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 September 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
September 30, December 31,
2004 2003
------------- ------------
CURRENT ASSETS:
Cash and cash equivalents $1,199,266 $ 973,753
Accounts receivable:
Net Profits 188,043 -
---------- ----------
Total current assets $1,387,309 $ 973,753
NET PROFITS INTERESTS, net, utilizing
the successful efforts method 3,495,144 3,266,042
---------- ----------
$4,882,453 $4,239,795
========== ==========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ - $ 208,257
---------- ----------
Total current liabilities $ - $ 208,257
PARTNERS' CAPITAL (DEFICIT):
General Partner ($ 32,638) ($ 103,881)
Limited Partners, issued and
outstanding, 188,702 units 4,915,091 4,135,419
---------- ----------
Total Partners' capital $4,882,453 $4,031,538
---------- ----------
$4,882,453 $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 SEPTEMBER 30, 2004 AND 2003
(Unaudited)
2004 2003
-------- --------
REVENUES:
Net Profits $949,612 $590,062
Interest income 1,831 1,436
Gain on sale of Net Profits
Interests - 368,610
-------- --------
$951,443 $960,108
COSTS AND EXPENSES:
Depletion of Net Profits
Interests $ 47,625 $ 80,031
General and administrative
(Note 2) 52,500 56,320
-------- --------
$100,125 $136,351
-------- --------
NET INCOME $851,318 $823,757
======== ========
GENERAL PARTNER - NET INCOME $ 89,235 $ 44,317
======== ========
LIMITED PARTNERS - NET INCOME $762,083 $779,440
======== ========
NET INCOME per unit $ 4.04 $ 4.13
======== ========
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 NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(Unaudited)
2004 2003
---------- ----------
REVENUES:
Net Profits $2,393,997 $1,910,436
Interest income 4,154 3,854
Gain on sale of Net Profits
Interests - 368,610
---------- ----------
$2,398,151 $2,282,900
COSTS AND EXPENSES:
Depletion of Net Profits
Interests $ 185,136 $ 224,781
General and administrative
(Note 2) 178,401 178,531
---------- ----------
$ 363,537 $ 403,312
---------- ----------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $2,034,614 $1,879,588
Cumulative effect of change in
accounting for asset retirement
obligations (Note 1) - 400
---------- ----------
NET INCOME $2,034,614 $1,879,988
========== ==========
GENERAL PARTNER - NET INCOME $ 194,942 $ 102,782
========== ==========
LIMITED PARTNERS - NET INCOME $1,839,672 $1,777,206
========== ==========
NET INCOME per unit $ 9.75 $ 9.42
========== ==========
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 NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(Unaudited)
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,034,614 $1,879,988
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 185,136 224,781
Gain on sale of Net Profits
Interests - ( 368,610)
Increase in accounts receivable -
Net Profits ( 486,980) ( 213,033)
---------- ----------
Net cash provided by operating
activities $1,732,770 $1,522,726
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ($ 323,558) ($ 392,375)
Proceeds from sale of Net Profits
Interests - 395,711
---------- ----------
Net cash provided (used) by investing
activities ($ 323,558) $ 3,336
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions ($1,183,699) ($1,020,806)
---------- ----------
Net cash used by financing
activities ($1,183,699) ($1,020,806)
---------- ----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS $ 225,513 $ 505,256
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 973,753 857,086
---------- ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $1,199,266 $1,362,342
========== ==========
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
September 30, December 31,
2004 2003
------------- ------------
CURRENT ASSETS:
Cash and cash equivalents $ 773,275 $ 675,203
Accounts receivable:
Net Profits 109,396 -
---------- ----------
Total current assets $ 882,671 $ 675,203
NET PROFITS INTERESTS, net, utilizing
the successful efforts method 2,101,408 1,956,230
---------- ----------
$2,984,079 $2,631,433
========== ==========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ - $ 128,314
---------- ----------
$ - $ 128,314
PARTNERS' CAPITAL (DEFICIT):
General Partner ($ 8,693) ($ 29,971)
Limited Partners, issued and
outstanding, 116,168 units 2,992,772 2,533,090
---------- ----------
Total Partners' capital $2,984,079 $2,503,119
---------- ----------
$2,984,079 $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 SEPTEMBER 30, 2004 AND 2003
(Unaudited)
2004 2003
-------- --------
REVENUES:
Net Profits $590,141 $404,883
Interest income 1,120 1,125
Gain on sale of Net Profits
Interests - 482,658
-------- --------
$591,261 $888,666
COSTS AND EXPENSES:
Depletion of Net Profits
Interests $ 27,315 $ 48,138
General and administrative
(Note 2) 32,687 34,913
-------- --------
$ 60,002 $ 83,051
-------- --------
NET INCOME $531,259 $805,615
======== ========
GENERAL PARTNER - NET INCOME $ 55,473 $ 42,150
======== ========
LIMITED PARTNERS - NET INCOME $475,786 $763,465
