------
Total current assets $1,128,428 $ 973,753
NET PROFITS INTERESTS, net, utilizing
the successful efforts method 3,349,018 3,266,042
---------- ----------
$4,477,446 $4,239,795
========== ==========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ - $ 208,257
---------- ----------
Total current liabilities $ - $ 208,257
PARTNERS' CAPITAL (DEFICIT):
General Partner ($ 52,562) ($ 103,881)
Limited Partners, issued and
outstanding, 188,702 units 4,530,008 4,135,419
---------- ----------
Total Partners' capital $4,477,446 $4,031,538
---------- ----------
$4,477,446 $4,239,795
========== ==========
The accompanying condensed notes are an integral
part of these financial statements.
-2-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-7
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2004 AND 2003
(Unaudited)
2004 2003
-------- --------
REVENUES:
Net Profits $890,804 $544,426
Interest income 1,398 1,147
-------- --------
$892,202 $545,573
COSTS AND EXPENSES:
Depletion of Net Profits
Interests $ 71,797 $ 70,336
General and administrative
(Note 2) 67,648 59,878
-------- --------
$139,445 $130,214
-------- --------
NET INCOME $752,757 $415,359
======== ========
GENERAL PARTNER - NET INCOME $ 81,598 $ 23,524
======== ========
LIMITED PARTNERS - NET INCOME $671,159 $391,835
======== ========
NET INCOME per unit $ 3.56 $ 2.08
======== ========
UNITS OUTSTANDING 188,702 188,702
======== ========
The accompanying condensed notes are an integral
part of these financial statements.
-3-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-7
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(Unaudited)
2004 2003
---------- ----------
REVENUES:
Net Profits $1,444,385 $1,320,374
Interest income 2,323 2,418
---------- ----------
$1,446,708 $1,322,792
COSTS AND EXPENSES:
Depletion of Net Profits
Interests $ 137,511 $ 144,750
General and administrative
(Note 2) 125,901 122,211
---------- ----------
$ 263,412 $ 266,961
---------- ----------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $1,183,296 $1,055,831
Cumulative effect of change in
accounting for asset retirement
obligations (Note 1) - 400
---------- ----------
NET INCOME $1,183,296 $1,056,231
========== ==========
GENERAL PARTNER - NET INCOME $ 105,707 $ 58,465
========== ==========
LIMITED PARTNERS - NET INCOME $1,077,589 $ 997,766
========== ==========
NET INCOME per unit $ 5.71 $ 5.29
========== ==========
UNITS OUTSTANDING 188,702 188,702
========== ==========
The accompanying condensed notes are an integral
part of these financial statements.
-4-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-7
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(Unaudited)
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,183,296 $1,056,231
Adjustments to reconcile net income
to net cash provided by
operating activities:
Cumulative effect of change in
accounting for asset retirement
obligations (Note 1) - ( 400)
Depletion of Net Profits
Interests 137,511 144,750
Increase in accounts receivable -
Net Profits ( 346,536) ( 161,596)
---------- ----------
Net cash provided by operating
activities $ 974,271 $1,038,985
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ($ 138,169) ($ 286,838)
---------- ----------
Net cash used by investing activities ($ 138,169) ($ 286,838)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions ($ 737,388) ($ 654,441)
---------- ----------
Net cash used by financing
activities ($ 737,388) ($ 654,441)
---------- ----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS $ 98,714 $ 97,706
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 973,753 857,086
---------- ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $1,072,467 $ 954,792
========== ==========
The accompanying condensed notes are an integral
part of these financial statements.
-5-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-8
BALANCE SHEETS
(Unaudited)
ASSETS
June 30, December 31,
2004 2003
------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $ 655,220 $ 675,203
Accounts receivable:
Net Profits 48,067 -
---------- ----------
Total current assets $ 703,287 $ 675,203
NET PROFITS INTERESTS, net, utilizing
the successful efforts method 2,009,525 1,956,230
---------- ----------
$2,712,812 $2,631,433
========== ==========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ - $ 128,314
---------- ----------
$ - $ 128,314
PARTNERS' CAPITAL (DEFICIT):
General Partner ($ 19,174) ($ 29,971)
Limited Partners, issued and
outstanding, 116,168 units 2,731,986 2,533,090
---------- ----------
Total Partners' capital $2,712,812 $2,503,119
---------- ----------
$2,712,812 $2,631,433
========== ==========
The accompanying condensed notes are an integral
part of these financial statements.
-6-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-8
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2004 AND 2003
(Unaudited)
2004 2003
-------- --------
REVENUES:
Net Profits $571,560 $386,570
Interest income 907 857
-------- --------
$572,467 $387,427
COSTS AND EXPENSES:
Depletion of Net Profits
Interests $ 41,691 $ 42,326
General and administrative
(Note 2) 47,428 40,196
-------- --------
$ 89,119 $ 82,522
-------- --------
NET INCOME $483,348 $304,905
======== ========
GENERAL PARTNER - NET INCOME $ 51,996 $ 16,895
======== ========
LIMITED PARTNERS - NET INCOME $431,352 $288,010
======== ========
NET INCOME per unit $ 3.71 $ 2.48
======== ========
UNITS OUTSTANDING 116,168 116,168
======== ========
The accompanying condensed notes are an integral
part of these financial statements.
