UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

S QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

 

OR

 

£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________to ____________

  

Commission File No. 333-85994

 

MEWBOURNE ENERGY PARTNERS 02-A, L.P. 

 

Delaware		71-0871949
(State or jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
3901 South Broadway, Tyler, Texas		75701
(Address of principal executive offices)		(Zip code)
Registrant’s Telephone Number, including area code:	(903) 561-2900

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):

 

	Large accelerated filer  ¨		Accelerated filer  £
	Non-accelerated filer    £	(Do not check if a smaller reporting company)	Smaller reporting company S

 

Indicate by check mark if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No S

 

MEWBOURNE ENERGY PARTNERS 02-A, L.P.
INDEX
Part 1  -  Financial Information				Page  No.
	Item 1.  Financial Statements
		Condensed Balance Sheets -
			September 30, 2013  (Unaudited) and December 31, 2012	3
		Condensed Statements of Operations (Unaudited)-
			For the three months ended September 30, 2013 and 2012
			and the nine months months ended September 30, 2013 and 2012	4
		Condensed Statement of Changes In Partners' Capital (Unaudited) -
			For the nine months ended September 30, 2013	5
		Condensed Statements of Cash Flows (Unaudited) -
			For the nine months ended September 30, 2013 and 2012	6
		Notes to Condensed Financial Statements		7
	Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations			9
	Item 3.  Quantitative and Qualitative Disclosures about Market Risk			12
	Item 4.  Disclosure Controls and Procedures			12
Part II  -  Other Information
	Item 1.  Legal Proceedings			13
	Item 6.  Exhibits and Reports on Form 8-K			13

 

 

MEWBOURNE ENERGY PARTNERS 02-A, L.P.

 

Part I - Financial Information

 

Item 1.  Financial Statements

 

CONDENSED BALANCE SHEETS 

 

		September 30, 2013				December 31, 2012
		(Unaudited)
ASSETS
Cash		$	1,720			$	448
Accounts receivable, affiliate			134,345				130,161
Prepaid state taxes			4,838				2,481
Total current assets			140,903				133,090
Oil and gas properties at cost, full-cost method			17,304,879				17,302,828
Less accumulated depreciation, depletion,
amortization and impairment			(14,983,194	)			(14,881,637	)
			2,321,685				2,421,191
Total assets		$	2,462,588			$	2,554,281
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable, affiliate		$	44,235			$	80,481
Total current liabilities			44,235				80,481
Asset retirement obligation			551,890				534,496
Partners' capital			1,866,463				1,939,304
Total liabilities and partners' capital		$	2,462,588			$	2,554,281

 

The accompanying notes are an integral part of the financial statements. 

 

  

MEWBOURNE ENERGY PARTNERS 02-A, L.P.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

		For the								For the
		Three Months Ended								Nine Months Ended
		September 30,								September 30,
		2013					2012				2013				2012
Revenues:
Oil sales		$	60,404			$	44,504			$	105,907			$	128,099
Gas sales			149,810				144,841				491,666				420,066
Total revenues			210,214				189,345				597,573				548,165
Expenses:
Lease operating expense			105,942				97,231				322,452				290,261
Production taxes			12,442				9,695				36,574				32,320
Administrative and general expense			10,776				12,464				41,740				43,811
Depreciation, depletion, and amortization			31,458				42,221				100,545				112,329
Asset retirement obligation accretion			5,504				5,280				16,488				15,840
Total expenses			166,122				166,891				517,799				494,561
Net income		$	44,092			$	22,454			$	79,774			$	53,604
Basic and diluted net income per
partner interest
(16,072 interests outstanding)		$	2.74			$	1.40			$	4.96			$	3.34

 

The accompanying notes are an integral part of the financial statements. 

 

MEWBOURNE ENERGY PARTNERS 02-A, L.P.
CONDENSED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
For the nine months ended September 30, 2013
(Unaudited)

 

			Partners' Capital
Balance at December 31, 2012		$	1,939,304
Cash distributions			(152,615	)
Net income			79,774
Balance at September 30, 2013		$	1,866,463

 

The accompanying notes are an integral part of the financial statements.  