======== ========
NET INCOME per unit $ 4.10 $ 6.57
======== ========
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 NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(Unaudited)
2004 2003
---------- ----------
REVENUES:
Net Profits $1,534,125 $1,332,840
Interest income 2,670 2,930
Gain on sale of Net Profits
Interests - 482,658
---------- ----------
$1,536,795 $1,818,428
COSTS AND EXPENSES:
Depletion of Net Profits
Interests $ 107,695 $ 134,166
General and administrative
(Note 2) 117,869 117,273
---------- ----------
$ 225,564 $ 251,439
---------- ----------
INCOME BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE $1,311,231 $1,566,989
Cumulative effect of change in
accounting for asset retirement
obligations (Note 1) - 4,862
---------- ----------
NET INCOME $1,311,231 $1,571,851
========== ==========
GENERAL PARTNER - NET INCOME $ 140,549 $ 83,618
========== ==========
LIMITED PARTNERS - NET INCOME $1,170,682 $1,488,233
========== ==========
NET INCOME per unit $ 10.08 $ 12.81
========== ==========
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 NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
(Unaudited)
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,311,231 $1,571,851
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 107,695 134,166
Gain on sale of Net Profits
Interests - ( 482,658)
Increase in accounts receivable -
Net Profits ( 293,438) ( 145,209)
---------- ----------
Net cash provided by operating
activities $1,125,488 $1,073,288
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ($ 197,145) ($ 238,801)
Proceeds from sale of Net Profits
Interests - 518,171
---------- ----------
Net cash provided (used) by investing
activities ($ 197,145) $ 279,370
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions ($ 830,271) ($ 792,733)
---------- ----------
Net cash used by financing activities ($ 830,271) ($ 792,733)
---------- ----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS $ 98,072 $ 559,925
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 675,203 611,298
---------- ----------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 773,275 $1,171,223
========== ==========
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
SEPTEMBER 30, 2004
(Unaudited)
1. ACCOUNTING POLICIES
-------------------
The balance sheets as of September 30, 2004, statements of operations for
the three and nine months ended September 30, 2004 and 2003, and
statements of cash flows for the nine months ended September 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 September 30, 2004, the results of operations for the three and nine
months ended September 30, 2004 and 2003, and the cash flows for the nine
months ended September 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 September 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
nine months ended September 30, 2004, the P-7 and P-8 Partnerships
recognized approximately $12,000 and $7,000, 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 nine months ended September 30, 2004 and 2003 are as shown below.
P-7 Partnership
---------------
Three Months Three Months
Ended Ended
9/30/2004 9/30/2003
------------ ------------
Total Asset Retirement
Obligation, July 1 $322,154 $318,478
Settlements and disposals - ( 351)
Accretion expense 2,213 3,608
-------- --------
Total Asset Retirement
Obligation, End of Quarter $324,367 $321,735
======== ========
Nine Months Nine Months
Ended Ended
9/30/2004 9/30/2003
------------ ------------
Total Asset Retirement
Obligation, January 1 $317,713 $311,238
Settlements and disposals - ( 351)
Accretion expense 6,654 10,848
-------- --------
Total Asset Retirement
Obligation, End of Period $324,367 $321,735
======== ========
-12-
P-8 Partnership
---------------
Three Months Three Months
Ended Ended
9/30/2004 9/30/2003
------------ ------------
Total Asset Retirement
Obligation, July 1 $237,187 $233,890
Settlements and disposals - ( 504)
Accretion expense 1,313 2,676
-------- --------
Total Asset Retirement
Obligation, End of Quarter $238,500 $236,062
======== ========
Nine Months Nine Months
Ended Ended
9/30/2004 9/30/2003
------------ ------------
Total Asset Retirement
Obligation, January 1 $234,524 $228,506
Settlements and disposals - ( 504)
Accretion expense 3,976 8,060
-------- --------
Total Asset Retirement
Obligation, End of Period $238,500 $236,062
======== ========
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 September 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 $2,841 $49,659
P-8 2,117 30,570
-13-
During the nine months ended September 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 $29,424 $148,977
P-8 26,159 91,710
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 September 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 nine
months ended September 30, 2004, capital expenditures affecting the P-7
and P-8 Partnerships' Net Profits Interests totaled $323,558 and $197,145,
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.