-7-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-8
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(Unaudited)
2004 2003
-------- --------
REVENUES:
Net Profits $943,984 $927,957
Interest income 1,550 1,805
-------- --------
$945,534 $929,762
COSTS AND EXPENSES:
Depletion of Net Profits
Interests $ 80,380 $ 86,028
General and administrative
(Note 2) 85,182 82,360
-------- --------
$165,562 $168,388
-------- --------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $779,972 $761,374
Cumulative effect of change in
accounting for asset retirement
obligations (Note 1) - 4,862
-------- --------
NET INCOME $779,972 $766,236
======== ========
GENERAL PARTNER - NET INCOME $ 85,076 $ 41,468
======== ========
LIMITED PARTNERS - NET INCOME $694,896 $724,768
======== ========
NET INCOME per unit $ 5.98 $ 6.24
======== ========
UNITS OUTSTANDING 116,168 116,168
======== ========
The accompanying condensed notes are an integral
part of these financial statements.
-8-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME LIMITED PARTNERSHIP P-8
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
(Unaudited)
2004 2003
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $779,972 $766,236
Adjustments to reconcile net income
to net cash provided by operating
activities:
Cumulative effect of change in
accounting for asset retirement
obligations (Note 1) - ( 4,862)
Depletion of Net Profits
Interests 80,380 86,028
Increase in accounts receivable -
Net Profits ( 226,896) ( 111,434)
-------- --------
Net cash provided by operating
activities $633,456 $735,968
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ($ 83,160) ($175,639)
-------- --------
Net cash used by investing
activities ($ 83,160) ($175,639)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions ($570,279) ($497,215)
-------- --------
Net cash used by financing activities ($570,279) ($497,215)
-------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ($ 19,983) $ 63,114
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 675,203 611,298
-------- --------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $655,220 $674,412
======== ========
The accompanying condensed notes are an integral
part of these financial statements.
-9-
GEODYNE INSTITUTIONAL/PENSION ENERGY INCOME PROGRAM II LIMITED PARTNERSHIPS
CONDENSED NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2004
(Unaudited)
1. ACCOUNTING POLICIES
-------------------
The balance sheets as of June 30, 2004, statements of operations for the
three and six months ended June 30, 2004 and 2003, and statements of cash
flows for the six months ended June 30, 2004 and 2003 have been prepared by
Geodyne Resources, Inc., the General Partner (the "General Partner") of the
Geodyne Institutional/Pension Energy Income Program II Limited Partnerships
(individually, the "P-7 Partnership" or the "P-8 Partnership", as the case
may be, or, collectively, the "Partnerships"), without audit. In the
opinion of management the financial statements referred to above include
all necessary adjustments, consisting of normal recurring adjustments, to
present fairly the financial position at June 30, 2004, the results of
operations for the three and six months ended June 30, 2004 and 2003, and
the cash flows for the six months ended June 30, 2004 and 2003.
Information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The accompanying interim
financial statements should be read in conjunction with the Partnerships'
Annual Report on Form 10-K filed for the year ended December 31, 2003. The
results of operations for the period ended June 30, 2004 are not
necessarily indicative of the results to be expected for the full year.
As used in these financial statements, the Partnerships' net profits and
royalty interests in oil and gas sales are referred to as "Net Profits" and
the Partnerships' net profits and royalty interests in oil and gas
properties are referred to as "Net Profits Interests". The working
interests from which Partnerships' Net Profits Interests are carved are
referred to as "Working Interests".
The Limited Partners' net income or loss per unit is based upon each $100
initial capital contribution.
-10-
NET PROFITS INTERESTS
---------------------
The Partnerships follow the successful efforts method of accounting for
their Net Profits Interests. Under the successful efforts method, the
Partnerships capitalize all acquisition costs. Property acquisition costs
include costs incurred by the Partnerships or the General Partner to
acquire a net profits interest or other non-operating interest in producing
properties, including related title insurance or examination costs,
commissions, engineering, legal and accounting fees, and similar costs
directly related to the acquisitions, plus an allocated portion of the
General Partner's property screening costs. The acquisition cost to the
Partnerships of Net Profits Interests acquired by the General Partner is
adjusted to reflect the net cash results of operations, including interest
incurred to finance the acquisition, for the period of time the properties
are held by the General Partner prior to their transfer to the
Partnerships.
Depletion of the costs of Net Profits Interests is computed on the
unit-of-production method. The Partnerships' calculation of depletion of
its Net Profits Interests includes estimated dismantlement and abandonment
costs and estimated salvage value of the equipment.
The Partnerships do not directly bear capital costs. However, the
Partnerships indirectly bear certain capital costs incurred by the owners
of the Working Interests to the extent such capital costs are charged
against the applicable oil and gas revenues in calculating the Net Profits
payable to the Partnerships. For financial reporting purposes only, such
capital costs are reported as capital expenditures in the Partnerships'
Statements of Cash Flows.