MEWBOURNE ENERGY PARTNERS 02-A, L.P.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Nine Months Ended
		September 30,
		2013				2012
Cash flows from operating activities:
Net income		$	79,774			$	53,604
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion, and amortization			100,545				112,329
Asset retirement obligation accretion			16,488				15,840
Changes in operating assets and liabilities:
Accounts receivable, affiliate			(4,184	)			15,409
Prepaid state taxes			(2,357	)			2,755
Accounts payable, affiliate			(36,246	)			49,911
Net cash provided by operating activities			154,020				249,848
Cash flows from investing activities:
Purchase and development of oil and gas properties			(133	)			(34,663	)
Net cash used in investing activities			(133	)			(34,663	)
Cash flows from financing activities:
Cash distributions to partners			(152,615	)			(215,117	)
Net cash used in financing activities			(152,615	)			(215,117	)
Net increase in cash			1,272				68
Cash, beginning of period			448				1,594
Cash, end of period		$	1,720			$	1,662
Supplemental Cash Flow Information:
Non-cash changes to net oil & gas properties related to
asset retirement obligation liabilities		$	906			$	—

 

The accompanying notes are an integral part of the financial statements. 

 

  

MEWBOURNE ENERGY PARTNERS 02-A, L.P. 

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

1. Description of Business 

 

Mewbourne Energy Partners 02-A, L.P. (the “Registrant” or the “Partnership”), a Delaware limited partnership, is engaged primarily in oil and gas development and production in Texas, Oklahoma, and New Mexico, and was organized on February 27, 2002. The offering of limited and general partnership interests began June 26, 2002 as a part of an offering registered under the name Mewbourne Energy Partners 02-03 Drilling Program, (the “Program”), and concluded October 10, 2002, with total investor contributions of $16,072,000 originally being sold to 647 subscribers of which $14,667,000 were sold to 597 subscribers as general partner interests and $1,405,000 were sold to 50 subscribers as limited partner interests. During 2004, all general partner equity interests were converted to limited partner equity interests. In accordance with the laws of the State of Delaware, Mewbourne Development Corporation (“MD”), a Delaware Corporation, has been appointed as the Partnership’s managing general partner. MD has no significant equity interest in the Partnership. 

 

2. Summary of Significant Accounting Policies 

 

Reference is hereby made to the Registrant’s Annual Report on Form 10-K for 2012, which contains a summary of significant accounting policies followed by the Partnership in the preparation of its financial statements. These policies are also followed in preparing the quarterly report included herein.

 

In the opinion of management, the accompanying unaudited financial statements contain all adjustments of a normal recurring nature necessary to present fairly our financial position, results of operations, cash flows and partners’ capital for the periods presented. The results of operations for the interim periods are not necessarily indicative of the final results expected for the full year. 

 

3. Accounting for Oil and Gas Producing Activities 

 

The Partnership follows the full-cost method of accounting for its oil and gas activities. Under the full-cost method, all productive and non-productive costs incurred in the acquisition, exploration and development of oil and gas properties are capitalized. Depreciation, depletion and amortization of oil and gas properties subject to amortization is computed on the units-of-production method based on the proved reserves underlying the oil and gas properties. At September 30, 2013 and 2012, all capitalized costs were subject to amortization. Proceeds from the sale or other disposition of properties are credited to the full cost pool. Gains and losses on the sale or other disposition of properties are not recognized unless such adjustments would significantly alter the relationship between capitalized costs and the proved oil and gas reserves. Capitalized costs are subject to a quarterly ceiling test that limits such costs to the aggregate of the present value of future net cash flows of proved reserves and the lower of cost or fair value of unproved properties. There were no cost ceiling write-downs for the nine months ended September 30, 2013 or 2012.

 

 

4. Asset Retirement Obligations

 

The Partnership has recognized an estimated asset retirement obligation liability (ARO) for future plugging and abandonment costs. A liability for the estimated fair value of the future plugging and abandonment costs is recorded with a corresponding increase in the full cost pool at the time a new well is drilled. Depreciation expense associated with estimated plugging and abandonment costs is recognized in accordance with the full cost methodology. 