During the nine months ended September 30, 2003, capital expenditures
affecting the P-7 and P-8 Partnerships' Net Profits Interests totaled
$392,375 and $238,801, respectively, primarily also 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 as of September 30, 2004 of approximately (i) 96,000 barrels and
55,000 Mcf to the P-7 Partnership and (ii) 59,000 barrels and 34,000 Mcf
to the P-8 Partnership.
-16-
Any other capital expenditures incurred by the Partnerships during the
nine months ended September 30, 2004 and 2003 were not significant to the
Partnerships' cash flows.
The P-7 and P-8 Partnerships' Statements of Cash Flows for the nine months
ended September 30, 2003 include proceeds from the sale of certain oil and
gas properties during the third quarter of 2003. These proceeds were
included in the Partnerships' November 2003 cash distributions. No such
sales occurred during the nine months ended September 30, 2004.
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.
-17-
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
cost 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.
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.
-18-
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:
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
nine months ended September 30, 2004, the P-7 and P-8 Partnerships
recognized approximately $12,000 and $7,000, 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.
-19-
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.
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
Production ( 17,514) ( 106,084)
Extensions and discoveries 39,330 38,368
Revisions of previous
estimates 47,965 54,954
--------- ---------
Proved reserves, Sept. 30, 2004 1,376,951 5,290,887
========= =========
-20-
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
Production ( 10,422) ( 67,673)
Extensions and discoveries 23,014 21,610
Revisions of previous
estimates 28,445 31,925
------- ---------
Proved reserves, Sept. 30, 2004 809,728 3,354,295
======= =========
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 September 30, 2004, 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
-21-
net present value attributable to the Partnerships' proved reserves do not
necessarily reflect market prices for oil and gas production subsequent to
September 30, 2004. There can be no assurance that the prices used in
calculating the net present value of the Partnerships' proved reserves at
September 30, 2004 will actually be realized for such production.
Net Present Value of Reserves (In 000's)
-----------------------------------------------
Partnership 9/30/04 6/30/04 3/31/04 12/31/03
----------- ------- ------- ------- --------
P-7 $25,878 $18,792 $16,111 $14,950
P-8 15,952 11,826 10,168 9,486
Oil and Gas Prices
----------------------------------------------
Pricing 9/30/04 6/30/04 3/31/04 12/31/03
----------- ------- ------- ------- --------
Oil (Bbl) $ 49.56 $ 33.75 $ 32.50 $ 29.25
Gas (Mcf) 6.23 6.04 5.63 5.77
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;
-22-
* 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.
P-7 PARTNERSHIP
THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2003.
Three Months Ended September 30,
--------------------------------
2004 2003
-------- --------
Net Profits $949,612 $590,062
Barrels produced 17,514 22,244
Mcf produced 106,084 72,847
Average price/Bbl $ 41.52 $ 29.22
Average price/Mcf $ 4.71 $ 3.65
As shown in the table above, total Net Profits increased $359,550 (60.9%)
for the three months ended September 30, 2004 as compared to the three
months ended September 30, 2003. Of this increase, approximately (i)
$216,000 and $113,000, respectively, were related to increases in the
average prices of oil and gas sold, (ii) $121,000 was related to an
increase in volumes of gas sold, and (iii) $48,000 was related to a
decrease in production expenses. These increases were partially offset by
a decrease of approximately $138,000 related to a decrease in volumes of
oil sold. Volumes of oil sold decreased 4,730 barrels, while volumes of
gas sold increased 33,237 Mcf for the three months ended September 30,
2004 as compared to the three months ended September 30, 2003. The
decrease in volumes of oil sold was primarily due to (i) normal declines
in production, (ii) the sale of several wells during late 2003, and (iii)
a positive prior period volume adjustment made by the operator on one
other significant well during the three months ended September 30, 2003.
The increase in volumes of gas sold was primarily due to an increase in
production on
-23-
several wells following the successful workovers of those wells during
2003 and 2004. This increase was partially offset by the sale of several
other wells during mid 2003. The decrease in production expenses was
primarily due to workover expenses incurred on several wells during the
three months ended September 30, 2003. This decrease was partially offset
by (i) an increase in workover expenses incurred on several other wells
during the three months ended September 30, 2004 as compared to the three
months ended September 30, 2003 and (ii) an increase in production taxes
associated with the increase in oil and gas sales.
