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QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

 

[X] Quarterly Report Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

For the period ended June 30, 2004

or

[ ] Transition Report Pursuant to Section 13 of 15(d) of

the Securities Exchange Act of 1934

For the transition period from to

 

 

 

Commission file number 033-63635-04

I.R.S. Employer Identification Number 55-0751154

PDC 1996-D LIMITED PARTNERSHIP

(A West Virginia Limited Partnership)

103 East Main Street

Bridgeport, WV 26330

Telephone: (304) 842-6256

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 XX No

Indicate by check mark whether the registrant is an accelerated filer (as definition in Rule 12b-2 of the Exchange Act.) Yes No XX

 

 

 

PDC 1996-D LIMITED PARTNERSHIP

(A West Virginia Limited Partnership)

 

INDEX

PART I - FINANCIAL INFORMATION

Page No.

       

Item 1.

Item Financial Statements

Balance Sheets - June 30, 2004 (unaudited) and December 31, 2003

1

       

Statements of Operations - Three Months and Six Months Ended June 30, 2004

and 2003 (unaudited)

2

       

Statement of Partners' Equity - Six Months Ended June 30, 2004 (unaudited)

3

       

Statements of Cash Flows- Six Months Ended June 30, 2004 and 2003 (unaudited)

4

       
   

Notes to Financial Statements

5

       

Item 2.

Management's Discussion and Analysis of Financial

Condition and Results of Operations


6

       

Item 3.

Quantitative and Qualitative Disclosure About Market Rate Risk

7

Item 4.

Controls and Procedures

8

       

PART II OTHER INFORMATION

 
       

Item 1.

Legal Proceedings

9

       

Item 6.

Exhibits and Reports on Form 8-K

9

       
       

 

 

 

 

 

 

 

 

 

 

 

PDC 1996-D LIMITED PARTNERSHIP

(A West Virginia Limited Partnership)

Balance Sheets

June 30, 2004 and December 31, 2003

 

 

 

     

      Assets

   
 

2004

2003

 

(Unaudited)

 
     

Current assets:

   

 Cash

$     428

3,789

 Accounts receivable - oil and gas revenues

  212,426

   150,105

          Total current assets

212,854

153,894

     

Oil and gas properties, successful efforts method

6,952,955

6,952,955

     Less accumulated depreciation, depletion

   

and amortization

 4,423,550

 4,325,103

 

 2,529,405

 2,627,852

     
 

$ 2,742,259

 2,781,746

     

     Liabilities and Partners' Equity

   
     

Current liabilities:

   

 Accrued expenses

$  62,291

   44,086

          Total current liabilities

62,291

44,086

     

Asset retirement obligations

31,428

31,428

     

Partners' Equity

2,648,540

 2,706,232

     
     
 

$2,742,259

 2,781,746

See accompanying notes to financial statements.

 

 

 

 

 

 

 

 

 

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PDC 1996-D LIMITED PARTNERSHIP

(A West Virginia Limited Partnership)

Statements of Operations

Three and Six Months ended June 30, 2004 and 2003

(Unaudited)

 

 

Three Months Ended June 30, Six Months Ended June 30,

2004

2003

2004

2003

Revenues:

       

Sales of oil and gas

$ 351,664

 352,768 

678,938

  676,663 

Interest income

91

        142 

192

   275 

 

351,755

352,910 

679,130

676,938 

Expenses:

       

Lifting cost

131,697

133,611 

259,533

257,912 

Direct administration cost

32

32

514 

Depreciation, depletion, and amortization

52,874

  58,685 

98,447

106,395 

 

184,603

192,296 

 358,012

364,821 

         

Net income before cumulative effect of change in accounting principle

167,152 


  160,614 

321,118


  312,117 

         

Cumulative effect of change in accounting principle

-     

   -     

-    

   (21,123)

         

Net income

$ 167,152


160,614
 

321,118


290,994
 

         

Net income per limited partner unit before cumulative effect of change in accounting principle

$ 175

168 

336

326

Cumulative effect of change in accounting principle

-    

-    

-    

(22)

         

Net income per limited partner unit

$ 175

$ 168 

$ 336

$ 304 

         

See accompanying notes to financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

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PDC 1996-D LIMITED PARTNERSHIP

(A West Virginia Limited Partnership)

Statement of Partners' Equity

Six Months ended June 30, 2004

(Unaudited)

 

 

Limited

Partners


Managing

General Partner

Accumulated

Other

Comprehensive

Income (loss)



Total

Balance December 31, 2003

$1,793,049 

921,983 

(8,800)

2,706,232 

         

Distributions to partners

(282,682)

(70,669)