ASSET RETIREMENT OBLIGATIONS
----------------------------
In July 2001, the FASB issued FAS No. 143, "Accounting for Asset Retirement
Obligations", which is effective for fiscal years beginning after June 15,
2002 (January 1, 2003 for the Partnerships). On January 1, 2003, the
Partnerships adopted FAS No. 143 and recorded an increase in Net Profits
Interests, an increase in net income for the cumulative effect of the
change in accounting principle, and an asset retirement obligation,
resulting in a decrease of accounts receivable - net profits, in the
following approximate amounts for each Partnership:
-11-
Increase in
Net Income
Increase for the
in Change in Asset
Net Profits Accounting Retirement
Partnerships Interests Principle Obligation
------------ ----------- ---------- ----------
P-7 $311,000 $ 400 $311,000
P-8 234,000 5,000 229,000
The asset retirement obligation will be adjusted upwards each quarter in
order to recognize accretion of the time-related discount factor. For the
six months ended June 30, 2004, the P-7 and P-8 Partnerships recognized
approximately $9,000 and $5,000, respectively, of an increase in depletion
of Net Profits Interests, which was comprised of accretion of the asset
retirement obligation and depletion of the increase in Net Profits
Interests.
The components of the change in asset retirement obligations for the three
and six months ended June 30, 2004 and 2003 are as shown below.
P-7 Partnership
---------------
Three Months Three Months
Ended Ended
6/30/2004 6/30/2003
------------ ------------
Total Asset Retirement
Obligation, April 1 $319,936 $314,858
Accretion Expense 2,218 3,620
-------- --------
Total Asset Retirement
Obligation, End of Quarter $322,154 $318,478
======== ========
Six Months Six Months
Ended Ended
6/30/2004 6/30/2003
------------ ------------
Total Asset Retirement
Obligation, January 1 $317,713 $311,238
Accretion Expense 4,441 7,240
-------- --------
Total Asset Retirement
Obligation, End of Period $322,154 $318,478
======== ========
-12-
P-8 Partnership
---------------
Three Months Three Months
Ended Ended
6/30/2004 6/30/2003
------------ ------------
Total Asset Retirement
Obligation, April 1 $235,852 $231,198
Accretion Expense 1,335 2,692
-------- --------
Total Asset Retirement
Obligation, End of Quarter $237,187 $233,890
======== ========
Six Months Six Months
Ended Ended
6/30/2004 6/30/2003
------------ ------------
Total Asset Retirement
Obligation, January 1 $234,524 $228,506
Accretion Expense 2,663 5,384
-------- --------
Total Asset Retirement
Obligation, End of Period $237,187 $233,890
======== ========
2. TRANSACTIONS WITH RELATED PARTIES
---------------------------------
The Partnerships' partnership agreements provide for reimbursement to the
General Partner for all direct general and administrative expenses and for
the general and administrative overhead applicable to the Partnerships
based on an allocation of actual costs incurred. During the three months
ended June 30, 2004, the following payments were made to the General
Partner or its affiliates by the Partnerships:
Direct General Administrative
Partnership and Administrative Overhead
----------- ------------------- ---------------
P-7 $17,989 $49,659
P-8 16,858 30,570
-13-
During the six months ended June 30, 2004, the following payments were
made to the General Partner or its affiliates by the Partnerships:
Direct General Administrative
Partnership and Administrative Overhead
----------- ------------------- ---------------
P-7 $26,583 $99,318
P-8 24,042 61,140
Affiliates of the Partnerships operate certain of the Partnerships'
properties and their policy is to bill the Partnerships for all customary
charges and cost reimbursements associated with their activities.
-14-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
USE OF FORWARD-LOOKING STATEMENTS AND ESTIMATES
-----------------------------------------------
This Quarterly Report contains certain forward-looking statements. The
words "anticipate", "believe", "expect", "plan", "intend", "estimate",
"project", "could", "may" and similar expressions are intended to identify
forward-looking statements. Such statements reflect management's current
views with respect to future events and financial performance. This
Quarterly Report also includes certain information, which is, or is based
upon, estimates and assumptions. Such estimates and assumptions are
management's efforts to accurately reflect the condition and operation of
the Partnerships.
Use of forward-looking statements and estimates and assumptions involve
risks and uncertainties which include, but are not limited to, the
volatility of oil and gas prices, the uncertainty of reserve information,
the operating risk associated with oil and gas properties (including the
risk of personal injury, death, property damage, damage to the well or
producing reservoir, environmental contamination, and other operating
risks), the prospect of changing tax and regulatory laws, the availability
and capacity of processing and transportation facilities, the general
economic climate, the supply and price of foreign imports of oil and gas,
the level of consumer product demand, and the price and availability of
alternative fuels. Should one or more of these risks or uncertainties occur
or should estimates or underlying assumptions prove incorrect, actual
conditions or results may vary materially and adversely from those stated,
anticipated, believed, estimated, and otherwise indicated.
GENERAL
-------
The Partnerships were formed for the purpose of acquiring Net Profits
Interests located in the continental United States. In general, each
Partnership acquired passive interests in producing properties and does not
directly engage in development drilling or enhanced recovery projects.