As discussed in "Liquidity and Capital Resources" above, the P-7
Partnership sold certain oil and gas properties during the three months
ended September 30, 2003 and recognized a $368,610 gain on such sales. No
such sales occurred during the three months ended September 30, 2004.
Depletion of Net Profits Interests decreased $32,406 (40.5%) for the three
months ended September 30, 2004 as compared to the three months ended
September 30, 2003. This decrease was primarily due to upward revisions in
the estimates of remaining oil and gas reserves since September 30, 2003.
As a percentage of Net Profits, this expense decreased to 5.0% for the
three months ended September 30, 2004 from 13.6% for the three months
ended September 30, 2003. This percentage decrease was primarily due to
(i) the dollar decrease in depletion of Net Profits Interests and (ii) the
increase in Net Profits.
General and administrative expenses decreased $3,820 (6.8%) for the three
months ended September 30, 2004 as compared to the three months ended
September 30, 2003. As a percentage of Net Profits, these expenses
decreased to 5.5% for the three months ended September 30, 2004 from 9.5%
for the three months ended September 30, 2003. This percentage decrease
was primarily due to the increase in Net Profits.
NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2003.
Nine Months Ended September 30,
-------------------------------
2004 2003
---------- ----------
Net Profits $2,393,997 $1,910,436
Barrels produced 57,209 62,411
Mcf produced 317,747 266,625
Average price/Bbl $ 36.65 $ 29.36
Average price/Mcf $ 4.43 $ 4.44
As shown in the table above, total Net Profits increased $483,561 (25.3%)
for the nine months ended September 30, 2004 as compared to the nine
months ended September 30, 2003. Of this increase, approximately (i)
$417,000 was related to an increase in the average price of oil sold and
(ii) $227,000 was related to an increase in volumes of gas
-24-
sold. These increases were partially offset by a decrease of approximately
$153,000 related to a decrease in volumes of oil sold. Volumes of oil sold
decreased 5,202 barrels, while volumes of gas sold increased 51,122 Mcf
for the nine months ended September 30, 2004 as compared to the nine
months ended September 30, 2003. The increase in volumes of gas sold was
primarily due to (i) a positive prior period volume adjustment made by the
operator on one significant well during the nine months ended September
30, 2004 and (ii) an increase in production on several other wells
following their successful workovers of those wells during 2003 and 2004.
These increases were partially offset by (i) a positive prior period
volume adjustment on another significant well during the nine months ended
September 30, 2003 and (ii) the sale of several wells during mid 2003.
As discussed in "Liquidity and Capital Resources" above, the P-7
Partnership sold certain oil and gas properties during the nine months
ended September 30, 2003 and recognized a $368,610 gain on such sales. No
such sales occurred during the nine months ended September 30, 2004.
Depletion of Net Profits Interests decreased $39,645 (17.6%) for the nine
months ended September 30, 2004 as compared to the nine months ended
September 30, 2003. This decrease was primarily due to upward revisions in
the estimates of remaining oil and gas reserves since September 30, 2003.
As a percentage of Net Profits, this expense decreased to 7.7% for the
nine months ended September 30, 2004 from 11.8% for the nine months ended
September 30, 2003. This percentage decrease was primarily due to (i) the
increase in Net Profits and (ii) the dollar decrease in depletion of Net
Profits Interests.
General and administrative expenses remained relatively constant for the
nine months ended September 30, 2004 and 2003. As a percentage of Net
Profits, these expenses decreased to 7.5% for the nine months ended
September 30, 2004 from 9.3% for the nine months ended September 30, 2003.
This percentage decrease was primarily due to the increase in Net Profits.
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 September
30, 2004 were $19,259,916 or 102.07% of Limited Partners' capital
contributions.
-25-
P-8 PARTNERSHIP
THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2003.