-    

(353,351)

         

Comprehensive income:

       

Net income

 256,894  

64,224 

-    

321,118 

Change in fair value of

  outstanding hedging positions

   


(4,485)

 

Less reclassification adjustments   for settled contracts included in

  net income

   


  (20,974
)

 

Other comprehensive loss

   

(25,459)

      (25,459)

Comprehensive income

             

             

                

    295,659 

         

Balance June 30, 2004

$ 1,767,261 

   915,538 

  (34,259)

 2,648,540 

         

See accompanying notes to financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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PDC 1996-D LIMITED PARTNERSHIP

(A West Virginia Limited Partnership)

Statements of Cash Flows

Six Months ended June 30, 2004 and 2003

(Unaudited)

 

 

2004

2003

Cash flows from operating activities:

   

Net income

$321,118 

290,994 

Adjustments to reconcile net income to net cash

   

  provided from operating activities:

   

  Depreciation, depletion and amortization

98,447 

106,395  

  Cumulative effect of change in accounting principle

-     

21,123  

  Accretion of asset retirement obligations

-     

445  

  Changes in operating assets and liabilities:

   

  Increase in accounts receivable - oil and gas revenues

(60,374)

(69,223)

  Decrease in accounts payable

    (9,201)

   (11,680)

         Net cash provided from operating activities

   349,990 

   338,054 

     

Cash flows from financing activities:

   

  Distributions to partners

  (353,351)

  (337,991)

          Net cash used by financing activities

(353,351)

(337,991)

     

Net (decrease) increase in cash

(3,361)

63  

Cash at beginning of period

     3,789 

     3,352  

Cash at end of period

$     428 

     3,415  

     

See accompanying notes to financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-4-

 

 

 

PDC 1996-D LIMITED PARTNERSHIP

(A West Virginia Limited Partnership)

Notes to Financial Statements

(Unaudited)

 

1. Accounting Policies

Reference is hereby made to the Partnership's Annual Report on Form 10-K for 2003, which contains a summary of significant accounting policies followed by the Partnership in the preparation of its financial statements. These policies were also followed in preparing the quarterly report included herein.

2. Basis of Presentation

The Management of the Partnership believes that all adjustments (consisting of only normal recurring accruals) necessary to a fair statement of the results of such periods have been made. The results of operations for the six months ended June 30, 2004 are not necessarily indicative of the results to be expected for the full year.

3. Oil and Gas Properties

The Partnership follows the successful efforts method of accounting for the cost of exploring for and developing oil and gas reserves. Under this method, costs of development wells, including equipment and intangible drilling costs related to both producing wells and developmental dry holes, and successful exploratory wells are capitalized and amortized on an annual basis to operations by the units-of-production method using estimated proved developed reserves which will be determined at year end by the Managing General Partner's petroleum engineer. If a determination is made that an exploratory well has not discovered economically producible reserves, then its costs are expensed as dry hole costs.

4. Revenue Recognition

Sales of oil and natural gas are recognized when the rights and responsibilities of ownership pass to the purchaser and are net of royalties.

5. Derivative Instruments and Hedging Activities

The Managing General Partner utilizes commodity based derivative instruments as hedges to manage a portion of the Partnership's exposure to price volatility stemming from natural gas production. These instruments consist of costless collars and option contracts traded on the New York Mercantile Exchange. The costless collars and option contracts hedge committed and anticipated natural gas sales generally forecasted to occur within a 24 month period. The Managing General Partner does not hold or issue derivatives for trading or speculative purposes.

6. Change in Accounting Principle

In June 2001, the Financial Accounting Standard Board issued SFAS No. 143, "Accounting for Asset Retirement Obligations" that requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. This statement is effective for fiscal years beginning after June 15, 2002. The Partnership adopted SFAS No. 143 on January 1, 2003 and recorded a net asset of $8,526 and a related liability of $29,649 (using a 6% discount rate) and a cumulative effect of change in accounting principle on prior years of $(21,123).