 

The Partnership estimates a liability for plugging and abandonment costs based on historical experience and estimated well life. The liability is discounted using the credit-adjusted risk-free rate. Revisions to the liability could occur due to changes in well plugging and abandonment costs or well useful lives, or if federal or state regulators enact new well restoration requirements. The Partnership recognizes accretion expense in connection with the discounted liability over the remaining life of the well.

 

A reconciliation of the Partnership’s liability for well plugging and abandonment costs for the nine months ended September 30, 2013 and the year ended December 31, 2012 is as follows:

 

	September 30,				December 31,
	2013				2012
Balance, beginning of period	$	534,496			$	513,376
Liabilities incurred		3,954				—
Liabilities reduced due to settlements		(3,048	)			—
Accretion expense		16,488				21,120
Balance, end of period	$	551,890			$	534,496

 

5. Related Party Transactions 

 

In accordance with the laws of the State of Delaware, Mewbourne Development Corporation (“MD”), a Delaware Corporation, has been appointed as the Partnership’s managing general partner. MD has no significant equity interest in the Partnership. Mewbourne Oil Company (“MOC”) is operator of oil and gas properties owned by the Partnership. Mewbourne Holdings, Inc. is the parent of both MD and MOC. Substantially all transactions are with MD and MOC. 

 

In the ordinary course of business, MOC will incur certain costs that will be passed on to owners of the well for which the costs were incurred. The Partnership will receive their portion of these costs based upon their ownership in each well incurring the costs. These costs are referred to as operator charges and are standard and customary in the oil and gas industry. Operator charges include recovery of gas marketing costs, fixed rate overhead, supervision, pumping, and equipment furnished by the operator, some of which will be included in the full cost pool pursuant to Rule 4-10(c)(2) of Regulation S-X. Services and operator charges are billed in accordance with the program and partnership agreements.

 

In accordance with the Partnership agreement, during any particular calendar year the total amount of administrative expenses allocated to the Partnership by MOC shall not exceed the greater of (a) 3.5% of the Partnership’s gross revenue from the sale of oil and natural gas production during each year (calculated without any deduction for operating costs or other costs and expenses) or (b) the sum of $50,000 plus .25% of the capital contributions of limited and general partners.

 

 

The Partnership participates in oil and gas activities through the Program. The Partnership and MD are the parties to the Program, and the costs and revenues are allocated between them as follows:

 

			Partnership		MD
Revenues:
	Proceeds from disposition of depreciable and depletable properties		60%		40%
	All other revenues		60%		40%
Costs and expenses:
	Organization and offering costs (1)		0%		100%
	Lease acquisition costs (1)		0%		100%
	Tangible and intangible drilling costs (1)		100%		0%
	Operating costs, reporting and legal expenses, general and
	administrative expenses and all other costs		60%		40%

 

(1)

Pursuant to the Program, MD must contribute 100% of organization and offering costs and lease acquisition costs which should approximate 30% of total capital costs. To the extent that organization and offering costs and lease acquisition costs are less than 30% of total capital costs, MD is responsible for tangible drilling costs until its share of the Program’s total capital costs reaches approximately 30%. The Partnership’s financial statements reflect its respective proportionate interest in the Program.

 

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

 

Liquidity and Capital Resources

 

Mewbourne Energy Partners 02-A, L.P. was formed February 27, 2002. The offering of limited and general partnership interests began June 26, 2002 and concluded October 10, 2002, with total investor contributions of $16,072,000. During 2004, all general partner equity interests were converted to limited partner equity interests.

 

Future capital requirements and operations will be conducted with available funds generated from oil and gas activities. No bank borrowing is anticipated. The Partnership had net working capital of $96,668 at September 30, 2013.

 

During the nine months ended September 30, 2013, the Partnership made cash distributions to the investor partners in the amount of $152,615 as compared to $215,117 for the nine months ended September 30, 2012. The Partnership expects that cash distributions will continue during 2013 as additional oil and gas revenues are sufficient to produce cash flows from operations. Since inception, the Partnership has made distributions of $21,752,370, inclusive of state tax payments.