Therefore, the economic life of each Partnership is limited to the period
of time required to fully produce its acquired oil and gas reserves. A Net
Profits Interest entitles the Partnerships to a portion of the oil and gas
sales less operating and production expenses and development costs
generated by the owner of the underlying Working Interests. The net
proceeds from the oil and gas operations are distributed to the Limited
Partners and General Partner in accordance with the terms of the
Partnerships' Partnership Agreements.
-15-
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Partnerships began operations and investors were assigned their rights
as Limited Partners, having made capital contributions in the amounts and
on the dates set forth below:
Limited
Date of Partner Capital
Partnership Activation Contributions
----------- ------------------ ---------------
P-7 February 28, 1992 $18,870,200
P-8 February 28, 1992 11,616,800
In general, the amount of funds available for acquisition of producing
properties was equal to the capital contributions of the Limited Partners,
less 15% for sales commissions and organization and management fees. All of
the Partnerships have fully invested their capital contributions.
Net proceeds from the Partnerships' Net Profits Interests less necessary
operating capital are distributed to the Limited Partners on a quarterly
basis. Revenues and net proceeds of a Partnership are largely dependent
upon the volumes of oil and gas sold and the prices received for such oil
and gas. While the General Partner cannot predict future pricing trends, it
believes the working capital available as of June 30, 2004 and the net
revenue generated from future operations will provide sufficient working
capital to meet current and future obligations.
Occasional expenditures by the Affiliated Programs for new wells or well
recompletions or workovers, however, may reduce or eliminate cash available
for a particular quarterly cash distribution. During the six months ended
June 30, 2004, capital expenditures affecting the P-7 and P-8 Partnerships'
Net Profits Interests totaled $138,169 and $83,160, respectively. These
costs were indirectly incurred primarily as a result of drilling activities
on one large unitized property, the Robertson North Unit in Gaines County,
Texas. As of the date of this Quarterly Report, this drilling is still in
progress. In addition, during the six months ended June 30, 2003, capital
expenditures affecting the P-7 and P-8 Partnerships' Net Profits Interests
totaled $286,838 and $175,639, respectively, primarily as a result of
drilling activities on the Robertson North Unit. These drilling activities
along with increased pricing resulted in an increase in the Partnerships'
reserves of approximately (i) 91,000 barrels and 75,000 Mcf to the P-7
Partnership and (ii) 56,000 barrels and 46,000 Mcf to the P-8 Partnership.
Any other capital expenditures incurred by the Partnerships during the six
months ended June 30, 2004 and 2003 were not significant to the
Partnerships' cash flows.
-16-
Pursuant to the terms of the Partnerships' partnership agreements (the
"Partnership Agreements"), the Partnerships were scheduled to terminate on
February 28, 2002. However, the Partnership Agreements provide that the
General Partner may extend the term of each Partnership for up to five
periods of two years each. The General Partner has extended the terms of
the Partnerships for their second extension thereby extending their
termination date to December 31, 2005. The General Partner has not
determined whether it will further extend the term of either Partnership.
CRITICAL ACCOUNTING POLICIES
----------------------------
The Partnerships follow the successful efforts method of accounting for
their Net Profits Interests. Under the successful efforts method, the
Partnerships capitalize all acquisition costs. Such acquisition costs
include costs incurred by the Partnerships or the General Partner to
acquire a Net Profits Interest, including related title insurance or
examination costs, commissions, engineering, legal and accounting fees, and
similar costs directly related to the acquisitions plus an allocated
portion of the General Partner's property screening costs. The net
acquisition cost to the Partnerships of the Net Profits Interests in
properties acquired by the General Partner consists of the cost of
acquiring the underlying properties adjusted for the net cash results of
operations, including any interest incurred to finance the acquisition, for
the period of time the properties are held by the General Partner.
Depletion of the cost of Net Profits Interests is computed on the
unit-of-production method. The Partnerships' calculation of depletion of
their Net Profits Interests includes estimated dismantlement and
abandonment costs and estimated salvage value of the equipment.
The Partnerships evaluate the recoverability of the carrying costs of their
Net Profits Interests in proved oil and gas properties for each oil and gas
field (rather than separately for each well). If the unamortized costs of a
Net Profits Interest within a field exceeds the expected undiscounted
future cash flows from such Net Profits Interest, the cost of the Net
Profits Interest is written down to fair value, which is determined by
using the estimated discounted future cash flows from the Net Profits
Interest.
-17-
Accounts Receivable (Accounts Payable) - Net Profits
Revenues from a Net Profits Interest consist of a share of the oil and gas
sales of the property, less operating and production expenses. The
Partnerships accrue for oil and gas revenues less expenses from the Net
Profits Interests. Sales of gas applicable to the Net Profits Interests are
recorded as revenue when the gas is metered and title transferred pursuant
to the gas sales contracts. During such times as sales of gas exceed a
Partnership's pro rata share of estimated total gas reserves attributable
to the underlying property, such excess is recorded as a liability. The
rates per Mcf used to calculate this liability are based on the average gas
price received for the volumes at the time the overproduction occurred.
This also approximates the price for which the Partnerships are currently
settling this liability. This liability is recorded as a reduction of
accounts receivable.