 

 

-5-

 

PDC 1996-D LIMITED PARTNERSHIP

(A West Virginia Limited Partnership)

Notes to Financial Statements

(Unaudited)

 

New Accounting Standards

A reporting issue has arisen regarding the application of certain provisions of SFAS No. 141 and SFAS No. 142 to companies in the extractive industries, including oil and gas companies. The issue is whether SFAS No. 142 requires registrants to classify the costs of mineral rights (leases) associated with extracting oil and gas intangible assets in the balance sheets, apart from other capitalized oil and gas property costs, and provide specific footnote disclosures. Historically, the Partnership has included the costs of mineral rights associated with extracting oil and gas as a component of oil and gas properties. If it is ultimately determined that SFAS No. 142 requires oil and gas companies to classify costs of mineral rights associated with extracting oil and gas as a separate intangible assets line item on the balance sheet, the Partnership would be required to reclassify the historical cost of approximately $535,823 of mineral rights associated with developed oil and gas propertie s as of June 30, 2004 and December 31, 2003 out of oil and gas properties and into a separate intangible mineral rights assets line item. The Partnership's total balance sheet, cash flows and results of operations would not be affected since such intangible assets would continue to be amortized and assessed for impairment. There is a proposed FASB staff position issued that clarifies that reclassification will not be necessary under the exception to SFAS No. 142 but the comment period is still open. Final resolution is expected by the end of the Partnership's third quarter.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and Capital Resources

The Partnership was funded on December 31, 1996 with initial Limited and Additional General Partner contributions of $15,301,726 and the Managing General Partner's cash contribution of $3,328,126 in accordance with the Agreement. After payment of syndication costs of $1,606,681 and a one-time management fee to the Managing General Partner of $382,543 the Partnership had available cash of $16,640,628 for Partnership activities.

The Partnership began exploration and development activities subsequent to the funding of the Partnership and completed well drilling activities by March 31, 1997. Eighty-four wells have been drilled of which seventy-nine have been completed as producing wells.

The Partnership had net working capital at June 30, 2004 of $150,563.

Operations are expected to be conducted with available funds and revenues generated from oil and gas activities. No bank borrowings are anticipated.

Results of Operations

Three months ended June 30, 2004 compared with June 30, 2003

Oil and gas sales for the three months ended June 30, 2004 were $351,664 compared to $352,768 for the three months ended June 30, 2003, a decrease of $1,104 or 0.31%. The volume of natural gas sold for the three months ended June 30. 2004, was 60,898 Mcf at an average sales price of $5.77 per Mcf compared to 73,878 Mcf at an average price of $4.78 per Mcf for the three months ended June 30, 2003. The Lifting cost for the three months ended June 30, 2004 was $2.16 per Mcfe compared to $1.81 per Mcfe for the three months ended June 30, 2003. While the Partnership experienced a net income of $167,152, depreciation, depletion and amortization is a non-cash expense and therefore the Partnership distributed $202,187 to the partners for the three months ended June 30, 2004.

 

 

 

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PDC 1996-D LIMITED PARTNERSHIP

(A West Virginia Limited Partnership)

Notes to Financial Statements

(Unaudited)

 

 

 

Six Months ended June 30, 2004 compared with June 30, 2003

Oil and gas sales for the six months ended June 30, 2004 were $678,938 compared to $676,663 for the six months ended June 30, 2003, an increase of $2,275 or 0.34%. The volume of natural gas sold for the six months ended June 30, 2004, was 123,556 Mcf at an average sales price of $5.49 per Mcf compared to 133,945 Mcf at an average price of $5.05 per Mcf for the six months ended June 30, 2003. The Lifting cost for the six months ended June 30, 2004 was $2.10 per Mcf compared to $1.93 per Mcf for the six months ended June 30, 2003. While the Partnership experienced a net income of $321,118, depreciation, depletion and amortization is a non-cash expense and therefore the Partnership distributed $353,351 to the partners for the six months ending June 30, 2004.

The Partnership's revenue from oil and gas will be affected by changes in prices. As a result of changes in federal regulations, gas prices are highly dependent on the balance between supply and demand. The Partnership's gas sales prices are subject to increase and decrease based on various market sensitive indices.

Critical Accounting Policies

Certain accounting policies are very important to the portrayal of Partnership's financial condition and results of operations and require management's most subjective or complex judgments. The policies are as follows:

Revenue Recognition. Sales of natural gas are recognized when the rights and responsibilities of ownership pass to the purchasers and are net of royalties.

Impairment of Long-Lived Assets. The Partnership assesses impairment of capitalized costs of proved oil and gas properties by comparing net capitalized costs to undiscounted future cash flows on a field-by-field basis using expected prices. Prices utilized in each year's calculation for measurement purposes and expected costs are held constant throughout the life of the properties. If net capitalized costs exceed undiscounted future net cash flow, the measurement of impairment is based on estimated fair value which would consider future discounted cash flows.

Depreciation, Depletion and Amortization

Exploration and development costs are accounted for by the successful efforts method.

Costs of proved properties including leasehold acquisition, exploration and development costs and equipment are depreciated or depleted by the unit-of-production method based on estimated proved developed oil and gas reserves.

The judgments used in applying the above policies are based on management's evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from those estimates. See additional discussions in this Management's Discussion and Analysis.