Three Months Ended September 30,
--------------------------------
2004 2003
-------- --------
Net Profits $590,141 $404,883
Barrels produced 10,422 13,228
Mcf produced 67,673 55,525
Average price/Bbl $ 41.62 $ 29.25
Average price/Mcf $ 4.82 $ 3.70
As shown in the table above, total Net Profits increased $185,258 (45.8%)
for the three months ended September 30, 2004 as compared to the three
months ended September 30, 2003. Of this increase, approximately (i)
$129,000 and $75,000, respectively, were related to increases in the
average prices of oil and gas sold and (ii) $45,000 was related to an
increase in volumes of gas sold. These increases were partially offset by
a decrease of approximately $82,000 related to a decrease in volumes of
oil sold. Volumes of oil sold decreased 2,806 barrels, while volumes of
gas sold increased 12,148 Mcf for the three months ended September 30,
2004 as compared to the three months ended September 30, 2003. The
decrease in volumes of oil sold was primarily due to (i) normal declines
in production, (ii) the sale of several wells during late 2003, and (iii)
a positive prior period volume adjustment made by the operator on one
significant well during the three months ended September 30, 2003. The
increase in volumes of gas sold was primarily due to an increase in
production on several wells following the successful workovers of those
wells during 2003 and 2004. This increase was partially offset by the sale
of several other wells during mid 2003.
As discussed in "Liquidity and Capital Resources" above, the P-8
Partnership sold certain oil and gas properties during the three months
ended September 30, 2003 and recognized a $482,658 gain on such sales. No
such sales occurred during the three months ended September 30, 2004.
Depletion of Net Profits Interests decreased $20,823 (43.3%) for the three
months ended September 30, 2004 as compared to the three months ended
September 30, 2003. This decrease was primarily due to upward revisions in
the estimates of remaining oil and gas reserves since September 30, 2003.
As a percentage of Net Profits, this expense decreased to 4.6% for the
three months ended September 30, 2004 from 11.9% for the three months
ended September 30, 2003. This percentage decrease was primarily due to
(i) the dollar decrease in depletion of Net Profits Interests and (ii) the
increase in Net Profits.
-26-
General and administrative expenses decreased $2,226 (6.4%) for the three
months ended September 30, 2004 as compared to the three months ended
September 30, 2003. As a percentage of Net Profits, these expenses
decreased to 5.5% for the three months ended September 30, 2004 from 8.6%
for the three months ended September 30, 2003. This percentage decrease
was primarily due to the increase in Net Profits.
NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2003.
Nine Months Ended September 30,
-------------------------------
2004 2003
---------- ----------
Net Profits $1,534,125 $1,332,840
Barrels produced 34,509 37,623
Mcf produced 208,681 197,156
Average price/Bbl $ 36.55 $ 29.36
Average price/Mcf $ 4.56 $ 4.53
As shown in the table above, total Net Profits increased $201,285 (15.1%)
for the nine months ended September 30, 2004 as compared to the nine
months ended September 30, 2003. Of this increase, approximately (i)
$248,000 was related to an increase in the average price of oil sold and
(ii) $52,000 was related to an increase in volumes of gas sold. These
increases were partially offset by a decrease of approximately $91,000
related to a decrease in volumes of oil sold. Volumes of oil sold
decreased 3,114 barrels, while volumes of gas sold increased 11,525 Mcf
for the nine months ended September 30, 2004 as compared to the nine
months ended September 30, 2003.
As discussed in "Liquidity and Capital Resources" above, the P-8
Partnership sold certain oil and gas properties during the nine months
ended September 30, 2003 and recognized a $482,658 gain on such sales. No
such sales occurred during the nine months ended September 30, 2004.
Depletion of Net Profits Interests decreased $26,471 (19.7%) for the nine
months ended September 30, 2004 as compared to the nine months ended
September 30, 2003. This decrease was primarily due to upward revisions in
the estimates of remaining oil and gas reserves since September 30, 2003.
As a percentage of Net Profits, this expense decreased to 7.0% for the
nine months ended September 30, 2004 from 10.1% for the nine months ended
September 30, 2003. This percentage decrease was primarily due to (i) the
dollar decrease in depletion of Net Profits Interests and (ii) the
increase in Net Profits.
-27-
General and administrative expenses remained relatively constant for the
nine months ended September 30, 2004 and 2003. As a percentage of Net
Profits, these expenses decreased to 7.7% for the nine months ended
September 30, 2004 from 8.8% for the nine months ended September 30, 2003.
This percentage decrease was primarily due to the increase in Net Profits.
Cumulative cash distributions to the Limited Partners through September
30, 2004 were $12,900,583 or 111.05% of Limited Partners' capital
contributions.
-28-
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
The Partnerships do not hold any market risk sensitive instruments.
ITEM 4. 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.
-29-
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.
-30-
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: November 12, 2004 By: /s/Dennis R. Neill
--------------------------------
(Signature)
Dennis R. Neill
President
Date: November 12, 2004 By: /s/Craig D. Loseke
--------------------------------
(Signature)
Craig D. Loseke
Chief Accounting Officer
-31-
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.
-32-