Included in accounts receivable (payable) - Net Profits are amounts which
represent costs deferred or accrued for Net Profits relating to lease
operating expenses incurred in connection with the net underproduced or
overproduced gas imbalance positions. The rate used in calculating the
deferred charge or accrued liability is the annual average production costs
per Mcf. Also included in accounts receivable (payable) - Net Profits is
the asset retirement obligation.
NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
Below is a brief description of Financial Accounting Standards ("FAS")
recently issued by the Financial Accounting Standards Board ("FASB") which
may have an impact on the Partnerships' future results of operations and
financial position.
In July 2001, the FASB issued FAS No. 143, "Accounting for Asset Retirement
Obligations", which is effective for fiscal years beginning after June 15,
2002 (January 1, 2003 for the Partnerships). On January 1, 2003, the
Partnerships adopted FAS No. 143 and recorded an increase in Net Profits
Interests, an increase in net income for the cumulative effect of the
change in accounting principle, and an asset retirement obligation,
resulting in a decrease of accounts receivable - Net Profits, in the
following approximate amounts for each Partnership:
-18-
Increase in
Net Income
Increase for the
in Change in Asset
Net Profits Accounting Retirement
Partnerships Interests Principle Obligation
------------ ----------- ---------- ----------
P-7 $311,000 $ 400 $311,000
P-8 234,000 5,000 229,000
The asset retirement obligation will be adjusted upwards each quarter in
order to recognize accretion of the time-related discount factor. For the
six months ended June 30, 2004, the P-7 and P-8 Partnerships recognized
approximately $9,000 and $5,000, respectively, of an increase in depletion
of Net Profits Interests, which was comprised of accretion of the asset
retirement obligation and depletion of the increase in capitalized cost of
oil and gas properties.
PROVED RESERVES AND NET PRESENT VALUE
-------------------------------------
The process of estimating oil and gas reserves is complex, requiring
significant subjective decisions in the evaluation of available geological,
engineering, and economic data for each reservoir. The data for a given
reservoir may change substantially over time as a result of, among other
things, additional development activity, production history, and viability
of production under varying economic conditions; consequently, it is
reasonably possible that material revisions to existing reserve estimates
may occur in the future. Although every reasonable effort has been made to
ensure that these reserve estimates represent the most accurate assessment
possible, the significance of the subjective decisions required and
variances in available data for various reservoirs make these estimates
generally less precise than other estimates presented in connection with
financial statement disclosures.
The following tables summarize changes in net quantities of the
Partnerships' proved reserves, all of which are located in the United
States, for the periods indicated. The proved reserves were estimated by
petroleum engineers employed by affiliates of the Partnerships, and are
annually reviewed by an independent engineering firm. "Proved reserves"
refers to those estimated quantities of crude oil, gas, and gas liquids
which geological and engineering data demonstrate with reasonable certainty
to be recoverable in future years from known oil and gas reservoirs under
existing economic and operating conditions. The following information
includes certain gas balancing adjustments which cause the gas volume to
differ from the reserve reports prepared by the General Partner.
-19-
P-7 Partnership
---------------
Crude Natural
Oil Gas
(Barrels) (Mcf)
----------- ------------
Proved reserves, Dec. 31, 2003 1,080,712 4,540,858
Production ( 20,503) ( 79,488)
Extensions and discoveries 7,331 4,161
Revisions of previous
estimates 19,403 12,495
--------- ---------
Proved reserves, March 31, 2004 1,086,943 4,478,026
Production ( 19,192) ( 132,175)
Extensions and discoveries 70,179 198,506
Revisions of previous
estimates 169,240 759,292
--------- ---------
Proved reserves, June 30, 2004 1,307,170 5,303,649
========= =========
P-8 Partnership
---------------
Crude Natural
Oil Gas
(Barrels) (Mcf)
---------- -----------
Proved reserves, Dec. 31, 2003 635,359 2,916,977
Production ( 12,517) ( 59,600)
Extensions and discoveries 4,517 2,564
Revisions of previous
estimates 11,161 11,761
------- ---------
Proved reserves, March 31, 2004 638,520 2,871,702
Production ( 11,570) ( 81,408)
Extensions and discoveries 43,122 105,685
Revisions of previous
estimates 98,619 472,454
------- ---------
Proved reserves, June 30, 2004 768,691 3,368,433
======= =========
-20-
The net present value of the Partnerships' reserves may change dramatically
as oil and gas prices change or as volumes change for the reasons described
above. Net present value represents estimated future gross cash flow from
the production and sale of proved reserves, net of estimated oil and gas
production costs (including production taxes, ad valorem taxes, and
operating expenses) and estimated future development costs, discounted at
10% per annum.