 

The sale of crude oil and natural gas produced by the Partnership will be affected by a number of factors that are beyond the Partnership’s control. These factors include the price of crude oil and natural gas, the fluctuating supply of and demand for these products, competitive fuels, refining, transportation, extensive federal and state regulations governing the production and sale of crude oil and natural gas, and other competitive conditions. It is impossible to predict with any certainty the future effect of these factors on the Partnership.

 

 

Results of Operations

 

For the three months ended September 30, 2013 as compared to the three months ended September 30, 2012:

 

		Three Months Ended September 30,
		2013				2012
Oil sales		$	60,404			$	44,504
Barrels produced			603				505
Average price/bbl		$	100.17			$	88.13
Gas sales		$	149,810			$	144,841
Mcf produced			41,553				51,182
Average price/mcf		$	3.61			$	2.83

 

Oil and gas revenues. As shown in the above table, total oil and gas sales increased by $20,869, a 11.0% rise, for the three months ended September 30, 2013 as compared to the three months ended September 30, 2012.

 

Of this increase, $6,083 and $39,684 were due to a rise in the average prices of oil and gas sold, respectively. The average price increased to $100.17 from $88.13 per barrel (bbl) and to $3.61 from $2.83 per thousand cubic feet (mcf) for the three months ended September 30, 2013 as compared to the three months ended September 30, 2012.

 

Also contributing to the increase was $9,817 due to an increase in the volume of oil sold. Volumes rose by 98 bbls for the three months ended September 30, 2013 as compared to the three months ended September 30, 2012

 

Partially offsetting this increase in revenue was a decline of $34,715 due to a decrease in the volume of gas sold. The volume sold decreased by 9,629 mcf for the three months ended September 30, 2013 as compared to the three months ended September 30, 2012.

 

Production taxes. Production taxes during the three month period ended September 30, 2013 increased to $12,442 from $9,695 for the three month period ended September 30, 2012 due to increased oil and gas revenue.

 

Administrative and general expenses. Administrative and general expenses decreased to $10,776 for the three months ended September 30, 2013 from $12,464 for the three months ended September 30, 2012 due to lower general expense for reporting and legal costs.

 

Depreciation, depletion and amortization. Depreciation, depletion and amortization for the three month period ended September 30, 2013 decreased to $31,458 from $42,221 for the three month period ended September 30, 2012. This was due to the net decrease in oil and gas production.

 

 

Results of Operations

 

For the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012:

 

		Nine Months  Ended September 30,
		2013				2012
Oil sales		$	105,907			$	128,099
Barrels produced			1,140				1,408
Average price/bbl		$	92.90			$	90.98
Gas sales		$	491,666			$	420,066
Mcf produced			133,371				151,828
Average price/mcf		$	3.69			$	2.77

 

Oil and gas revenues. As shown in the above table, total oil and gas sales increased by $49,408, a 9.0% rise, for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012.

 

Of this increase, $2,705 and $139,641 were due to a rise in the average prices of oil and gas sold, respectively. The average price increased to $92.90 from $90.98 per barrel (bbl) and to $3.69 from $2.77 per thousand cubic feet (mcf) for the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012.

 

This increase was partially offset by decreases of $24,897 and $68,041 in the volume of oil and gas sold, respectively. The volume fell by 268 bbls and 18,457 mcf in the nine months ended September 30, 2013 as compared to the nine months ended September 30, 2012.

 

Lease operations. Lease operating expense during the nine month period ended September 30, 2013 rose to $322,452 from $290,261 for the nine month period ended September 30, 2012 due to more well repairs and workovers.

 

Production taxes. Production taxes during the nine month period ended September 30, 2013 increased to $36,574 from $32,320 for the nine month period ended September 30, 2012 due to higher net oil and gas revenue.

 

Administrative and general expenses. Administrative and general expenses fell to $41,740 for the nine months ended September 30, 2013 from $43,811 for the nine months ended September 30, 2012 due to decreased administrative expenses allocable to the Partnership.