Item 3. Quantitative and Qualitative Disclosure About Market Rate Risk

Market-Sensitive Instruments and Risk Management

The Partnership's primary market risk exposure is commodity price risk. This exposure is discussed in detail below:

 

-7-

 

PDC 1996-D LIMITED PARTNERSHIP

(A West Virginia Limited Partnership)

Notes to Financial Statements

(Unaudited)

 

 

Commodity Price Risk

Natural gas and oil prices have been unusually volatile for the past few years, and the Partnership anticipates continued volatility in the future. Currently, the NYMEX futures reflect a market expectation of gas prices at Henry Hub close to or above record prices per million Btu's (mmbtu). These prices look strong for 2004 although natural gas storage levels are near normal levels following a period when storage levels had been at a five-year low. The Partnership believes this situation creates the possibility of both periods of low prices and continued high prices.

Because of the uncertainty surrounding natural gas prices the Managing General Partner used hedging agreements to manage some of the impact of fluctuations in prices for the Managing General Partner and its various limited partnership's share of production. Through October of 2005 the Partnership has in place a series of costless collars and option contracts. Under the collar arrangements, if the applicable index rises above the ceiling price, the Partnership pays the counterparty, however if the index drops below the floor the counterparty pays the Partnership. For the period from April 2004 through October 2004, the Partnership has floors in place in a range from $4.00 to $5.00 on 13,744 Mmbtu of monthly production and ceilings in place at $5.65 on 5,498 Mmbtu of monthly production. Open option contracts maturing in the next twelve months are for the sales of 61,850 Mmbtu of natural gas with an average ceiling price of $6.12 and for the sale of 134,695 Mmbtu of natural gas with an ave rage floor price of $4.98 and a fair value of $(19,060). The maximum term over which the Partnership is hedging exposure to variability of cash flows for commodity price risk is 16 months. For the period of November 2004 though March 2005, the Partnership has floors in place at $5.67 on 10,996 Mmbtu of monthly production and ceilings in place at $7.00 on 5,498 Mmbtu of monthly production. For the period April 2005 through October 2005, the Partnership has floors in place at $4.28 on 8,247 Mmbtu of monthly production and ceilings in place at $5.00 on 4,123 Mmbtu of monthly production. As of June 30, 2004 the Partnership had total option contracts for the sale of 78,343 Mmbtu of natural gas with an average ceiling price of $5.88 and for the sale of 167,682 Mmbtu of natural gas with an average floor price of $4.84. The fair value of these floors and ceilings as of June 30, 2004 is $(34,259).

Disclosure of Limitations

As the information above incorporates only those exposures that exist at June 30, 2004, it does not consider those exposures or positions which could arise after that date. As a result, the Partnership's ultimate realized gain or loss with respect to commodity price fluctuations will depend on the exposures that arise during the period, the Partnership's hedging strategies at the time and commodity prices at the time.

Item 4. Controls and Procedures

Under the supervision and with the participation of the Managing General Partner's management, including the Managing General Partner's Chief Executive Officer and Chief Financial Officer, the Managing General Partner has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Exchange Act Rule 13a-14(c)) as of the end of this fiscal quarter, and, based on their evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective in all material respects, including those to ensure that information required to be disclosed in reports filed or submitted under the Securities Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the Commission's rules and forms, and is accumulated and communicated to management, including the Managing General Partner's Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely disclosure. There have been no significant changes in our internal control or in other factors that have materially affected or are reasonably likely to materially affect these controls that occurred during the Partnership's last fiscal quarter and subsequent to the date of their evaluation.

 

 

-8-

CONFORMED COPY

PART II - OTHER INFORMATION

 

Item 1.     Legal Proceedings

            None.

Item 6.    Exhibits and Reports on Form 8-K

           (a) Exhibits

Exhibit Name

Exhibit

Number

 
     

Rule 13a-14(a)/15d-14(a) Certifications by

 Chief Executive Officer

31.1

 

Rule 13a-14(a)/15d-14(a)Certification by

 Chief Financial Officer

31.2

 

Section 1350 Certifications by Chief Executive Officer

32.1

 
     

Section 1350 Certifications by Chief Financial Officer

32.2

 

 

           (b) No reports on Form 8-K have been filed during the quarter ended

                June 30, 2004.

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.

 

PDC 1996-D Limited Partnership

(Registrant)


By its Managing General Partner

Petroleum Development Corporation

   
   



Date: August 5, 2004

/s/ Steven R. Williams

Steven R. Williams

President

   
   



Date: August 5, 2004

/s/ Darwin L. Stump

Darwin L. Stump

Chief Financial Officer

 

 

 

 

-9-