The following table indicates the estimated net present value of the
Partnerships' proved reserves as of June 30, 2004, March 31, 2004, and
December 31, 2003. Net present value attributable to the Partnerships'
proved reserves was calculated on the basis of current costs and prices as
of the date of estimation. Such prices were not escalated except in certain
circumstances where escalations were fixed and readily determinable in
accordance with applicable contract provisions. The table also indicates
the oil and gas prices in effect on the dates corresponding to the reserve
valuations. Changes in the oil and gas prices cause the estimates of
remaining economically recoverable reserves, as well as the values placed
on said reserves to fluctuate. The prices used in calculating the net
present value attributable to the Partnerships' proved reserves do not
necessarily reflect market prices for oil and gas production subsequent to
June 30, 2004. There can be no assurance that the prices used in
calculating the net present value of the Partnerships' proved reserves at
June 30, 2004 will actually be realized for such production.
Net Present Value of Reserves
-------------------------------------------
Partnership 6/30/04 3/31/04 12/31/03
----------- ----------- ------------ -----------
P-7 $18,791,519 $16,111,174 $14,949,809
P-8 11,825,905 10,168,209 9,485,780
Oil and Gas Prices
-------------------------------------------
Pricing 6/30/04 3/31/04 12/31/03
----------- ----------- ------------ -----------
Oil (Bbl) $ 33.75 $ 32.50 $ 29.25
Gas (Mcf) 6.04 5.63 5.77
The P-7 and P-8 Partnerships have interests in the Pecos Valley Unit, which
is a large unitized property located in Pecos County, Texas. This property
is declining less rapidly than previously expected leading to upward
revisions in estimated oil and gas reserves as well as the related
estimated net present value of reserves at June 30, 2004 as compared to
March 31, 2004.
-21-
RESULTS OF OPERATIONS
---------------------
GENERAL DISCUSSION
The following general discussion should be read in conjunction with the
analysis of results of operations provided below.
The primary source of liquidity and Partnership cash distributions comes
from the net revenues generated from the sale of oil and gas produced from
the Partnerships' oil and gas properties. The level of net revenues is
highly dependent upon the total volumes of oil and natural gas sold. Oil
and gas reserves are depleting assets and will experience production
declines over time, thereby likely resulting in reduced net revenues. The
level of net revenues is also highly dependent upon the prices received for
oil and gas sales, which prices have historically been very volatile and
may continue to be so. Additionally, lower oil and natural gas prices may
reduce the amount of oil and gas that is economic to produce and reduce the
Partnerships' revenues and cash flow. Various factors beyond the
Partnerships' control will affect prices for oil and natural gas, such as:
* Worldwide and domestic supplies of oil and natural gas;
* The ability of the members of the Organization of Petroleum Exporting
Countries ("OPEC") to agree to and maintain oil prices and production
quotas;
* Political instability or armed conflict in oil-producing regions or
around major shipping areas;
* The level of consumer demand and overall economic activity;
* The competitiveness of alternative fuels;
* Weather conditions;
* The availability of pipelines for transportation; and
* Domestic and foreign government regulations and taxes.
It is not possible to predict the future direction of oil or natural gas
prices or whether the above discussed trends will remain. Operating costs,
including General and Administrative Expenses, may not decline over time or
may experience only a gradual decline, thus adversely affecting net
revenues as either production or oil and natural gas prices decline. In any
particular period, net revenues may also be affected by either the receipt
of proceeds from property sales or the incursion of additional costs as a
result of well workovers, recompletions, new well drilling, and other
events.
-22-
P-7 PARTNERSHIP
THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO THE THREE MONTHS ENDED JUNE
30, 2003.
Three Months Ended June 30,
---------------------------
2004 2003
-------- --------
Net Profits $890,804 $544,426
Barrels produced 19,192 20,107
Mcf produced 132,175 85,892
Average price/Bbl $ 36.11 $ 26.66
Average price/Mcf $ 4.24 $ 5.04
As shown in the table above, total Net Profits increased $346,378 (63.6%)
for the three months ended June 30, 2004 as compared to the three months
ended June 30, 2003. Of this increase, approximately (i) $233,000 was
related to an increase in volumes of gas sold, (ii) $181,000 was related to
an increase in the average price of oil sold, and (iii) $62,000 was related
to a decrease in production expenses. These increases were partially offset
by a decrease of approximately $106,000 related to a decrease in the
average price of gas sold. Volumes of oil sold decreased 915 barrels, while
volumes of gas sold increased 46,283 Mcf for the three months ended June
30, 2004 as compared to the three months ended June 30, 2003. The increase
in volumes of gas sold was primarily due to a positive prior period volume
adjustment made by the operator on one significant well during the three
months ended June 30, 2004. This increase was partially offset by normal
declines in production. The decrease in production expenses was primarily
due to workover expenses incurred on several wells during the three months
ended June 30, 2003. This decrease was partially offset by an increase in
workover expenses incurred on several other wells within one unit during
the three months ended June 30, 2004 as compared to the three months ended
June 30, 2003.
Depletion of Net Profits Interests increased $1,461 (2.1%) for the three
months ended June 30, 2004 as compared to the three months ended June 30,
2003. This increase was primarily due to the increase in volumes of gas
sold. This increase was partially offset by upward revisions in the
estimates of remaining oil and gas reserves at June 30, 2004 as compared to
June 30, 2003. As a percentage of Net Profits, this expense decreased to
8.1% for the three months ended June 30, 2004 from 12.9% for the three
months ended June 30, 2003. This percentage decrease was primarily due to
the increase in Net Profits.