 

Depreciation, depletion and amortization. Depreciation, depletion and amortization for the nine month period ended September 30, 2013 decreased to $100,545 from $112,329 for the nine month period ended September 30, 2012. This was due to the net decrease in oil and gas production.

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

1. Interest Rate Risk

 

The Partnership Agreement allows borrowings from banks or other financial sources of up to 20% of the total capital contributions to the Partnership without investor approval. Should the Partnership elect to borrow monies for additional development activity on Partnership properties, it will be subject to the interest rate risk inherent in borrowing activities. Changes in interest rates could significantly affect the Partnership’s results of operations and the amount of net cash flow available for partner distributions. Also, to the extent that changes in interest rates affect general economic conditions, the Partnership will be affected by such changes. 

 

2. Commodity Price Risk

 

The Partnership does not expect to engage in commodity futures trading or hedging activities or enter into derivative financial instrument transactions for trading or other speculative purposes.  The Partnership currently expects to sell a significant amount of its production from successful oil and gas wells on a month-to-month basis at market prices. Accordingly, the Partnership is at risk for the volatility in commodity prices inherent in the oil and gas industry, and the level of commodity prices will have a significant impact on the Partnership’s results of operations. For the nine months ended September 30, 2013, a 10% change in the price received for oil and gas production would have had an approximate $60,000 impact on revenue. 

 

3. Exchange Rate Risk 

 

The Partnership currently has no income from foreign sources or operations in foreign countries that would subject it to currency exchange rate risk. The Partnership does not currently expect to purchase any prospects located outside of either the United States or United States coastal waters in the Gulf of Mexico.  

Item 4. Disclosure Controls and Procedures

 

MD maintains a system of controls and procedures designed to provide reasonable assurance as to the reliability of the financial statements and other disclosures included in this report, as well as to safeguard assets from unauthorized use or disposition. MD’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the design and operation of its disclosure controls and procedures with the assistance and participation of other members of management. Based upon that evaluation, MD’s Chief Executive Officer and Chief Financial Officer concluded that its disclosure controls and procedures are effective for gathering, analyzing and disclosing the information the Partnership is required to disclose in the reports it files under the Securities Exchange Act of 1934 within the time periods specified in the SEC’s rules and forms. Since MD’s December 31, 2012 annual report on internal control over financial reporting, and for the quarter ended September 30, 2013, there have been no changes in MD’s internal controls or in other factors which have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.

 

 

Part II – Other Information

  

Item 1. Legal Proceedings

 

From time to time, the Registrant may be a party to certain legal actions and claims arising in the ordinary course of business. While the outcome of these events cannot be predicted with certainty, the Partnership does not expect these matters to have a material effect on its financial position or results of operations.

  

Item 6. Exhibits and Reports on Form 8-K

 

		(a)	Exhibits filed herewith.
			31.1	Certification of CEO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
			31.2	Certification of CFO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
			32.1	Certification of CEO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
			32.2	Certification of CFO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
			101	The following materials from the Partnership's Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Balance Sheets, (ii) the Condensed Statements of Operations, (iii) the Condensed Statements of Cash Flows, (iv) the Condensed Statement of Changes in Partners’ Capital and (v) related notes.
		(b)	Reports on Form 8-K
			None.

 

 

SIGNATURES 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. 

 

	Mewbourne Energy Partners 02-A, L.P.
	By:	Mewbourne Development Corporation
		Managing General Partner

 

Date:	November 14, 2013
		By:	/s/ Alan Clark
			Alan Clark, Treasurer and Controller

 

 

INDEX TO EXHIBITS

 

EXHIBIT
NUMBER	DESCRIPTION
31.1	Certification of CEO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
31.2	Certification of CFO Pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
32.1	Certification of CEO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
32.2	Certification of CFO Pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
101	The following materials from the Partnership's Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Balance Sheets, (ii) the Condensed Statements of Operations, (iii) the Condensed Statements of Cash Flows, (iv) the Condensed Statement of Changes in Partners’ Capital and (v) related notes.