-23-
General and administrative expenses increased $7,770 (13.0%) for the three
months ended June 30, 2004 as compared to the three months ended June 30,
2003. As a percentage of Net Profits, these expenses decreased to 7.6% for
the three months ended June 30, 2004 from 11.0% for the three months ended
June 30, 2003. This percentage decrease was primarily due to the increase
in Net Profits.
SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO THE SIX MONTHS ENDED JUNE 30,
2003.
Six Months Ended June 30,
-------------------------
2004 2003
---------- ----------
Net Profits $1,444,385 $1,320,374
Barrels produced 39,695 40,167
Mcf produced 211,663 193,778
Average price/Bbl $ 34.50 $ 29.44
Average price/Mcf $ 4.29 $ 4.74
As shown in the table above, total Net Profits increased $124,011 (9.4%)
for the six months ended June 30, 2004 as compared to the six months ended
June 30, 2003. Of this increase, approximately (i) $201,000 was related to
an increase in the average price of oil sold and (ii) $85,000 was related
to an increase in volumes of gas sold. These increases were partially
offset by decreases of approximately (i) $94,000 related to a decrease in
the average price of gas sold, (ii) $54,000 related to an increase in
production expenses, and (iii) $14,000 related to a decrease in volumes of
oil sold. Volumes of oil sold decreased 472 barrels, while volumes of gas
sold increased 17,885 Mcf for the six months ended June 30, 2004 as
compared to the six months ended June 30, 2003. The increase in volumes of
gas sold was primarily due to a positive prior period volume adjustment
made by the operator on one significant well during the six months ended
June 30, 2004. This increase was partially offset by (i) normal declines in
production and (ii) a positive prior period volume adjustment on another
significant well during the six months ended June 30, 2003. The increase in
production expenses was primarily due to workover expenses incurred on
several wells during the six months ended June 30, 2004. This increase was
partially offset by workover expenses incurred on several other wells
during the six months ended June 30, 2003.
Depletion of Net Profits Interests decreased $7,239 (5.0%) for the six
months ended June 30, 2004 as compared to the six months ended June 30,
2003. As a percentage of Net Profits, this expense decreased to 9.5% for
the six months ended June 30, 2004 from 11.0% for the six months ended June
30, 2003. This percentage decrease was primarily due to the increase in Net
Profits.
-24-
General and administrative expenses increased $3,690 (3.0%) for the six
months ended June 30, 2004 as compared to the six months ended June 30,
2003. As a percentage of Net Profits, these expenses decreased to 8.7% for
the six months ended June 30, 2004 from 9.3% for the six months ended June
30, 2003.
The P-7 Partnership achieved payout during the second quarter of 2004.
After payout, operations and revenues for the P-7 Partnership have been and
will be allocated using after payout percentages. After payout percentages
allocate operating income and expenses 10% to the General Partner and 90%
to the Limited Partners. Before payout, operating income and expenses were
allocated 5% to the General Partner and 95% to the Limited Partners.
Cumulative cash distributions to the Limited Partners through June 30, 2004
were $18,882,916 or 100.07% of Limited Partners' capital contributions.
P-8 PARTNERSHIP
THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO THE THREE MONTHS ENDED JUNE
30, 2003.
Three Months Ended June 30,
---------------------------
2004 2003
-------- --------
Net Profits $571,560 $386,570
Barrels produced 11,570 12,095
Mcf produced 81,408 63,931
Average price/Bbl $ 36.13 $ 26.53
Average price/Mcf $ 4.51 $ 5.02
As shown in the table above, total Net Profits increased $184,990 (47.9%)
for the three months ended June 30, 2004 as compared to the three months
ended June 30, 2003. Of this increase, approximately (i) $111,000 was
related to an increase in the average price of oil sold, (ii) $88,000 was
related to an increase in volumes of gas sold, and (iii) $42,000 was
related to a decrease in production expenses. These increases were
partially offset by a decrease of approximately $42,000 related to a
decrease in the average price of gas sold. Volumes of oil sold decreased
525 barrels, while volumes of gas sold increased 17,477 Mcf for the three
months ended June 30, 2004 as compared to the three months ended June 30,
2003. The increase in volumes of gas sold was primarily due to a positive
prior period volume adjustment made by the operator on one significant well
during the three months ended June 30, 2004. This increase was partially
offset by normal declines in production. The decrease in production
expenses was primarily due to workover expenses incurred on several wells
during the three months ended June 30, 2003. This decrease was partially
offset by an increase in workover expenses
-25-
incurred on several other wells within one unit during the three months
ended June 30, 2004 as compared to the three months ended June 30, 2003.
Depletion of Net Profits Interests decreased $635 (1.5%) for the three
months ended June 30, 2004 as compared to the three months ended June 30,
2003. As a percentage of Net Profits, this expense decreased to 7.3% for
the three months ended June 30, 2004 from 10.9% for the three months ended
June 30, 2003. This percentage decrease was primarily due to the increase
in Net Profits.
General and administrative expenses increased $7,232 (18.0%) for the three
months ended June 30, 2004 as compared to the three months ended June 30,
2003. As a percentage of Net Profits, these expenses decreased to 8.3% for
the three months ended June 30, 2004 from 10.4% for the three months ended
June 30, 2003. This percentage decrease was primarily due to the increase
in Net Profits.
SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO THE SIX MONTHS ENDED JUNE 30,
2003.
Six Months Ended June 30,
-------------------------
2004 2003
-------- --------
Net Profits $943,984 $927,957
Barrels produced 24,087 24,395
Mcf produced 141,008 141,631
Average price/Bbl $ 34.36 $ 29.43
Average price/Mcf $ 4.44 $ 4.86
As shown in the table above, total Net Profits increased $16,027 (1.7%) for
the six months ended June 30, 2004 as compared to the six months ended June
30, 2003. Of this increase, approximately $119,000 was related to an
increase in the average price of oil sold. This increase was partially
offset by decreases of approximately (i) $60,000 related to a decrease in
the average price of gas sold, (ii) $31,000 related to an increase in
production expenses, and (iii) $9,000 and $3,000, respectively, related to
decreases in volumes of oil and gas sold. Volumes of oil and gas sold
decreased 308 barrels and 623 Mcf, respectively, for the six months ended
June 30, 2004 as compared to the six months ended June 30, 2003. The
decrease in volumes of gas sold was primarily due to (i) normal declines in
production and (ii) a positive prior period volume adjustment on one
significant well during the six months ended June 30, 2003. These decreases
were substantially offset by a positive prior period volume adjustment made
by the operator on another significant well during the six months ended
June 30, 2004. The increase in production expenses was primarily due to
workover expenses incurred on several wells during the six months ended
June 30, 2004. This increase was partially offset by workover expenses
incurred on several other wells during the six months ended June 30, 2003.
-26-
Depletion of Net Profits Interests decreased $5,648 (6.6%) for the six
months ended June 30, 2004 as compared to the six months ended June 30,
2003. As a percentage of Net Profits, this expense decreased to 8.5% for
the six months ended June 30, 2004 from 9.3% for the six months ended June
30, 2003.
General and administrative expenses increased $2,822 (3.4%) for the six
months ended June 30, 2004 as compared to the six months ended June 30,
2003. As a percentage of Net Profits, these expenses increased to 9.0% for
the six months ended June 30, 2004 from 8.9% for the six months ended June
30, 2003.
Cumulative cash distributions to the Limited Partners through June 30, 2004
were $12,685,583 or 109.20% of Limited Partners' capital contributions.
-27-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
The Partnerships do not hold any market risk sensitive instruments.
ITEM 4. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of this period covered by this report, the principal
executive officer and principal financial officer conducted an
evaluation of the Partnerships' disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities and
Exchange Act of 1934). Based on this evaluation, such officers
concluded that the Partnerships' disclosure controls and procedures
are effective to ensure that information required to be disclosed by
the Partnerships in reports filed under the Exchange Act is recorded,
processed, summarized, and reported accurately and within the time
periods specified in the Securities and Exchange Commission rules and
forms.
-28-
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Certification by Dennis R. Neill required by Rule 13a-14(a)/15d-14(a)
for the P-7 Partnership.
31.2 Certification by Craig D. Loseke required by Rule 13a-14(a)/15d-14(a)
for the P-7 Partnership.
31.3 Certification by Dennis R. Neill required by Rule 13a-14(a)/15d-14(a)
for the P-8 Partnership.
31.4 Certification by Craig D. Loseke required by Rule 13a-14(a)/15d-14(a)
for the P-8 Partnership.
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 for the P-7
Partnership.
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 for the P-8
Partnership.
(b) Reports on Form 8-K.
None.
-29-
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.
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-7
GEODYNE INSTITUTIONAL/PENSION ENERGY
INCOME LIMITED PARTNERSHIP P-8
(Registrant)
BY: GEODYNE RESOURCES, INC.
General Partner
Date: August 11, 2004 By: /s/Dennis R. Neill
--------------------------------
(Signature)
Dennis R. Neill
President
Date: August 11, 2004 By: /s/Craig D. Loseke
--------------------------------
(Signature)
Craig D. Loseke
Chief Accounting Officer
-30-
INDEX TO EXHIBITS
-----------------
Exh.
No. Exhibit
- ---- -------
31.1 Certification by Dennis R. Neill required by Rule 13a-14(a)/15d-14(a) for
the Geodyne Institutional/Pension Energy Income Limited Partnership P-7.
31.2 Certification by Craig D. Loseke required by Rule 13a-14(a)/15d-14(a) for
the Geodyne Institutional/Pension Energy Income Limited Partnership P-7.
31.3 Certification by Dennis R. Neill required by Rule 13a-14(a)/15d-14(a) for
the Geodyne Institutional/Pension Energy Income Limited Partnership P-8.
31.4 Certification by Craig D. Loseke required by Rule 13a-14(a)/15d-14(a) for
the Geodyne Institutional/Pension Energy Income Limited Partnership P-8.
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 for the Geodyne
Institutional/Pension Energy Income Limited Partnership P-7.
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 for the Geodyne
Institutional/Pension Energy Income Limited Partnership P-8.
-31-